The University of Minnesota is embracing startup culture across disciplines and producing results in the number of founders, tech talent, and startups. One of the top universities in the country with enrollment regularly over 50k, a system-wide endowment of nearly $4B, and over $1B spent annually on research and development, it’s incredibly important for the cultivation of early-stage tech startups in Minnesota and the Upper Midwest. Because of this alignment, Great North Labs engages with the U of M in several ways.
How the U of M is Engaging
John Stavig is a leader in the tech startup community. The managing director of the Gary S. Holmes Center for Entrepreneurship, Stavig teaches entrepreneurship courses and leads the Center. He helped launch one of the first student-run VC funds in the world, Atland Ventures, with David Russick.
Stavig has opened the doors to the Carlson School of Management for events and educational opportunities that benefit both students and startup community members. Great North Labs’s Ryan Weber has taught Lean Startup boot camps out of Carlson, at Stavig’s invitation, reaching ~50 students with our Startup School. Ryan has also guest lectured in the Applied Technology Entrepreneurship course on conducting market research and fundraising.
MN Cup is elevating the entire startup scene. MN Cup has become the largest statewide startup competition in the country. MN Cup takes no equity, is totally free, and distributes half a million dollars in seed funding to their startup participants. The exposure, funding, and recognition they receive is unparalleled in Minnesota. Some of the biggest startups to come out of the competition are:
- Sezzle- 2016 High Tech Division winner
- Stemonix- 2016 Grand Prize Winner
- Kipsu- 2015 Finalist
- 75F- 2014 Grand Prize Winner
- WhenIWork- 2013 High Tech Division Winner
- Foodsby- 2013 Semifinalist
Donors like the Carlson Family Foundation enable Director Jessica Berg to make MN Cup possible. The competition grows bigger every year through their support and efforts. Great North Labs’s Rob Weber judges every year in the High Tech division, and can attest to the increasing quality of startups. Great North has invested in two MN Cup alumni to date, Plyo (2018 Student Division Winner) and TeamGenius (2017 Semifinalist).
Atland Ventures provides students real VC experience. Atland is the first-of-its-kind, student-run venture fund, investing in companies that leverage disruptive tech. Originally founded in 2016 by four students, Atland has invested in a dozen companies, including two in the Great North Labs portfolio, Structural and Dispatch. Atland is an independent company, not a student organization, and students can actually see profits from their efforts if the fund succeeds. Their faculty support is from Stavig, David Russick, founder of Gopher Angels, and Raj Singh, Assistant Dean of Undergraduates at Carlson.
The limited partners include some of the most active local early-stage investors, including our partners Ryan and Rob Weber. Rob also serves as a mentor, and has recruited past Atland directors and managing partners to expand on their practical experience by interning at Great North Labs. The experience students gain at a working venture capital fund is a tremendous benefit in an industry that is notoriously hard to get in, and several have gone on to land jobs at startups and venture funds.
The U of M has a proliferation of startup support efforts across disciplines. Venture Builders, Grow North, MIN-Corps, WE at the Holmes Center; the Venture Center, MNBridge, and the Discovery Capital Program at University of Minnesota Technology Commercialization, are among the additional efforts to cultivate and support startups.
One example of the results of this multi-disciplinary collaboration is a startup we recently looked at called Grip Molecular Technologies. Grip is a cutting-edge startup using novel nanomaterials in an electronic biosensor to provide medical diagnostics. Not only are 2 different research scientists on the team from the U of M, but also a marketing executive.
Results by the Numbers
Since 2006, the U of M has launched over 165 startups. They have attracted over $1.15B in capital, and 7 have gone public since 2017. Investors can track U of M startups as they develop, through an online Startup Pipeline.
The U of M is ranked #18 for Global MBA programs in Entrepreneurship, with the largest statewide startup competition in the country, and 260 mentors providing guidance. Countless students have gone on to lead or work in startups.
In the Great North Labs portfolio, startups employ over 63 U of M alumni. That averages to nearly 2 U of M alumni for every startup we have invested in!
Why It Matters
The University of Minnesota is embracing startup culture across disciplines, and is contributing to the growth and development of talent, capital, and support necessary to early-stage startups in the region. This enables digital transformation and innovation across sectors. We are aligned with this approach, and work with the U of M to realize economic value creation in Greater MN, Minnesota, and across the Upper Midwest.
While people and companies capture headlines with big funding rounds, IPOs, and acquisitions, much of the work the U of M is doing is out of the spotlight. The truth is that the university is plugged in and making a difference in the startup ecosystem.
We’ve seen it firsthand, working with the administrators, the organizations, the faculty, and the students. And with leaders like Stavig, Berg, Russick, and the Carlson Family, the impact is only going to grow.
On July 4th, 239 years ago, a group of entrepreneurs, visionaries, and leaders came together to free themselves from a politically oppressive system that they found socially and economically limiting. The country they founded promised life, liberty and the pursuit of happiness- free from tyranny and organized in a way “most likely to effect their Safety and Happiness”.
The American Dream is one of a meritocracy- work hard and be rewarded. This remains a dream for many who are hobbled by systemic barriers. Their success isn’t solely dependent on their talents and hard work, but on factors outside of their control like where they are born, who their parents are, and what color their skin is.
The murder of George Floyd has exposed some of these barriers in a horrifying way. Not all people are safe and happy. Many are being denied the pursuit of happiness, liberty, and their very lives. For these citizens, our country isn’t a meritocracy. For these citizens, our country isn’t living up to its founding principles.
As entrepreneurs and investors, we characterize the issues in terms we can understand and work with. We see the root problem as economic deprivation. Existing inequalities are the symptoms of this problem, and the solution is to give everyone a fair chance to succeed. That’s why our team works to provide equitable opportunities for success through charitable giving, training, and mentorship. We help entrepreneurs to have a chance at success, and we put in the effort to make it happen.
