The Twin Cities will never be Silicon Valley. Minneapolis has nothing like Sand Hill Road running along and to the west of Stanford University, thick with venture capital firms. But plenty of Minnesota companies are attracting investors nonetheless.

In fact, entrepreneurs here attracted $371.7 million in venture capital covering 30 deals in 2015—the strongest showing since 2008, according to data from The Money Tree Report by PricewaterhouseCoopers (PwC) and the National Venture Capital Association, based on data from Thomson Reuters. (The report tracks venture capital investments only, not other types of startup financing.)

“The fourth quarter in Minnesota was excellent for venture capital investing activity,” says Mark Scholtes, a partner in the Minneapolis office of PwC. He notes that for fourth-quarter investments, Minnesota ranked ninth in the nation, with $190.9 million in venture capital deals. (For the full year, Minnesota ranked 17th in the nation.)

Starting a new business is always a risky venture; not every business can survive to become a sustainable, profitable company. But venture capitalists don’t pour millions into a new company without doing homework on the concept, the industry landscape, management and metrics. Significant venture backing is a strong signal that a new company has mojo.

In searching for the most promising local startups, Twin Cities Business looked first to the companies that have attracted the most venture backing. As a group, our top five attracted $139 million in their most recent rounds of financing.

Has Bloomington-based Ten K Solar built a better mousetrap for the solar power industry? Is Maple Grove-based NxThera on the cusp of an important medical breakthrough? Is Minneapolis-based LeadPages rewriting the rules of online marketing for business owners?

While each has a different focus, there is clearly a common thread: CEOs who strongly believe they have a product that can change the world, or least their corner of the world. And each of them has passed muster with investors who share their vision.

Sun Shines on Ten K Solar

Ten K Solar CEO Joel Cannon says that the company could hit $100 million in revenue in 2016.
Ten K Solar
HQ: Bloomington
Founded: 2008
Employees: 92 in the U.S.; 105 in Asia
Latest financing: $25.2 million, January 2016
X factor: Revenue hit $31 million in 2015, up 68 percent from 2014

New York-based financial giant Goldman Sachs is about as Wall Street as can be. But in January, Goldman made local waves with the news that it led a $25.2 million financing round for Bloomington-based Ten K Solar.

Ten K CEO Joel Cannon says the company turned down other offers so it could go with Goldman, because “Goldman is a sophisticated alternative energy investor.”

Cannon says the appeal of Ten K Solar is that they’re building a smarter solar panel for customers who are looking to tap the alternative power source. He describes a conventional solar panel as a series of solar cells that are “strung together like Christmas lights,” so the array is only as good as its weakest cell. Ten K has developed a proprietary technology where the solar cells are independent of each other, which boosts the array’s reliability and performance.

“It’s a big market, there’s a lot of competition,” says Cannon. “But to my knowledge it’s the only commercially available module with independent cells.”

Ten K’s sales are climbing at a brisk pace from $6.8 million in 2013 to $18.5 million in 2014 and then $31 million for 2015. Looking ahead, Cannon says that the company expects to generate $80 million to $100 million in sales in 2016—and become profitable in the second quarter.

Ten K has a solid track record drawing financing: To date, it has raised about $61.6 million in equity through various rounds of financing. In the latest round, Goldman Sachs kicked in $20 million. Another investment came from outside the VC world: the Michigan-based Kresge Foundation invested $3 million.

Sioux Falls, S.D.-based Prairie Gold Venture Partners was among the early investors in Ten K back in 2010.

“There just [hasn’t been] a ton of difference from one panel to another,” says Paul Batcheller, a partner with Prairie Gold, of the solar industry. “What Ten K was doing was fundamentally different.”

Batcheller says that his firm focuses on “green tech and life sciences” companies, primarily early-stage, in the Midwest. He notes that Ten K survived a tough post-recession climate with weak demand and falling prices.

“We had periods in there where companies were going bankrupt left and right,” recalls Batcheller. “I think it’s a real validation of the company, its progress and their approach to this marketplace to have a large sophisticated investor like Goldman Sachs. We feel great having them on board as a partner.”

Does NxThera Have a Breakthrough for Men's Health?

Bob Paulson, CEO of NxThera, has deep experiennce in the medical device industry. The Rezum System is shown below.
NxThera
HQ: Maple Grove
Founded: 2008
Employees: 49
Latest financing: $40 million, December 2015
X factor: “Significant investment” from Boston Scientific Corp.

To some, Maple Grove-based NxThera Inc. might look like a lot of other medical device companies—a promising idea, but few sales to date. But one large industry player is betting big on NxThera: the Massachusetts-based Boston Scientific Corp., a $7 billion company, led the $40 million financing round that NxThera announced in December.

