Two new initiatives, MNvest
and MN-SBIR (Small Business Innovation Research),
are aiming to give Minneapolis-St. Paul startups and entrepreneurs a competitive leg up. Both initiatives lessen or remove existing barriers to funding for early-stage companies.
MNvest is a legislative proposal that could pave the way for “equity crowdfunding,” which would remove some red tape from existing securities law and allow young companies to raise up to $5 million from members of the public in any 12-month period.
Currently, Minnesota startups can raise funds in three ways, none of them ideal. First, they can register with state and federal securities regulators, a costly and stringent process that’s unrealistic for capital-starved entrepreneurs. Second, they can limit advertised investment offerings to accredited investors — roughly the state’s wealthiest one percent.
Third and most common: They can make a private, unadvertised offering, sometimes known as a “friends and family round,” but can’t solicit on the Internet or through other public means. In all cases, startups must either shoulder unreasonable costs or remain unable to accept investments from most members of the public.
MNvest’s value proposition appeals to lawmakers and constituents alike, says Winthrop & Weinstine attorney and MNvest proponent Ryan Schildkraut. “The question is simple: Why should only the wealthiest people be able to use the Internet to invest in businesses with compelling ideas?”
MN-SBIR is a conduit to the federal SBIR program
, which offers access to more than $2 billion in business grants from nearly a dozen federal agencies. Individual grants range from less than $150,000 for Phase I (early stage) companies to as much as $4 million for Phase III (established, generally medium-sized) companies.
MN-SBIR provides technical support, proposal writing assistance, cost analyses, commercialization planning and other services for startups and small-to-medium-sized businesses seeking grant money. The Minnesota program also offers regular workshops,
including a February 24 proposal-writing workshop and a March 26 overview workshop, for participants and interested parties.
MN-SBIR is “often the only source of capital available” to startups and small companies perceived as high-risk by traditional lenders, including venture capitalists, says MN-SBIR director Pat Dillon.
The program also pumps federal dollars into Minnesota’s economy. “We send so much of our [tax] money to Washington,” says Dillon. “This is one way for us to get some of it back.”
But both MN-SBIR and MNvest face challenges.
As a legislative proposal, MNvest is currently working its way through committees at the Capitol. Though the bill has bipartisan support and “has not run into major opposition from any group,” the legislative process offers no guarantees, says Zachary Robins, Schildkraut’s Winthrop colleague and fellow MNvest proponent. House and Senate versions of the bill still need to be reconciled into a single draft, a process that can take time. A full vote could happen anytime between now and late spring, with the governor’s signature required for MNvest to become law.
“We’re cautiously optimistic about MNvest’s prospects,” says Robins.
MN-SBIR faces a different set of obstacles. The state government recently restarted the program after a decade-long hiatus. MN-SBIR remains under-resourced due to its newness and funding realities, with Dillon and a small team of consultants sharing responsibilities.
“I’m a hard worker, but I’m not Superwoman,” Dillon laughs.
The continued economic vitality of Minneapolis-St. Paul, and Minnesota more broadly, could hinge on the success of MNvest and MN-SBIR. Both find the state in the unfamiliar position of playing catch-up with others, including some of its closest neighbors.
MNvest, for instance, is similar to bills already passed in Wisconsin, Indiana and other midwestern states. Last year, Schildkraut found out about Craftfund
, a Milwaukee-based brewery crowdfunding platform that takes advantage of the Wisconsin law.
“I assumed we had something similar on the books in Minnesota,” he recalls. When subsequent research failed to turn up anything similar, he and Robins set MNvest in motion.
“We’re just young and energetic enough to try to get a law passed,” says Schildkraut.
Meanwhile, MN-SBIR aims to dramatically increase Minnesota’s share of the federal SBIR pie. Local companies account for just $30 million of the $2.3 billion total, a disproportionately small share relative to population. California and Massachusetts alone account for nearly 50 percent of the available amount.
“We could do a whole lot better given our size and existing entrepreneurial energy,” says Dillon.