As a venture fund we have only one KPI: returns. Our investing is driven by profits for shareholders. We make investments almost exclusively off referrals- from our advisors, investors, other funds and ecosystem partners. While we believe our efforts are equitable, we don’t currently measure demographics in our deal pipeline. In the words of Peter Drucker, “you can’t manage what you can’t measure”.
So moving forward, as we log opportunities for observation and investment consideration, we will be tracking demographic profiles of the founding teams. We will also be tracking demographic profiles in our startup school initiative. These measurements will allow us to ensure that we are seeing opportunities from a representative sample of our region’s population. The data will guide the creation of specific action plans to improve the equity of our investment pipeline wherever necessary, so that we can be held accountable to providing fair access to our capital pipeline, our mentorship, and training initiatives.
We aren’t focused on the short-term. This is a marathon, not a sprint. Here in the upper Midwest, we are contributing to a cycle of growth by building capacity in the innovation ecosystem. The cycle includes not only harvesting profits, but cultivating startups. And by making this cycle accessible, by sharing the plans and the keys to growth engines with underserved communities, we can catalyze the generational change necessary to truly impact disadvantaged people in the region for the next 239 years.
Summer is in full swing. After the 4th, check out these events.
- July 8th is the deadline to apply for MinneDemo 34, in Minneapolis, MN. Minnestar’s regular demo time for Twin Cities makers will be held in early August, on a day TBD.
- July 9th is the OnRamp Agriculture Conference. The OnRamp Agriculture Conference brings together the agriculture and food industries’ leading corporations, investors and startups. The conference highlights innovations disrupting agriculture and the future of food, the leaders making such innovations possible and how new technologies and business models will reinvent the industry. You can connect with Ryan Weber at the event.
- Aug. 12th is the virtual OnRamp Healthcare Conference. “The conference highlights innovations disrupting health care and the future of medicine, the health care leaders making such innovations possible and how new technologies and business models will reinvent the industry.”
- Aug. 13-20th is ForwardFest in Madison, WI. “Join fellow entrepreneurs, nerds, geeks, hackers, foodies, and creatives from the Midwest in an 8-day celebration of innovation and entrepreneurship.”
Misty Robotics has developed a new skill for the robot, “Misty”, that turns it into a Temperature Screening Assistant. The skill turns Misty into an autonomous, customizable, user-friendly solution for touchless COVID-19 screening.
Great North Labs has added a Venture Analyst to the team! Emily Shirley is a graduate of Miami University’s Finance and Entrepreneurship program. While at Miami University, Emily co-founded the Social Impact Fund, first undergraduate-led social impact fund in the country. Her recent experience includes as a Strategic Account intern at Cintrifuse.
Dispatch is hiring Product Manager, Product Owner, and Quality Assurance Engineer in Bloomington, MN. Territory Sales Manager positions are open in Atlanta, Kansas City, Memphis, Milwaukee, Nashville, St. Louis, and Minneapolis.
FactoryFix is hiring a Team Lead – Full Stack Developer, Full Stack Developer, and Infrastructure Developer- DevOps in Madison, WI; a Recruiter, and Business Development Rep in Chicago, IL.
PrintWithMe is hiring a Regional Sales Director on the East Coast; a Software Engineer, Summer Strategy Intern (MBA), Summer Strategy Intern (undergraduate), AR/AP Specialist, Account Manager, and Recruiter for Remote work.
Parallax is hiring for Growth/Customer Acquisition in Minneapolis, MN.
Clinician Nexus is hiring a Product Manager in Minneapolis or Remote.
NoiseAware is hiring a COO, VP of Global Sales & Account Management, Product Marketing Manager, UI/UX Designer, Account Manager, and Customer Advocate in Dallas, TX.
With unemployment soaring, small businesses shuttering, and even some large chains withholding rent, the effects of the COVID-19 pandemic are reverberating through our communities. Many people wait on relief from the government in the form of stimulus payments and unemployment benefits. Businesses scramble to secure emergency loans, payroll support, and new ways to gain revenue. Oftentimes lost among other dire news is the plight of nonprofits and charities, who languish as donations dry up and revenue-producing events are put on hold.
Cash and Equity Giving
Jack Dorsey’s $1 billion equity pledge is an eye-catching reminder of how important it is to support these causes and organizations now if you are able to. Many are dependent on revenue from events that can’t happen and donations from disposable income that has evaporated. Our Founders Pledge is built on the idea of baking giving into your venture as part of your short-term and long-term financial plans, to support your community, and to support the organizations that support you with a mix of cash and equity giving.
One nonprofit that can use your support at this time is the CentraCare Foundation. From now until May 30th, your donation to the COVID-19 Emergency Response Fund will be doubled, due in part to a gift from our partners Ryan and Rob Weber.
Time and Effort Giving
During this time many businesses and leaders have risen to the challenge to support their communities through non-cash/non-equity donations. Our portfolio companies are also active in the fight, supporting local businesses, hospitals, and healthcare workers on the frontline. Here are four examples of their work.
1. Dispatch launched same day delivery for local businesses. This service aims to help alleviate supply chain difficulties during the pandemic
2. 2ndKitchen launched a new service to offer delivery for bars and breweries. This is a lifeline for these businesses when they have to be closed, with 2go allowing bars and breweries to sell beer, food, and merchandise for pickup or delivery- for free.
Clinician Nexus partnered with MN COVIDsitters to provide the technology platform that connects volunteer medical students with healthcare workers to provide free childcare during the pandemic.
4. PrintWithMe is holding a Face Mask Drive. The face masks, unused N95 masks as well as simple surgical masks, are being supplied to Chicago-area hospitals.
Giving for a Better Future
In consideration of the pandemic, the Webers have expanded the list of colleges they support to include North Hennepin Community College (NHCC), one of the largest Minnesota State colleges serving a very diverse student body with many low-income students. Ryan and Rob are alumni of NHCC, where they gained the skills that helped them bootstrap their own startup.
