Last month we wrote about the history of local startups that were formed during a recession and went on to success, including local unicorn Jamf. The conversation quickly turned to what that means for founders and investors.

Starting Up in a Downturn

The idea is that while many startups are beat down by strong headwinds, those that are resilient and adapt to stay aloft are better-positioned to take off post-recession. The local, successful startups that have come out of downturns offer compelling evidence to support this idea proposed by Rob Weber.

Lee Schafer delved into the topic in his Star Tribune article, “Can a downturn actually be the right time to start a business?” and spoke with Scott Burns, CEO of Structural and former CEO of GovDelivery.

Managing Partner Rob Weber’s own previous company, NativeX, was a startup success that came out of a recession.

Scott agrees that it’s probably true that “what doesn’t kill you makes you stronger”, but he doesn’t think that it’s better to start in a recession. Specifically, he laments the opportunities lost that he didn’t pursue when they presented themselves.

“When CEO of GovDelivery during trying times, he said, ‘we were so beat up we lost our ability to move fast when the opportunities did arrive.’”

Investing During a Downturn

Few people would disagree with Scott that running a startup during a recession is a difficult position. Being a startup founder is incredibly tough even in easy times. But if founders can run lean and stay agile, they might come out of the pressure cooker with a proven, capital-efficient business.

In the Midwest, capital efficiency is already a necessity for startups. We have 10% of US venture-backed startups, but only 5% of funding. For investors, this can mean attractive returns on investments. Specifically, a 5.17x median MOIC (Multiple on Invested Capital).

There is opportunity to be found in a recession. The next GovDelivery, NativeX, and Jamf could be out there right now.

The trick is to keep yourself willing and able to move on those opportunities when they arrive.

Events

Here are some interesting upcoming events. They are all virtual.

Sept. 7-25th is Twin Cities Startup Week (TCSW). The biggest annual tech startup event in Minnesota is spread over a month with sessions, networking, and education for founders, investors, and innovation-minded professionals.This is a can’t-miss!

Sept. 12th- Nov. 17th is Course 03: The Lean Startup. This is Course 3 in the Startup School offering from Great North Labs, ILT Studios, LaunchMN, and Red Wing Ignite. MN Founders, apply by Sept. 2nd to the Southeast MN cohort or the Central MN cohort.

Sept. 16th is BETA Showcase. The Showcase is a highlight of Twin Cities Startup Week, featuring tech startups from the Fall BETA Cohort as well as Greater Minnesota.

Sept. 23rd is BETA Backers. Part of Twin Cities Startup Week, BETA Backers is a matchmaking event between Minnesota based startups that are currently fundraising and investors that are looking for companies to invest in.

Sept. 24th is the Minnesota Startup Awards. Capping off Twin Cities Startup Week is the Minnesota Startup Awards ceremony, co-hosted by TCSW and Tech.MN.

Oct. 1st, Flyover Tech Fest. This is a Midwest-centric event for tech startups seeking support, development, and funding.

Portfolio News

Allergy Amulet is new to the Great North Labs portfolio! Allergy Amulet is a fast & portable food allergen & ingredient sensor. The wearable device is paired with test strips, and is the world’s smallest & fastest consumer food allergen sensor. Read more at Crunchbase.

“Indeed acquires recruiting process automation platform ZapInfo”. Jobs site Indeed has acquired ZapInfo!

“Misty the robot graces Fierce AI Week in engineering”. Misty demonstrated it’s use as a temperature screening assistant for COVID-19.

“PrintWithMe Announces National Partnership With RangeWater Real Estate”. PrinWithMe has partnered with a manager of 50,000+ multifamily housing units.

“Pitchly completes $2.5 million investment round”. Pitchly has completed a $2.5M capital raise.

Job Board

Dispatch is hiring a Business Development Representative, Data Engineer, and Quality Assurance Engineer in Bloomington, MN; a remote Ruby Developer. They are also hiring Territory Sales Managers in Albuquerque,NM; Denver, CO; Phoenix, AZ; Portland, OR; Salt Lake City, UT; Seattle, WA; and Tucson, AZ.

FactoryFix is hiring a Team Lead – Full Stack Developer, Full Stack Developer, and Infrastructure Developer- DevOps in Madison, WI; and a Sales Development Representative in Chicago, IL, Indianapolis, IN, or Madison, WI.

