Financial Markets


What Happened to Money-apolis?

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In 1993, the Twin Cities was one of the best places in the nation for entrepreneurs to raise start-up funds, attract venture capital, and fairly quickly earn their investors a return by taking their companies public. By 1996, Fortune magazine had dubbed us “Money-apolis,” as Minnesota ranked second in the nation for most initial public offerings per capita. A year later, I started a monthly publication, weekly newsletter, and website providing research and analysis on private placements and small-cap stocks in the Upper Midwest. And for the next six years, I watched as this part of Minnesota’s economy withered.

We got to where we were in the early 1990s in large part because of pioneering work by Buddy Ruvelson beginning in 1959. He was one of the first venture capitalists in the nation, with what became First Midwest Ventures. He also helped begin and feed the penny-stock and eventual small-cap stock market. Twin Cities securities brokerages grew along the way, and by 1993, we were home to several solid firms, including Piper Jaffray, Dain Bosworth, John G. Kinnard, Craig-Hallum, R. J. Steichen, and Miller Johnson & Kuehn.

U.S. securities rules changed, however, and the amount of money a trader could make when selling a share of stock dropped. To outsiders it seemed like mere pennies, if that. But for traders, it meant a shift toward trading stocks with larger market caps and higher average trading volumes. As a result, market-making for micro- and small-cap stocks died, and as it did, so did the reason for taking small companies public. Without IPOs, early-stage investors no longer had a way to make a return on investments in startups.

To deal with this and other industry changes, most Twin Cities brokerages merged with others or sold off or discontinued parts of their operations. But the model remained broken.

Smart ideas are still finding backing, however.

“In my 25 years of doing this, if there’s a new way to do something, a market for it, if it makes people happier or healthier and an entrepreneur can show a model that supports it, capital will be available,” says Dan Carr, founder of the Collaborative, an organization supporting the growth-company market since 1992.

There also remain “certain investors who never receive publicity, but do what they do and invest in early-stage companies,” Carr says. “They may not be in the papers or at meetings like the ones we have, but they’re doing it.”

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