Startups in Minnesota raised approximately $1.2 billion across 132 deals in 2019, up from $814.4 million the year prior, according to a new report from PitchBook and the National Venture Capital Association.
The largest contributor to this number was (and has been for the past three years) Minneapolis-based Bright Health. In December, the insurance-tech company closed on a record-breaking $635 million.
But Bright wasn't the only Minnesota company to report a major round of funding in 2019. In October, St. Louis Park-based fin-tech company Total Expert secured $52 million in Series C funding – one of the largest raises for a non-healthcare tech startup in recent years. Smart-energy startup 75F also closed on an $18 million round of venture capital that included investment from a group of high-profile tech CEOs and a billionaire-backed investment fund.
"While the majority of the capital goes to the Bay Area, New York and Boston, several Minnesota companies raised significant amounts in 2019," Joy Lindsay, managing partner at Minneapolis-based Sofia Fund, told Minne Inno. "Companies like Bright Health and Total Expert are good indicators that Minnesota companies can attract large amounts of capital. I also think that bigger isn't always better. Minnesota companies tend to be more capital efficient – they do more with less."
National Breakdown
On a national level, U.S.-based companies raised about $136.5 billion across more than 10,700 deals in 2019, PitchBook says. VC activity last year was slightly lower than 2018 when U.S. companies raised $140 billion across 10,500 deals. The dip was due to a slower fourth quarter, according to PitchBook. But overall, the data shows that venture capital raised by U.S. companies has been steadily rising since 2006.
California startups saw the most funding of any state, with companies raising more than $63 billion across 3,623 deals. The state had several multi-million-dollar deals from San Francisco companies such as DoorDash, which raised $700 million last year, and Databricks, which raised $400 million in October.
Following California was New York, whose startups raised more than $27 billion across 1,315 deals, and Massachusetts, which saw more than $10 billion raised in 2019 across 740 deals.
And when it came to startup exits, 2019 hit a new record for U.S. VC exit value, coming in at $256.4 billion across 882 liquidity events. One of the year’s largest exits was Honey, which was acquired for $4 billion by PayPal in November.
Local Growth
On a local level, Minnesota startups have continued to bring in more venture capital dollars each year, according to PitchBook. Investors from the area are optimistic that this growth will continue.
"In my 20 years of being involved in the local tech ecosystem, I don't recall any moment in time when venture funding was more accessible, across early stage, growth stage and late stage," Great North Labs Managing Partner Rob Weber said. "This is good news for founders and competitive startups with good strategy and strong execution."
Great North Labs was one of several local groups that announced in 2019 that they had raised new funds.
In June, Great North Labs closed its first fund at $23.7 million – likely one of the largest debut seed funds raised in the Midwest. Based in Minneapolis and St. Cloud, Great North Labs said at the time that it planned to use the funding to back fledgling startups in the Upper Midwest.
"With lower operating costs than their coastal counterparts, Minnesota and Midwest startups which focus on growth and profitability will survive what may be a cooling funding environment," Weber said.
Other local firms that closed on new funds include Arthur Ventures ($155 million), Matchstick Ventures ($20 million), Vensana Capital ($225 million) and the Syndicate Fund ($8 million).
Lindsay called the growth of these firms one of the most "exciting trends" of 2019. She added that support from state government and engagement from corporate partners were reasons to be optimistic about the local startup scene's future.
Supporting Women and Minority-Led Ventures
Lindsay also predicts that the entrepreneurial environment will become more diverse and inclusive and that there will be more funding for women-led and minority-led companies. She also believes there will be a more diverse pool of investors.
"At the Sofia Fund, we've been working on this for 20 years," Lindsay said. "But it seems we're finally starting to see more people recognize the value of diverse teams."
Women-led companies across the U.S. saw record activity both on a capital and deal count basis in 2019, raising $18 billion across 2,184 deals in 2019, compared to nearly $17 billion across 2,057 deals in 2018.
Increasing Interest in the Midwest
Local VCs also believe that firms from elsewhere in the country will continue to take an interest in the Midwest.
Revolution's Rise of the Rest Seed Fund established a permanent Minnesota presence in 2018 when Partner Mary Grove moved to the Twin Cities. Over the past few years, ROTR has backed a half-dozen Minnesota companies.
In October 2019, Washington, D.C.-based Revolution announced that it had raised $150 million to invest in startups in emerging U.S. markets. Grove told Minne Inno that she believes other firms will also take interest in Minnesota startups.
"This year, we'll continue to see growth in the number of investors based in Minnesota as well as investment capital flowing into the region," Grove said. "We'll also see some exciting rounds of funding for high-growth startups at the Series A and beyond led by VC firms outside our region, as more firms actively scout for more investment opportunities in the Midwest."