The Webers have donated $10,000 to NHCC’s Foundation to directly aid Graphic Design students studying product design, a program they see as well-positioned to fill the large UI/UX design talent gap in Minnesota and the surrounding region. Their support of this program goes beyond money to include volunteering as mentors, promoting awareness of NHCC’s Graphic Design program, and using their networks to help students connect with internships and employment opportunities.
We continue to support and evolve our own educational initiative aimed at filling the gap of disciplined startup education in the region, formerly known as the Great North Labs Startup School. The programming is now known by a variety of names, and collectively as the Lean Startup School. The new iterations have come about by partnering with Red Wing Ignite and ILT Studios. These partners have allowed us to develop the programming as a white-label offering to communities around the state, with a particular emphasis on Greater Minnesota. There are two cohorts currently, in St. Cloud and Red Wing, with more planned for the future.
We will get through this crisis, one way or another. Whether or not the federal government gets behind legislation that supports startups with an influx of capital, such as the New Business Preservation Act, there is a broad community of entrepreneurial support and a healthy, growing startup ecosystem in the region. We will continue to cultivate transformative innovations, successful entrepreneurs, and tech startups in the Upper Midwest!
Valuable startup ecosystem organizations we support include MN Cup, Beta.MN, Minnestar, SCSU University Foundation, College of St. Benedict and St. John’s University, Greater St. Cloud Development Corporation, gBETA Greater MN-St. Cloud, SingularityU Minneapolis-St. Paul, and Silicon North Stars. If you also find them valuable and you are able, please consider giving to them during this time of need!
With approximately 500 attendees, uber-founder and CEO Navroop Sahdev and VP Heidi Cuppari conducted the outstanding The Digital Economist Roundtable at the World Economic Forum 2020 at Davos. Great North Labs was invited to the event to discuss the role of venture capital in economic impact, and I shared the fund’s experience and strategy.
The strategy starts with Fund I. The plan for Fund I is to invest in roughly 30 companies. We anticipate these portfolio companies will raise a total of ~$200M from co-investments as they grow. With that total and, for example, a 500% return over the life of the fund, we would build ~$1B in market value. By motivating LPs with successful exits to reinvest in subsequent funds, this builds a cycle of growth.
In the course of raising and investing Fund I, we gained valuable experience in developing relationships and aligning incentives. Great North Labs built an ecosystem of 200+ investment partners, 60+ advisors, and developed relationships with universities, regional economic development organizations, government, and innovation catalyst organizations such as Singularity University. To develop local talent, we founded a startup school that educated 200+ on startup entrepreneurship, regularly provide office hours and mentorship to entrepreneurs, and worked with, trained, and hired college students.
Regional entrepreneurs prefer to raise money and grow in their communities, and investors prefer to invest within the region where regional VCs are available. By leveraging our foundational work from Fund I, our second fund could bring 2-3X the co-investment dollars and returns. Over 3-4 decades, this is how investors built fortunes and turned the farm economy of Silicon Valley into one of the world’s most prosperous regions.
While continuing to lead and co-invest in Seed Stage through B Rounds in Fund I, we will raise Fund II. This will create investing continuity and maintain dealflow, synchronicity with the local ecosystem, and co-investor relations. By creating a cycle of growth and re-investment, our goal is to create prosperity in a similar fashion as Silicon Valley, here in the Upper Midwest.
UPDATE: Signup here for St. Cloud or Red Wing locations! Or View Course Information.
Greater Minnesota has been underperforming in its formation of new startups. When we founded Great North Labs, we recognized this need, and committed to changing it before the region could fall further behind. We founded a Startup School to provide the educational components that we saw local entrepreneurs were missing. By partnering with Red Wing Ignite and ILT Studios, we will greatly expand our reach, capacity, and educational offering. This co-created, yet-to-be-named, Greater MN Startup School initiative will reach across the state to cultivate founders and startups in areas ready for the impact of entrepreneurial innovation.
The Necessity of Startup Entrepreneurship
From 2000-2017, 52% of companies in the Fortune 500 have either gone bankrupt, been acquired, or ceased to exist. Digital disruption is the primary catalyst of change. Adaptability is key to success. A key to any community, or organization, strengthening its adaptive intelligence is for it to master a disciplined approach to startup entrepreneurship. Disciplined startup entrepreneurship isn’t new but techniques have emerged the past 15 years that emphasize a more agile process for startup entrepreneurship that is needed in an environment with such accelerating changes.
One measure of the strength of startup entrepreneurship in a community is the number of first venture financings that it produces. The Twin Cities (Minneapolis-St. Paul) now have 1% of the countries first venture financings, but Greater Minnesota (generalized as non-urban MN, or specifically as all of Minnesota outside of the Twin Cities region) has lagged behind. Comparing the efficiency –the number of first venture financings per population– of the Twin Cities to the next largest markets in Minnesota is revealing. St. Cloud, Duluth, and Mankato have 50% or lower startup efficiency. Rochester (home of the Mayo Clinic) is a standout, and outperformed with a 200%+ startup efficiency compared to the Twin Cities.
The Need for Startup Education
My twin brother and Great North Labs Partner, Rob Weber, and I have previously angel invested in 25 startups from 2006 to 2017 while scaling our own startup with offices in Silicon Valley and Minnesota. I served for 10+ years as Chief Product Officer, and noticed an inefficiency in the startup teams resulting from a lack of disciplined startup entrepreneurship practices compared to Silicon Valley. I struggled finding Minnesota-based product managers trained in the more adaptive style of product management made popular by lean startups so we invested in developing a common process and trained our team on it.
As investors, too often we’d hear from a founder that they just need $300K to prove out their latest thesis. We’d meet teams that burned through $500K in angel funding that still couldn’t present evidence validating their thesis. This evidence we’d expect a product manager to answer at our company in their first two months of leading a new product idea with nothing more than qualitative research.
