Regional Entrepreneurship Action Plan
ExEcutivE SummARy
Minneapolis Saint Paul
prepared by
Introduction
This Executive Summary outlines the Regional Entrepreneurship Action Plan (REAP or Plan) for AccelerateMSP, a newly formed 501(c)(3) with an initial office in Minneapolis Saint Paul (MSP). Operating as a venture development organization (VDO), AccelerateMSP will drive new, high potential company formation while building the entrepreneurial ecosystem.
the region, home to 3.3 million people, is comprised of 13 counties located in the metropolitan Statistical Area, which includes 11 counties in minnesota and two in Wisconsin (the Region). the Plan is the result of a unique public/private partnership among federal, state, and local government leaders; national and regional foundations; regional economic development organizations; and private industry and individuals. in June 2010, the u.S. Economic Development Administration (EDA), the John S. and James L. Knight Foundation, and the Surdna Foundation provided JumpStart inc.a vDO located in cleveland, Ohiowith funding to initiate projects in six upper midwest regions including Saint Paul, minnesota (the REAP Project or Project). upon learning of the Project, mSP leaders immediately saw an opportunity to expand the Project from Ramsey county to the entire Region. to accomplish the expansion, they secured an additional $200,000 from the mcKnight Foundation, the Saint Paul Foundation, and the minnesota Department of Employment and Economic Development. concurrently, the Brookings institute selected minneapolis Saint Paul as one of three initial participants in the Brookings metropolitan Business Plan program (the Brookings Program). the Brookings Program adapts the discipline of private sector business planning to the task of sharpening regional strategy setting. Brookings helps selected regions develop pragmatic and catalytic solutions in the form of a business plan. mSP leaders decided to focus their plan on mechanisms to support entrepreneurship and innovation. Recognizing the overlapping objectives of the Brookings Program and REAP Project, mSP leaders integrated the two efforts. this Plan and AcceleratemSP are the results of the first phase of these integrated efforts. AcceleratemSP is now commencing the second phase of the REAP Project: securing the capital to fund AcceleratemSP. JumpStartthrough its JumpStart America initiativeand AcceleratemSP are now actively seeking to raise $10 million to fund the first two to three years of the AcceleratemSP budget. With these resources, AcceleratemSP will be able to provide entrepreneurs with the resources they need to transform their ideas into successful, high growth companies, and engage in a range of activities to catalyze the Regions entrepreneurial ecosystem development. JumpStart America and AcceleratemSP will work together to raise the $10 million. JumpStart will focus on raising $5 million from national foundations and other sources that have not historically contributed to initiatives of this kind. AcceleratemSP, through its board and advisors, will assume primary responsibility for raising $5 million of matching funds from regional sources.
the minneapolis Saint Paul mSA includes 11 counties in minnesota and two counties in Wisconsin. the counties in minnesota include Anoka, carver, chisago, Dakota, Hennepin, isanti, Ramsey, Scott, Sherburne, Washington, and Wright. the Wisconsin counties include Pierce and St. croix.
minneapolis Saint Paul Regional Entrepreneurship Action Plan Executive Summary
CHISAGO
SHERBURNE ISANTI ANOKA WASHINGTON
WISCONSIN
RAMSEY WRIGHT CARVER HENNEPIN SAINT CROIX PIERCE
SCOTT
DAKOTA
MINNESOTA
MINNEAPOLIS SAINT PAUL
The Opportunity and Challenge
Entrepreneurship is the Key. Entrepreneurship and High Potential Startups are the answers to the following
questions: i) How will the united States create the 25 million jobs necessary over the next 10 years to recover from the recession and firmly establish itself as the worlds leading economic engine in the 21st century; and ii) How will regions create the fast growing and competitive economies necessary for long term growth and success? Recent studies show that over the last three decades, companies less than five years old created 44 million jobs and accounted for all net new jobs during that period. Furthermore, startups are more likely to create the technology and knowledge-intensive jobs that attract and retain an educated workforce. Startups are also more likely to keep and grow their enterprises in the regions where they originated. in short, to achieve long term economic success, regions must invest in and establish high performance entrepreneurial ecosystems.
