Dear Minnesota Tech Entrepreneur

by Rob Weber

I have never met Joe Serrano, but I must say that as a Minnesota angel investor and a Minnesota tech entrepreneur, I found his recent guest post titled “Dear Minnesota Angel Investor” to be grossly misguided.

In it, he begins by questioning whether Instagram could have been built in Minnesota, and comes to the conclusion that it couldn’t have because Minnesota angels are only looking for singles and doubles.  He’s right that Instagram could not have been built in Minnesota, but I don’t see it being built  anywhere else in the world outside Silicon Valley either.

Looking closer at Instagram’s funding, we see that their $500k seed round came from Andreessen Horowitz and Baseline Ventures on March of 2010. 500K could have been raised in Minnesota with some hustle (more on this later), however, even with this first small seed round we are already getting a big clue of ‘why not Minnesota’.

By adding Marc Andreessen, a board member at Facebook, the probable exit scenario starts becoming very clear, very early! They were predestined to raise a large round (as they did 11 months later with their Series A) and go for a large exit, as they did.  This is the kind of insider baseball that regularly happens in Silicon Valley.

The reason for this is the later round capital needed for these hyper growth social businesses is not available for pre-revenue social businesses in Minnesota — or anywhere else outside of Silicon Valley. The folks in Boston which has a massive amount of smart tech talent missed the entire social movement too. It isn’t just a Minnesota thing, but pretty much the entire rest of the world,  minus Silicon Valley.

Getting to the right answers requires asking the right questions:

Why do we not have a more vibrant community of angel investors in Minnesota?

(1): Lack of (enough) grand slams & home runs:  Silicon Valley has created a virtuous cycle which folks in Minnesota don’t talk about. A friend of mine whom graduated in 2009 with a Bachelors degree in Mathematics from Stanford and immediately created a $1 million plus a year two person business creating casual iPhone games summed it up well. People outside of Silicon Valley think all the college grads coming out of Stanford immediately create their own start-up like he did, he said.  But it’s just not true.

Nearly all of the college grads get recruited into Facebook, Google, Apple, etc. and plan on putting in three or more years vesting their stock options, and developing deep expertise in high growth markets before launching their first business. When these young stars go to cash in their million dollar payday, they now have the cash to invest in their business, the relevant expertise to inspire confidence from angels, and possibly enough money left over to throw some money into other similar businesses.

(2) Low Level of Market Expertise. What separates Doug Berg, founder of Jobs2Web (which later sold to SuccessFactors for one of the biggest exits in the past decade in Minnesota tech) and most of other founders in Minnesota?
Prior to Jobs2Web, Doug cut his teeth with  Although it was ultimately unsuccessful, he was able to develop a deep understanding of the jobs and recruiting market. This experience prepared him for Jobs2Web, although you don’t need to have a failure to develop market expertise. Go spend three years at one of Minnesota’s leading tech growth companies.

Since we don’t have Facebook, Zynga, Google, or Apple, these Minnesota growth companies are the best potential catalysts we have to become the big winners which spark the local angel market in a smaller but similar way as Silicon Valley’s blockbuster home runs.

Too many Minnesota startups are seeking (and expecting) funding without any proven ability to execute in their domain.  This is related to point number 2. If you have been a meaningful contributor within a growth company, you’ll have no trouble getting funding without a super detailed business plan and possibly even without a beta version of your upstarts hot new technology. If you don’t have this proven track record, then you need to show your market expertise both in terms of financial assumptions but also in your ability to show a beta version of your hot new technology.

For those creating destinies, not excuses…

Start with your own capital. Don’t come asking an angel for their money until you’ve put in a substantial amount of your own money first. Yes, sweet equity counts, but you need to quantify this as much as possible by showing and explaining what has already been accomplished.

Establish a board of advisors. Take 2.5% of your upstart’s equity, and dole it out in the form of stock options at 0.5% vesting over 3 years to the 5 most successful, smartest set of board advisors in Minnesota and in Silicon Valley whom have perspective and relationships to help you grow your business.  Set clear expectations of the time commitment (an hour a quarter perhaps, phone calls okay for out-of-state advisors, etc). Do this before raising money. This will make raising money much easier given the added perspective, and will greatly widen your network of potential investors as your advisors will be able to help.

Focus on key measures. Angels will want to see proof that you can execute, and that you have some idea of how you will create value.

Pre-Launch:basic, bottom-up key metric model stating your assumptions, and how they will create value. If you will have a revenue model right out of the gate, share it and be prepared to explain your key assumptions. If you are pursuing another way to create value like building out a massive user base like Instagram, share your key metric assumptions too (viral coefficient, engagement metrics, etc).

