As Reed Robinson’s guest series comes to a close, he explores how to increase pre-Seed investing in Minnesota in five steps. Agree? Disagree? Share your thoughts on Twitter or by filling out this form.
Define the Problem
We’ve started that process.
In Part 1, I explained the issues faced by early-stage founders — especially those at Pre-Seed — who are raising capital.
In Part 2, I showed there remains a lack of active Pre-Seed investing despite an influx of venture (and other) capital.
In Part 3, I posited that the population of active angels in Minnesota is far from the number of what it could be according to the abundances of both wealth and expertise in our state.
Account for the Resources at our Disposal
Here’s some good news — we have what we need. There are hundreds, maybe thousands, of small-business owners, entrepreneurs, and corporate executives who would qualify as accredited angel investors or who could support a Pre-Seed fund as a Limited Partner. The capital is there.
Maturing infrastructure is also surfacing and nurturing early stage startups from around the state including 1 Million Cups, BETA, Gener8tor, Impact Hub, Launch Minnesota, Lunar Startups, MN Cup, Techstars, and more. Many of these same organizations are producing a healthy supply of seasoned mentors and advisors who are either organically supporting startups or who have been formally connected via one of these programs or by a mentorship organization such as MESA.
Lastly, there’s been a noticeable uptick in the interest in the telling the stories of local startups by leading local news organizations and publications, helping existing entrepreneurs discover other resources while increasing the awareness of the area’s startup activity (likely leading to more entrepreneurs and investors). Hat tip to tech.mn for being there from the beginning. [Editor’s Note: Hat tip noted.]
Propose Multiple Solutions
Sadly, there ain’t no silver bullet for the lack of Pre-Seed investing. This is one of those cultural transformations that is going to take time to fix. It’s also one that requires a number of shots on goal.
Ideas to solve the early stage funding gap writ large:
- Dedicated leadership: All of the existing players (plus any new entrants) will be involved in the solution to increasing Pre-Seed investing, but solving these issues cannot be an individual or team’s part-time interest. Gathering existing resources and expanding upon them requires a focused effort from a dedicated team.
- Capital to deploy at a high volume at the Pre-Seed Stage: A near-term rebalancing of supply and demand would likely require a $10 million to $25 million fund investing $100,000 to $500,000 in early stage startups across Minnesota.
- Connect that capital to existing infrastructure: Investing alongside graduates of regional accelerators, promising contestants in the MN Cup, Launch Minnesota grantees, and more will magnify each of those program’s existing efforts. The Angel Tax Credit, when available, can also be featured as an additional incentive to activate a broader angel community.
- Enhanced education to early stage founders: First-time founders need better training around the tradeoffs between their various funding options. We need to reduce the time spent on fundraising fool’s errands and resolve the misinformation that has convinced many entrepreneurs to solely pursue the venture path or to refuse it all together. Any diversion of attention from venture must be redirected to relevant alternatives. This requires that we provide clarity on the other options along with equally robust support systems for navigating those pathways.
- Activate a broader corporate community: Though corporate venture groups and accelerators have been incredibly useful entry points, the next phase of corporate participation involves educating executive-level employees around Pre-Seed investing in early-stage startups and offering them a vehicle to invest either independently or via a fund.
Tactics that we can explore to activate more angels:
- Teach people about angel investing: It’s complicated and it’s hard to know where to start when you don’t know anyone else that is doing it. The ecosystem (that’s clear, right?) needs to provide more introductory education around the options for angel investing, while also encouraging people to try it out with an experienced friend or coach.
- Activate proven business operators: Groups like YPO, WPO, EO, and Vistage are full of small business owners who are doing exceedingly well. These people could make stellar angels as they are capable of providing lite operational support in addition to capital. Let’s also get to know something about these people so we can direct them to the place where they can make the greatest impact.
- We need a rallying cry: Nothing cheesy, but something to help share the message. Angel investing can generate a meaningful financial return, but it’s also about giving back to the next generation of entrepreneurs. How about something that says if you’ve ever been supported by a mentor at any point in your career, here’s your opportunity to return the favor?
Test, Learn, Repeat
If you want to play an active role in solving these early-stage funding issues, take one of the ideas listed above and start creating something. It can be an event, a podcast, a blog post, a new meetup group, a marketing campaign… it doesn’t matter as long as you put something out there for people to respond to. It won’t be perfect. You may stumble. But you’ll get the feedback you need to do it better the next time.
Share and Scale
As you’re building your solution, please share your work. If you discover something that moves the needle, tell others about it. When you share your work, you’ll build scale as other groups incorporate your findings into their efforts.
Taking one step at a time, we’ll figure this out. I know we can. I know we will. In the meantime, let’s all do what we can to continue to help our founders and friends do what they do best — continue to work on their business, get smarter every day, and keep grinding their way towards a successful outcome.