For most of the funded startup teams, they were immersed in the market and sought to solve a problem they thought they understood well. However, they usually struggled to identify the problem that’s the most impactful to solve, the minimal viable solution that solves that problems needs, and an offer that communicates the value proposition clearly and for a price the buyer will accept.
The Great North Labs Startup School
Great North Labs was formed in the fall of 2017. In addition to our early-stage venture fund, we started an initiative called the Startup School to invest in strengthening our disciplined startup education in the region. We led a group of practitioners who ran workshops on Digital Transformation, Lean Startups (most frequent), and Agile Development. The free or low-cost workshops attracted over 200 participants through the end of 2019. The workshop materials were also shared with many others and we gave lectures at a number of universities and conferences in cities across the Upper Midwest.
For the Lean Startup Workshop, we found that participants were engaged with low attrition rates and heard from them after the fact as they reported on their progress. We had the Executive Director of a significant non-profit mention using the process to discover a new innovation they were pursuing to commercialize, several tech founders launching their MVPs after researching, and many staying in touch to assist and support each-other but also in some cases joining forces on a startup.
We saw a greater gap in the smaller markets across Minnesota and throughout the Upper Midwest. However, one bright spot was in Iowa. There, the state had invested in programming similar to ours, and had expanded across the state with their Venture School initiative.
The Greater MN Startup School Initiative
We are taking the experience and lessons learned along the way from our initial Startup School, from Iowa’s Venture School, and from other startup education programs to expand our program to our new Greater MN Startup School initiative. This new Startup School will make the skills and training necessary for disciplined startup entrepreneurship more accessible to Minnesota entrepreneurs than ever before. It will also open up networks and possibilities for people across the state that were previously unavailable. Across the state, we hope to see this cultivation of startups drive innovation, economic activity, and value creation.
What: A new set of workshops designed to strengthen the skills in disciplined startup entrepreneurship and provide an applied learning environment that allows founders, and their supporters, to work from idea conception to commercialization.
Participants will learn innovation techniques for identifying, defining, sizing, validating, and commercializing venture scalable startups. There will be new online and in-class programming to help you learn with hands-on practical activities, mentorship, insights, and opportunities to network to help you build confidence in your startup thesis and master the art of gathering feedback, directly from your future customers.
When: The first class for Customer Driven Innovation will run from March-April. The first class for Business Model Foundation will follow in early summer. The first class for The Lean Startup will run from mid to late summer. Web-site registration will be open in February for the classes and we will follow up with additional details.
Where: Red Wing and St. Cloud will offer the same classes in parallel but on different days
Why: To teach participants about design innovation, the Lean Startup process and how to identify, develop, define, validate, finance and commercialize their ideas so they are more successful in developing their own startup as a new company or inside of an existing one.
Earn a certificate for completing each of the programs and strengthen your credentials for a career as a Startup Founder or Product Manager. Initially, three workshops will be offered and each will feature a program certificate for those that successful complete:
Program 1: Customer Driven Innovation – Gain fresh perspective that will expand your thinking and push you to bold new ideas through practice and discussion within the class and interactions with the instructors and classmates. You’ll come up with a number of potential ideas and pick one to develop as a concept pitch.
Program 2: Business Model Foundation – This program builds on the Customer Driven Innovation course to help you form a strong business thesis. Learn to document your initial business plan and quickly analyze it’s potential, advanced customer discovery interview methods, and skills needed to help gather better feedback and ensure you are solving the right problem.
Program 3: The Lean Startup Certificate– This program builds on the Customer Driven Innovation and the Business Model Foundation courses to leverage the creativity and collaboration within a startup team to develop and execute experiments that test your business thesis, synthesis key learnings, and to explore alternative thesis based on those learnings until you find a business thesis that meets your success criteria. This program will culminate with an idea pitch event where an investor panel will award cash prizes to the top pitches.
Building up the Region
The Twin Cities has emerged as a strong startup community in the Upper Midwest. There are parallels between Silicon Valley and the Twin Cities that we can learn from and try to replicate in Greater MN, and potentially the entire Upper Midwest region.
Silicon Valley benefited from an emphasis on experimenting with practical skills in emerging fields, a network of VCs, links with Economic Development Departments, local universities, and local LPs. Our vision is to partner with all the aforementioned entities to serve the entrepreneurs of Greater MN.
While this is our pilot year, we already have interest from a variety of organizations. There is strong demand from around the state. If your community is interested in our program, please contact us, and we can stay connected and help with preparations as we make plans for expansion.
As far as involved organizations go, we’d like to take a moment to thank LaunchMN in particular, for their financial and operational support. This new MN DEED initiative led by Neela Mollgaard has helped make this new Startup School initiative possible.
We have an opportunity now to transform our rural markets into strong startup communities, and improve their resiliency in a world that increasingly requires adaptive intelligence and innovation skills to succeed.
Over 10,700 venture-backed companies received a combined $136.5 billion in funding in 2019, and the year saw double the exit value of 2018.[i] As stocks, real estate investments, and venture capital reach record highs, what are investors thinking about where to invest?
The answer depends on the type of investor:
- Large funds such as university endowments, pension funds and funds-of-funds have been allocating a part of their portfolio to venture capital for many years now and have seen success. Universities like the University of Minnesota[ii], Stanford[iii] and Yale[iv] have done very well with venture investments. For the fiscal year ending June 2015, the University of Minnesota invested 26.1% of its capital in private investments, with 14% of the private allocation invested in venture capital. The overall fund returned 5.7%, private capital returned 16.1%, and venture capital returned 28%.[v] This has increased the appetite for venture investments among endowments.
- High net worth individuals who have built their wealth in tech are reinvesting in tech venture funds.
- High net worth individuals who have traditionally invested in the stock market, real estate, or private equity, are warming up to tech venture investing.
