here for PDF format
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CEO, The Collaborative
Utica Ave S, St. Louis Park, MN
May 21, 2010
Verne Johnson (Chair, phone); David Broden, Janis Clay, Jim Hetland, Jan
Hively, Dan Loritz, Tim McDonald, John Moody, Wayne Popham, Clarence
Shallbetter, Paul Taylor
Minnesota ranks fifth in the country in the number of jobs created by
venture capital-backed companies — an especially significant ranking
because venture capital-backed companies account for 21 percent of the
country’s GDP, according to a 2008 report issued by Global Insight. In the
years 2008/09 Minnesota-based companies raised over $700 million in
venture capital investment. The speaker today represents an association of
growth-orientated companies, venture capitalists and innovators. He
believes that Minnesota is well positioned to be an innovation-leader, and
that government leaders should look to shore up the fundamentals that
attract start-up companies to the state (and it's not only about taxes).
A. Context of the meeting—
The Civic Caucus has been hearing about Minnesota’s strong position—as
compared to it’s neighbors—on the amount of venture capital coming in to
start and expand local companies. Seeing this as an indicator of interest
and confidence in the state’s economy, Dan Carr has been invited in to
talk about the entrepreneurial sector of the Minnesota economy, and the
prospects for economic growth in the state.
Welcome and introductions—
Dan Carr has served Minnesota innovators since 1987 as CEO of The
Collaborative, a Minneapolis-based membership organization of
growth-orientated companies, entrepreneurs, investors and advisors. In
addition to his efforts convening Minnesota’s innovation economy and
helping growing companies over the past 20+ years with The Collaborative,
he also has first-hand entrepreneurial experience as a co-founder of four
businesses including Minnesota Law & Politics and Minnesota Ventures
magazines. Previously, he worked as a CPA in New York and Minneapolis.
Carr also writes occasionally on entrepreneurship, innovation and the
Minnesota economy. The Collaborative is online at:
C. Comments and discussion—During
Carr’s visit with the Civic Caucus, the following points were raised:
1. Minnesota tops in Midwest
in venture capital--From
2008-2009 MN companies raised over $700 million of venture capital (VC),
the largest amount in the Midwest. Illinois was 2nd at $640 Million
(Minnesota consistently attracts more venture capital investment than
Illinois, which has an economy and population 2 ½ times our size). Coming
in 3rd & 4th are Ohio and Michigan with a little more than half
Minnesota’s total and it goes down the line from there. Incidentally,
Minnesota companies raised 10 times as much Venture capital than Wisconsin
companies in 2009.
state has the fifth highest employment in the country for companies that
were backed by VC money. There have been 40,000+ companies created by
venture capital in the country over the past 50 years, and revenues
represent 21 percent US GDP.
Carr said that The
Collaborative is geared very much toward a small segment of
companies—those looking to grow fast. He got involved in the work of
connecting people out of an interest in the entrepreneurial space of the
economy. “That’s where the interesting people are. I thought I could
convene people in a way that is of interest to them, provides value to
those companies, investors and the broader Minnesota ecosystem.”
The Collaborative serves
its members through its publication New Venture Review, which is
dry, Carr said. “But the goal was to get consistent information on
companies into the hands of people,” and as a result it was effective.
The Collaborative also
hosts an array of events each year on issues growth companies need to
address and specific innovation clusters in Minnesota.
2. The actions of
entrepreneurs say Minnesota’s economy has a lot going for it--“I’m
more optimistic than some,” he said, on Minnesota’s prospects. “One need
is more new business starts—people that want to go out and start
“When we look at Minnesota
there are a lot of things that are going quite well,” Carr said. The
state’s unemployment rate is one of the lowest in the country and is 1.5
percent below the national average. The innovation sector of the economy
has held up pretty well.