PrintWithMe is hiring a Regional Sales Director on the East Coast; AR/AP Specialist, Inside Sales Executive in Chicago, IL; Customer Service Representative, Marketing Director, and a Fall 2020 Strategy Intern (MBA) for Remote work.

Parallax is hiring a Growth/Experienced Business Development Representative in Minneapolis, MN; Experienced Product Designer, and Head of Customer Success & Product Ownership in Edina, MN.

Branch is hiring a Data Platform Manager, Senior Backend Engineer, Senior Software Engineer, Customer Success Manager, Customer Support Rep, and Fraud Agent in Minneapolis, MN.

Inhabitr is hiring a Chief Growth Officer/Head of B2C Growth, and a Sales and Customer Experience Associate in Chicago, IL.

Clinician Nexus is hiring for Customer Support I in Minneapolis, MN.

NoiseAware is hiring a COO, VP of Global Sales & Account Management, Embedded Developer, QA Technician (independent contractor), Account Manager, and a Customer Advocate in Dallas, TX.

There is a history of successful tech companies in Minnesota founded during recessions. These resilient startups didn’t just survive- they proliferated under pressure. Jamf, which recently raised $468M in an IPO, is the largest, latest, and highest-profile example. Jamf was founded in 2002 out of UW-Eau Claire, and is headquartered in Minneapolis. Jamf is now valued at $4.7B.

Looking into startups that were founded during recessions, you wouldn’t expect to find a list of successes. But by digging into public data on Crunchbase and in local publications, a surprising number of successful companies emerged that were started up in during the dot-com bust (2000-01), or the Great Recession (2007-2009).

Here are examples of startups founded during recessions in Minnesota, that found success.

Company Name	Description	Year Founded, Names of Founders	Exit/Valuation/Funding Raised*
ProtoLabs	Automated quoting and manufacturing systems to produce commercial-grade plastic, metal, and liquid silicone rubber parts	1999 (significant growth in 2000-2001), Larry Lukis	Successful ~$70M IPO in Feb 2012 with a current Market cap of $3.2B
Modern Survey	Provider of employee survey services. The company provides employee survey and talent analytics service that enables companies to understand their workforce and drive business performance by creating an aggregated, holistic view of the employee lifecycle— from the candidate experience, new employee onboarding to engagement, and exit interviews.	1999 (significant growth in 2000-2001), Don MacPherson and Patrick Riley	Acquired by Aon Hewitt in Feb 2016. Terms were not disclosed.
NativeX (aka W3i and Freeze.com)	PC publishing platform and mobile content and app delivery	2000, Ryan and Rob Weber	We peaked in 2012 at $70 million in revenue and $10 million in EBITDA, with 170+ total employees.
Inbox Dollars	Online rewards club that pays members cash for their online and mobile activities. They reward members for their everyday activities such as reading emails, taking surveys, playing games, and signing up for offers.	2000, Daren Cotter	Acquired by Prodege in May 2019 for an undisclosed amount
Ability Network	Connecting thousands of hospitals, skilled nursing facilities, home health agencies, clinics, and tens of thousands of physicians across the country with each other, and with the nation’s largest payer: Medicare.	2000, Amy Coulter	ABILITY Network was acquired by Inovalon for $1.2B on Mar 7, 2018
GovDelivery	As the number one referrer of traffic to hundreds of government websites, GovDelivery enables public sector organizations to connect with more people and to get those people to take action.	2000, Scott Burns	GovDelivery was sold to Vista Equity Partners in a $153 million deal in Oct 2016
Code42	Code42 provides data loss protection, visibility, and recovery solutions.	2001, Brian Bispala, Matthew Dornquast, Mitch Coopet	Code42 has raised $138M total, through their Series B round in October of 2015
CVRX	Medical device company that develops implantable technology for the treatment of high blood pressure	2001, Robert Kieval	$340.6M total raised in 8 rounds Most recently raised $93M in a Series G in 2019
Jamf	World leader in macOS and iOS management with offices around the world. They deliver, support and service the solution for Apple management needs in education and business.	2002, Zach Halmstad	Raised $468M in 2020 IPO. Current Market cap of $4.7B
Compellent	Develops and provides enterprise storage software and hardware solutions that automate the movement and management of data	2002, Phil Soran	Acquired by Dell in 2010 for $820M cash
DoApp	Mobile ad network and consumer and business app developer for websites, desktops and mobile devices	2007, Joe Sriver	Acquired by Newscycle Solutions (Now Naviga) in 2016 for undisclosed amount
ZipNosis	Hospital and healthcare company that specializes in online diagnosis and triage, telehealth, and virtual care	2008, Jon Pearce	Zipnosis has raised $25M in funding total through a Series B round
Calabrio	Delivers workforce optimization (WFO) and analytics solutions that elevate the customer experience and drive strategic business growth	2008, Brett Shockley	Calabrio was acquired by Kohlberg Kravis Roberts (KKR) in 2016 for $200M
SportsEngine	The leading provider of web software and mobile applications for youth, amateur and professional sports	2008, Carson Kipfer, Greg Blasko, Justin Kaufenberg	Acquired by NBC Sports in 2016 for an undisclosed amount
Field Nation	World’s most active Freelancer Management System (FMS) ensuring successful collaborations in today’s rapidly changing world of work. Field Nation enables companies to find, hire and pay contractors anywhere and easily manage their workforce.	2008, Mynul Khan	Raised a total of $30.2M
HomeSpotter (aka Mobile Realty Apps)	Helps brokerages, agents, and MLSs build relationships amongst one another and with clients. Allow agents to collaborate with ease, work on the go, and increase their productivity. Brokerages and MLSs are better equipped to support and retain agents and help grow their businesses.	2009, Aaron Kardell	HomeSpotter has raised $3.9M in funding