Post-Launch: show the growth in your key measures, be honest about which assumptions were wrong, which were right, and how the business is evolving. If you haven’t been able to demonstrate a growth model (even if the base is very small) don’t go asking for serious money yet. You are too early to be funded in Minnesota, unless you have very high market expertise.

Let’s stop complaining, and start taking action. Ask yourself: “What can I do to make the Minnesota tech community stronger?”


  • Casey Allen

    Like the riff, Rob.

    Instagram is a pure B2C play. If entrepreneurs are plugging away on a B2C here in MN, what advice would you have for them since B2C investors here are few and far between? 
    What have you seen work, and do you have any examples?

    • Rob Weber

      That is a good question Casey.

      The challenge I have seen with most B2C hopefuls in Minnesota is the have a very low level understanding of the category they are entering, whether it be in gaming, social/communications, shopping, sports,etc. These entrepreneurs need to come up with ways to be a participant in the category they plan to enter before they jump right in.

      A couple of Minnesota successes-
      1) LeagueSafe- LeagueSafe was founded by Paul Charchian who previously created Fanball and currently the President of the Fantasy Sports Trade Association ( You can see Paul provide a demo of LeagueSafe at MinneDemo this past winter here, 21:40 into the video). Paul put in some of his own capital, but has also been successful in raising angel money too.
      2) ValuSoft- Several years ago, one of our board members Scott Zerby and his partner founded ValuSoft to provide packaged games to retailers like Walmart. After several successful years, they sold their company to THQ and now Scott is working on his new business Gamers Digital. While he was bootstrapping it, he mentioned how he use to go to Walmart buyer meetings with printed boxes of games that they had not yet developed. They were able to get orders from Walmart BEFORE they even started developing the actual apps just based on their track record and the empty packages they showed them. Great bootstrapping strategy.

      How do you find investors? In LeagueSafe’s case, I know Paul personally just took meetings with folks he could identify as active investors, and he landed some funding. In ValuSoft’s example, they were able to get their customers like Walmart to fund some of the build out of new products.

    • Evan Carothers

      Agreed – great article Rob! On the flip side of this coin, I would be interested in hearing Rob’s advice on getting exposure and finding investors for a B2B startup in Minnesota. Obviously there are channels like tech/industry events & competitions like the MN cup, but what other options exist for  people building products for use in the business/enterprise world? You mention using user/growth metrics to woo investors in very early stage companies. B2C companies can rely on early adopters and large platforms like Facebook to build their user base and get traction easily/cheaply and prove that to investors, but finding those early adopters in a high-risk B2B landscape is much more difficult – thus making it tougher to prove your model/traction to investors.. kind of a chicken/egg problem. Any insights would be greatly appreciated!

  • Neal Tovsen

    Awesome article, Rob. But based on your intro, I have to say that I don’t think I ended up where you wanted me to. I see your point, and I agree 100% with your statements. But I don’t see your statements as mutually exclusive from Joe’s. You simply “complain” (I prefer the term “editorialize”) about unrealistic expectations of MN entrepreneurs instead of the uninspired disposition of MN investors.

    Seems to me that entrepreneurs and investors alike share the burden of improving the start-up ecosystem in MN. Saying investors need to think bigger doesn’t excuse entrepreneurs from doing their jobs…or vice-versa.

    • Rob Weber

      Yes… You make a good point Neal. When I wrote this post, I definitely had mixed feelings about what Joe wrote. I think Joe is writing about the symptoms of how tough it is to raise money in Minnesota, but in reallity, it really isn’t that tough and it is something you can easily cure if you follow the guidance I laid out.

      Many Minnesota entrepreneurs are getting funded all the time. There is a long, long list of folks TechDOTMN is covering that have been funded in the past couple of years. When I co-founded W3i, we literally raised our entire $320,000 angel round in the only meeting I had with a prospective angel. The rest of the capital came from by past college business successes, and the free cash flows we were able to harvest out of our early customers.

    • Ben Damman

      Well stated, Neal!

  • Joe Serrano

    Hi Rob, Good to meet you. I believe I have tried to contact you at least three times in the last year via LinkedIn, AngelList, and mutual contacts to take a look at what we have going on in my new startup and get some advice . . . to no avail. 

    That may be one of the issues I could have given more attention in my article – lack of access. Where are these angel investors hiding when you grew up in a river town in Central Minnesota and not Lake Minnetonka? I have found I have a pretty good hit rate of getting investors – I just have a hard time getting access.

    You make good points about getting traction/product/team together. However, in my experience as a 2X entrepreneur in my domain, I have had only one potential Minnesota angel investor even ask me about my domain expertise or reach out to my well known advisors vs. want to do a deep dive on my projections and budgeting skills.