Regional Assets. the bad news is it can take decades to establish the comprehensive array of assets, resources,
practices, systems, and culture necessary to an entrepreneurial ecosystem to thrive. the good news is the Region can build on a vibrant economy and a substantial foundation of valuable assets. the Region has a rich history of innovation and entrepreneurship and a strong private sector. in 2010, the Region was home to 21 Fortune 500 companies including unitedHealth Group, Best Buy, target, 3m, General mills, and medtronic. the Region is also home to seven companies on the Forbes list of Americans largest private companies. As recent as 2009, the university of minnesota was included in the nations top 15 research institutions with over $740 million of expenditures (ranked by total R&D expenditures). Finally, the Region benefits from a large and growing base of organizations providing assistance, expertise, and capital to entrepreneurs. Not surprisingly, these assets translate into a growing number of quality opportunities.
Needed Resources. Need depends on the characteristics and magnitude of the opportunitythe assets in place,
the quantity and quality of the deal flow, the demographics, and an overall assessment of potential. During the last few decades, the Region has ranked in the top quartile or higher in a number of leading economic indicators, and through its
minneapolis Saint Paul Regional Entrepreneurship Action Plan Executive Summary
21 Fortune 500 companies, truly competes globally. the Region, therefore, compares its performance and potential to the top performing regions in the u.S. rather than the midwest. in this context, the Region has experienced a number of troubling trends over the last decade. the Region has experienced a declining share of high tech jobs, business starts, and growth rates. As recently as 2002, the state of minnesota ranked as high as 9th on the Kauffman Foundation index of Entrepreneurial Activity. From 2008 through 2011, the state ranked no higher than 41st. to their credit and unlike many regions in the u.S., mSP leaders decided to act now rather than hope the trends reverse themselves, or wait until the trends become a crisis. the Brookings Program and this Project are only two of many actions the Region has initiated to establish the foundation for future success and prosperity. Entrepreneurs, investors, and others active in the Regions entrepreneurial ecosystem universally agree that too many of the Regions entrepreneurs cannot find the capital and expertise they need to cross the valley of Deaththe period that begins when the entrepreneur runs out of friends and family money, and ends when the company becomes a quality investment for angel investors, venture capitalists, or other for-profit investors.
As noted, the lack of sufficient resources to help these entrepreneurs cross the valley of Death is relative, not absolute. the Region benefits from the efforts and resources of many individuals and organizations contributing time, money, and expertise to entrepreneurs. these resources are simply not sufficient to address the Regions current or potential deal flow. Almost universally, the resource providers lack the scale or support necessary to deliver the required assistance on a consistent and sustained basis. As mSP seeks to return to its entrepreneurial rootsthose that generated many of the Fortune 500 success stories located in the Region todayit cannot afford to miss quality entrepreneurial opportunities for lack of appropriate resources.
minneapolis Saint Paul Regional Entrepreneurship Action Plan Executive Summary
AccelerateMSPThe Solution
to help a greater number of these high value opportunities become successful companiesand help the region build or attract the complementary resources necessary to create and grow a thriving entrepreneurial ecosystemAcceleratemSP will provide two essential categories of support: Investing and Facilitating. As an investor, AcceleratemSP will provide a select group of High Potential Startups with a combination of investment capital and intensive expert entrepreneurial assistance. this pairing will prepare companies to achieve those technical and commercial milestones essential to attracting follow-on investment and customers. For purposes of AcceleratemSPs investment activities, the term High Potential Startups refers to companies that are too early in their commercial development to fit the primary investment criteria of most mainstream angel or venture capital investorsin other words, companies located in the valley of Death. As a facilitator, AcceleratemSP will identify deal flow, promote entrepreneurs and entrepreneurship, create and strengthen formal and informal connections among regional assets, capture and share data and related analyses, serve as an information resource for in-region entrepreneurs, and help complementary resource providers secure the financial support necessary to generate and sustain their efforts to transform the regional ecosystem. With these actions, AcceleratemSP will catalyze the development of the regional ecosystem while increasing the breadth and depth of resources available to entrepreneurs.
