Southeast Minnesota Capital Fund Launches to Grow Startups in the Region

 From left to right: David Herbert, Chair of the SE MN Capital Fund; Xavier Frigola, Director of Entrepreneurship at RAEDI; Al Berning, Co-Chair of the Journey to Growth Entrepreneurship Committee.

From left to right: David Herbert, Chair of the SE MN Capital Fund; Xavier Frigola, Director of Entrepreneurship at RAEDI; Al Berning, Co-Chair of the Journey to Growth Entrepreneurship Committee.

The Southeast Minnesota Capital Fund has officially launched. The fund- spearheaded by Rochester Area Economic Development, Inc. (RAEDI)- contains $875,000 in seed capital from twenty-six financiers to invest in startups and small businesses in southeastern Minnesota with high growth potential.  

“It’s perfect timing because of everything that’s going on in the southeast Minnesota area and Rochester with [Destination Medical Center],” said Al Berning, serial entrepreneur and Co-Chair of the Journey to Growth (J2G) Entrepreneurship Committee.

Berning said an entire entrepreneurial community has sprouted up in Rochester, which was not present twenty-five years ago when he launched his first startup.

“It’s a great time. And it’s attracting national attention,” he said.

Southeastern Minnesota has a strong history of supporting startups through angel investment, although it’s mainly been on an ad hoc basis so far. Now, with an increasing number of startups growing in the region, the time’s past due to strategically provide local capital to early stage companies.

In mid-2015, Berning and his J2G Entrepreneurship Committee identified lack of local investment as a major roadblock for startups in the region. Over the past fifteen months, RAEDI has been meeting with investors and raising capital for the fund.

The fund’s twenty-six angel investors- or accredited investors, as defined by the Federal Securities Laws and Regulations- invest into the fund in exchange for convertible debt or equity in emerging startups. A subset of these twenty-six angels will vet applying companies and make investment decisions for the group. RAEDI will administer the fund.

David Herbert, Chair of the Southeast Minnesota Capital Fund and fund investor, spent twenty years at Mayo Clinic working with businesses and saw a “tremendous opportunity to do well by investing in startups in the area.” He hopes the fund will help to launch several exciting companies in the region.

Seed capital provided by the fund will be high risk. The investment team will have to do their due diligence, have confidence in the startups they invest in, and weed out those they believe will not succeed.

While the fund many not get a return on investment in all cases, Berning said this high-risk capital is essential for local businesses to attract outside funding. In raising money for his own startup, he said his company was almost required to already have these initial funds, which helped to prove he could launch the business and be successful at the local level.

 Minnesota BioBusiness Center, home to the Mayo Clinic Business Accelerator.

Minnesota BioBusiness Center, home to the Mayo Clinic Business Accelerator.

While the expertise of the fund investors is in healthtech, Herbert says they will look at all industries for investment, espeically in agriculture and manufacturing.

The group will primarily focus on southeastern Minnesota, but can invest outside of the region in “new companies with significant growth potential.”

Investment into the fund remains open until December 31st. The group hopes to grow the fund up to $1-2M dollars to expand investment potential. With the current size of the fund, the group plans to invest about $50,000 in fifteen different companies, maintaining a pool of capital for a second, less risky, investment as those same businesses mature.

Qualifying startups can contact the fund at smcfexec@gmail.com.

“We’re open for business,” said Xavier Frigola, Director of Entrepreneurship at RAEDI.