startups

Minnesota’s startup ecosystem – Finance and Commerce


Tucked away in this year’s motley special session package at the Legislature was a bill authorizing the creation of Launch Minnesota, a $5 million public-private program to grow the state’s innovation economy.

Amid partisan sniping over proposed increases to public education funding and the state gas tax, Launch Minnesota’s relatively modest investment drew low-key support from both sides of the aisle, emerging from the legislative gantlet with the broad strokes of Gov. Tim Walz’s original proposal intact — albeit with a slimmer budget. The passage of Launch Minnesota was hailed as an early win for the Minnesota Department of Employment and Economic Development (DEED) under commissioner Steve Grove, a 12-year Google veteran and co-founder of Minneapolis-based youth-in-tech nonprofit Silicon NorthStars.

According to a DEED release announcing the program, Launch Minnesota’s directive is “[creating] financial incentives and programming to demonstrate that Minnesota is committed to fostering an innovation ecosystem that draws global attention.” That’s a big goal for a $2.5-million-per-year program — one it surely can’t manage on its own.

The good news for Minnesota-based innovators: Launch Minnesota won’t operate in a vacuum. Across the state, inventors and founders have more resources at their disposal than ever before, even as their absolute numbers and growth rate remain low – according to Greater MSP’s Regional Indicators Dashboard, the Minnesota ranks last in the formation of new business establishments, a key metric of vitality.

Several niche-specific accelerators now operate in the Twin Cities, backed by local Fortune 500s looking to surface (and capture) in- and out-of-town talent. The University of Minnesota, long an engine of innovation, is redoubling its efforts to commercialize promising technologies developed by researchers more at home in the lab than the boardroom, aided by a lively business advisory board. A host of startup-focused organizations, like Beta, shepherd founders through the first stages of the corporate lifecycle. Even Minnesota’s early-stage funding ecosystem, long a weak link in the state’s innovation chain, is newly invigorated, with multiple out-of-town venture capital groups opening Twin Cities shops in the past two years.

Help is out there, innovators. The trick is figuring out where to start, and how.

Beyond research

For inventors associated with the U of M, the natural place to start is University of Minnesota Technology Commercialization, an aptly named shop within the Office of the Vice President for Research. (Technology Commercialization was formerly known as the Office of Technology Commercialization.)

With 130 companies launched since 2006, University of Minnesota Technology Commercialization is the number four tech transfer office by licensing deal volume. The office helps launch between 15 and 20 startups per year, on average, said Russ Straate, associate director of the Technology Commercialization Venture Center. He expects 19 launches in 2019. The office notched 230 licensing deals in fiscal year 2018, according to an annual report, although many of those deals didn’t involve early-stage companies, and filed for more than 400 patents between July 2016 and June 2018.

Technology Commercialization startups have attracted $400 million in outside equity capital, and seven achieved successful exits between 2015 and 2017, said Straate. Some exits are all-local transactions; in June, Minneapolis-based life sciences firm Bio-Techne acquired B-MoGen BioTechnologies, a 20-person immunotherapy company founded in 2015 by University of Minnesota researchers Beau Webber, Branden Moriarty, and David Largaespada. B-MoGen’s non-viral gene editing vector is less risky and more efficient than viral processes, according to the company’s website.

What makes U of M startups so attractive to incumbents? “We have a great pipeline [with] high-quality, high-potential deals,” said Straate. Startups originating at major research universities have “significantly higher probabilities of success,” he said, because the institutions – often aided by federal and private grants – have put in the work to “validate and de-risk” concepts “so that investors can be confident there’s some substance there.”

That’s what’s attracted so many Minnesota-based organizations to Technology Commercialization’s Business Advisory Group, the engine of the office’s interface with the state’s business community. Group members meet every month to review the university’s deal-flow pipeline, said Straate. Each member typically selects three or four startups for “deep dives” – further research and due diligence ahead of possible investments, acquisitions, or strategic partnerships.

“The Business Advisory Group has driven our connection to the local ecosystem,” said Straate. The business advisory group also includes non- and for-profit organizations that work closely with entrepreneurs and early-stage companies: Beta, the Minneapolis-based incubator; gener8or, a Madison-based accelerator engine with programs in multiple cities; and Gopher Angels, Minnesota’s largest active angel investor group, to name a few.

Ready for liftoff

Moving forward, some of the business startups that land on the Technology Commercialization Business Advisory Group’s radar will likely come out of the office’s new Discovery Launchpad program, a business incubator for university researchers. Each member of Discovery Launchpad’s eight-startup cohorts spends months working with advisors to develop financial projections, business plans, and pitches ahead of an official company launch, then remains in close contact with advisors for the remainder of the program’s two-year term.