Investing. AcceleratemSP will invest in five to eight High Potential Startups each year. in general, the companies will have
the following characteristics: a protectable idea or technology, a large potential market, a clear value proposition, and the core of a qualified management team. AcceleratemSP anticipates it will make an initial investment of $250,000 in the form of convertible debt, and that approximately half of these companies will qualify for a follow-on investment of up to $250,000. through a dedicated team of experienced venture partners, entrepreneurs, and technical experts, AcceleratemSP will provide hundreds of hours of assistance to each of its portfolio companies, as well as significant time to other high quality entrepreneurial opportunities. the AcceleratemSP team will know what it takes to start and grow new companies. the following diagram illustrates AcceleratemSPs investment process (phase names have been modified for clarity):
minneapolis Saint Paul Regional Entrepreneurship Action Plan Executive Summary
Facilitating, Connecting, Catalyzing. AcceleratemSP will also provide a variety of programs and shared
services to: i) increase collaborations and connections among entrepreneurial service providers; ii) improve and streamline the entrepreneurs pursuit of valuable assistance; and iii) catalyze the development of the entrepreneurial ecosystem. the following are examples of services that AcceleratemSP will make available to entrepreneurs, collaborators, and the ecosystem: talent acquisition, inclusion programming, marketing/promotion, deal flow generation, diligence, metrics collection and analysis, intake and cRm systems, and fundraising support to sustain regional entrepreneurship resources. By sharing these services and systems, AcceleratemSP hopes to reduce the Regions overall cost of providing certain services, systems, and operating support, and increase the resources that can be directly invested in startups.
Flexibility. critically important to the development and success of AcceleratemSP is the understanding that
AcceleratemSP must be entrepreneurial in its design, staffing, development, and response to the market. this Plan is a beginning, not an end. AcceleratemSPs board and executive team must have the latitude to respond to the market as it changes and develops. With this flexibility, AcceleratemSP will have the tools needed to achieve its goals and maximize its impact in context of the various resource providers already in place.
IdeaCrossing. to accelerate expansion of the entrepreneurial network and the creation of productive connections
and collaborations, AcceleratemSP will facilitate the customization and rollout of ideacrossing ([Link]), JumpStarts online community that connects entrepreneurs with the resources necessary to turn innovative ideas into viable businesses. ideacrossing offers AcceleratemSP, its regional partners, and their marketing partners the following services: i) a promotional vehicle to generate awareness and connect regional marketing partners websites; ii) a mechanism to connect entrepreneurs, investors, service providers, and mentors; iii) private workspaces that entrepreneurs can use to collaborate with their networks of mentors, investors, service providers, business partners, and others; iv) a low cost, online means for many participants in the entrepreneurial ecosystem to find and engage with each other in a manner consistent with their relationship; and v) a cost effective mechanism to reach rural entrepreneurial teams and enable them to collaborate. ideacrossing will provide the Region with a customized landing page and online activity reports. AcceleratemSP will work with JumpStart, regional collaborators, and regional marketing partners to reach targeted markets using a combination of traditional marketing and ideacrossings unique capabilities.
minneapolis Saint Paul Regional Entrepreneurship Action Plan Executive Summary
Economic Inclusion and Diversity
AcceleratemSP is committed to inclusion and diversity in its staffing, operations, programming, outreach, and processes. Based on proven inclusion practices and programming implemented by JumpStart, AcceleratemSP will deploy its resources in a manner designed to ensure it identifies and provides support to as many High Potential Startups as possible, including those owned or run by women and minority entrepreneurs, or located in distressed inner city areas. AcceleratemSP will engage in specific outreach and engagement activities provided by a diverse network of experienced, trusted entrepreneurs. inclusion efforts will not materially alter the investment criteria that AcceleratemSP uses to provide capital or assistance to entrepreneurs, but will help ensure that all women and minority entrepreneurs involved in High Potential Startups are aware of the opportunities, encouraged to participate in the deal flow pipeline, have access to resources, and are supported effectively as they apply for services or investment from AcceleratemSP or its collaborators. JumpStart will continue to advise AcceleratemSP as it begins to implement its inclusion practices and programs.