Carr made it clear that he does not think an organization like his would
sustain in all other communities. “I’m not sure many of our members would
relocate to other states. Here they have access to talented people to
support their work in industry clusters, overall business acumen and
infrastructure — law, finance, venture capital — and a strong work
Job losses hit hardest in
established companies more than VC-backed companies, who are smaller to
begin with, Carr pointed out. So Minnesota should be encouraged that it
has a river of capital still coming in.
“What VC companies do
right out the gate is bring people into the state—though they may not
generate tax revenue for ten years,” they bring jobs that one by one grow
the economy and bolster personal income tax revenue.
3. It’s the business model,
not the tax rate--“Marginal
tax rates are not the central issue for entrepreneurs.”
Carr said that in the
venture-space marginal tax rates tend not to have as much of an impact as
in other sectors where talent is more of a commodity. “People are focused
more on whether they can succeed --- hire the people they need and get a
return on their investment for their investors. These factors have to do
with the resources available to get their operation off the ground.
“Entrepreneurs want to be
able to build their widget and tell the world about it,” not worry as much
about having the people available, business infrastructure, or
encountering onerous hurdles.
4. Concern over regulations--Carr
refrained from commenting too much on regulations, other than to say that
they matter. “You can’t have a situation where you need to move on
something new but don’t know how long it will take, such as the recent
climate at the FDA.” There are others that can and should be looked to
speak more thoroughly about regulations—the Minnesota Chamber is active.
The capital formation
process for entrepreneurs in the U.S. is under pressure with fewer
companies going public or being acquired. The venture capital model needs
exits to deliver the returns to their investors. “An additional
complication is that nobody knows now what’s going to happen with the
financial reform going on in Washington,” so this does create uncertainty
“In Minnesota there is a
bit of complacency. We need to streamline, and make sure that we do not
over complicate things. Little companies in Wisconsin have been able to
get more personal attention from people in government. Minnesota
outperforms Wisconsin in the jobs provided by startups, but that is
something that could be done better.”
He added, “Innovation is a
high risk endeavor; we should expect a certain amount of failure. You
don’t want all companies to get funded. You want the good companies
to be funded.”
5. No preoccupation with
member said that he has heard people in startup circles around the country
say that Minnesota is not welcome to their ventures, and that there is an
impression the state is concerned primarily with medical technology.
“We certainly are known
nationally and globally for medical technology but I don’t think we
incentivize medical technology any more than other states or other
industries. I think there are plenty of other rich industry clusters, just
perhaps not as large as medical here in Minnesota. Some of those are data
storage, healthcare services, software and clean tech.”
6. Message to the
gubernatorial candidates: Get the fundamentals right--What
would you counsel, a member asked, if you were advising the gubernatorial
“I would suggest that job
growth fostered by venture capital backed companies should be a well known
fact, and recognition and fostering additional investments is encouraged.”
most important thing government can do is get the fundamentals right.
Minnesotans have a history of valuing and ponying up for highly ranked
education. We’ve also paid to underwrite the broader infrastructure that
innovative people seek for their employees when choosing where to make a
home, such as beautiful parks, reasonable housing costs, and good
transportation and roads. Those factors made Minnesota a good place to
build a business in the past, and today, the Minnesota innovation economy
is capitalizing on those past endeavors. It also helps if you’re in a
place with a rich quality of life including good schools, cultural and
environmental amenities, as well as sports and entertainment. Nightlife,
theater, music venues like nationally known First Avenue, the Twins
ballpark, and the Warehouse district—these are not trivial. They fit into
the social and economic context of the state and the Twin Cities that
helps to draw people here.
“Make sure you keep all
that going, and meanwhile don’t increase the burden too much by getting in
the way.” If there are changes to be made such as in education, go ahead,
take the pill and make those changes. These changes shouldn’t need to fall
along party lines, but these are the business realities, economic
realities and quality of life realities for our state.
