In the past few years, venture-capital firm Matchstick Ventures has invested in a number of Minnesota startups through its initial $5 million fund.
Now, the firm, with offices in Minneapolis and St. Paul, plans to bankroll even more early-stage companies in Minnesota and the surrounding region after closing on raising money for a second fund of $30 million aimed at underserved regions.
"We're really excited," said Ryan Broshar, a Matchstick partner and a prominent figure in the Twin Cities startup scene. "It was highly oversubscribed. We originally thought it was going to be a $20 million fund and it ended up being $30 million."
Part of the reason, he said, is because the first fund was quite successful. Out of 36 investments, there were five successful exits. Many of the other companies in its portfolio have been growing in value and raising more money. For example, online financial software company ScaleFactor out of Austin, Texas, has gone on to raise more than $100 million.
"And there was a lot of interest in it because there's this acknowledgment now that startups can be made anywhere," said Broshar. "It doesn't have to be in Silicon Valley. It doesn't have to be in New York City. Fund I was a testament to proving that. Fund II is now going to further that."
Last year, Broshar brought Natty Zola, who is based in Boulder, Colo., on board as a partner in Matchstick. The two knew each other from Techstars, one of the biggest network of startup accelerator programs in the country. Broshar had run the Minneapolis-based Techstars program for retail-focused startups at Target for three years and Zola continues to be a managing director of Techstars' flagship accelerator in Boulder.
The two spent the last year raising money for the new fund, reaching out to angel investors, entrepreneurs, high net-worth individuals and institutional investors around the country. Foundry Group Next, a Boulder-based fund, was the lead investor.
They plan to invest the second fund in startups across the Upper Midwest including Minnesota and Wisconsin, in the Rockies region, and across the Techstars network.
With more capital to work with this time around, Matchstick will be able to write bigger first checks of $500,000 to $750,000 and potentially can lead funding rounds, said Broshar. And then it can selectively follow it up with investments of $1 to $2 million.
"That's a lot of capital for a seed round in Minnesota and in our region," he said.
Matchstick Ventures, which Broshar launched in 2015, is one of a handful of venture-capital firms around the Twin Cities.
While it has traditionally been harder for Minnesota startups to get funding compared to those located on the coasts where most of the venture-capital firms are located, Broshar said that is changing.
"I think that gap is dramatically closing now," he said. "There's more interest from coastal VC dollars to invest in our markets. Natty and I both probably get one or two calls a week from a coastal VC saying, 'Hey, I'm hearing good things, what are some companies we should be looking at?' They're willing to not just make calls but to get on planes to get here."
Matchstick hopes to leverage those relationships, based on the credibility Broshar and Zola have in their respective markets, to bring in larger coastal firms to invest in later rounds of its companies.
In Matchstick's first fund, it invested in Twin Cities-based startups such as Inspectorio, Branch, and Upsie, which all participated in the Techstars accelerator at Target, as well as a number of other companies that took part in various Techstars programs.
It began investing out of its second fund at the end of last year and has already backed about a dozen companies out of it, some of which have Minnesota connections.
Soona, one of its recent investments that runs same-day studios for photos and videos, has offices in Denver and Minneapolis as well as its first photo studios in both locations.
Another is Los Angeles-based Landline, which has been spending most of its time in Minnesota, its first market for its bus service to major airports. It runs daily bus trips from Duluth and Mankato to Minneapolis-St. Paul Airport and has been talking to Sun Country and other major carriers to be able to book bus transportation when they purchase flights. It plans to further expand its services within Minnesota.