TECHdotMN: News about Minnesota Startups

Paul Knapp is President and CEO of Space Center Ventures (SCV) where he manages an evergreen venture fund backed by the McNeely family business office.

The 95 year old firm was built in the St.Paul trucking and warehouse business, but today primarily manages 18 million feet of commercial real estate around the country.  As a means of “attaining higher yields through diversification,” the investment arm “has been focused predominantly on emerging Minnesota high tech and med-tech ventures for the past 11 years,” under Knapp’s watch.

“We typically invest $250 – $500k in  ‘post-revenue’ businesses that are raising larger rounds, likely to achieve profitability near term and liquidity medium-term,” he says.

Interestingly, Knapp recently made a seed stage (<$100k) investment into local startup SyncMyAd after receiving a ‘cold’ email from from entrepreneur Nathan Reimnitz.  Is this the new norm for one VC or the exception to the rule?

“We see the trend on the coasts is definitely going towards smaller investments earlier…and I virtually never respond to people I don’t know looking for funding. I’m not even sure why I did, but it’s a company that was founded on a shoestring and is the poster child for how you can create a tech business relatively inexpensively and get some good traction.”

Tune into the podcast to hear more about why he made the investment into SyncMyAd, his big picture investment philosophy, and other perspectives.

Two new investors are putting up $20m combined of their own money to fund Minnesota startups for no other reason than they see a real opportunity here and now.

“I’m looking at my desk and there are over 100 deals from every letter of the alphabet,” says Mark Marlow, President at Omphalos Venture Partners.   “It’s a shame that we have to decline some great entrepreneurs only because we can’t single-handedly fund them all,” adds Omphalos Chairman Sean Casey.

The partners have parlayed winnings from Virtual Radiologic, “a typical startup success story,” Casey says modestly, having founded the venture out of his home in 2001 to provide technology outsourced radiology services.  Marlow joined in 2003 as CFO and saw the company through a $70m IPO in 2007; at one point, the VRAD’s market cap peaked around $500m.  The firm was eventually sold to Rhode Island-based private equity firm Providence Equity Partners for $294m in May last y

Since April 1st, many entrepreneurs and investors alike have been asking all the right questions: what exactly does the passing of the Angel Tax Credit imply from the tax & accounting perspective? And what happens next? What does it really mean for Minnesota?

Updated 4/19/10: added – MOJO Gude to AITC

Updated July: DEED/Angel site goes live!

Join us for a behind the scenes perspective on the experiences from one Minnesota Angel Investor who has been advocating Minnesota Angel Tax Credits for the past 9 years.  Learn about the nuances of the bill and the vision moving forward from of Minnesota’s most public Angel Investors, John Alexander. Mr. Alexander is Chairman and Founder of Twin Cities Angels and President at Business Development Advisors, Inc. (no website).

What it means on paper, technically: The Minnesota Department of Employment and Economic Development (DEED)  has a solid primer on the parameters that entrepreneurs and investors need to know about HF 2695.3 (see: Small Business Investment Tax Credit Statute - section II).   Those interested in taking advantage of Minnesota’s Angel Investor Tax Credit should consult with their respective counsel.

What’s next? From the sounds of things, DEED will have their official application site up and running between June 1st and August 1st.   Qualifying as a business and/or an investor is the next step.

What does it really mean for Minnesota? Well, that’s the big question;  ultimately, it’s up to both the entrepreneurs and those with a financial interest in the tech community to determine how they want to capitalize on this this win.  Only time will tell where and to what extent the passage of this bill impacts the early stage markets (and so on). Stay tuned…

Joy Lindsay is President of StarTec Investments, a private VC firm Co founded with Thomas McLeod in 1998.  Joy started her technology career with West Group  (sold in 1996; now West, a Thompson Reuters company)  as an exective in software, sales and marketing. Unlike most venture firms, StarTec has no Limited Parters, whereas Joy & Tom not only make all the investments decisions but they also draw on personal funds.

Ms. Lindsay is quite active in the local high tech and investor scene: she is a member of the Sofia Angel Fund – a group of 30 women that makes investments in women led/run companies;  2010 Vice Chair of the Minnesota High Tech Association; Vice President & Secretary of the Minnesota Venture Capital Association and also a member of the MOJO/MN initiative.

StarTec saw its first win right out the gate with Xiotech (acquired in 2000 by Seagate Technology); since inception, the duo has made 18 Minnesota investments and seen 1 IPO (Compellent). StarTec currently maintains 8 portfolio companies with a  focus on early stage (100-500k) Science & Technology startups.  They prefer pedigreed entrepreneurs/referrals from trusted sources, but do consider the blind plans and pitches they receive (1 per day on average).  StarTec maintains no public website.

