In his many years nurturing the Twin Cities’ startup scene, Reed Robinson noticed something that has been lacking: investors willing to provide capital at the pre-seed stage.
Now, Robinson is launching a new venture-capital firm called Groove Capital that will focus on pre-seed Minnesota-based startups. He plans to make 20-plus investments a year ranging from $50,000 to $100,000 starting early next year.
Self-financing is important for startups for a time, Robinson said. “It forces entrepreneurs to figure out a business that’s sustainable,” he said.
“But the problem I’m seeing in this market is we’re extending that stage for too long,” he added. “They end up bootstrapping for three years where they should have probably been doing that for one.”
Not all founders have the means to go unpaid for that long, he added, limiting the potential of local startups.
In April, Robinson stepped away from his role as executive director of Beta. MN, the group he co-founded in 2013 that runs Twin Cities Startup Week and other programs to support startups, to begin the new fund.
By giving out a first check to entrepreneurs, Robinson hopes to not only create a more vibrant startup ecosystem, but to also help firms that have traditionally been overlooked by many institutional investors such as those with founders who are Black or other people of color, women, gender-nonconforming and LGBTQ.
“It’s a way to make sure that people who aren’t getting the same amount of looks have a resource that can be there and provide them capital in a way that other resources just haven’t done,” he said.
Beta has a free program for early-stage firms to help them get up to speed on the startup world, but there’s not a lot of pre-seed capital in Minnesota ready to meet them upon graduation, he said.
In addition to some angel investors, some of the options at the moment include Launch Minnesota, a statewide initiative by the Minnesota Department of Employment and Economic Development, which has recently begun providing grants of up to $35,000 to startups. The Minnesota Cup, a competition run through the University of Minnesota, also gives division winners $25,000.
But most investors in town tend to come in at the seed stage when startups typically aim to raise $1 million to $2 million.
At that point, they are looking for startups to show some sort of repeatable traction.
By comparison, Robinson said Groove Capital will consider firms raising $250,000 to $750,000 at the pre-seed stage that have a concept, a minimum viable product and a sales pipeline in addition to goals of reaching later stages. While it may be riskier to invest in such companies before they have more proof points, Robinson said he thinks his experience in working with startups will serve him well in being able to identify founders who are more likely to be successful.
He hopes his fund can also help bolster the startup scene at a time when the pandemic has thrown a wrench into some firms’ plans. While some startups are thriving during the pandemic, others are struggling.
“There were some groups that were pretty close to deals that lost them,” said Robinson, adding that he doesn’t want to see the momentum of the last several years slow down.
Groove Capital also plans to create a new angel network to encourage a new generation of investors to support Minnesota-based startups.