Heartland Ventures has raised a $52 million second fund from leaders of legacy industries turning to the firm's portfolio for productivity-boosting technology.
That's three times larger than the $15 million first fund that launched in 2017 and has seen two portfolio companies acquired. The Columbus venture firm now has $142 million under management, including sidecar investments dedicated to specific portfolio companies.
Heartland's model of providing "outsourced R&D" to Midwest corporations has worked, founder and Managing Director Max Brickman said.
"We haven’t come across anyone who does it the way we do," Brickman said in an interview. "If we can increase the rate of technology adoption of the Midwest, the entire country will benefit."
Technology can help fuel reshoring of manufacturing despite labor shortages, he said, or help construction companies and suppliers for a massive project like Intel Corp.'s New Albany semiconductor complex.
Individual investors in Central Ohio include M/I Homes Inc. CEO Bob Schottenstein; developers Brent Crawford of Crawford Hoying, Brett Kaufman of Kaufman Development, Mark Wagenbrenner of Thrive Cos. and Brian Yeager of Champion Cos.; IGS Energy CEO Scott White and Pelotonia CEO Doug Ulman. Overall 60 investors are in Ohio.
"They’re users (of the tech) at the end of the day, so it makes sense to go to them," Brickman said. "We’re only investing in things they see value in."
Limited partners outside the region include Hans Tung, managing partner of GGV Capital in Silicon Valley; Bloomberg Beta, the early stage investing arm of Bloomberg LP; and the owners of the four largest RV manufacturers.
Heartland was investing from the fund as it was raised over the past year, including in autonomous forklift startup Third Wave Automation, parking software Parkade, and construction-specific business development platform ProjectMark.
Overall the fund projects about 20 seed to Series A investments, from $500,000 to $2 million, over four years. It seeks startups making software or other technology solving business obstacles in industries such as real estate, construction, manufacturing and logistics.
Heartland then introduces relevant startups to its investors. That model gives Brickman confidence that the portfolio companies will make it through this year's rough waters for venture-backed tech that isn't making revenue.
"A lot of times startups will build cool things that won't necessarily meet the customers’ needs," Brickman said. "The Midwest is a great place to evaluate product-market fit."
More than one-third of the country's largest corporations are based in the Midwest, but the region accounts for less than 14% of corporate R&D spending, the firm said, based on an analysis by SSTI, a science and technology advocacy group.
Genesis Products, a Heartland LP that makes high-performance materials for RV, marine and construction equipment, became a customer of Claira, another portfolio company in the new fund. The startup uses machine learning to optimize workforce, giving Genesis a competitive edge during the ongoing labor shortage.
“We obsess over our customers, but that means we don't always have time to learn how startups can help us solve key problems," Genesis CEO Jon Wegner said in a release. "That's where Heartland stepped up to help us."
The approach also awakens Silicon Valley startups to the market potential in the rest of the country.
“It was only with Heartland Ventures’ Midwest partnerships that we were able to validate the scale of the opportunity – both service industry and blue-collar jobs, all across America – and massively expand our total addressable market," Desmond Lim, Co-founder and CEO of Workstream, said in a release.
Workstream, which counts UPS and Ace Hardware among its customers, recently raised a $108 million Series B at a $500 million valuation. Heartland's first fund had participated in the $10 million Series A in 2020.
Seven of the 10 portfolio companies in the first fund are still active; two were acquired.
Brickman moved the firm to Columbus in 2019 after founding it in South Bend, Indiana. It has nine employees, including remote workers.
"Columbus is a unique market to do this in because people are so welcoming and collaborative," he said. "I didn’t know anyone in Columbus three years ago. ... People regularly made introductions; I immediately felt part of the city."
Brickman, now 30, last year was named one of Forbes' 30 Under 30 in venture capital and made its inaugural list of entrepreneurs to watch. The publication has announced the 30 Under 30 Summit will come to Ohio the next three years, including Columbus in 2025.
