Has Minnesota become a seed and early stage capital backwater? GTK #22: Harlan Jacobs



GTK #22 Harlan Jacobs (32 min)

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Harlan JacobsAs an observer of the Minnesota high tech scene for over 30 years, Harlan Jacobs thinks so.

Harlan moved from Des Moines to the Twin Cities in the early 70’s to be a part of  “a burgeoning high tech mecca.”  In 1979, he became the CFO of FilmTec Corporation (now Thin Film Technology), a (then) publicly traded thin-film composite venture started in 1977 by four scientists turned entrepreneurs.  After Dow Chemical bought the company in 1985 for $75m, Harlan began to re-invest his rewards through Genesis Business Centers, an incubator/consulting firm focused primarily on capital advisory services.

According to Harlan, Genesis has experienced two distinct high tech successes (NT International – sold to Entegris; Visual Circuits – sold to Focus Enhancements) as he continues to provide CFO & consulting services to other Minnesota tech companies by which he has a vested interest in, such as Cima Nanotech, Cymbet and Zivix.

“Over the years,” he says, “the halcyon days of abundant seed capital and wide/well practiced risk taking” have essentially eroded.   “It was once a good time and place for entrepreneurs, but sadly, looking back, we’ve lost our edge.”

“We have some talented people with world class technology — a good natural resource — but we’re a backwater when it comes to seed capital and the early stage venture capital needed to help these companies get started.  Too often I’ve seen companies have to move to the coasts because the investors who understand the opportunities and are willing to invest in early stage tend to want their companies in their own backyard…While we used to be known as ‘Moneyapolis‘,  it’s now more like ‘Miserapolis’ because of the paucity of seed capital. I’m concerned about a long-term secular trend — we’re in danger of becoming a larger (and colder) version of Omaha or Des Moises, who have stable but not dynamic high-tech economies like the Twin Cities have enjoyed over the past 50 years.  Now some people might say, ‘that’s fine’ and others would say ‘that’s not fine’; I’m in the latter category, I want Minnesota to be a leader…If the trend is not reversed, we’ll have done a darn good job of creating high tech jobs on the coasts at our taxpayers expense.”

Later in the conversation, he concludes  “…you wrap it all up and it could be the financial version of a perfect storm (although I don’t think it has to be that way permanently), but public and private policy leaders need to come to grips with the implications of this.”

Problems are easy – what’s the remedy?

“It’s going to take, somehow, the spirit of risk taking and the risk/reward ratio becoming attractive to people again.  I think there’s a generational problem:  profits used to be recycled into the next company and that’s not happening much anymore. There’s also awareness issue: reaching out to the money centers on the East and West coast so that they can invest in our companies [encouraging them to look at the arbitrage advances of investing here in Minnesota where the valuations are lower than on the coasts because the companies are domiciled here] while leaving them here.  But, I’m a perennial optimist and I think we can come out of this.”

And what about entrepreneurs?

“Work hard, work smart, be resourceful, make your cash go as far as possible. Keep knocking on doors, smile at people when they say no and hope for better times.”

While I played devils advocate to some extent, it’s difficult to challenge grounded reasoning from someone with such historical context — especially when, in the back of my mind, I know his sentiments are felt by many of Minnesota’s more talented and ambitious tech entrepreneurs. While it’s true that some Minnesota tech companies are receiving seed and early stage equity investment (not an absolute), the question is “why aren’t there more?”  As one Minnesota Internet entrepreneur recently put it, “It’s easier for me to raise $1m than it is $250k…too bad I don’t need $1m.”

Interestingly, this re-recorded interview was a few notches down from our original podcast recording (damaged), which was a few more notches down from our initial conversation (off the record). Still, consider it a rare moment of Minnesota candor…


  • http://twitter.com/zacksteven Zack Steven

    It's great to hear from someone with an historical perspective, and a fellow perennial optimist. The observation about profits not being recycled into new companies rings largely true. I have the sense that local success stories often take that success to deals/networks on the coasts – like this market is a stepping stone. Curious to hear what others think. Thanks.