- Family offices are increasingly doing the same. In a recent tally of the attendees of a US family office event, 35 out of 60 firms expressed interest in venture capital.
Is this a good time for venture investing?
If the economy continues to do well, venture investments will do well. If the economy falters or if there is a stock market correction, this may still be a good time to invest in venture capital.
This is because stock market corrections (and corrections in the real estate market, which usually follows the stock market) follow business cycles, which can last 4-7 years. Venture funds usually invest over a 9-10 year investment cycle (i.e., a 5-6 year investment period followed by a 4-5 year harvest period). A slower business climate or stock market correction ahead could well be bracketed within the life of a new fund. And if needed, with due approvals from the limited partners, venture funds can extend their term to time their exits better.[vi]
Is there benefit in investing in venture funds in down cycles?
Let us look at the dynamics of different asset classes in downturns.
- Real estate – During the 2008 financial meltdown, real estate crumbled. As people lost their jobs, renters could not pay their rents, and property owners could not cover their mortgages. As defaults grew, real estate prices dropped. The Case-Shiller index dropped from 195 in 2005 to 116 in 2011.[vii] Considering the leverage of real estate investments, the losses for investors were much higher.
- Stocks, ETFs – The stock market similarly took a serious hit. The DJIA dropped 54% from 14,164 to 6,469 over 17 months.
- Venture capital – From Q1 2008 to Q1 2009, venture funding fell by 50% nationally to $3.9 billion (Dow Jones Venture Source).
Why did venture capital fare better than real estate or stocks?
First, lean times promote capital efficiency. As is often heard, recessions are the best time to start new companies, which is where early-stage venture capital is focused.
Second, venture capital firms mark up or mark down their investments over their life cycle. However, as actual valuations are pegged only by liquidity events, the real IRR is not known until the investments achieve liquidity. During the holding period, capital-efficient companies, and venture companies that focus on capital efficiency, do well, i.e., are counter-cyclical. They suffer fewer dislocations during downtimes. They can maintain their strategies, continue to do business as usual, and get ahead of those that slow down. Employees of such companies are more secure and loyal. And if needed, high-quality talent not available during good times can be hired, with loyalty that again pays dividends over the long term.
The capital efficiency of the upper Midwest
Companies in the upper Midwest inherently tend to be capital-efficient because there is less capital available. Similarly, smaller funds such as there are in the upper Midwest are inherently more capital-efficient, as they have less to invest.
44% of venture capital flows into Silicon Valley.[viii] This sets the consumption set-point of Silicon Valley companies at much higher burn rates than in regions where availability of venture funds is limited. The relative lack of available capital in other regions, including the upper Midwest, instills caution in spending.
While most other expenses are comparable across the US, with legendary real estate prices, Silicon Valley employees cannot survive at less than Silicon Valley wages.
This is not true in the upper Midwest. Though other expenses are comparable, housing costs may vary from 1/3rd to 1/10th of the Bay Area, enabling much greater capital efficiency for employers. For example, Google employees can buy 5 houses for the price of one by moving to one of Google’s locations across the country.[ix]
Figure 1. The real estate cost advantage of the upper Midwest compares well against not only the most expensive regions in the US, but also against what may be incorrectly perceived as lower-cost overseas regions (e.g., China). Seven cities in China and an equal number of cities in the US are listed above Minneapolis.
Fold? Hold? Or double down?
Not only can capital-efficient companies continue without disruption during slow times, given the lag between investment and market benefit, those that increase their investment can emerge even stronger in a recovery.
Intel applied this counter-intuitive strategy across many recessionary cycles, and invested several billion dollars in down cycles.[x] When their new semiconductor fabrication capacity resulting from these investments came online a few years later, their timing coincided with market rebound. On the other hand, competition (e.g., Atmel, Fairchild, Intersil/GE, IBM, Motorola, Raytheon, and several others) weakened from retrenchment and lost market share. As the industry consolidated during down cycles, Intel gained market share, and cumulatively over several cycles, emerged as its leader.
Some investors may feel that liquidity is useful during a downtime. Others argue against it, as getting out of the game when entrepreneurs are especially capital-efficient has a higher opportunity cost, and to use the Intel analogy, puts the winners further ahead of the losers. According to a prominent Silicon Valley investor, “you got to stay in the game”. At these times there are opportunities to go one step farther and double down.
Are smaller funds better than larger funds?
The statistical odds of a unicorn (company valued at over $1B) are lower than, say, of a ‘deci-corn’ (company valued at over $100M). Larger funds invest larger amounts per deal. To return high multiples, they need unicorns, which are rare. Smaller funds invest smaller amounts and can get the same multiples from ‘deci-corns’, which are much more common.
Advantages for Midwest venture capital
There are other tactics used by, and attributes common to, small Midwest VC’s that safeguard against downturns:
- Global investments that require skills available in the upper Midwest. While staying abreast of the latest trends in Silicon Valley to stay competitive, Midwest VC’s can take advantage of expertise available in the upper Midwest to serve global markets. In so doing, they avoid the valuation markups and early-round dilutions of Silicon Valley yet seek global parity in later rounds and exits.
- Local investments, global exits. An emphasis on the upper Midwest inherently allows investing at a discount compared to the investments in overheated markets such as Silicon Valley. This roughly translates to a 60% discount in term sheets offered on companies in the Upper Midwest. Global businesses rooted in the upper Midwest still attain exit valuations that correlate with global valuations. Thus, if a down cycle may require 50% markdowns for some Silicon Valley funds, Midwest VC’s can still record a 10% (=60-50%) markup at the bottom of the trough, emerge stronger from uninterrupted progress from investees’ capital efficiency, and exit with a markup brought to parity with global valuations in strong economic times.
