Hot fourth quarter adds up to big 2015 for Minnesota venture funding

A surge of investments in the fourth quarter into companies such as Code42 ($85.6 million), Cardionomic ($20 million) and Zipnosis ($17 million) pushed venture capital investment in Minnesota companies last year to a postrecession record of $371.7 million.

The strong finish topped 2014, the next-best year at $359.8 million, according to figures prepared by PricewaterhouseCoopers (PwC) and the National Venture Capital Association, based on data provided by Thomson Reuters.

"We've had a very good run the last two years," said Mark Scholtes, a Minneapolis-based partner at PwC who examines the numbers. "It's a good environment for entrepreneurs."

Minnesota firms seeking development capital were lagging until October, when a fast-growing Minneapolis software firm scored $85 million, the biggest venture capital investment in a Minnesota company since the tech-boom of 1999-2000. The investment in 400-plus employee Code42 was from Accel and Split Rock Partners, two previous investors, and two new ones, JMI Equity and New Enterprise Associates.

Code42 CEO Joe Payne said it will use the additional funds to develop more data backup services for business and consumer clients.

Before Code42's take, the two biggest magnets for venture capital in Minnesota in 2015 were $30 million to Field Nation, which provides a service that matches contract IT and other freelancers with corporate clients. Earlier, Lead Pages, which provides digital marketing products for companies, received $27 million.

Venture capital is extended to promising, fast-growing companies with the expectation, not always realized, that they will get big in a hurry and eventually sell stock to public investors, sell to a larger concern or otherwise provide a huge return on investment to early-stage investors, including the founders, friends and family who often post the seed capital.

"Software is the driving force behind disruptive technologies aimed at health care, transportation and security, including cyber security," he said. "Code42 and other software [outfits] are getting more of the pie. And that's a good sign."

Software-related companies collected about half the venture capital in 2015, compared with 20 percent or less a decade ago.

One such firm is Zipnosis, a health-software concern that lets medical clinics, such as Fairview and North Memorial, conduct economical "virtual" visits with patients. It raised $17 million in December in its first round of venture financing.

Nationally, venture capitalists deployed $58.8 billion, the second best year in the last 20.