Winds of Change

Movement and Migration

Over the years, these firms have come and gone. In 1993, Northwest Growth (now Norwest Venture Partners, an institutional limited partner of Wells Fargo) moved from Minneapolis to Silicon Valley to be closer to the center of the action for the venture industry. In January, Crescendo Ventures closed its office here and began the process of consolidating its Minnesota operations into its California office in Palo Alto.

The “go west” movement is understandable, given the concentration of the venture industry and innovation in Silicon Valley. In any given year, California companies typically get from 40 percent to 50 percent of all U.S. venture money.

There’s been a bit of a “go east” shift as well. The networking and communications team that was part of the St. Paul Venture Capital operation now operates as Vesbridge Partners with headquarters in Boston. This firm maintains a Twin Cities office but is based in Massachusetts, which ranks as the number-two state in attracting venture money.

Much of the venture money invested in Minnesota companies comes from firms located elsewhere, but the venture offices based in the Twin Cities are here for good reason. They have found ample opportunities here.

Eden Prairie–based Split Rock Partners, which was formed in 2004 by former St. Paul Venture Capital employees, focuses intensely on Minnesota. (St. Paul Venture Capital stopped making investments when its parent company, St. Paul Companies, got out of the venture business; however, Split Rock continues to manage the St. Paul Venture Capital health care and software portfolios.) Michael Gorman, managing director at Split Rock, says 44 percent, or 32, of the 73 companies the St. Paul Venture/Split Rock team has invested in are located in Minnesota. The Minnesota companies have attracted somewhat more than 44 percent of the money the team has invested, he adds.

Other venture capital firms based in the Twin Cities are active in Minnesota:

• Minneapolis-based Affinity Capital’s 48 portfolio companies include 26 from Minnesota. Affinity, which specializes in medical technology, has $52 million of its $89 million investment in Minnesota companies.  

• SightLine Partners in Minneapolis has $22 million of its $191 million investment in Minnesota companies. Twelve of its 69 companies are in Minnesota.

• Thomas McNerney & Partners, led by Pete McNerney in Minneapolis, has partners at offices in Stamford, Connecticut, and San Francisco. “Between the Northeast and California, we think this is clearly the best place to be,” McNerney says. Minnesota medical companies account for four of the six Midwest companies that McNerney’s firm has put money into since 2002. Among the four is Leptos Biomedical, Inc., a medical device company that is exploring the use of nerve stimulation to treat chronically obese patients. Leptos was moved to Brooklyn Center from California because Leptos’s CEO, former Medtronic executive Hans Neisz, lives here.

The argument about whether companies in the seed or start-up stage are getting enough financing simmers on. The average size of venture deals continues to rise, as the economics of the business drive them toward larger investments. “By and large, if it’s a good deal, it’ll get funded,” says Pete McNerney.

On the other hand, some experts like venture consultant Rick Brimacomb, founder of Brimacomb & Associates in Minneapolis, worry that some promising entrepreneurs unable to land seed money won’t make it. Somewhere in the middle is Smaby, who agrees there’s a lack of seed money, but says that’s a national problem rather than a Minnesota-only issue.

All told, this is a complicated saga with many story lines. Yet everyone seems to agree on one point: the need for more “consolidators”—large, innovative corporations that bring together huge pools of experienced managers, engineers, and researchers. From these deep basins spring the pools of talent so essential for entrepreneurial start-ups.

Think Medtronic. Then dream that somehow, more Medtronics eventually will flower here.