In the wake of landing FDA clearance for its Rezum System in August 2015, NxThera is ramping up for sales after a long development cycle. Rezum treats benign prostatic hyperplasia (commonly known as enlarged prostate), a common condition for older men, which causes urinary problems. NxThera’s technology works by injecting water vapor into the prostate.

CEO Bob Paulson says that traditional treatments for BPH have had mixed results. He sees a big market. “It’s a global condition. There are 12 million guys in the U.S. that have been clinically diagnosed with BPH,” says Paulson. “There hasn’t been a good solution.” (NxThera is also in the early stages of testing the product as a potential treatment for prostate and kidney cancer.)

Boston Scientific has declined to disclose how much the company kicked in for NxThera, but Evan Brasington, vice president of marketing for urologic and pelvic health, calls it a “significant investment.” (Boston Scientific has a large presence in Minnesota, with more than 7,100 employees here.)

“This is a very quick procedure with minimal discomfort,” says Brasington of NxThera’s Rezum. “It’s a potential breakthrough technology.”

The latest round of financing will be used to help the company build its sales team and start pitching. Paulson says his company began a “limited commercial launch” in November, but is planning for the full commercial launch to be underway this summer. It’s been a long road for NxThera, which was founded in 2008.

“This round came in a combination of equity and debt,” Paulson says of the $40 million in financing. He declines to disclose the total amount the company has raised to date, but NxThera previously announced raising more than $41 million total in financing rounds in 2011 and 2014.

“The last big investment risk now is the commercialization ramp,” says Paulson. “We have revenue, but we literally just started.”

Paulson is a veteran of the industry and knows the game. He was previously the CEO of Restore Medical, which was sold to Medtronic in 2008. Before that he was CFO for another local company, Endocardial Solutions, which was sold to St. Jude Medical in 2005.

“Is this a billion-dollar-plus market opportunity?” asks Paulson. “There are millions and millions of guys out there looking for a solution.”

LeadPages: A Slice of Silicon Valley in the North Loop?

Clay Collins, co-founder and CEO of LeadPages: “a real passion for the product.”
LeadPages
HQ: Minneapolis
Founded: 2013
Employees: 154
Latest financing: $27 million, June 2015
X factor: Revenue doubled in 2015 to more than $16 million

LeadPages seems like a company that you might find in New York or Silicon Valley. But instead, the fast-growing software concern is based in downtown Minneapolis’ North Loop, a neighborhood that’s increasingly drawing young tech companies.

LeadPages is a tool that allows businesses to create “landing pages” for online marketing to entice people to take some kind of action: to buy something, sign up for a newsletter or take advantage of a promotional offer. While there is no shortage of competitors that offer landing page generators, LeadPages separates itself from the pack via simplicity—it takes a matter of minutes to create landing pages, a key selling point for the small to medium-sized businesses that are its target audience.

“A business might have a website with 50 pages on it, but it’s usually less than 2 percent of those pages that are responsible for driving the ROI of the business,” says Clay Collins, co-founder and CEO. “If you can double the percentage of people that show up to that page, then you’ve doubled the revenue.”

Founded in January 2013, LeadPages has already grown to more than 150 employees. The company’s revenue is driven by subscription fees. It was ranked at 220 on the latest Inc. 5000 list of fastest-growing private companies. It posted revenue of $8.3 million for 2014; Collins says that doubled in 2015. (The company’s legal name is Avenue 81 Inc., but it does business as LeadPages.) In June 2015, LeadPages announced $27 million in Series B financing, adding to the $11 million that it had previously raised.

Collins says that the funding will go to refining and improving its software, while giving LeadPages cash to acquire other businesses. “We’re looking for a good acquisition about every 18 months,” he says.

The Boulder, Colo.-based Foundry Group has invested in all three LeadPages financing rounds so far. “We tend to be drawn to product-focused CEOs, and Clay has a real passion for the product he’s building,” says Seth Levine, Foundry Group managing director. “They were simpler and better than anybody else in the marketplace.”

Collins may be the company’s public face, but he shares credit with Tracy Simmons, co-founder and chief strategy officer. He focuses on marketing, while Simmons brings experience managing operations. “I’m the sail and she’s the rudder,” says Collins. “I’m much less organized that she is . . . it’s a fantastic partnership.”

Collins has thought about the potential exit strategy for investors—an IPO. “What I like about an IPO is it allows us to stay independent,” says Collins. “I like the idea of that right now.”