- Emphasis on product-market fit. With the reduced capital investment now possible in many tech businesses, the barrier to entry has been lowered. Smaller venture funds can adjust criteria to focus investments on product-market fit, early revenue, and early break-even and profitability, instead of being limited by the number of affordable investment options. Nothing demonstrates product-market fit and staying power than paying customers and profit; for customers, employees and investors alike, there is nothing more powerful than profitability. Judicious investment in such businesses and mentorship to focus teams on profitability facilitates survival in lean times.
- Operators as investors. Small venture funds are often started by former operators with past successful exits, and the Midwest is no different. Many Midwest VC’s have a history of building profitable businesses the old-fashioned way, a dollar at a time. This experience of running a company, of managing payroll through good times and bad, of knowing the revenue and cost management discipline required to make money operationally and sustainably (i.e., not with short-term financial engineering), is invaluable for VC’s to have. So much so, that even accomplished operators will supplement their teams with experienced industry advisors.
[viii] according to the National Venture Capital Association website
July is over! This is the moment where summer fun planning always turns a little earnest, when we try to store up every last bit of Vitamin D and fish protein we can to last the upcoming season-which-shall-not-be-named. There’s still fun to be had, and we took some time out of the sun recently to attend some great local events.
Great North Labs partner Rob Weber spoke at Enterprise Rising with Mary Grove, partner in Revolution’s Rise of the Rest seed fund. Enterprise Rising is an annual event for Midwest enterprise tech startups that was created by Great North Labs advisor Casey Allen. Rob and Mary’s talk was a VC-to-VC chat about what they look for in investments, including specifics like important tools for metrics and defining product/market fit, and about their respective funds. They also talked about the region in general. As Rob said, “We’re punching above our weight, but just not telling that story well.”
Forge North is not only dedicated to connecting and supporting the local innovation ecosystem, but also to telling the story about our region better than it has been told before. Forge North’s event, Horizon, was a debut for the coalition dedicated to supporting Minnesota innovators and entrepreneurs. An initiative of Greater MSP, its mission is: “We accelerate growth by inclusively connecting and proudly celebrating the individuals and organizations growing Minnesota ventures, and we equip these partners with tools to measure progress and dream bigger together.” They operate a dashboard that visualizes some key metrics for the regional innovation economy, which is useful for data-driven stories as well as being valuable information. You can see a video explaining the initiative here.
Supporting the next generation
We also ran into Mary Grove at Silicon North Stars Demo Day at Fueled Collective on July 23rd. She and her husband, MN DEED Commissioner Steve Grove, run the non-profit Silicon North Stars which operates a tech camp for 9th graders. Their mission is to inspire and educate young Minnesotans to become future leaders in technology. The camp ends with a demo day every year, and the solutions the teenagers come up with are always surprisingly well-thought. The impact on the kids is palpable, as they invariably talk about the confidence, knowledge, and inspiration they gain from the experience. Great North Labs is a proud sponsor of this organization.
It’s hard to spend too much time indoors in August, but there are some events worth stepping inside for.
- August 1st, Rochester, MN. Today is theInvestor and Innovator Forum:”The Forum was launched by Destination Medical Center and Mayo Clinic as a venue to foster conversation and collaboration between emerging and experienced entrepreneurs and the investors who support their growth.” The forum features panel discussions and speed networking, and sponsors include gener8tor, Medical Alley, and Minne Analytics.
- August 19-21, San Francisco, CA. Singularity University Global Summit 2019: “Our premier annual gathering bringing together 2,000 changemakers for incredible talks on AI, AR/VR, blockchain, the future of work, impact, investing, robotics and more. The one event you don’t want to miss!” Singularity University’s flagship event gathers futurists, technologists, C-suite and social impact drivers from 64 countries around the world for sessions, workshops, and talks on changing the world for the better with cutting-edge technology.
- August 22-29, Madison, WI. The Forward Festival: “Join fellow entrepreneurs, nerds, geeks, hackers, foodies, and creatives from the Midwest in an 8-day celebration of innovation and entrepreneurship.” This event is billed as Wisconsin’s largest tech and entrepreneurship festival, and features 40+ events over 8 days, with over 2000 attendees.
Plyo is new to the Great North Labs portfolio. Plyo is a rewards app that encourages students to use their campus recreation center in exchange for points that can be redeemed for offers from a variety of merchants. It provides motivation for students to lead a healthy lifestyle, while allowing businesses to engage with the active college student customer segment in a positive way.
Dispatchis hiring all over the country for Field Sales Representatives and Drivers. In Bloomington, MN, they are hiring a variety of positions including an Executive Assistant, an Accounts Receivable Specialist, Support Engineer, Sr. UX Designer, Biz Dev Rep, and a CFO!
Structural is hiring a Customer Success Specialist.
FactoryFixis hiring a Software Engineer in Madison, and sales roles in Chicago, Detroit, and Indianapolis.
Misty Robotics is hiring a CFO, Devops Engineer, Principal Electrical Engineer, and a Sr. Software Engineer in Boulder.
pepr ishiring for Biz Dev – Outbound Sales in Minneapolis.
PrintWithMe is hiring a Customer Success Manager, Biz Dev Executive, and interns for Strategy and Marketing/Operations.
One of the largest debut seed funds ever raised in the Midwest
St. Cloud, USA — June 19, 2019 — Great North Labs closed its first fund with $23.7M in committed capital. Great North Labs is an early-stage venture fund focused on cultivating the next generation of tech startups across the Upper Midwest. The fund is based in St. Cloud and Minneapolis, Minnesota, with a partner located in Silicon Valley. This is one of the largest debut seed funds ever raised in the Midwest.
“We are very appreciative and humbled by the tremendous support shown for our debut fund by our limited partners,” said Great North Labs Managing Partner Rob Weber. “Our investors’ support shows not only their conviction for us as fund managers, but also their conviction to backing the next generation of startup founders across our region.”
