Startup, tech investors look to build Midwest network

A group of Midwest investors is building a regional network of their peers to meet calls that startups need more help getting off the ground.

"There's good deals happening all over the Midwest and part of what we need to do is have a big enough pool of investors to know who has money right now and who doesn't," said Eric Engelmann, the founder of Cedar Rapids-based Geonetric and managing director of the Iowa Startup Accelerator.

About 50 investors from Iowa, Illinois, Wisconsin, Minnesota and Nebraska met earlier this month for the first Midwest Investors Summit. Organizers hope the summit meets at least once annually and becomes a central way for investors to share knowledge and investment opportunities.

Investors, state officials and startup founders have cited a lack of funding as a detriment to Iowa's growing startup scene. Without access to funds, startups may leave the state for places with better access. They've also said Iowa's future economic growth depends on creating new companies.

A report by the National Venture Capital Association showed venture capitalists invested $22.5 million in Iowa firms last year, ranking the state 36th in the nation.

Iowa lawmakers set up a tax credit program last year to encourage the creation of investment funds. So far, Next Level Ventures is the only fund using the tax credit program.

Building a network

Ravi Patel and Adam Ingersoll, two co-founders of investment group Built by Iowa, hosted the summit Nov. 6. Both said they were surprised a similar network didn't already exist.

"All of this entire ecosystem didn't form really until a couple years ago," Patel said in an interview after the summit. "There's little clusters of these people that meet up…but I don't think everyone has been integrated in a way that they should."

Organizers hope the network will allow investment funds to share opportunities or find new leads.

"Everybody is absolutely happy to work together more collaboratively, to share deals," Ingersoll said. "What may not be right for the Plains Angels is absolutely intriguing to some of Gopher Angels" in Minneapolis.

Angel groups, like Iowa's Plains Angels, invest their own money into startups in exchange for an ownership stake.

Gopher Angels Managing Director David Russick said investors in the Midwest need to take a broader approach to networking.

"For us to build a density of investors to work together, we need to reach beyond the cornfields and consider ourselves regionally," Russick said.

Russick added that the Midwest summit isn't the first type of regional investors event, but it's new for the region.

"It's happening around the country. It's not like we're the first, it's just that we're kind of behind," he said. "It may be that it might take a little bit of leadership. Someone has to stick their neck out there."

A similar network is Invest Southwest. It brings together investors in Arizona, New Mexico, Utah, Texas, Nevada, Colorado and Southern California.

Invest Southwest Chairman Jonathan Ariano said the group's purpose is to draw eyes from Silicon Valley to the Southwest. That's not an easy goal to accomplish, he said.

"There's that mentality that is frustrating, to some degree, but, at the same time, it's what we have to combat with," Ariano said.

Invest Southwest started in 1992. Ariano said interest has ebbed and flowed. When the recession hit, momentum almost came to a halt, he said.

In 2013, Ariano said Invest Southwest's organizers said they need to take some time off to re-evaluate. The group came back this year and started Venture Madness, a large pitch competition with a March Madness twist.

Still, Ariano said it's just a start.

"What we're trying to do is, we're building the excitement, the energy of what is down here, so connections can be made," he said.

Pieces of a puzzle

Iowa's investment scene has seen some boosts recently.

Next Level Ventures entered the market this year and has invested about $6 million in three established startups. The Iowa fund invests in later-stage companies and started with a pool of about $30 million.

Built by Iowa invested $150,000 in the 10 companies that graduated the Iowa Startup Accelerator. Steve Case brought his "Rise of the Rest" tour through Des Moines, investing $100,000 in John Jackovin's Bawte, which operates downtown out of Gravitate, a coworking space.

Still, calls for more funding are not new for startups in Iowa or other states and will probably never stop.

Mike Colwell, who runs the Plains Angels investment group for The Greater Des Moines Partnership, said startups have the most difficult time getting starter money.

"Very few people are really getting funding," he said. "You're so early, you really have such a small opportunity for success, its hard (for investors) to do due diligence."

Part of the issue, Colwell said, is some people trying to start their own companies don't understand the time commitment that goes into asking for money.

"I think some people are frustrated by how much work it takes to raise money," Colwell said.

The summit took place the same day as the Iowa Startup Accelerator's Launch Day, which brought about 860 people to Iowa's second-largest city. That alone, some said, is a coup for the traditional image that Iowa isn't a place for startups and investment.

Midwest investors were "there in the room because they want to know what's going on in Iowa and how do they get a piece of it," said Craig Ibsen, the managing principal of Next Level Ventures.

Ibsen, who attended the summit, said the regional network is important for Next Level Ventures. As a later-stage investment fund, he said Next Level needs to keep track of companies that are receiving seed or early-stage money because they'll eventually "graduate into the later-stage arena."

"All of us are a piece to the greater puzzle," Ibsen said.