Assessing the future of drawing venture capital

When it comes to venture capital, no one will mistake Minnesota for Silicon Valley or Boston. The state attracted only $60 million in venture money in the first quarter, good for 17th place in the country, according to the MoneyTree Survey by PricewaterhouseCoopers and the National Venture Capital Association, based on data by Thomson Financial.

Local venture capitalists say there is plenty to crow about. Minnesota's medical device industry is still one of the best in the country, and the state health care services sector is quickly evolving into a top venture capital magnet.

The state lacks an entrepreneurial culture that encourages risk-taking, some critics say, and the clean-tech and biosciences industries have yet to materialize.

Venture capitalists note that Wisconsin nurtures entrepreneurs through a combination of tax benefits (the state offers angel investors the equivalent of a 12.5 percent income tax credit over each of two years), and a well-respected technology-transfer program at the University of Wisconsin.

The Star Tribune sat down Friday with some of Minnesota's top venture capitalists to discuss these issues. Dan Carr, chief executive of the Collaborative, a Minneapolis group that assists entrepreneurs, moderated the discussion.

Participants included Paul Bieganski, managing director and chief technology officer for Black River Ventures Fund, the investment arm of Cargill Inc.; Joy Lindsay, president and co-founder of StarTec Investments, which focuses on early-stage deals in Midwest technology companies; Ed Spencer, founder and chairman of Affinity Capital Management, which invests in health care companies; Gordon Stofer, chief executive of Cherry Tree Companies; and Vance Opperman, president and chief executive of Key Investment, which funds real estate, publishing and young technology companies.

Carr: Are good deals not getting funded because we don't have the [state tax] incentives that Wisconsin has? Should Minnesota be doing anything?

Lindsay: I think there is some concern with Wisconsin right across the border. We are so close to Wisconsin that some companies do decide to pick up and just move right across the border to get angel investing in a state where there are some tax benefits.

Bieganski: There may be some entrepreneurs that, for whatever reason, don't feel the climate is receptive to their idea and don't take the plunge. But I firmly believe that good deals do get funded in Minnesota.

Lindsay: Well, how do you know if they don't?

Bieganski: Yeah, it's kind of self-fulfilling.

Carr: It's healthy to have a community that has both [good and bad deals]. That's just the creative process.

Lindsay: I worry more about the first-time entrepreneurs that don't have a track record, that have a very good idea but don't have a network of financially secure people to help them fund beyond the friends-and-family round.

Stofer: I always thought our state should do something in this middle round where they would match your investment of $1 million. It's always in the middle area. It's not the big deals. It's not the start-ups. It's this difficult area where the entrepreneurial team is already committed, they have investor support, but need more capital.

Carr: Does health care have it figured out? The deals have gotten so much bigger.

Spencer: If you look at health care, the number of companies being formed, the amount of capital going into health care over the last 10 years has just been this very gradual increase. You don't have this roller-coaster phenomenon. If there is one trend I've seen change a bit, it is that more big national venture capital funds have started to invest in Minnesota over the last four or five years.

Carr: Clean-tech is hot nationally. Is that something Minnesota is realizing its full opportunity with?

Opperman: There's wind power. It certainly has become more economically feasible and this is an area where there is some potential for wind-power generation. Now that you mention it, I don't see as much green entrepreneurship as I frankly would have thought. I wonder if it's because we don't see it. Or maybe there is more discussion than actuality.

Carr: Financial services has been down dramatically the past couple of quarters. How has venture capital been affected?

Bieganski: We haven't noticed that much of a slowdown. We have seen some exit delays [such as initial public offerings or acquisitions]. We have seen some exits canceled. We have some portfolio companies that haven't performed as well as we hoped. As far as the entrepreneurial activity is concerned, I can't say we have seen as much of an impact yet.

Thomas Lee • 612-673-7744