There Are Angels Investors in Minnesota

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By John Alexander, BringMeTheNews

“Despite the recently reported near-death of the Minnesota Angel community (as seen in the local Twin Cities newspapers) I am here to report that angel investors are alive and well in our state. They are just a little more cautious.

Since the end of last year, there have been much complaining and gnashing of teeth over the lack of angel capital in Minnesota. Further, this lack of angel / venture capital is being called out as the primary reason why emerging companies fail.”

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Comments

  • http://twitter.com/UniqueVisitor Jeff Pester

    Mr. Alexander has clearly articulated why Minnesota fails to attract (and/or keep) breakthrough early-stage Internet technology companies and their founders, and why talented founders tend to leave the state to find financing or expand their teams. The attributes he cites as necessary for funding consideration (“a novel idea with a defensible technology, attractive market(s), a good management team, a well thought through budget and business plan, an articulate pitch, and a realistic view of their value”) are more closely aligned with SBA loans and merchant banker investments than they are with early-stage technology investments. The most successful Internet Technology companies of the last 10 years or so had NONE of the attributes he cites.

    He claims  there is “less risk capital” available, and that we are in “tough economic times” as reasons for decreased levels of funding and lower valuations. Yet, in California more angel money is available than ever before, and deal volume & valuations continue to rise. These facts seem wildly at odds with Mr. Alexanders narrative.

    I realize that I'm speaking to the specific vertical of Internet technology companies. But, MN entrepreneurs need to know that money is available for interesting ideas that come from the heads of intelligent, curious entrepreneurs. Unfortunately that money doesn't seem to reside in Minnesota.

  • http://twitter.com/kaufenjm Justin Kaufenberg

    I think that John did a great job accurately describing the local angel market and the things that they are looking for in young companies. I've raised capital from John's group (Twin Cities Angels), from local and non local individual angels and from a CA based VC. In each case I've found that investors are looking for the same fundamental indicators that John describes in his post. 

    I'll disagree with Mr. Pester that desire for solid fundamentals is driving businesses out of MN. While there is undoubtably more risk capital available in CA, in my experience, that is a result of there simply being more total capital. I've found there to be roughly the same amount of “idea” money available all over the country, distributed roughly per capita with the total amount of money. I've yet to meet with an investor, (and I've met with dozens in CA and elsewhere) who have not cared about the founder's ability to clearly articulate a plan. 

    I think that many Minnesotans suffer from a bit of a Techcrunch bubble syndrome. It is very easy to sit 2000 miles away and read about “apps” being funded left and right. Seems like every hair brained idea is cashing a check. That's just not the case. Sure, there are some ultra early stage ideas that are incubated or funded, but the overwhelming majority of those companies have articulated to their investors a detailed, thoughtful plan. Prefer to take your half baked business to CA and jump into the pool with 10,000 others? Go for it! The MN businesses that have moved could have raised money anywhere. They are good companies, with good people who made a strategic decision about their location. I'd be far more concerned about losing MN companies to CA because of the lack of engineering talent then the lack of funding. 

    Every market in the world has unique nuisances. In MN, we have a more conservative investor community who like to see solid fundamentals and some market traction. If I am a founder, what does that tell me? It tells me to build a solid presentation, use of proceeds, financial plan and product before hitting the trail! Not exactly rocketship science here. It's an IQ test for founders….know your market! If you can't accurately evaluate the local investment market, I don't have a high degree of confidence in your ability to properly peg your product's market either. 

    • J Serrano

      Interesting article and comments. Can anyone list out the companies from Minnesota in Internet Tech, or Digital Media that have been funded by angels in Minnesota and stayed in the last ten years?  Here is another take on the matter:  http://www.tcbmag.com/peopleco

      • http://tech.mn Jeff Pesek

        I've only been blogging for 2 years on the topic, so my frame of reference is limited.  How interesting would be it be if we had chronicles going back a decade!?!?

        Looking at the past two years, what is the number of angel backed companies staying in Minnesota compared to those which are leaving? There's likely more in both camps than I'm aware of, but here's a rough interpretation:

        2010: 42 deals ( http://tech.mn/news/2011/01/25… )
        Q1 2011: 20 ( http://tech.mn/news/2011/04/11… )
        Q2 2011: 19 ( http://tech.mn/news/2011/07/14… )
        ____

        81

        Since some are listed on multiple reports (raising numerous times/rounds), some arguably are not “pure” startups and some which are not exactly “angel” rounds – let's trim that figure by a quarter to 60.

        How many have left during the same time period? My limited experiences say less than 15, and that's if we're liberal with the numbers by including entrepreneurs that have left (pre start/funding) and gone on to launch elsewhere.  And a few of those which left did so for reasons unrelated to capital.

        But let's factor in the real comparison: how many have gone on to raise angel capital and/or find real growth outside Minnesota (to date)? I'd double down on 6. 

        Often times, the ones that leave are remembered as much as those which stay, which is an funny phenomena. There's attrition in every community. And it's sad to see anyone leaving this one. How can Minnesota become a considerable destination for entrepreneurs and startups relocating for opportunity and prosperity?

        tl;dr: On this napkin, for every one that leaves…roughly ten are staying.

  • http://tech.mn Jeff Pesek

    Interesting thoughts guys, thanks for sharing…

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