By Rob and Ryan Weber
Where do startups come from, and how can we encourage more of them? Whether you believe in clustering or building a rainforest, one thing is for sure: startups don’t materialize out of nowhere, nor do they always succeed on their own.
Importance of Startups
A healthy local startup ecosystem drives both new startup formation and their chances of success. Unfortunately, according to research available from the Kauffman Foundation on early-stage entrepreneurship, Minnesota is below average on every state-wide indicator.
This is incredibly important because between 1980 and 2010, about half of all jobs created in the US were from high-growth startups. 2.9 million were created per year on average, according to the National Venture Capital Association. In the Upper Midwest, each startup produces approximately 4 jobs in their first year of business.
The Kauffman Early-Stage Entrepreneurship Index is an equally weighted index of four indicators of entrepreneurship activity: rate of new entrepreneurs, opportunity share of new entrepreneurs, startup early job creation, and startup early survival rate. Minnesota ranks 46th. Source: 2018 State Report on Early-Stage Entrepreneurship
Founders Pledge
So how can a cash-strapped startup founder help? Take a Founders Pledge! The Founders Pledge is a popular movement driven by founders around the world. It came about because startups don’t have cash, but have enormous potential for value creation in their equity. Popular options include the Founders Pledge organization, where founders make a pledge of at least 2 percent of their personal proceeds to nonprofits, or Marc Benioff’s Pledge 1% which encourages founders to pledge 1% each of equity, time, product, and profit.
By taking the Founders Pledge, founders align a long-term commitment to do good with the success of their tech startup, and to the success of the entire ecosystem. Imagine if every time a local tech startup exited, that meant money went into local nonprofits?
MN Founders Pledge Challenge
While many startup founders support, actively engage with, and lead local nonprofits, we think it’s also important to support these organizations in a meaningful financial way. Time is an excellent donation, but an equity pledge is meaningful support that creates a shared interest in mutual success.
We believe this is so important that we are challenging other Minnesota startup founders to make a Founders Pledge! All it takes is pledging a percentage of your proceeds to nonprofits. It’s that simple.
Within your first 12-24 months of operation either go through the Founders Pledge, Pledge 1%, or structure your own pledge. We have chosen to structure our own pledge, and are willing to provide advice and referrals to the local legal and accounting professionals who helped us structure our giving.
The Value to Nonprofits
Our own pledge is to give at least 2 percent of our own personal interests from our $23.7M debut venture fund to Minnesota nonprofits. As Great North Labs’s portfolio grows and has exits, our nonprofit partners will benefit alongside our fund’s investors. For example, if a $10,000 equity pledge is made to a nonprofit today, and the fund returns a 5X multiple over its life, the $10,000 pledge will return $50,000 to the nonprofit over the fund’s life. This allows us to support local organizations in a meaningful way without sacrificing liquidity.
The same type of equity multiplier can apply when a founder pledges some of their equity, and it creates the possibility of creating sustaining legacy gifts in the event of large exits. For example, if a company has a $2B exit (like Michigan’s Duo Security in 2018), and a founder with 20% equity has made the Founders Pledge, that is an $8M dollar influx for local nonprofits. While big exits like this are rare, if the Founders Pledge becomes part of our culture in Minnesota and across the Upper Midwest, then large gifts like this become inevitable.
Supporting the Ecosystem
There are many aspects to a productive startup ecosystem, such as access to capital (part of why we founded Great North Labs), that are important. But it’s important to remember that these “aspects” aren’t just monolithic categories to fill in and check off of a list- they are individuals and organizations pursuing their own missions, with their own motivations.
These individuals and organizations are vital parts of the startup ecosystem, and include a variety of people, structures, and missions. While for-profit entities can self-support, nonprofits are dependent on donations.
Nonprofits we Support
As Managing Partners of Great North Labs, we’ve identified several nonprofits that we believe are making an impact not only in the Twin Cities, but in St. Cloud and throughout the entire state. We support them variously with time, cash, and equity pledges. While other founders undoubtedly have different lists of who they find personally impactful, this is ours:
- MN Cup– The largest statewide startup competition in the world. In addition to the prize money they give out to the winners of their program, entrepreneurs receive valuable feedback and support for their new ventures.
- Beta.MN– Beta provides startups with many of the same benefits as a for-equity accelerator (connections to investors, community support, etc.) while not requiring equity from startups that participate.
- Minnestar– Every April, Minnestar organizes the largest bar camp in the world for free, where a community of 30,000+ tech enthusiasts participate in learning sessions on a variety of topics from leading practitioners. They also organize free demo events where many of our top local startups have provided their first public demo over the years.
- St. Cloud State University Foundation– We built our first startup while attending school at St. Cloud State. Our professors took an active role in mentoring us during these years, and many of our employees were graduates as well.
- College of Saint Benedict and St. John’s University (for the benefit of the McNeely Center for Entrepreneurship)- Many of our other employees and mentors graduated from this Central Minnesota university. The McNeely Center supports student entrepreneurs, and the university itself has a tremendous track record of celebrating entrepreneurship via their annual alumni award program.
- SingularityU Minneapolis-St. Paul– Ryan is a graduate of the Singularity University Executive Education program and Co-Ambassador of this chapter, which brings educational opportunities around exponential technology to the Twin Cities while promoting local Moonshot startups taking on global problems.
- Centracare Foundation– You can’t start a successful business without taking care of yourself and your employees healthcare needs. The headquarters for our previous company was in St. Cloud/Sartell, and many of our employees had newborns at Centracare or had other types of medical treatment.
- Greater St. Cloud Development Corporation– A major advocate for entrepreneurship in Central Minnesota.
- Silicon North Stars– MN DEED Commissioner Steve Grove and Rise of the Rest Seed Fund/Revolution Partner Mary Grove started Silicon North Stars to promote technology careers for a more diverse set of students in the Twin Cities.
A Virtuous Cycle
Together, our equity donations will provide considerable upside to the nonprofits over the long run as our startups go on to create immense value, growing the startup ecosystem and not only benefitting local job growth and creation, but also making the next generation of startups more likely to succeed.
Once the Founders Pledge becomes part of the culture of the startup community, it will create a virtuous cycle of success.
If you are a founder who would like to make a similar commitment, feel free to contact us, or tweet @greatnorthlabs with #MNFoundersPledge. We can offer advice on making the commitment and professional referrals for legal and accounting.
The environment is ripe and the ecosystem is ready, and it’s time that this popular movement started spreading through Minnesota and the Upper Midwest!
