Calling All Angels
Minnesotans don’t like to talk about anything involving finances—that’s just a little too personal, thank you. How about that weather? Geez. It could be worse.
That modesty is why the business world often dismisses Minnesota as lacking the sort of cash flow to launch new companies. Startups typically can’t line up millions in venture capital before they even launch. They need individual angel investors to make seed-level, early-stage investments that help get them off the ground.
Seek Business Capital, which helps secure financing for small businesses, ranked Minnesota a dismal 43rd for startup activity. Meanwhile, a study from wealth management company Personal Capital ranked the state third in the U.S. for median net worth.
Yet many of Minnesota’s wealthiest residents are not startup investors. Those active in the local startup ecosystem see those wealthy Minnesotans as an untapped gold mine that could help fund many more new businesses in the state.
Reed Robinson is well-known in these startup circles. He co-founded Beta, a nonprofit to help startups, in 2013. Last year, he founded Groove Capital to invest in early-stage startups. Robinson’s research before launching the firm showed that there are plenty of investors with angel potential out there.
“My conclusion from that research was that we do, in fact, have a very, very massive delta between the number of people who could be investing in startups and the number of people who are investing in startups,” says Robinson. “The math on that is pretty clear and pretty compelling.”
Robinson says that many well-to-do Minnesotans simply don’t have startups on their radar. They’re likely focused on stocks, bonds, annuities, and real estate.
“That’s what I’m trying to change with Groove Capital. How do you get people who have the means to invest to start investing?” says Robinson. In recent months, Groove Capital has hosted virtual workshops on topics like making a social impact with your personal wealth and networking for women investors. “I think the misconception is people think that we don’t have the risk tolerance, but I don’t believe that’s the case. I think it’s that people don’t know that angel investing is an option. They’ve never been introduced to it. They don’t know where to go to learn more about it or what platforms exist to plug into it. The issue isn’t risk; the issue is awareness. … The problem that we’re trying to solve is cultural.”
Robinson is not alone in that thinking.
“There’s more conservatism here,” says Joel Grebenick, managing director of Minneapolis-based Stone Arch Capital. “You look at where the wealth has been created in the Twin Cities: A great deal has been from big corporations. On the coast—Seattle, San Francisco—we’ve seen a lot of wealth from newer techie startup organizations. It seems to be more ingrained in that world. We’re fortunate to have great large employers here; we just historically haven’t had a strong startup scene, so there isn’t that familiarity.”
Several new funds have appeared in recent years. Robinson says that opens up new options for potential investors.
“We’re starting to get to a point where there’s enough different options out there for each individual to find whatever works best for them,” says Robinson. “You can invest yourself as an angel and kind of lone-wolf it; you can join a group and invest alongside other people; [or] you can join a fund, and they do it for you.”
Minnesota’s millionaires
Minnesotans may not want to talk about it, but there’s no shortage of money here.
The Twin Cities has the highest per-capita number of Fortune 500 companies of any metro area—18, according to Fortune’s latest list. Top company executives clearly have the means to be angel investors. Many of Minnesota’s largest companies have been around for generations, which has built a legacy of wealth in many families.
Minnesota ranks as the 22nd largest state in population, at 5.7 million, but punches above its weight when it comes to household wealth. Personal Capital’s May study ranked Minnesota near the top for the states with the highest median net worth, at $149,803. Kiplinger’s reported in 2020 that Minnesota had more than 167,000 millionaire households, or 7.43 percent, putting it at 14th in the U.S. (States were ranked by the percentage of millionaire households in the population.)
An accredited angel investor, according to SEC rules, must have a net worth of at least $1 million or income topping $200,000 in the previous two years. The general concept is that investors with enough financial resources understand the risks of investing in startups, which includes the possibility of losing every last nickel. The SEC expanded the definition last year to include people who meet “defined measures of professional knowledge, experience, or certifications in addition to the existing tests for income or net worth.”
Read more from this issue
Despite the oft-heard gripes about taxes in the state, CNBC rated Minnesota as the seventh best state for business in 2021, and it ranks No. 1 in the U.S. for five-year business survival rate for new companies, according to the Minnesota Department of Employment and Economic Development (DEED).
Notably, the state ranked significantly lower, at No. 14, for access to capital. And it rarely appears on lists of best places for entrepreneurs to start new companies.
The issue of diversity
The world of angel investing and venture capital has long been dominated by white men. Paul Campbell and Chris Brooks are looking to change that. They founded Minneapolis-based Brown Venture Group in 2018 to focus on technology companies led by BIPOC entrepreneurs (they are both Black). Campbell, a St. Paul native, brings a resume with strong corporate sales experience in telecommunications, having worked for Sprint, Oracle, and AT&T; Brooks, who grew up in Minneapolis, has led nonprofits and worked as a corporate consultant. But when they started shopping their venture idea around town, the message they got back was blunt: Go somewhere else.
