I believe that Minnesota is where the best and brightest come to solve the world’s greatest problems; it’s in our DNA, it’s what we do. I also believe that the next great innovations and next global companies are currently being worked on in Minnesota in some basement, lab, community center, or garage.
Via my work with BETA and Twin Cities Startup Week, I’ve been preparing the market for these innovators by increasing the awareness of their existence and by gathering and sharing resources to help these early stage companies (startups) get their ideas off the ground.
In April, I stepped out of the day-to-day management of both entities. Three months of quarantine was clarifying. The time away has provided the opportunity to take stock of how the area’s entrepreneurial ecosystem has changed in recent years. Gathering data, while reconciling the hardships created by a pandemic and unaddressed systemic racism, has made it clear that the tilling of our soil is not yet complete.
Though much has changed for the positive, one nagging issue has never gone away. Minnesota struggles to provide capital to its earliest stage entrepreneurs. Damola Ogundipe, CEO of Civic Eagle, summed up the state of startup funding in Minnesota when he said, “The supply does not meet the demand; I would guess that the gap between the two is one of the worst in the country.”
It’s time to change that. Our best and brightest need more support to scale their innovations. Minnesota’s economy and all of humanity depends on it.
And so, it is with great excitement that I introduce to you Groove Capital. Groove is where entrepreneurs in Minnesota get their first investment.
Groove is familiar in that it does what most investment firms do—source and evaluate deals, perform due diligence, and for some, deploy capital to help teams grow. But HOW we’re going to do that is going to look very different.
A MINNESOTA FOCUSED FUND - This is a fund for Minnesota-based startups. Every investment we make will be in a team that is based in Minnesota—in-Metro AND out-of-Metro—or in a team who has a majority of their operations within the border.
HIGH VOLUME INVESTING - Groove is a high volume fund targeting 20+ investments per year (with $50,000 to $100,000 investments per company), not five. Though not a true index (not everyone gets an investment), data suggests that having a small stake in many startups can be an effective strategy for minimizing risk while producing competitive returns. By my calculations, had $100,000 been invested in just BETA alumni, those investments would have produced paper returns ahead of most early stage funds (upper quartile).
PROLIFIC SUPPORT OF UNDERESTIMATED FOUNDERS - When you take a high volume approach you end up supporting a lot of great teams that are often overlooked by most investors; this is systems change. For a parallel, had this resource been around to invest in BETA’s alumni network it would have invested in 13 teams with a Black founder, 23 teams with a female founder, and another 20 teams led by a minority founder, making it the most prolific investor in underestimated founders in Minnesota by at least 2X. We’re going to do that again (for the first time), and you can check our work.
FILLING THE EARLY STAGE FUNDING GAP - You do not need $1,000,000 in ARR to get funded by Groove. This is where you get your first check. Groove is a resource for small founding teams who are raising $250,000 to $750,000, with a thesis, a Minimal Viable Product, and a sales pipeline. Things like grit, your receptivity, your story, your determination and other intangibles will be taken into consideration, but ultimately we want to see that you are able to set goals for larger, later-stage milestones and demonstrate an ability to achieve them. Or in other words, we’ll be investing in startups who have hit their groove (get it?).
FOR A VARIETY OF STARTUPS - The fund will be investing in many industries, but will favor the verticals that can be supported by Minnesota’s most robust resource networks; think ag tech, CPG, education, energy, enterprise SaaS, food, financial services, healthcare, medical device, retail, and sports & fitness. If you are making the world a better place via a startup, we’d love to talk to you.
Entrepreneurs, we’re building Groove to improve your experience with early stage investors.
Investors, we’re also building Groove to ensure that you feel that your time and capital were well invested in this community. Supporters of Groove will be provided with all of the common safeguards and reporting standards typically offered by a venture fund, but with a few kickers to boot.
DIVERSE INVESTOR BASE - Diversity in the investor base drives diversity in the investments. This fund will be supported by high quality people representing Minnesota’s racial, gender, and geographic diversity.
WITH COMMUNITY INPUT - When I say “we” I’m referring to myself and the advisors who will play an active role in setting and achieving goals for Groove. Investment decisions will be evaluated by experts from relevant fields representing a variety of communities.
OPTIONS FOR HOW TO GET INVOLVED - In addition to a traditional fund, Groove will also be launching a new angel network—the Groove Investment Group. In collaboration with Gopher Angels, our two teams will be working to activate a new generation of angel investors who desire to support Minnesota-based startups. We’ll also be building a shared platform to help angel investors of Pre-Seed, Seed, and Series A deals from around the state discover and invest in the area’s top companies.
To the entrepreneurs out there who are making the world a better place, please be patient as we pull together the remaining details; Groove is set to launch in early 2021. In the meantime, take advantage of the many (mostly free) resources available to you that can help you refine your products and services. Twin Cities Startup Week is a great way to get introduced to the plethora of resources, and it’s just around the corner.
If you’re already working on a concept and need help refining your model, please look into an accelerator like BETA, Gener8tor, Impact Hub, Lunar Startups, and Techstars as these will be a prime recruiting tool for the fund.
Best of luck! Keep building. We look forward to helping you make the world a better place.
