As one of the few seed venture capital firms in the Silicon Prairie, Dundee Venture Capital has been lucky enough to see first-hand some of the incredible changes happening here the last several years, and to invest in many of the companies driving those changes. We are witnessing an era where the next Fortune 500s that will anchor our cities for decades to come are being built right in front of us.
A successful startup ecosystem breeds a successful business ecosystem, and with it, a growing city or region. Any city or region that values, understands, and caters to startups will build, grow, and sustain them, and, along with them, sustain an incredible organic influx of talent, capital, and business.
We have built some incredible foundations across the Prairie to welcome, build, and accelerate these startups. Boulder, Minneapolis and Chicago are model cities; Kansas City and Saint Louis are vastly improved. Everywhere we can still do more.
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The Silicon Prairie: Raw materials and process
There are all kinds of analogies used to describe the components of a successful startup ecosystem. For example, Brad Feld’s leaders (entrepreneurs) and feeders (government, service providers, academia, capital providers). Talent, capital, and density is a phrase we use often.
But we are proposing another analogy: raw materials and process.
Raw materials and process are what the success of every startup ecosystem boils down to.
The raw materials are simple: Entrepreneurs and capital providers. Entrepreneurs and capital providers are just that: raw. They can’t be created, can’t be willed to exist.
But the good news is entrepreneurs are here, across the Silicon Prairie, and just as plentiful as on the coasts. Entrepreneurs are in our universities: At the Raikes School, Kellogg and Booth Business schools, at the U of M (Minnesota), the University of Iowa, and in Madison at the University of Wisconsin. They are in our companies, too: Medtronic, TD Ameritrade, Monsanto, Cerner, and AmFam.
And the capital providers are plentiful, too. Even if they’re not yet coming in droves supporting VC firms or angel networks, the capital is here in the farmland, in public equities, treasury bonds, or on the balance sheets of the hundreds of innovative companies headquartered here in the Midwest.
The process (government, universities, service providers, events, as well as an engaging, efficient, and helpful community, and a long-term focus) helps discover those raw materials and turn them into finished products: Sustainable, high-growth companies that will create the vast majority of new jobs over a 10, 20, 30 year period.
Where we have made progress
Entrepreneurs are going for it. More and more first time entrepreneurs are making the jump, after seeing the same problem go unsolved time and time again.
The decreasing costs of business and the active accelerator and prototype grant landscape have made it even easier to get companies off the ground, and bootstrapping has become something to be proud of.
Moreover, entrepreneurs are sensing a more welcome startup community and the jump from a cushy corporate job to an early-stage startup is, anecdotally, happening more and more.
Capital Providers are becoming more active, especially at the earliest stages. Arthur Ventures closed on a $45M software fund 18 months ago in Fargo; Flyover Capital in KC is making their first investments out of a fund designed to write $500K-$3M checks; and Minneapolis startup Vidku was able to raise $17M in 17 days last month from 75+ angel investors. Angel groups are getting stronger and beginning to lead rounds.
Just as important is the fact that outside investors are looking in the Midwest more frequently for deals: Union Square Ventures and Andreesseen Horowitz in Dwolla; Wells Fargo in EyeVerify; and GovTech Fund in MindMixer.
Governments are beginning to recognize the importance of economic incentives and rolling out the startup red carpet to attract and keep high-growth technology companies.
Minnesota has $16 million in angel tax credits available. Nebraska has bills in legislature to raise the available angel tax credits by $2M to $5M and to establish an equity crowdfunding portal. Kansas City continues to roll out economic incentives to attract and maintain startups, with Digital Sandbox KC, Google Fiber, and the support of Mayor Sly James all supporting the effort.
Service Providers are becoming more specialized and well-versed in the startup landscape. Lawyers provide Silicon Valley quality at a fraction of the cost. Accountants, marketers, consultants, designers, and other service providers are finally seeing enough volume to focus a majority of their time on servicing startups, and they are getting better and better at their craft as a result of doing so.
Universities are starting to turn the corner and become more than machines cranking out Fortune 500-ready graduates. The Raikes School at UNL combines world-class Computer Science, Innovation, and Management curriculums to create graduates who are ready to hop into the startup world. Hudl is supporting the Raikes School with a $500K scholarship. The ClusterFlunk founders Joe Dallago and AJ Nelson left the University of Iowa to pursue their dream and put Iowa City on the map in the process, and there are dozens of similar stories happening across the Midwest.