“We’re Twin Cities kids; we know our metro area. We made a very strong mental commitment and covenant together that we wanted to have our company be launched in the Twin Cities metro area,” Brooks says. “When we took that concept into the Twin Cities market and started talking to existing angels and investors we were advised—pretty strongly—to go to the coasts or to go to Atlanta or some other major metro area where there seemed to be a higher probability of success for us. We just made the decision that we weren’t going to do that.”
Brown Venture Group made a big splash in early August when it announced that Fortune 500 retailer Best Buy had pledged up to $10 million to its inaugural fund.
“It’s one of the first proof points that you can actually raise a lot of cash in the Twin Cities metro area even as a person of color,” Brooks says.
Brown Venture Group has a goal to assemble an initial fund of $50 million. Campbell says they are now 75 percent of the way there and are also talking to other big companies, which they hope will lead to more individual investors jumping on board.
“The issue isn’t risk; the issue is awareness. … The problem that we’re trying to solve is cultural.”
—Reed Robinson, Groove Capital
Brooks says the Best Buy partnership demonstrates the value of deciding not to set up shop on one of the coasts.
“The Best Buy relationship is the direct result of us putting a stake in the ground and saying, ‘We’re staying in the Twin Cities,’” says Brooks. “Once we did that and started using that language, Twin Cities companies started hearing about us, and many of the folks we’re talking to, we didn’t reach out to them; they actually reached out to us.”
Campbell firmly believes there are resources in the Twin Cities that have simply never been tapped to support startups.
“There are robust ecosystems on the coasts. But there are underutilized, underactivated systems here in the Twin Cities,” says Campbell. “Honestly, I think we have one of the best regional ecosystems in the country—it just hasn’t been intentionally activated.”
Beyond supporting individual startups, Brooks says that Brown Venture Group is looking to rewrite the rules of the game.
“Historically, most of the money in venture capital has been circulated in a gated community of white males,” says Brooks. “We are on a mission to build out a much broader and more robust ecosystem of investors of color because we think that’s going to raise all the boats at the same time.”
Campbell says that it’s beginning to dawn on investors and companies that they should be working alongside BIPOC entrepreneurs rather than dictating solutions from the corner office.
“Many of these answers are within our communities,” says Campbell. “It was kind of this clarion call as people started reaching out to us saying, ‘Yes. Let’s stop doing things for communities of color, which is a project; let’s start doing things with communities of color, which is a partnership.’ Partnerships get investment. Projects get cut.”
“We felt that there was a shortage of people out there who would not only invest but then be involved in the business.”
—Michael AckmaNn, Artisan Venture Lab
Involved investors
Last year, amid the pandemic, partners Kevin Zinniel and Michael Ackmann launched Minneapolis-based Artisan Venture Lab. The new company effectively combines a venture capital firm and a digital marketing agency. Artisan will provide digital services to companies it invests in.
“One of the reasons we started Artisan Venture Lab was because we felt there was a lack of access to funding, and it was tough to get a business off the ground,” says CEO Ackmann. “We felt that there was a shortage of people out there who would not only invest but then be involved in the business.”
Ackmann knows about life in the startup trenches. He co-founded web development firm Ackmann & Dickenson from scratch in 2007. He and his partner wanted to retain control of the company, so they didn’t enlist investors. Sometimes that meant tapping their Discover cards for cash advances to meet payroll.
“You can’t get a business loan. It was impossible to get loans because you had to have the money before they’d give you a business loan. It was incredibly difficult,” recalls Ackmann. “If you don’t come from money, which we didn’t, it’s a lot of elbow grease.”
Ryan Broshar also knows the local startup territory well. He’s a partner with Matchstick Ventures, with offices in Minneapolis and Boulder, Colorado, focusing on early-stage investing in technology companies. Broshar acknowledges that finding angel investors has been tough in the past, but he’s seeing a market shift and an uptick in local angel investing.
Before becoming an investor, Broshar co-founded Beta and Twin Cities Startup Week. He also led the Target + Techstars retail accelerator. As one of the Twin Cities’ first high-profile, corporate-backed programs to nurture startups, it inspired other companies to follow suit.
Target Techstars brought to town coastal startups Branch and Inspectorio, both of which decided to make the Twin Cities their permanent homes. In August, Branch, which provides pay advances to hourly workers, raised $48 million in Series B financing. Inspectorio, which builds supply chain software, has raised $13.7 million in funding, including a $10 million round from Target, Ecolab, and other companies. Matchstick Ventures is also an investor.
“Angel investing is still very risky,” says Broshar. “But it’s been ‘derisked’ to some extent. A really good entrepreneur and founder has tools and access to make starting a company easier than it’s ever been. Angels are becoming more and more powerful.”
Today, he says, it’s more typical to see the names of individual angels alongside VCs, banks, and companies in an investment stack.
“I think there are more people doing it now; it’s becoming more commonplace,” Broshar says of the national trend. Locally, he says, Minnesota has some catching up to do. “It’s not as robust as other markets I’ve seen, but compared to what it was, I think it’s trending positively.”
Broshar adds, “I do think the tide is turning. I think a lot of it is that we have a lot of successes in the market. People see that. Success breeds success when it comes to angel investing.”