The bulk of venture capital is raised and spent on the coasts. Fifty-two venture capital funds were formed in the US in 2018, with the majority formed in California, New York, and Massachusetts. Those states accounted for 79% of the $5.3B in capital raised (source: National Venture Capital Association). Nationally, some larger funds are becoming more active in seed stage investing in the Midwest. The most active of these are Techstars, which operates an accelerator in addition to a venture fund, and Revolution’s Rise of the Rest Seed Fund.
Funds that invest in early-stage startups, or “seed funds”, are generally smaller in size, and only about half a dozen have ever debuted in the Midwest with over $20M committed. In the Upper Midwest (defined as ND, SD, MN, IA, WI, IL), there are only two examples besides Great North Labs, both from Chicago. Hyde Park Venture Partners raised $25M in their 2013 debut, and MATH Venture Partners raised $28M in 2015 (sources: data compiled from Pitchbook, CB Insights, Crunchbase, and public databases). Both Hyde Park and MATH have gone on to raise larger funds since their debuts.
Managing Partner Ryan Weber said, “Exponential technologies are causing accelerating changes, and the implementation of these technologies is greatly enabled by the domain expertise living inside our strong industries throughout the Upper Midwest, creating fertile ground for high growth, technology-driven entrepreneurship.”
Great North Labs invests in consumer or enterprise startups that have potential to reach a $1B market, show early signs of product-market fit, possess defensible attributes, and leverage new technology. Startups must be based in, or significantly tied to, the Upper Midwest. Great North Labs has also committed 10% of the fund ($2.37M) to investments in pre-seed startups with founders from under-represented groups, or startups located in under-served markets, such as St. Cloud, MN; Sioux Falls, SD; and Fargo, ND. At a time when 45% of deals by Midwest investors are still going to startups outside of the region (source: TechCrunch), Great North Labs is committed to catalyzing the potential of the region by not only capitalizing on existing exceptional opportunities, but by cultivating new ones.
The fund has three Managing Partners: Ryan Weber, Rob Weber, and Pradip Madan. The Webers, twin brothers who have worked together since bootstrapping their first company in college, have a successful track record as founders, operators and early stage investors. Pradip Madan is a Silicon Valley tech executive with a long history of success at both Fortune 100 companies and startups, and has been part of several seminal moments of tech and venture history. The Webers live in St. Cloud and Maple Grove (Minnesota) respectively, and Madan is located in Silicon Valley. The team also includes a network of accomplished advisors from successful tech companies throughout the Upper Midwest and Silicon Valley.
“The opportunity in the Midwest is significant for investors with the right experience, criteria, and investment thesis. For four decades, capital has gravitated towards Silicon Valley, Boston and New York. With the high cost of living and a talent supply-demand imbalance, making a startup successful is now more difficult in Silicon Valley. As a result, investors are starting to pay more attention to the startup ecosystems in places like Chicago, Minneapolis, Madison, and Des Moines. Plus, many of the industries – financial, food, travel and hospitality, healthcare, insurance, manufacturing, mining – that entrepreneurs are now disrupting are native to these areas. In the new Gold Rush, the gold is the hard-working entrepreneurs and their startups in these regions,” said Managing Partner Pradip Madan.
ABOUT Great North Labs
Great North Labs is a St. Cloud & Minneapolis-based, early-stage venture fund. We are industry agnostic, and invest in consumer and enterprise technology companies across the Upper Midwest. Our hybrid model emphasizes advisory support and guidance for our portfolio companies along with capital investment, and we support and develop the local startup ecosystem through partnerships and education.
We mentor with Techstars, serve on the board of Minnestar, and lead the local chapter of Singularity University. The partners regularly speak at industry events, mentor founders, and advise startups and provide financial support to Gener8tor/gBETA Greater MN-St. Cloud, Beta.MN, St. Cloud State, St. John’s Center for Entrepreneurship, SingularityU Minneapolis-St. Paul, and MNCup. Great North Labs also provides educational support in valuable industry skills, such as Lean Startup, Agile Scrum, and Innovation Design, at low cost for founders and students through the Great North Labs Startup School.
Our mission: We apply capital, operating experience, relationships, and market intelligence to cultivate the next generation of leading tech companies in Minnesota and across the Upper Midwest. For more info, visit gnladmin.staging.wpengine.com, or follow us on LinkedIn, Twitter, or Facebook.
Great North Labs firstname.lastname@example.org
Images + More info can be found in our media kit.
The Innovation Ecosystem
At Great North Labs, we work to cultivate the next generation of leading tech companies across the upper Midwest. As a venture fund, this means deploying capital, providing startup intelligence, and utilizing our network to support and grow early-stage tech startups. We also provide low-cost training through our Startup School, in areas that we perceive an educational need, such as our Lean Startup Bootcamp currently running in St. Cloud.
This sort of development can’t occur through a singular entity, however, so Great North Labs supports a variety of impactful elements that are key to developing the tech community and innovation ecosystem. SingularityU, with 156 global chapters in 68 countries, is one of those organizations that we believe can be valuable to developing a transformative, globally competitive innovation ecosystem here in our region.
Great North Labs Managing Partner Ryan Weber is an alumnus of the SingularityU Executive Program, and regularly speaks throughout the region on exponential technology. He is a founding board member and Co-Ambassador of the SingularityU Minneapolis-St. Paul Chapter (SU-MSP).
The chapter is holding its Kickoff this Tuesday, June 4th, from 5:30-8:30 at the Carlson School of Management. The event is to kick off greater collaboration and discussion around the use of exponential technologies for social good with local businesses, innovators, and entrepreneurs. Tickets are free and open to the public.
