TECHdotMN: News about Minnesota Startups

At least 24 early-stage Minnesota tech companies raised a cumulative $58.6m in financing according to information collected and analyzed for the first quarter 2012 Capital Review.

Excluding Code 42 Software’s behemoth $52.5m first round, 23 companies raised $6.1 million, a more balanced picture of Minnesota’s tech investment climate on record for the start of this year.

21 of those 23 raised $3.9m in capital under the Minnesota Angel Investor Tax Credit within the first 90 days of the year, so says DEED’s data. Approximately 33 cents of each dollar invested through the program went into IT, Software, web, mobile, hardware, and telecom areas.

This data set does not include off-the-record and otherwise publicly undisclosed transactions; for a comprehensive historical review of Minnesota tech fundraising over the past few years, see: 2010; Q1 2011; Q2 2011; Q3 2011; Q4 2011. If anything was missed, please leave a note in the comments section and we’ll update.

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If ever there was a sign of a hot market, this is it.

The latest figures gathered by TECHdotMN show that the volume of dollars invested into Minnesota tech ventures doubled year over year, from $60m in 2010 to over $126m in 2011, respectively.

This data includes IT, Web, Mobile, SaaS and hardware companies reporting investment rounds in excess of $25,000 and does not account for unreported or undisclosed transactions.

Notable deals of the year include Ability Network’s $27m round, Cima NanoTech’s $15m D round, 8thBridge’s $10m series B, RedBrick Health’s $5.7m raise, and TST Media’s $3.5m Series B. All in all, 63 unique companies raised capital throughout 2011.

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According to TECHdotMN’s quarterly investment review, at least 24 Minnesota technology firms received investment capital during the months of July, August, and September of 2011.

Total funding for the period was approximately $34.5m and was largely impacted by Consumer Agent Portal’s $18m round.  The second largest raise of $5m was received by RedBrick Health, followed by TST Media’s $3.5m Series B led by El Dorado Ventures. The remaining 21 companies raised roughly $8m combined.

The number of transactions increased by 30% over last quarter, while the aggregate funding volume was on par, indicating a decrease in average transaction size.

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According to our 2011 second quarter analysis, at least 17 19 early stage Minnesota technology firms received investment capital during April, May and June.

Updated 8/4/11: Three additions to our Q2 2011 Minnesota tech investment analysis:

• Ability Network’s round was actually $27m, $7m more than previously reported.

• Video for Athletes’ (aka PrepAthlete) $200k was inadvertently omitted from initial numbers.

• Online/offline classified advertising and integrated multimedia employment company JobDig banked$1.25m from LFE Capital, according to recent PWCMT data.

Roughly $26.5m $35m in funding was attributed to Minnesota’s high tech sector, largely skewed by health IT firm Ability Network’s $20m round $27m round.  Ability’s raise was the largest tech deal Minnesota has seen since January 2010, when Cymbet raked in $31m for thin film rechargeable batteries. The remaining 16 18 startups raised roughly $6.5m $8m combined, for an average round of $405k $445k.

When contrasted against last quarter’s analysis, both the number of transactions (-15%) (-10%) and the aggregate funding volume are down (-30%) (-8%), although the average deal size is up slightly.

This analysis supports the full spectrum of financing ($25k+), regardless of stage or definition (angel, seed, series A etc.) and many startups are currently fundraising. While we attempt to compile the most complete set of data, it remains imperfect as unreported transactions occur.

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Chris Heim began his tech career as an intern with Eden Prairie’s HighJump Software while still attending college for computer programming.

He would spend two decades with the supply-chain software firm, moving up to the position of CEO, a title he held for ten years.

As CEO of HighJump,  Chris grew revenues from $8m – $42m, and with the help of business partner and CFO Dan Mayleben, negotiated a sale in 2003  to 3M for $90m.  The unit was then re-sold to Battery Ventures 5 years later for an undisclosed price.

In 2006, the duo received a phone call from the venture arm of CIBC with an appealing offer:  ‘take our money and do what you do’.