    I don’t believe my article was complaining. I was challenging. And it created some wonderfully positive commotion and conversations on both sides of the table. I desperately want to work together with angel investors to make Minnesota a world class ecosystem. I too am working hard behind the scenes to make it happen. I criticize by creating.

    Rob, you have more power to help our ecosystem than most. From what I hear from people that know you, you are inspiring. You can be our local Andreesen. Did I see you at the last Project Skyway Demo Day? We have to start somewhere, and that somewhere is here and now. By stopping the apologies for not being in SV. By nurturing angels who want to understand, understand. We once were called “Moneyapolis”, (, and not so long ago had more money chasing businesses than any other metro area in the country. 

    Clearly you are passionate about helping as evidenced by even taking the time to write this editorial. Clearly we have a problem in Minnesota, so let’s work together on solutions. Let’s make Minnesota world class again.

  • Ben Damman

    Rob, why are Minnesota investors content to acquiesce and let good
    investments migrate entirely to Silicon Valley—without even taking a piece of the action? Instead of conceding defeat so
    readily why don’t more Minnesota investors participate in the deals of these ‘expat startups’ in the way that you have done?

    I’m of the mindset that it isn’t the end of the world when a startup
    moves to SV and becomes successful there, but I do consider it a real
    shame when local investors and entrepreneurs make no effort to maintain
    meaningful ties (i.e. personal, economic) with these entrepreneurs.

    Heck, if SV is really where
    the action is at then some local angels should start a “move to SV” seed
    fund, make small investments in these soon-to-migrate companies, and then extract
    returns alongside the SV investors.

    There’s a real opportunity to extend the virtuous cycle so that it starts in MN
    by piggybacking on the machinations of SV, then achieving ROI to MN when
    those companies do well financially and when the founders elect to move
    back to the state for other reasons—such as raising a family.

    As a businessperson I don’t export things for free, and our startup
    community shouldn’t either. Yet Minnesota investors seem willing to do exactly that with the deal flow that originates here.

    Come on investors AND entrepreneurs of Minnesota! If you think you can do a thing or think you can’t do a thing…you are right.

    • Fjaskulke

      Ben and everyone,

      How much do we want to be copy of Silicon Valley and how much do we want our own space?

      I’m only an N of 1, I don’t want see the next instagram built in Minnesota.  I want to see us carve our own space like we have done in medical device (which by the way, a lot of Californians have and continue to move here to do, despite California having a large device cluster).

      • Rob Weber

        I agree with you. We need to carve out our own recipe for success. With that said, I think we can learn from other communities to help inspire what can work here.

    • Rob Weber

      You are making assumptions that I feel aren’t true… Specifically, that good investment opportunities are not getting funded. The good investment opportunities are getting funded by local investors. The problem is there aren’t that many good investment opportunities locally. If local founders followed the recommendations I laid out in my post, they would greatly improve their viability in the eyes of investors, and find raising money to be easier- locally or otherwise.

      For example, take Zencoder. I and others personally invested a lot of cash in them while they were in Minnesota, and continue to do what we can to help them grow since they relocated to the Bay area. 

      There are other examples too. Code 42 raised money from Split Rock (local) as well as Accel (SF) as part of their recent $52.5 million funding round. TST Media raised money from El Dorado Ventures whom had a massive exit with Compellent. 

      Compellent brings up a good question. Can you to name me one big Minnesota tech success that didn’t get some level of funding from local investors? 

  • Rob Weber

    From David Dalvey who has helped several local founders raise sizable early rounds-
    “Good point about NOT criticizing Minnesota – where I feel the number of “risk takers” for early stage investments is relatively high compared to many other cities.
    Baseline Ventures includes Ron Conway BTW, a major early angel in Google – another valuable first round investor.

    The biggest curiosity is this comment about the angels looking for “singles and doubles” is that in twenty years, I have yet to meet any investor small or large “focused” on singles and doubles. 

    Simply stated, the fundamental issues about investors here in Minnesota or elsewhere is that an early stage entrepreneur needs to consider are (a). do these angel/vc investors understand technically what we are trying to build?, (b) are they able to fully understand and get comfortable with the risks presented by our strategy, (c) are they able to truly appreciate the upside of what value we will create if (when) we are successful?   If the answer to all three are “YES” your odds of securing a commitment from this investor are high.  That is what Silicon Valley brings to the equation, a diverse and plentiful mix of very technically savvy and well experienced professional investors that invest in and build businesses all day every day.”