Returns and Evergreen Fund
AcceleratemSP is a nonprofit venture development organization. its role and objectives are more ambitious and complex than those of a traditional for-profit fund. AcceleratemSPs role is to fill a gapto provide funding and support for valley of Death opportunities that are generally insufficiently developed to attract for-profit investors. these companies are months and sometimes years away from achieving the technical and commercial results required by for-profit investors. Given the inherent risk in valley of Death investing, it is unlikely AcceleratemSP will generate a traditional return in five to seven years as targeted by venture and angel investors. the risk and AcceleratemSPs decision to limit its investments to two rounds make it unlikely to see a return in less than eight to 10 years. the AcceleratemSP must therefore rely on philanthropic, governmental, and related contributions to fund its investments and operations. yet, AcceleratemSP does generate a return for its funders. AcceleratemSPs return and its primary measure of progress in moving companies from idea to market is follow-on funding. As described below in Metrics, AcceleratemSP will measure success as the amount of followon funding attracted and revenue generated by portfolio companies, as well as other companies that received substantial AcceleratemSP assistance. the ratio of follow-on funding to AcceleratemSP investment is known as the leverage ratio.
Metrics
AcceleratemSP will measure its performance against a well-defined set of process and outcome metrics. Examples of process metrics are traffic to AcceleratemSPs website or attendance at outreach events. these provide a first level productivity measure of marketing and promotional efforts. AcceleratemSP will also track process metrics such as the number of companies that receive assistance, the time required to move a company from first contact to investment, and the time required for a portfolio company to attract a follow-on investment. AcceleratemSP will track the effectiveness of its marketing and outreach efforts in securing participation from women and minority entrepreneurs, and will also measure portfolio companies against specific value-creating milestones, and monitor cash flow against plan. Follow-on funding and new revenue by portfolio companies are two of the most important outcome metrics. AcceleratemSP will target a leverage ratio of one-to-two times during the first three years of operation, five times by the end of the fifth year, and in excess of 10 times by the end of the tenth year. AcceleratemSP will annually publish its targets, results, and overall economic impact. AcceleratemSP will retain an independent expert to prepare an Annual
minneapolis Saint Paul Regional Entrepreneurship Action Plan Executive Summary
Economic impact Report. AcceleratemSP will continuously monitor its performance and adjust its programs and assistance in accordance with results and emerging market needs.
Projections
to ensure that AcceleratemSP achieves its goals, AcceleratemSP must ultimately secure funds to sustain its efforts, possibly for as long as 10+ years. AcceleratemSP must therefore establish long term funding relationships with a variety of sources, which will require a productive development effort sustained throughout the organizations existence. this development group will also assist complementary resource providers in their fundraising efforts. the following is a summary of AcceleratemSPs investments and expenses during the first three years of operations: AccelerateMSP PROJECTED FINANCIALS: INITIAL 3 FISCAL YEARS YEAR 1 investment - capital investment - services investment - total development operations $1.25M $1.22M $2.47M $0.30M $0.50M YEAR 2 $2.63M $1.37M $4M $0.33M $0.55M YEAR 3 $3.00M $1.37M $4.37M $0.33M $0.56M TOTAL $6.88M $3.96M $10.84M $0.96M $1.61M % OF TOTAL 51% 30% 81% 7% 12%
TOTAL
$3.27M
$4.88M
$5.26M
$13.41M
100%
AcceleratemSP, with JumpStarts assistance, must raise a total of $10 million to fund approximately 28 months of operation. JumpStart will use its best efforts to secure up to $5 million from public, private, and national philanthropic organizations located outside the Region. JumpStart will work with regional leadership to raise the remainder from inregion public, private, and philanthropic sources.
Next Steps
AcceleratemSP has formed a committee, initially a subset of the regional Stakeholder Group, to recruit a board, form a nonprofit corporation, and apply for 501(c)(3) status. the committee has also begun to actively engage with regional organizations that are likely candidates to provide funding for AcceleratemSP. JumpStart is currently speaking with national philanthropic organizations who are candidates to provide material support during AcceleratemSPs first 28 months of operations.
minneapolis Saint Paul Regional Entrepreneurship Action Plan Executive Summary