Zipnosis 2.0

After changing the company’s direction, co-founder and CEO Jon Pearce is bullish on Zipnosis.
Zipnosis Inc.
HQ: Minneapolis
Founded: 2008
Employees: 31
Latest Financing: $17 million, January 2016
X factor: Landed second health system client in 2014; technology now being used by 20 health systems across U.S.

Sometimes a business doesn’t unfold according to plan. That’s the case with Minneapolis-based Zipnosis Inc., founded in 2008.

“Our first launch was really ‘Minute Clinic on the iPhone,’ ” recalls Jon Pearce, co-founder and CEO. “It sounded really good, but the business and the market weren’t quite there.”

In 2012, the company pivoted to an entirely new strategy: selling a “virtual health care” platform to large hospital systems. It appears to be picking up steam. Two years ago Pearce had only two health systems as clients; at the end of 2015 that number had grown to 20.

When a health system is using Zipnosis, patients can log in with a computer or smartphone and quickly detail their symptoms. The Zipnosis platform then connects the patient with an appropriate clinician, who can respond within an hour, outlining a treatment plan.

Pearce declines to disclose revenue; he says that Zipnosis was profitable in 2014, but not in 2015.

In early January, Zipnosis announced a $17 million round of financing. The round was led by Pennsylvania-based Safeguard Scientifics Inc., a publicly traded concern that invests in early- and growth-stage companies in the health care and tech sectors. Zipnosis is arguably in both niches. The funding will drive investments in marketing and product development.

A key partner has been Minneapolis-based Fairview Health Services, Zipnosis’ first client, which worked with the company on initial product development. Fairview is also an investor, backing the company in an earlier finance round.

“We felt that being an investor . . . gave us a greater voice in the direction of the company,” says Fairview senior vice president and CFO Dan Fromm.

As Zipnosis expands, Fromm says, Fairview can help connect it with other health care systems around the country: “We can open doors for them in a way that a venture capital organization cannot.”

When the company was starting out, it was backed by angel investors. Zipnosis also raised $3 million in a previous financing round in 2015.

Today, Zipnosis has clients across the country, including the University of Alabama, UCLA Health, Seattle’s Group Health and John Muir Health in the Bay Area.

“Our challenge is can we get the capital to take some big bets,” says Pearce. “I think Minnesota is going continue to be a hotbed for this next generation of health care technology.”

Freelance Trend Builds Field Nation

CEO Mynul Khan is connecting companies with independent contractors through Field Nation.
Field Nation
HQ: Minneapolis
Founded: 2008
Employees: 100 in U.S., 60 in Bangladesh
Latest financing: $30 million, September 2015
X factor: Value of contract work arranged through Field Nation hit $100 million in 2015, up 67 percent from 2014 .

They call it the “gig economy,” a business buzzphrase that reflects the uptick in self-employed and contract workers. Minneapolis-based Field Nation is carving out a niche as an online go-between, quickly connecting companies with these independents.

CEO Mynul Khan started Field Nation in 2008, but he still had another job, so he worked on his idea on nights and weekends until 2010, when he dove in full-time.

“We always had the same vision: build a freelance marketplace for on-premise work,” says Khan. “We’re still working on the same vision.”

Through Field Nation, companies can post jobs they seek to fill, and contractors can tout themselves as available. For example, one recent posting on the site was offering $30 an hour in Buffalo Grove, Ill., for a “basic telecom technician for 10-15 hours per week.”

The amount of work moving through the Field Nation system is climbing. For 2013, Khan says that the gross transaction volume was $43 million, in 2014 it rose to $60 million and last year, Khan reported $100 million. Khan projects 2016 revenue to be roughly 60 percent growth, year over year. He declines to disclose actual revenue, but Field Nation collects a fee of 8 to 10 percent on each job. It has other revenue streams as well, including earnings from providing financing “so service providers can get paid immediately upon completion of work.”

Field Nation’s clientele tend to come from two discrete sectors, says Khan, with over 80 percent of its business in IT and telecom.

In the past, Khan had not sought outside funding. “We grew organically. We always managed our cash,” he says. “We never spend beyond our means.”

But now the company has venture backing. In September, Field Nation announced $30 million in financing led by Pennsylvania-based Susquehanna Growth Equity. Khan says the financing will help fund expansion, product development and enhanced marketing efforts.

He believes Field Nation is well positioned, as the nature of work continues to evolve from traditional 9-to-5 jobs toward an expanding freelance workforce. “The landscape is changing, and changing fast,” says Khan. “We are leading the change.” tcbmag

Burl Gilyard is TCB’s senior writer.

Like what you just read? To receive business news directly in your inbox each Tuesday and Thursday, sign up for our free e-newsletter, Briefcase, and be sure to join the conversation by commenting below.