Recent reports that Minnesotans ranked last in creating new businesses was alarming to many of us. New business creation is vital to Minnesota because it increases employment, stimulates business activity, generates income for the state, and fosters a vibrant economy.
I have had the privilege of working with, and raising capital for, a number of notable Minnesota entrepreneurs. I’ve learned that there are three primary ingredients that create and foster entrepreneurial activities: an entrepreneurial spirit, availability of capital, and a nurturing environment—which includes an educated work force, a research university, and local organizations that foster entrepreneurship. The missing ingredient in Minnesota today is venture capital.
Entrepreneurial spirit: What gives someone the courage to start a new business? The entrepreneurial spirit often comes from having role models who have successfully built a company. The founders of Cirrus Aviation, Alan and Dale Klapmeier, had parents who ran a highly successful nursing home business and an uncle who owned a boat manufacturing company in Mora, Minnesota. When they first got started, the Klapmeier brothers borrowed buckets of resin from their uncle’s boat company to build their first prototype airplanes.
Being around other entrepreneurs also ignites the entrepreneurial spirit. If you live and work in Silicon Valley, a hotbed of high-tech innovation and development, you are more likely to catch the entrepreneurial bug. Your business is also more likely to receive funding, as one-third of all venture capital funding goes to Silicon Valley–based companies. We need to create that sort of environment in Minnesota.
Availability of capital: A rapidly growing company in a capital-intensive business requires millions of dollars of investment. The first outside round of capital for Cirrus came from local CEOs like the late Bill Kuban, CEO of Kurt Manufacturing, and the late Buzz Kaplan, CEO of the Owatonna Tool Company, both of whom recognized the growth opportunity for a company with new technology.
In past years, entrepreneurs could often count on some of the early investors in companies like Medtronic, St. Jude Medical, and Control Data to fund their ventures. Many of these “angels” have left Minnesota. While there are a number of angel and venture capital funds still in Minnesota, we need more high-net-worth investors to fill the funding gap.
In the 1980s and ’90s, Minnesota was home to a number of investment banks that raised capital for early-stage companies. Today, there are far fewer. Three of the five boutique banks merged, and one focuses mostly on money management. Starting a new investment bank is challenging, especially given the increased regulation and oversight of the industry. There are also fewer commercial banks willing to lend money to early stage companies.
Collaborative and nurturing environment: Minnesota is fortunate to be home to the University of Minnesota, which generates an abundance of new research and technology. Dr. Benjamin Liu, founder and CEO of MSP, an innovative company that manufactures instruments that measure nanoparticles, used technology he developed at the U of M to start his company. One of the main reasons MSP attracted private equity capital was its large patent portfolio.
In addition to the university, Minnesota is also home to the Collaborative, Twin Cities Angels, the Minnesota Angel Network, the Minnesota Cup, Angel PolleNation, and a number of angel groups that facilitate funding for entrepreneurs. While these groups play a critical role, there still isn’t sufficient funding for our state’s newest ventures.
We have plenty of entrepreneurs and organizations to support them. What we need are more investors willing to step up to the plate and fund Minnesota’s new businesses. We at Aethlon Capital encourage the current generation of CEOs and business leaders to invest in promising companies. These young companies will benefit from both your investment and experience. And the state of Minnesota will prosper.
Sima Griffith is managing principal of Minneapolis-based Aethlon Capital.