7. Other similar
member asked Carr where else organizations like The Collaborative exist:
He replied that they have looked at expanding, and there really are no
other organizations quite like theirs. In Silicon Valley there are “more
groups like us than you can shake a stick at.” There are many, different
kinds of groups. “Here in Minnesota we have 70 percent of the membership
of these types of organizations. We convene a high quality group and we do
it through our events that members see as adding value.”
8. Does government do more
chasing of development than leading it?--One
piece of information was particularly telling, about the government’s
limited capacity to direct the development of industry: “When you look at
the most popular government initiatives that are trying to spark an
industry by creating these sorts of associations—often they were active in
all 50 states—they were the dot-com and biotech initiatives as each of
these bubbles surged and passed.” The government often tends to come in
late, he said, chasing a development rather than leading it.
to be mindful not to mortgage our overall core Minnesota qualities in
exchange for too many specialized taxpayer funded efforts aimed at job
creation – when, candidly, the very best things we can do is continue to
feed the Minnesota ecosystem that drew innovators here and spawned more of
them – and then get out of their way.
adjustment made to overall tax revenue could affect our ability to be a
talent magnet economy. Talent magnet economy employees seek quality of
life beyond tax rates. And their employers compete globally – with high
tax places, like Silicon Valley, New York and Boston – and lower tax
global talent magnets like Shanghai, Sao Paulo and Austin, Texas.
policy is indeed important, but we need to be careful not to deplete state
general fund revenues to the extent it reflects our values and empowers
our quality of life as a talent magnet economy.
9. The angel-investor tax
credit is good, but limited--“We
have lost some people to angel investor tax credits in other states, so
it’s a fine idea.” But he was clear that angel investment is only one
portion of the venture capital industry.
Angel investors tend to
support smaller investments in their first stages and in overcoming
particular hurdles. Individuals can put up one, two, five million. Pools
can be around 10-15 million. That’s just one kind of VC need.
“We need to embrace and
encourage the companies doing the larger transactions as well.” New
medical technology companies can spend upwards of $150 million getting
through ramp-up, including FDA regulatory hurdles. This is the kind of
money that is not typically put up by individuals.
“People come to Minnesota,
get VC, and grow. I have immense faith and confidence in the entrepreneurs
out there. They’re here because their business model can succeed here.
What they want is a place where there business can thrive.”
Our competitive advantage is the metropolis--“I
do see the metro area as one that can be a world-changer.”
competitive advantage is the co-location of so many critical functions.
“The metro area has been a talent-shed,” with high functioning people from
all areas around us coming in. “I’m a free market pragmatist. I believe
strongly in clusters—that we need to celebrate and shine a light on
clusters where we’re doing very well.”
We’ve heard from Elizabeth
Kautz, mayor of Burnsville, who is talking about the ‘med-alley’ from
Rochester up to Saint Cloud. Is that being pushed by the businesses
themselves, or is it artificial?
“The VC-backed companies
come to places where the business models can be successful today, i.e.
with the people living and commuting to the workplace. Even in the
information age, geography matters.”
Most of The
Collaborative’s programming is in the metro, and 75 percent of their
members are in the metro area.
To close, Carr
re-emphasized that the best thing the government can do now is to make
sure the fundamentals of the state are set right. “It’s ecosystem,” as he
put it: roads, schools, and cultural institutions. Meanwhile make sure
that things operate efficiently, and that there are no unnecessary
The Wall Street Journal’s
Market Watch operation named Minnesota the top place to grow a company in
2007, 2008 and number three in 2009.
“There is a lot to
celebrate. At The Collaborative we want to shine a light on those
successful companies. Recent coverage has tended to be disproportionately
negative (e.g. perhaps a story highlighting a 3 person firm moving to
Wisconsin without a corresponding story of a MN venture capital
backed-company increasing employment by 50). Part of what we need to do is
shine a light on what is going well. Minnesota needs to make sure we are
appealing to young bright young people with ties to Minnesota, so that
they want to come here.”
Thank you, to Mr. Carr,
for an interesting discussion.