Minnesota's entrepreneurs 'slipping'

Article by: WENDY LEE , Star Tribune
Updated: August 3, 2011 - 9:10 PM

A national study puts Minnesota 25th-- no surprise after venture capital investments recently hit a 15-year low.

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Minnesota ranks in the middle of the pack for entrepreneurship, according to a national index that looks at things like business formation and patents.

The ranking from the University of Nebraska's Bureau of Business Research put Minnesota 25th, two spots lower than three years ago and behind Illinois and North Dakota. The top three states were New York, Washington and Massachusetts.

The rating came as no surprise to local officials. Minnesota entrepreneurs have struggled to attract venture capital and other types of investment, a critical need as they try to build their ideas into viable businesses.

"The standing for this region, even though it has considerable assets and advantages, has been slipping away for some time now," said Brad Lehrman, co-founder of innovation advocacy group Mojo Minnesota. "We have to recognize we have a problem in this region and look for solutions."

Venture capital investments in Minnesota in 2010 hit the lowest level in 15 years of record keeping, as investors grew risk-averse, venture firms scaled back or closed and initial public offerings were mostly shut out of the market.

Investments improved in the second quarter, but analysts say fundraising problems persist. Second-quarter venture capital investments in the state increased 33 percent from a year earlier to $70.6 million, according to the MoneyTree Report by PwC and the National Venture Capital Association, which use data from Thomson Reuters.

But that included a $45 million deal in a Plymouth-based renewable chemistry firm, which brought in more than half of the total investment.

Minnesota likely dropped in the Nebraska index's ranking because it had fewer new businesses per capita than other states, said William Walstad, a professor of economics at the University of Nebraska-Lincoln.

Economists from the Bureau of Business Research and Economics Department developed the index, which started in 2004. This year's index uses data from 2010 and compares it with 2008.

The index was based on a state's business formation rate, percentage growth and per capita growth in business establishments, number of patents per thousand residents and gross receipts of sole proprietorships and partnerships per capita, according to the university.

"You're pretty much in the middle of the pack," Walstad said. "We don't see a high level of entrepreneurship, but there is certainly quite a bit of activity too."

Wendy Lee • 612-673-1712

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