  • Justin Kaufenberg

    I think this last comment here is a good one Rob. Investors with a strong understanding of the space, and even better…a personal affinity of the space you are building in are going to be naturally more inclined to listen and get involved. Our A round was by and large made up of angels who had been parents of youth athletes, and thus knew firsthand the challenges that youth sports organizations face with technology. Out of this most recent Project Skyway class came four great businesses and four great founders. I like them all…but @quadROI stood out to me. Why? Because their founder works in the energy industry, consults in energy, has investors that know energy, has a related degree….lives it. 

    I’ll also just chime in to say that I agree with the assessment you’ve made here. Like college students that blame the market for the inability to get a job after graduation, I’m afraid that founders rely far to often on the “lack of funding in MN rally cry” as an excuse for their inability to secure funding. 

    I am not sure if I can think of a single great startup locally (that I am aware of) that has been unable to secure funding or at least making real strides in that direction. Not all ideas are good enough, not all founding teams are strong enough, not all business models are attractive enough to be worthy of financing. 

    Just like the comments here, I’ve often heard people ask…where do I find these investors? Why can’t I locate them? To be perfectly frank those questions have always been a little personally insulting to me. In my experience, you need to earn each and every one of those introductions and discoveries, and it is only through that pavement pounding process that you actually begin to build a real network. Finding investors is kind of an IQ test in and of itself. 

    • Rob Weber

      Well put Justin!

    • Joe Serrano


      Nobody can argue with the most diplomatic entrepreneur in Minnesota. :)

      However, your assertion that you can’t think of a single great startup locally that has been unable to secure funding…  is a logical fallacy. Carl Sagan says,  “Absence of evidence is not evidence of absence.”

      For example, I agree with you regarding @quadROI. But why did they even bother with Project Skyway? Is it possible they had a hard time finding investors to hear their story? Do they have a low entrepreneur IQ?

      • Justin Kaufenberg

        Ha’re twisting my words Joe! I would argue that they have a high entrepreneur IQ, because they found their way to investors…it may just have been via Project Skyway. 

      • quadroi

        reposted below…

        • Joe Serrano


          My question to Justin using your company as the example was rhetorical. In my personal experience, you are doing everything right (high IQ), but despite that found it challenging to tap into and find sophisticated investors. Hence Project Skyway, correct?  My ultimate argument is that it is not “easy” to get investors as some assert – even when you are doing everything right – especially your business! 

          Speaking of which, do they have you drinking the humble kool-aid over there at Project Skyway? I am a huge cheerleader of PS, but that is part of the problem. I was beyond impressed by you and your business at Demo Day. Congrats on the Minnesota Cup news as well. Someone NEEDS to write you some checks. It needs to continue to see the light of day and hit the darn home run. You can do it!

          Singles and doubles may help win the game, but homerun hitters drive Ferraris, and singles hitters drive Fords. So stop this ketchup-is-too-spicy, “high probability of failure”, and let’s “embrace the honest hard-working ethic and inclination to pull together” BS. It’s not even true, and it’s as inspiring as a watching a Little House on the Prairie rerun.

          How can you NOT be envious of SV? No other culture of innovation and embracing risk exists in the world. Scientist or artist, we should be looking at ways to emulate the spirit of that galaxy at the very least. Make it our own? Sure, as long as it celebrates risk. What do we celebrate her in Minnesota? Michael Landon. 

          • Mark Brown

            Joe – I appreciate the exchange and your spirit.  I also appreciate your encouragement.

            Congratulations on your own Minnesota Cup success with Mashalot!  Everything I have heard and seen about what you and John are doing to empower buyers through a social shopping experience is exciting to me.

            In terms of finding investors, I hope I don’t need their checks.  I’d like to think that Project Skyway was useful in getting me closer to the best kind of checks – the ones that come from loyal and satisfied customers.  That is the fundraising I am focused on right now.

            With respect to risk, I see return as what an investor demands to compensate them for the perceived risks.  Isn’t it the entrepreneur’s job to manage and mitigate risks, not to embrace and celebrate them?

            Humble, yes.  Ferraris, no thanks.  We’re actually in the market for a minivan.  Can I Mash that, please?

        • Rob Weber

          “But I also view entrepreneurs more as tinkerers, experimenters working at novel ways to solve a problem.”
          “Most of the wealth and winning comes from smaller ball that adds up over time.”

          Very well put Mark!

  • LittleDuke

    “I don’t see it being built anywhere else in the world outside Silicon Valley either.”

    THIS is the kind of arrogance I see time and time again. I’m with Joe on this issue. Too many people get “lucky” and think that it was talent which in turn feeds their ego’s. We need to stop making stupid people famous, especially kids.

    Nobody has a monopoly on good ideas in a largely borderfree ecosphere. The concentration of wealth in silicon valley perpetuates a local redistribution cycle. The only virtue that spins out are the ones who have so much that have to create foundations to dispose of it.