Twenty years ago, when an entrepreneur sold their business in Minnesota, they packed their bags [full of cash] and left for Florida, never to be seen or heard from again. Okay, maybe not all of them…but years ago when I was actively fundraising for my startup, we found it nearly impossible to find anyone with a tech exit looking to re-invest in the next generation of local startups.
There weren’t any active angel groups, or funds, or anything like Groove Capital attempting to cultivate a healthy angel investor ecosystem either.
It was a desert.
About 10 years ago, that started to change. I began hearing about people like Phil Soran (Compellent), the “SportsEngine Mafia”, Daren Cotter (Inbox Dollars), the Weber brothers (NativeX), Bootstrappers.mn (Jamf), Gopher Angels (Bagster), Twin Ignition (NetSpi), and others who sold their business, and instead taking off, they stayed and started putting their proceeds back into Minnesota’s startup ecosystem.
Of all the incredible resources brought online for this ecosystem in the last decade, it’s this re-investment that has made the greatest impact.
It’s very Silicon Valley-esque in the way that one exit gives life to a dozen new companies, but totally Minnesotan that most of us are completely unaware it’s happening.
We have the joy of working with many of these entrepreneurs who have either invested in Groove or who have co-invested in one of our local early-stage deals, or both. Their motivations for re-investing include some things you might expect, like return, and some that may surprise you.
They have alpha.
The best way to see new investment opportunities in an industry vertical is to be a founder in that very same category who recently exited. You are the person that all of the other entrepreneurs working on similar things want to become, and therefore want to work with.
“Reputation and experience create an advantage, where we see things that other investors have not yet seen. As far as deal flow goes, in the sports tech sector, people seek me out; there’s no shortage of opportunity there.”
– Carson Kipfer, SportsEngine
Not only are you one of the first people to see a new investment opportunity, but you know what you are looking at.
“I learned an incredible amount about the private markets, including what drives startup valuations, how to think about market sizes and timing, and signals to look for in founders to assess the potential of a company. So, it’s only natural that I invest in the asset class I know the most about.”
– Elizabeth Caven, UpCraft Club
Imagine a portfolio filled with assets that only you could access, at the ground floor price, with the potential to 50X… and it turns out your expertise and network are the very thing the team needs to realize that outcome. That’s alpha.
Apprenticeship pays it forward.
“After my exit, I tried to help other entrepreneurs avoid the landmines that I stepped on. My purpose was to come in and help, by providing them the guidance that I wish I had.”
– Cale Johnston, ClickSwitch
Startups are really hard, especially for first-time founders. For them, it’s not just a matter of creating space for themselves in a market, but also the challenge of learning the rules of the game. Entrepreneurs with an exit were once first-time founders, too; that empathy leads many of them into an apprenticeship-like relationship, where the experienced entrepreneur works closely with their founder-in-training through their formative years.
“As an angel, I not only provide a boost of capital to help a startup, but also a boost that comes from the collective experience brought to the table. My involvement gives the founder an extra dose of confidence by showing them that I believe in what they are building, and that I desire to partake in the journey.” – Elizabeth Caven, UpCraft Club
There’s more to be learned.
After an exit has occurred, some entrepreneurs will find themselves in a position where they may never need to work again. But many of them still do! Why is that? From the many conversations I’ve had with these people, I’m beginning to think that it’s a lot easier to satiate their financial appetite than it is to satisfy their curiosity.
“When I began investing, I started learning new things…A lot of new things. I learned something new with each pitch deck, each conversation with a founder, each term sheet, each stock purchase agreement, each follow-on financing, each exit event, etc.…I now consider the learnings I get from angel investing not just as some tangential benefit, but rather part of the core value proposition.”
– Daren Cotter, InboxDollars
“After my exit, it was amazing how much I missed the operations—using my business mind to further a cause. Being involved tickles my business interests. I’m learning so much right now through my work with a local startup; all of the hard knocks are landing, but this time they are coming across with wisdom. I’m learning again, and I get that experience through someone else’s company.”
– Amy Langer, Salo
For the lifelong learners, an exit is just another chapter in their quest for understanding how things work, what they are capable of, and why this all matters.
Re-investment is required to build a broader ecosystem.
“Entrepreneurs investing in other entrepreneurs is powerful for the local ecosystem and meaningful to founders who are just getting started to have someone believe in them.” – Thompson Aderinkomi, Nice Healthcare
You can’t raise money to build a company if no one is investing. Entrepreneurs who built companies through the area’s capital drought know this well. It’s no surprise that many of them who succeeded, despite those market inefficiencies, are now taking it upon themselves to directly improve access to capital by making small investments of their own.
But any entrepreneur will tell you that capital alone does not have the ability to produce a favorable outcome. If cash is the water, the ecosystem is the soil that must be nourished for any seedling to grow.
“Part of my success was the success of the ecosystem—support organizations like WYPO were incredibly helpful to me in my journey. I feel a responsibility in my core to give back and to continue to contribute to a community that supported me.” – Amy Langer, Salo
“I value the way the Twin Cities rallied around SportsEngine. Our biggest fans were here from the beginning; that made an impact on me, and now I want to pay it forward.” – Carson Kipfer, SportsEngine
These quotes from our short list of exited entrepreneurs represent just a fraction of a growing movement of business operators-turned-investors who are putting their capital and expertise back into Minnesota’s startup ecosystem, and it couldn’t be timelier. With spring (metaphorically and literally) on the horizon, the area is poised to return from drought into the fertile growing fields we’ve always been.
If you’re an entrepreneur that recently exited and/or this topic excites you, I would suggest joining us at the next Angel Fest on May 2, 2024. Our session titled Hello From the Other Side will include a small group of founders-with-exits sharing more about their motivations and experiences with early stage investing. Get your tickets here.
