Tag Archives: seed capital

2013 Investment and MN Health IT Accelerators

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Along with all the 2013 listicles hypothesizing what will happen in 2013 and how 2012 differed from 2011 we were greeted with articles warming our hearts on investment, and how 2012 was a big year for venture capital.

The Upstart Business Journal reported that from 2011 to 2012, VC funding grew nationally by 10 percent. From $18.7 billion to $20.6 billion. However, while the amount of investment went up, there were fewer venture-backed deals.

This typically shows that either excitement in the market grew, which could arguably be tied to Facebook’s pre-IPO months, or that more promising companies opened themselves up for funding in 2012.

Since Facebook went public on May 18, 2012, it has been a roller coaster ride, with most analysts calling it the worst IPO in market history. Starting off at $38.23 a share, prices quickly fell, with the lowest point coming in at $17.73 on September 4, 2012.

It’s hard to believe that Facebook, the most anticipated IPO in recent history, would have such dismal numbers, but it came from the lack of evidence they presented to turning a profit. Where were they going to make the money?

With this in mind, it’s hard to imagine 2012 was the best year for IPOs since 2000. Facebook lead the new wave of companies going public, and while they opened today at around $31, the beginning of the roller coaster ride was severely undervalued.

It was not just a year for VC and IPOs, however. Amazon chalked in a record setting year with its highest priced shares. In the last 12 months, Amazon has seen its shares rise nearly 50 percent. They also recorded their best holiday season to date.

So after all this data, and the ability to see that the market is doing pretty well, what does this have to do with Minnesota?

According to the BioEnterprise Midwest Healthcare Venture Investment Report, investment in Health IT/Healthcare companies in Minnesota was down 23 percent. In 2011, 24 companies received $223.3 million. Looking at 2012, 17 companies received $164.7 million. And here is the kicker, Minnesota received the second highest amount of money. Trailing behind Ohio, which raised a whopping $291.7 million.

So why the gap? And why, after a year of solid national investment, are we down 23 percent in healthcare companies when it is a hot market? The answer may lie in accelerators.

Minnesota is surprisingly lacking in the number of health accelerators. President Kaler of the University of Minnesota has started a new initiative. Over the course of 10 years, Kaler is offering $20 million in investment to promising University startups. However, this funding is only for U of M students.

Another promising peak at an accelerator is Inceptis LLC., which will specialize in Class II medical devices, which Minnesota has been a leading provider in. But again, having such a tight focus doesn’t necessarily allow for broad innovation.

If Minnesota wants to compete with the likes of Ohio, or even on a national scale with its promising healthcare companies, we need to have more accelerators both keeping the talent here and providing incentive.

Now, it seems, is a ripe time to start the debate. Investment is hot, Health IT is blossoming, and Minnesota has the means to secure a leading position in the field. The only real question is who will step up to the plate?

The Series A Crunch

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Below is a response I had to an article on the Upstart section of the Business Journal that discussed what the “Series A Crunch” means for entrepreneurs, VCs and even young technology journalists. It was in agreement with a blog post by ReadWrite editor Dan Lyons, which highlighted the same sentiments but with less tact.

“The Series A Crunch is definitely something to look into, but what about Sarah Lacy’s other article which came out the day after which explained Series C investment jumped from $55 million to $70 million and Series D stayed at $100 million? It seems investors are already compensating for the flood of startups given that information. Sure early stage investment is declining, but if you can hold onto customers and show a credible plan for growth, the investment dollars are still there.

Also, you mention Facebok’s IPO which was, indeed, a horrible stint in public offerings. However, they have recently been applauded with the introduction of Facebook Exchange (FBX). Some publications have even hinted at it being more efficient than Google’s Ad Exchange. So while the initial public offering was bad, it seems that FB could potentially recover.

Now this is all from a recent journalism graduate, most likely inexperienced and optimistic, but without optimism, is there even entrepreneurship?” 

This is the natural ebb and flow of startups and markets in general. Something gets hot, and people respond. However, this doesn’t mean investment is done and a new dotcom bubble is resurfacing. It means investors are getting smarter in the later rounds where it counts.

A Leveling Playing Field

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The University of Minnesota announced today that in fiscal 2012 the Office for Technology Commercialization launched a record of 12 startups, up from the previous record set last year at 9. Six years ago the Office’s mission was revamped, and since then a total of 38 companies have rolled out of the U’s campus, 30 of which are still active.

The growth of Minnesota’s startup community has become a recent trend. In 2010, the Minnesota legislature passed the Angel Investor Tax Credit (AITC), which allocated $60 million in credits to be distributed over a five year period. In its first year, which allocated $11 million, the fund was depleted by November.

While the AITC spurrs high income investors to fund fledgling startups, recent crowdfunding efforts through Kickstarter have proven there is interest in the Minnesota tech scene as well. In less than one week, SmartThings, a company “connecting your physical world to the internet,” reached its goal of $250,000 in funding. Eventually, SmartThings would be backed by 5,694 people and raise a total of $1.2 million.

What this means for the Minnesota economy is boundless. Being able to keep entrepreneurs and technology professionals in the state would be an obvious advantage. Too many times young professionals in the technology industry move to coastal havens where they see better prospects, but with legislation and education fueling entrepreneurial growth, and showing that we can also compete, is huge for retaining talent.

Already there are talks about allocating more money towards the AITC. They are running out of credits quickly, which means there is demand for serious growth in a sector that’s proving very useful. It will be exciting to see what happens in the coming months and years. With the JOBS Act there is even more potential for a young company to get off its feet, and seeing what companies arise in Minnesota from crowdfunding, seed capital and angel investment will be an exciting ride.