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Despite a year’s worth of articles bemoaning the condition of U.S. venture capital investing (see here and here and here), venture capital firms invested $21.8 billion nationally in 2010 (3,277 total investments), according to the National Venture Capital Association & PwC’s annual MoneyTree report.

This represents a 19% increase in dollars invested over 2009.

Minnesota’s 2010 story ends quite differently. Cross-sector startups raised a collective $140 million, marking a 48% drop from 2009, and the lowest Minnesota amount since the MoneyTree reporting began 15 years ago.

For 2010, TECHdotMN documents 42 unique high tech deals (IT, SaaS, web/mobile, digital media, hardware, telecom), totaling in excess of $60m invested in Minnesota-based technology companies throughout last year. Excluding Cymbet’s $31m round, 36 different ventures raised approximately $30m combined in 2010, or $857k per average round, according to the data.*

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Created by Founder and CEO of Control Data Corp., William C. Norris,  the William C. Norris Institute is a seed stage capital fund serving “innovative technology-based companies that are in the early stages of commercializing proprietary products and services.”

Since 2001, the Institute has been affiliated with the University of St. Thomas, Opus College of Business (although the fund is not exclusively reserved for UST students and alumni). Unlike most investment funds, the primary is objective is education, rather than return on investment.

My interview with Mike Moore, Director of The William C. Norris Institute, follows:

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Doug Ramler is a principal at the Minneapolis-based law firm of Gray Plant Mooty where he represents start-up and emerging companies in organizational, finance, governance, SEC compliance, and contractual matters. He is a co-chair of the firm’s Entrepreneurial Services team.

Mr. Ramler represents multiple Minnesota (and beyond) technology startup companies including distributed commerce network Alvenda, Inc, which raised $5 million in venture capital in January, 2010 and Sajan, Inc, a cloud-based translation management software company, which completed a reverse merger in March, 2010.   Gray Plant Mooty is also a TECHdotMN community sponsor.

I spoke to Doug about the importance of advisory boards for startup companies.  What follows are excerpts from our interview.

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Last month, Silicon Valley attorney Ted Wang and a group of collaborators published the “Series Seed Financing Documents.”  This set of free legal documents is intended for early stage companies raising up to $1.5MM in seed capital.  The goal of this effort is to decrease the time and dollars spent in creating transaction documents, as well as to level the playing field between companies and investors.

By many accounts this is the fourth set of free, open-source seed stage documents (entire list).  Supporting Wang is prominent venture capital firm Andreeson Horowitz (started by the founder of Netscape), and a slew of venerable investors such as Ron Conway and First Round Capital.

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The Brookings Institution recently published a white paper titled, “Turning up the Heat: How Venture Capital Can Help Fuel the Economic Transformation of the Great Lakes Region.” In it, Author Frank Samuel, former Science and Technology Advisor to the Governor of Ohio, tackles a problem that has plagued the Great Lakes region for decades – how to transform a former manufacturing mecca into a 21st-century knowledge-based economy.  Samuel identifies the following negative trends ailing the Great Lakes region*:

·       out-migration of young, educated workers;

·       failure to replace manufacturing job losses with new growth industries;

·       metropolitan areas that are unable to attract people and businesses

Additionally, Samuel highlights a sad disparity: despite the fact the region contributes 40% of Venture Capital dollars nationwide, produces 31.4% of US patents on annual basis, and receives 35% of NIH grants, only 13.8% of US Venture Capital is invested in the Great Lakes region.  This disproportion is insufficient for a region seeking to re-invent itself; absent significant investments, it will be difficult to compete in changing times.

Samuel recommends a “Great Lakes venture capital superfund” as a partial solution to this problem. This $1-2 billion dollar “fund of funds” would invest in Great Lakes-based venture capital firms, placing investment decisions in the hands of regional funds.  While not suggesting such a measure as a panacea, Samuel states that it would “help the region grow, and retain, the new businesses and jobs it needs to ensure a more prosperous and secure future.”

Samuel was kind enough to offer his insights in an interview with TECHdotMN [part 1].   Our angle was to assess the local impact from the proposed Great Lakes 21st Century Fund.  Responses have been shortened and summarized.

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