- Ryan Weber, Managing Partner of Great North Labs
- Mark Ritchie, President of Global Minnesota, and President & CEO of Expo 2027 (Minnesota’s World’s Fair bid)
- Cora Leibig, CEO & Founder of Chromatic 3D Materials
- David Williams, Chief Innovation Officer of Elements Group
MN DEED policy update
Speaking of innovation ecosystems, Google/YouTube alum Steve Grove is actively working to develop Minnesota’s. MN DEED will hold a legislative session wrap-up to talk about new initiatives coming with the new MN state budget. The wrap-up will be in a Facebook Live session on this Friday at noon:
-Angel Tax Credit is back
-New program “Launch Minnesota” to grow startups
-$40M in Broadband grants
–@SciTechMN Internships & robotics programs
-Regional startup centers”
June 4th– SingularityU Minneapolis-St. Paul Chapter (SU-MSP) Kickoff. This event will kick off collaboration and discussion around the use of exponential technologies for the greater good with local businesses, innovators, and entrepreneurs in the Minneapolis-St. Paul area. Great North Labs Managing Partner Ryan Weber also serves as the Co-Ambassador of the SU-MSP chapter, and will emcee the event.
June 6th– Polsky Innovation Showcase. Part of UChicago Innovation Fest, this event is the culmination of the New Venture Challenge at the University of Chicago, one of the top college startup accelerator programs in the country. Great North Labs Analyst Mike Schulte will be at the event and available for meetings.
June 10-11th– 2019 Upper Midwest ACG Capital Connection. This gathering in Minneapolis is for middle market professionals involved in corporate growth and M&A.
June 19th– OnRamp Healthcare Conference. Put on by gener8tor, this conference is focused on healthcare innovation, and will be at Lambeau Field in Green Bay, WI.
June 20th– Initiative Foundation Lunch and Learn. Ryan Weber will be presenting on disruption and innovation in the nonprofit sector at this community event in St. Cloud, MN.
June 21-23– ConnectUp!. “ConnectUP! MN is a two-day, culturally grounded gathering of curated underestimated entrepreneurs and investors that: learn and share with each other, engage in relationship-building, provide best and next practices from the field, as well as engage in active problem solving to build thriving, diverse, and sustainable enterprises and co-design an ecosystem that prioritizes equitable access to resources, capital and networks.” It is held in St. Paul.
PrintWithMe is new to the Great North labs portfolio. PrintWithMe is mobile-first kiosk printing for coffee shops, residential buildings, co-working spaces and anywhere pay-to-print printers are offered. This user-friendly service simplifies printing for customers, and makes providing a printer amenity easy for businesses.
Three Great North Labs advisors are new to the team!
Carson Kipfer is the Principal Designer and co-founder at SportsEngine. He is also the Co-Commissioner of the US Pond Hockey Championships.
Andy Johnson is the former CEO of NativeX. Before that, he was the President of Fingerhut’s Ecommerce division.
Patrick Riley is a film producer, and the former CEO and co-founder of Modern Survey Inc., and the former CEO and founder of Cyber Works Inc.
Our advisor, Julie Novack, had her startup PartySlate featured in Newsweek recently.
Dispatch is hiring all over the country (26 cities!) for Field Sales Representatives and Drivers. In Bloomington MN, they are hiring Software Engineers, Biz Dev, and a marketing intern.
TeamGenius is hiring a part-time Customer Success Associate in Minneapolis.
FactoryFix is hiring a Software Engineer in Madison, WI, and a Business Development Specialist and an Account Managers in Chicago.
Misty Robotics is hiring a Manufacturing and Repair Engineer and a Robot Repair Technician II to IV, in Boulder, CO.
pepr is hiring for Biz Dev – Outbound Sales in Minneapolis.
2ndKitchen is hiring a City Lead and a Full-Stack Developer in Brooklyn.
PrintWithMe is hiring a Business Development Executive, a Customer Success Manager, a Strategy Intern, and a Marketing and Operations Intern
Entrepreneurship is a proven capital-efficient way to build economic value and transform regions. Great North Labs believes that venture investment guided by a policy framework is the most efficient way to develop regional economies across Minnesota and the upper Midwest. Locally employing tech natives entering the workforce, and retraining the current workforce into tech roles with on-the-job training, is the most durable and sustainable way to build the economies in the region. We are hoping to invest at least 10% of our investments in opportunities that can deliver high returns and serve social criteria. Let us know if you know of a high-return, high-impact startup we should look at.
2019 is here! Since Great North Labs is a proponent of iterating based on data-driven feedback, it’s time for a look at the best-performing content from 2018. What captured people’s interest? What is the Great North community interested in?
- Facebook controversy. Rob Weber’s post about Sheryl Sandberg and the importance of “integrators” titled, of course, “Sheryl Sandberg and the Importance of Integrators“,is the top post of the year. The Facebook COO faced a lot of criticism in the past year, and Mark Zuckerberg, the Woz to Sandberg’s Jobs, found himself testifying before Congress this past April for 10 hours. Facebook has come under increasing scrutiny in the wake of data breaches and the Cambridge Analytica scandal, and public interest remains high as the 68% of Americans who use Facebook grapple with the implications of data insecurity.
- The Internet of Things. Pradip Madan’s white paper on the third generation of IoT and the industrial internet is well-researched and thought-provoking, with input by Great North Labs advisors at Protolabs and Misty Robotics. Pradip makes the case that we are uniquely situated in the upper Midwest to originate the next wave of tech-enabled disruption in IoT in “IoT 3.0“.
- Venture capital investing. Pradip Madan writes about VC as an investment class is his white paper, “Where to Invest in the Midwest: Venture Across Asset Classes“. He examines the benefits of venture investing as an asset class even during a down cycle, and how funds can provide protection from multi-year downturns. Pradip also enumerates the unique advantages that Midwest venture funds offer.
- The Midwest tech ecosystem. “Putting the ‘Silicon’ in Silicon Lakes”, by Great North Labs Managing Partners, Rob Weber, Ryan Weber, and Pradip Madan, enumerates the key ingredients required to create an innovation hub like Silicon Valley that fosters growth and startups. It is part mission statement, part love letter, and all about the opportunity present in the upper Midwest.
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