In 2014 we joined GAN and started meeting with people around the world. The idea at the time was to start an accelerator and as part of that, we felt that we also needed to start a venture fund. We started to reach out to people in our community and said, hey, if you want to see this happen, we need some investors to build an investment fund and to fund the operations for the accelerator nonprofit. We managed to land one heavy hitter who bought into the vision and from there, it was off to the races. It took me four to six months to find that initial investor but once I had that covered, it acted as a signal to other investors. 

How did you find the first investor?

It was serendipitous. It came from a presentation I gave to a Rotary meeting. My realtor who had attended said: “I need to introduce you to my friend who can help you and wants to see this accelerator happen. He wants to meet you.” From there we went and got 16 other people to join the fund. Most of them saw this as either a cash upside or a way to give back to the community, or a mixture of both.

I went to that Rotary meeting with a presentation that said: “Dang it, this is what our town needs!” I asked them to step up if they wanted to help me, and that was specifically my intent. I knew that this thing was either going to flop or fly and luckily, a few weeks later, we were in business as “Iowa Startup Accelerator”. We wound up with just under $2m committed to that fund, and more for operations of the non-profit program.

There was a lot of outreach to potential backers but nobody around here even knew what a startup accelerator was. I think it was the first startup accelerator in the state at the time. We had a lawyer settle that up, and it cost between $50k to $100k at the time. It was not cheap, and as it was our first fund, we were just figuring it out as we went and were fortunate to have a really good lawyer. That fund was the capital source for the accelerator from 2014 to 2019. 

How did the fund grow from the initial $2m to the $20m it’s at today?

That one program blossomed into an array of other programs that support entrepreneurs – coworking, code schools, etc – so much so that we created NewBoCo as the parent organization for it.  The accelerator program turned five in 2019. At that time the first fund was coming to a close, and we knew that if we wanted to keep going, we would have to raise another fund. I went back to a couple of the key players in the initial fund and said, “Hey, do you think we should raise a new, larger fund? It hasn’t even returned all of the money to our investors yet.” The response we got back was positive so we started raising again. This time around we took advantage of an Iowa program that provides tax credits to those investing in Iowa companies. 

The idea was that when you put in $100k you get $25k back immediately in tax credits and then you hope that the other $75k comes back, plus a whole bunch of profit at the end. It was a great program to take the sting out of it for a lot of people, the one drawback was that the program required a minimum of $15m in the fund. We managed to get to $15.1m committed by March 2020. Then COVID-19 hit and the stock market took a nosedive and everybody panicked. I lost a couple of investors and that knocked us below the threshold but by June, I pulled some new ones in and we were good to go. We finished raising the fund – $22 million – towards the end of 2020 and we’ve been deploying that ever since.

We’re currently about 70% of the way through deploying that. Some of the companies we’ve funded participated in our accelerator, but most of them didn’t. 

There are not many accelerators around the state whose investors are a mixture of corporate investors and a lot of individuals. There aren’t very many Iowans who invest frequently in venture, so it was a good decision for us to aim for people that we thought probably weren’t getting asked for venture capital a lot, usually first-time investors. One of these investors was a grocery chain in our local area, even though they said they don’t normally do venture investment, they went ahead and invested $1m.

As you explored the venture studio concept, how has the idea been received? 

I expect that of the seven or eight institutional corporate investors, several of them are very much the sort that will fall in love with the venture studio when they hear about it.

In fact, we’ve already pitched the studio concept to two of them, and we asked: “If we do this, are you in?” And they both said “Yes, absolutely. This is great, we should do this.”  Some of the most active investors have also expressed interest. We see the studio as a way to forcibly align the moving parts that we could not do with the fund: a studio allows us to be more hands-on with founders, and to be there from the get-go.

It helps that we’ve been doing this for nine years. We know all the players in the community and the state has funded things with NewBoCo many times, it means we at least have the credibility to get the front door open. Whether we can close it remains to be seen!

What does the future look like?

Hopefully, in the next four or five weeks we should have an entity that exists that people could invest money into, which is the first big step. We have a bunch of customer discovery we’re trying to do to make sure we understand, especially in the corporates, what they want and how they’d like to interact with a studio. I think one aspect to resolve is whether they want a studio that is across lots of industries or if they just want to focus on the industry that they care about and that’s where they want their money to go. We need to make sure we’re designing it flexibly enough to handle a lot of different scenarios, but simply enough to let us get started quickly. 

I think the target would be something along the lines of a million dollars per company to invest directly from the studio. We’re looking to at least pencil in something like a $15 million target that would fund three years of the studio. We hope our reputation will help us reach this target but it’s not like investing in a fund anymore, it’s an operating entity. 

As we figure out how the studio will work, we’re also trying sort out what happens to Iowa Startup Accelerator. Does it continue the way it has, or fold into the studio somehow, or has it lived its useful life and we stop doing it? We’re still working on that – stay tuned! What we know for sure is, the accelerator got us to where we are today and we’ll always be thankful for that.