Discovery Launchpad officially launched late last year, but Straate is already impressed with the results. Launchpad participants “are in a much better position to get out and show how they’re going to spend money,” he said. This means they’re in a much better position to attract investors and strategic partners.

Speaking of investment: Entrepreneurs with University of Minnesota licensing deals and funding commitments from outside investors can apply for Technology Commercialization’s Discovery Capital Investment program, which provides a dollar-to-dollar seed funding match – up to $350,000 per round and $1.05 million total, said Straate. The program is funded by licensing revenue, paying forward the fruits of earlier innovations.

Representatives gather on the floor of the Minnesota House on the opening day of a special session on Friday, May 24, in St. Paul. Launch Minnesota’s relatively modest investment drew low-key support from both sides of the aisle. (AP file photo)

Representatives gather on the floor of the Minnesota House on the opening day of a special session on Friday, May 24, in St. Paul. Launch Minnesota’s relatively modest investment drew low-key support from both sides of the aisle. (AP file photo)

Accelerating, incubating, growing

A growing crop of startup accelerators and business incubators, most based in the Twin Cities, serves Minnesota entrepreneurs not directly associated with the U of M.

Boulder, Colorado-based Techstars is the biggest accelerator name in town. Backed by Cargill and Ecolab, its Farm to Fork Accelerator accepts early-stage companies innovating “across the entire food value chain, from AgTech, manufacturing and supply chains, to food safety, waste reduction and traceability.” With vast amounts of institutional expertise already in place in the Twin Cities, thanks to incumbents like Cargill, General Mills, Land O’Lakes, and many others, the metro is a natural choice for startups looking to disrupt the global food system.

Farm to Fork isn’t the only accelerator playing to the Twin Cities’ strengths. The Techstars-certified METRO Target Retail Accelerator leverages the region’s considerable retail expertise (and German partner METRO AG’s global heft) to attract global retail tech startups; Target Takeoff is a lower-key program for emerging beauty brands.

Medtech is a core Twin Cities strength, of course. Last year, the University of Minnesota partnered with Mayo Clinic, Boston Scientific, and gener8or to launch gBETA Medtech, the Twin Cities’ first medtech accelerator. gBETA Medtech will compete with incumbent accelerators like Medtech Innovator, a four-month virtual program with in-person events in San Francisco and Boston.

“We’re starting to see sophisticated resource networks for startups built around the niches that we’re best at from a community perspective,” said Reed Robinson, co-founder and executive director of Beta (not to be confused with gBETA).

Minnesota life sciences innovators not quite ready for an accelerator run still have options. This year, Walleye Tank, a memorably named startup pitch competition for medical startups, hosted a tech transfer panel – essentially a crash course for inventors and early-stage entrepreneurs unsure how to turn their ideas into commercially viable products and solutions. Beta houses 12-to-14-person startup cohorts out of its space in WeWork’s new Uptown location, accelerating less experienced entrepreneurs along the early-stage learning curve and providing a ready-made Rolodex for those seeking partners and investors.

“What we do, in two words, is ‘education’ and ‘introductions,” said Robinson. ’

Early-stage funding

The common refrain from Minnesota-based entrepreneurs and their allies is that Minnesota’s risk-averse culture is responsible for the perennial underdevelopment of in-state early-stage funding resources.

Beta’s Robinson isn’t so sure. “People think it’s because of cultural risk aversion, but I’m convinced that that’s not the case,” he said. The biggest issue is lack of awareness on the part of high net worth individuals; the challenge is activating potential angel investors “who don’t know that [investing in early-stage ventures] is an option,” he said.

The rise of “sophisticated,” vertical-based resource networks – anchored by industry-specific accelerators – may help.

“High net worth individuals tend to be older, recently retired or about to retire, and many don’t want to play golf all day. So, how do you engage them as subject matter experts while activating [their] capital?” he asked rhetorically.

Robinson is also encouraged by late signs of venture capital interest in Minnesota-based startups. In June, St. Cloud-based Great North Labs announced the creation of a nearly $24 million seed fund, one of the largest in upper Midwest history. According to a release, the fund will focus on startups from Minnesota and neighboring states.

Out-of-town venture capital firms are opening Twin Cities outposts, too. Revolution’s Rise of the Rest Seed Fund is represented locally by Mary Grove, the founding partner of Google for Entrepreneurs. Omaha-based Dundee Venture Capital opened a Minneapolis office in 2016, operated today out of WeWork’s flagship space in Capella Tower; San Francisco-based Urban Innovation Fund and Kansas City-based Royal Street Ventures joined the party last year.



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