Colorado startup incubator surveys Nebraska VC landscape, affirms what we’re all thinking

A new report released by start-up incubator Innosphere Ventures, a nonprofit based in Fort Collins, Colo., takes a deep look at recent venture capital (VC) funding trends in Nebraska. The report finds that, even in the middle of a global pandemic, 2020 was a banner year for VC across America, including Nebraska.  The news comes…

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A new report released by start-up incubator Innosphere Ventures, a nonprofit based in Fort Collins, Colo., takes a deep look at recent venture capital (VC) funding trends in Nebraska. The report finds that, even in the middle of a global pandemic, 2020 was a banner year for VC across America, including Nebraska. 

The news comes with a little caveat, though. The report breaks down the numbers in depth and reveals a unique challenge for certain businesses in Nebraska who are looking for funding in 2021 and beyond: namely, that local startup investment isn’t keeping pace with the upward trend seen in most markets.

While Innosphere Ventures has mostly worked at the intersection of entrepreneurship, VC and economic development in a state not typically associated with the Silicon Prairie, the 22-year-old nonprofit has found many similarities between Nebraska and Colorado’s VC and startup landscape. According to CEO and General Partner Mike Freeman, these commonalities involve where the money is coming from, and where it’s going.

“If you look out over the mountain and plain states, you see a fairly similar trend over the last decade, which is incrementally more venture deals getting done overall,” Freeman said. “Generally speaking, capital isn’t always keeping up in all the markets. We estimate that 95% of the VC capital backing Colorado companies come from funds that are not headquartered in Colorado.”

Based on Innosphere Ventures’ research, this trend can also be observed in Nebraska. As the organization’s recent report notes, “Nebraska’s venture capital landscape indicates that out-of-state investments have played a significant role in growing the ecosystem over the past decade.” (The report may be downloaded here.

Diving into the numbers reveals that, even during the pandemic last year, Nebraska ended 2020 with $106.7 million on 27 completed deals. This total nearly doubled 2019’s output, with five less completed deals across the state than the previous year. In 2019, 32 VC deals were completed with $61.3 million in total investments raised. Innosphere Ventures’ report indicates that VC deals are on pace to beat both metrics. As of June 28, $138.9 million has been raised from 15 completed deals across the state of Nebraska.

Although the numbers appear to follow a continuous upward trajectory, researchers concluded that Nebraska faces a discrepancy between the source of VC and its target. Per the report:

“An increasing amount of capital is concentrated within large VC funds, and fewer emerging funds have been capitalized in recent years, with 2020 being a low spot since the great recession.”

Also in the report:

“An increasing amount of capital is concentrated in coastal regions, leaving companies in Mid-America with scarce availability of local capital.”

While VC funding in Nebraska and other Midwestern states tends to be lopsided, Innosphere Ventures doesn’t view this sign as a canary in the coal mine for new entrepreneurs in the Silicon Prairie. In fact, the report mentions a handful of attractive features for investors who are looking for a startup company in a ready-made ecosystem. Nebraska’s low cost of living, overall low business costs, and strong ecosystem support that Nebraska entrepreneurs have received through acts like the Business Innovation Act of 2011, are just a few advantages.

With that in mind, Innosphere Ventures has announced the creation of the organization’s second VC fund. The straightforwardly named Innosphere Ventures Fund II will focus on businesses in the middle of the country while supporting entrepreneurs building high-tech companies. The fund will also strive to improve economic growth and innovation, accelerate the path to successful exits and create positive ROI for investors, the report notes.

However, Freeman said he wanted to acknowledge the investors who are already leading the way with VC funding in the states to which Innosphere Ventures’ new fund is dedicated. The company plans to work alongside these in-state investors, which include Invest Nebraska, Dundee Venture Capital and Nebraska Angels, among others. 

Freeman also said Innosphere Ventures will co-invest with local investors based on each investor’s strength.

“We are very aware of the prolific local investors and really looking to team with them,” he said.

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