Direct Podcast Link

Arthur Ventures Growth Fund is a “pre series A” fund organized in Fargo, North Dakota. The Fund Managers are  pursuing investments in Minnesota and can prove it. They raised an 11 million dollar fund about two years ago and have since made 4 investments with an estimated 5 million remaining “to put to work.”  Arthur Ventures makes early stage investments in startup companies from a variety of sectors but are known for their software pursuits with respect to their strengths and experiences.  Arthur Ventures is ramping up fundraising efforts for a second fund, aimed between 20-30 million.

Arthur Ventures is the offspring of North Dakota’s biggest software success story – Great Plains Software – which was sold to Microsoft in early 2000 for 1.1 billion. Great story and quality conversation with guests Zach Robins, James Burgum & Tadd Tobkin!

Direct Podcast Link
Matt Crowe is an Entrepreneur – first and foremost -  a Venture Capitalist second.  He’s been building businesses since the age of 16 and he reflects regularly at Matt’s blog – business and philosophy. He’s also a columnist for Real Business Magazine, a blogger for the Star Tribune, published Author and host of an online talk radio show called The Matt Crowe Show.
So, what is a Huckleberry already?

“A problem in need of a solution” says Mr. Crowe, Founder and Chairman of Huckleberry Ventures, an emerging Minneapolis, MN Venture Capital firm.

Huckleberry puts an explicit emphasis on building companies through their “holistic” model compared to that of a more traditional Venture Capitalist approach. The difference? Huckleberry integrates their “brand of ideas” into a methodical process of discovering real problems, pooling (multiple) teams/talent and creating a competitive environment centered around guidance and support…all before injecting the capital.  Whereas Entrepreneurs and CEO’s typically pitch investors with their products and plans, Huckleberry aims to (first) go directly to consumers using their own hybrid crowdsourcing technology, ideation engine and diligence tools to uncover what large scale problems markets are facing.  Next, they gather results and push out “Huckleberry’s” to the Entrepreneurial community across the country in the form challenges that will culminate in a Minnesota-based competition known as the “Huckleberry Harvest” featuring a prize in the million-dollar range. What’s more, is that Huckleberry will also function as a fund, exclusively focused on consumer products and services. Their target investment is “Post Angel, Pre-VC”, but they “have the means to last into the VC Stage of single digit millions.”

“We’re trying something different and new with leveraging technology,crowdsourcing and an event..this is like the combination of Virgin, the X-Prize, Y-Combinator, Sequoia, Techstars – all combined into one…” – Matt Crowe

This unique platform will be released early this spring at http://whatsyourhuckleberry.com and consumer-side beta testers can sign up here now

Pete Birkeland is Chief Financial Officer of Rain Source Capital.  He is responsible for managing the financial reporting and accounting for RAIN Source Capital and coordinating the support functions to the RAIN Funds. He also works on due diligence tasks for for the various fund investments. Although Pete is not a VC, we consider him highly relevant to the topics at hand and use the acronym VC as a blanked label to describe those, like Rain Source, who operate in the private equity arena.

RAIN Source Capital is a multi-state network of RAIN funds that works with angel investors who are interested in supporting growing companies. They help bring together like-minded angel investors to form individual RAIN funds and then provides these funds with a process for due diligence, legal templates, management support, access to deal flow and other resources.

RAIN funds share expertise, deals and experience between and among their multi-state network to support growing companies throughout the areas they serve: 23 funds located in Minnesota, Iowa, North Dakota, South Dakota, Montana, Idaho, Washington, Oregon and other areas.

Starting off the conversation is a bit about the upcoming Small Business Investment Tax Credit/Angel Investment Tax Credit/Saltzman Bill. You can show your support for this bill on behalf of Minnesota Technology Startups through a form located here and also learn about the upcoming hearing on Feb 9th at the state capital.

David Dalvey is currently a Partner with Minnesota based venture capital firm Brightstone Capital and a Managing Partner of the Mount Yale Venture Fund, a fund of top tier venture funds, also located here in Minneapolis.

Over the past two decades, David has raised and invested over $1 billion of new investment equity in over 100 private equity transactions primarily with early stage growth-oriented technology businesses.  During this 20 year period, he has seen a variety of market cycles and fundraising environments.  David also has helped many local technology and medical device businesses and their boards assess their fundraising prospects, prepare an effective fundraising strategy and ultimately approach and secure funding from venture capital sources.