Great North Labs — led by a few seasoned entrepreneurs — raised its first fund of $23.7 million to invest in early-stage tech startups across the Upper Midwest in the US
The fund is based in St. Cloud and Minneapolis, Minnesota, with a partner located in Silicon Valley. This is one of the largest debut seed funds ever raised in the Midwest. The VC firm was started by twin brothers Rob and Ryan Weber, who previously ran ad monetization firm NativeX.
They sold NativeX to China's Mobvista in 2016, after which they spent 18 months at Mobvista. Then they took some time. But the two had spent 15 years working together, during which they sold four software companies, so another venture was all but inevitable.
“We decided we wanted to stay close to the startup life and grow our investment activities,” Rob Weber told VentureBeat. “We raised our money from Midwestern investors. They are more risk averse than Silicon Valley investors. But it's great to get so much support in the Midwest. It's definitely more budding here.”
Most venture capital in the US is still raised and spent offshore. Fifty-two venture capital funds were founded in the country in 2018, with the majority formed in California, New York and Massachusetts. Those states accounted for 79 percent of the $5.3 billion in capital raised, according to the National Venture Capital Association.
Nationally, some larger funds are becoming more active in early-stage investments in the Midwest. The most active are Techstars, which operates an accelerator in addition to a venture fund, and Revolution's Rise of the Rest Seed Fund.
Funds that invest in early-stage startups, or “seed funds,” are generally smaller in size, and only half a dozen have debuted in the Midwest with more than $20 million. In the Upper Midwest (defined as North Dakota, South Dakota, Minnesota, Indiana, Wisconsin, and Illinois), there are only two examples other than Great North Labs, both from Chicago.
Hyde Park Venture Partners raised $25 million in its debut in 2013, and MATH Venture Partners raised $28 million in 2015 (sources: data compiled from Pitchbook, CB Insights, Crunchbase, and public databases). Both Hyde Park and MATH have gone on to raise larger funds since their debut.
“Exponential technologies are driving accelerating change, and the implementation of these technologies is greatly facilitated by the domain expertise that lives within our strong industries throughout the Upper Midwest, creating fertile ground for high-growth, technology-driven entrepreneurship,” Ryan Weber said in a statement. .
Great North Labs invests in consumer or business startups that have the potential to reach a $1 billion market cap, show early signs of product-market fit, have defensible characteristics and leverage new technology. Startups must be based in or significantly connected to the Upper Midwest. The focus will be on software-as-a-service, on-demand markets, and consumer Internet companies.
Great North Labs has also committed 10% of the capital ($2.37 million) to investing in startups with founders from underrepresented groups or startups located in underserved markets such as St. Cloud of Minnesota. Sioux Falls, South Dakota; and Fargo, North Dakota.
At a time when 45% of deals from Midwest investors still go to startups outside the region, Great North Labs is committed to catalyzing the region's potential by not only leveraging existing great opportunities but cultivating new ones.
The fund has three managers: Ryan Weber, Rob Weber and Pradip Madan.
Madan is a Silicon Valley technology executive with a long history of success at both Fortune 100 companies and startups, and has been involved in many important moments in tech and venture history. The Webers live in St. Cloud and Maple Grove (Minnesota), respectively, and Madan is located in Silicon Valley. The team also includes a network of accomplished advisors from successful technology companies throughout the Upper Midwest and Silicon Valley.
“The opportunity in the Midwest is significant for investors with the right experience, criteria and investment thesis. For four decades, capital has been drawn to Silicon Valley, Boston and New York. With the high cost of living and talent supply-demand imbalance, it is now more difficult for a startup to succeed in Silicon Valley,” Madan said in a statement. “As a result, investors are starting to pay more attention to startup ecosystems in places like Chicago, Minneapolis, Madison and Des Moines. Moreover, many of the industries—financial, food, travel and hospitality, healthcare, insurance, manufacturing, mining—that entrepreneurs are now disrupting are native to these regions. In the new Gold Rush, the gold is the hard-working entrepreneurs and their startups in these areas.”
The Webers serve as mentors with Techstars, are on the Minnestar board, and lead the local chapter of Singularity University. Fellows regularly speak at industry events, mentor founders, advise startups, and provide financial support to Gener8tor/gBETA Greater MN-St. Cloud, Beta.MN, St. Cloud State, St. John's Center for Entrepreneurship, SingularityU Minneapolis-St. Paul and MNCup.
Great North Labs also provides training support in valuable industry skills such as Lean Startup, Agile Scrum and Innovation Design at low cost to founders and students through the Great North Labs Startup School.
Rob Weber said they want to focus on about 30 investments, with reserves for follow-on investments. Each investment will be approximately $250,000 to $750,000.
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