Where we have work to do
We have to create an environment that aids in the discovery of entrepreneurs and entrepreneurial traits, and one that’s inclusive of everyone’s strengths.
An entrepreneurial ecosystem starts with the entrepreneurs who have a passion to build things people want. Without entrepreneurs, the process and the capital are worthless. This means we must accept and welcome all participants, whether it’s a major corporation sending a couple entry-level employees to check out a tech event or an inquisitive friend asking about those startup companies.
And we need to educate, educate, educate. A lot of what we do at Dundee is educating entrepreneurs and capital providers about our business. It can take 10-20+ times seeing, hearing, reading about, and witnessing startups in action before someone truly grasps their importance. So take the time to educate your peers, especially when you’re in front of a captive audience.
Entrepreneurs have to be willing to share failures, successes, and best practices. A rising tide lifts all boats, and we aren’t at the point where our biggest startups are directly competing with one another. A welcoming, sharing, open community of entrepreneurs breeds other entrepreneurs, and helps each startup avoid the mistakes that may have sunk others before them.
Building a company is never a smooth process by any means, but an open community of entrepreneurs working for the success of the ecosystem as a whole can help avoid some of the inevitable potholes startups run into.
Capital Providers must take more risks, and they must provide value to a startup beyond just capital. Investors in a high-growth startup should understand the risk/reward of their investment and take a portfolio approach. Too many investors get burned once by a startup investment and never enter the arena again. Angels and VCs alike need to act more quickly, as the only resource scarcer than money for a startup is time.
It is also our job as capital providers to educate and attract other capital providers to the region. More capital is not competitive, but rather it allows every startup a greater chance of success.
Governments need to lay out the red carpet for startups. That means increased angel tax credits, more economic incentives to create, grow, and maintain high-growth tech companies, and initiatives at the city and state levels to make startups feel valued.
Chambers of commerce need to put their time, money, and networks behind rapidly growing, early-stage startups, not data centers or call centers. Welcome Uber, Lyft, Zenefits, and any other “disruptive” startup to your city; they’ll make your current businesses better and your cities safer.
Universities need to renew their focus on entrepreneurship and on real-life practicums for entrepreneurship. Any entrepreneurship class, track, or major must connect students with startups to experience first hand how their skills might fit at a startup.
The possibilities for universities in entrepreneurship practicums are endless. MBA students can analyze changing business models and hiring practices. Law students can take a crack at drafting employee option or stock purchase agreements. Finance and entrepreneurship students can help source and fund companies from a university venture fund.
Entrepreneurship can be a differentiator for universities, if they commit to it. Entrepreneurship programs have to be ever-improving, ever-testing, applicable, flexible, and different, just like the startups they should aim to mimic.
The Media needs to dig in and cover the best companies across the Prairie, not just the ones most readily available or the ones with the coolest brand. There are amazing companies flying under the radar across the Silicon Prairie that should get media coverage but rarely do because they don’t seek it out. The media, like service providers, has to make sure they fully understand what it is they’re writing about and make coverage of high-tech startups a full-time focus.
Corporations should be heavily involved in technology startups, incubating and spinning off internal ideas and exploring partnerships or acquisitions with early-stage startups.
Corporations of all sizes should have teams at co-working spaces and in accelerators leveraging the quickness, flexibility, and problem-solving of startups while bringing those learnings and solutions back to the corporation for implementation.
Straight Shot’s logistics focus, and Sprint’s Mobile Health accelerator are great examples of leveraging the strengths of your city’s corporations.
Remember, this change doesn’t happen overnight. But if we all do our part to ensure we are moving the Silicon Prairie forward, we’ll be amazed where we are at in five years, let alone 20.
The companies that will permanently change our region, and our world, for the better are being built right now. Today. Let’s keep them going. Let’s get building.
Dundee Venture Capital was founded in 2010 by serial entrepreneur Mark Hasebroock and invests in high-growth technology companies throughout the Midwest. DVC manages two funds totaling $20M and has invested in 25 seed-stage companies to date. Dundee’s investments include MindMixer (Kansas City, $26M in funding), Inventables (Chicago, $5M in funding and creator of Carvey), and InfoChimps (Austin, acquired by CSC in 2013), and four in Nebraska: Bulu Box, HuntForce, Lockr, and Viirt. In addition to Mark, Dundee’s team of operators and investors includes Beth Engel, Greg Beaufait, and Andrea Sandel.