*There are a variety of success metrics, as many valuations and deal terms are not made public, and many other companies that haven’t exited and are still operating

You can see that I’m on this list with my brother, Ryan Weber, with our former company NativeX. Several other founders from this list are people we have recruited as operating partners for Great North Labs, such as Joe Sriver, Carson Kipfer, Mitch Coopet, Brian Bispala, Patrick Riley, and Daren Cotter.

Capital Efficiency and Resilience

Resilient startups and founders find ways to adapt, persist, and succeed in spite of the challenges they face. The startups on this list found success coming out of challenging times with limited capital availability.

Across the entire Midwest, both the quantity and value of early-stage deals went down during the past two recessions. You can see in the chart below that the dot-com bust in the late 90s led funding to drop off a cliff, with a long climb back up hindered by the Great Recession in 2008-2009.

We live in a region where startups have to be capital efficient. We simply don’t have the amount of early-stage capital other regions get. This leads to more competition for capital, and to higher capital-efficiency among startups.

“This is good news for investors, as the returns in the Midwest are more favorable for investors compared to investing in VC in other regions.”

While that means the Midwest’s 10% of VC-backed startups receive under 5% of funding, it also means that the Midwest startups that make it to exit return the highest median multiple on investment (5.17x). This is good news for investors, as the returns in the Midwest are more favorable for investors compared to investing in VC in other regions. But, it puts greater demands on early-stage startup operators, who need to operate in a way where they can maximize their chances of success with the capital available.

How do you Scale Resilience?

Great North Labs’s approach to early-stage investing includes cultivating resilience in the regional startup ecosystem, identifying it in opportunities, and developing it into our portfolio startups.

We cultivate resilience in the startup ecosystem by supporting important organizations with our Founder’s Pledge, and teaching disciplined startup methods through our startup school initiative.

When identifying opportunities and developing resilience in portfolio companies, in addition to our own experience, we include resilient founders with startup success in Minnesota and the Upper Midwest as operating partners. We believe that successful founders and operators make the best early stage investors because they’ve had to scale an emerging technology company before. We also believe that the best way for founders to grow is to learn from the experience of others who have been in their shoes.

By having startup operators who have not only been there before with a startup, but have found a way to thrive coming out of tough times, and have done it all in our region, facing the same regional capital availability issues that persist today, are invaluable when it comes to providing guidance for other early-stage founders in Minnesota and the Upper Midwest.

Using this approach Great North Labs is:

Building capacity in Minnesota for developing breakout startup opportunities
Identifying and investing in breakout startups opportunities early on, in Minnesota and the Upper Midwest
Guiding portfolio companies to success using our operating experience and networks, and the operating experience and networks of our operating partners

Our plan and hope is that after the current recessionary period, we will be able to look back over our portfolio companies and at other Minnesota startups fighting through these times, and add many more to this list of successes.