Investors care more about well-run companies solving real problems than ‘the hype’
Once again, TechPoint hosted dozens of venture capital firms from around the country to meet with growth stage tech startups and scale-up companies under one roof. It’s an incredibly efficient way for five to 10 meetings to take place in a single day, and Hoosier tech firms have secured millions in venture capital from relationships sparked and built through VC Speed Dating.
Investing in the heartland or the Midwest–basically anywhere that doesn’t have oceanfront property–has garnered headlines for a few years now. While Indiana still lags behind other Midwestern states, venture capital flowing into Indiana tech companies has nearly tripled from less than $50 million in 2015, to $135 million in 2018.
High-profile pioneers like Washington D.C.-based Revolution/Rise of the Rest (Steve Case of AOL); New York-based Greycroft (Alan Patricof of Apax Partners); and Columbus, Ohio-based Drive Capital (Mark Kvamme and Chris Olsen) are actually making it seem cool to invest in decidedly non-Silicon Valley locales like Indianapolis.
I spoke with investors from two such firms that have both attended VC Speed Dating and recently invested in Indianapolis tech companies. I wanted to collect some insights into what makes Indiana an attractive place to invest as well as how Indy stands out in comparison to other tech hubs.
Ryan Ziegler, general partner who heads up the enterprise solutions practice at Princeton, NJ-based Edison Partners, has an interesting view about Indiana’s past struggles to attract venture capital.
“Believe it or not, too-easy access to capital can lead to bad habits, mask serious problems and actually break an otherwise promising company,” Ryan said. “When there’s a scarcity of capital, you need to be scrappier and wiser. You have to make every dollar count and we fundamentally believe that-that leads to better leaders who build better businesses.”
Ryan led Edison Partners’ investments in Fishers, Ind.-based employee engagement solution Emplify, and Indy-based email signature marketing platform Sigstr. He specializes in marketing technology and he has completed new investments totaling over $250 million of invested capital.
Edison, as Ryan explained, has been investing in companies outside of the Valley and big cities for 30+ years. They target underserved markets, find entrepreneurs who have built customer-funded businesses, and invest in true growth-equity opportunities.
“Honestly, it all comes down to the people. We look for founders and CEOs who have the skills to build the company, which includes being very convincing at getting other highly qualified people to buy into the vision and join them,” Ryan said. While media tends to cover the entrepreneurs with the most panache or those who make the boldest and riskiest statements, Edison frowns on chest beating or bragging about capital raises.
“Irrational exuberance is not impressive; we just don’t care about the hype,” Ryan said. “What impresses us is operational performance–keeping your head down and achieving rather than just talking about achieving, is what we like to see.”
HG Ventures Director Jonathan Schalliol is an Indiana native and Indiana University grad and MBA who spent years in Silicon Valley, including global business strategist for Plug and Play, a founder in an augmented reality startup and a tech-focused investment banker. HG Ventures is the venture arm of Indianapolis-based The Heritage Group. Jonathan recalls driving on California Highway 85, shortly before he moved back to Indiana, when he saw a series of billboards promoting tech firms that all seemed to be doing the same thing, which was solving IT problems for other IT people.
“The Valley was pretty insular and I barely knew anyone outside of the tech space when I lived there,” Jonathan said. “What I recognized was that the tech companies in the Midwest and here in my home state are closer to the problems. They are solving real business challenges and not just coming up with another app.”
Of course, Jonathan cautioned, the Valley has produced innovations that have changed the world and changed humanity, so it would be unwise to think its influence has completely waned. What he does find important is that proximity to the problem and/or actual experience with the problem produces better, more effective solutions. He also believes a supportive and collaborative community can make a big difference for startups and the entrepreneurs behind them.
One year ago, The Heritage Group announced a multi-year partnership with Techstars, the world’s leading mentorship-driven entrepreneurship program. The partnership, called “The Heritage Group Accelerator Powered by Techstars”, is a vehicle for mentoring and developing early-stage companies at The Center on the Northwest side of Indianapolis. It’s one of two Techstars accelerators recently launched in Indianapolis, and it is currently running with 10 startups from 4 countries–including one from Indiana. HG Ventures recently invested in real-time GPS tracking and metrics company Gauge Telematics of Speedway, Ind., after Schalliol met the company through the TechPoint VC Speed Dating process.
Ryan Ziegler agreed that a supportive community and a healthy startup culture is important, and “Indy definitely has a great community rallying around tech and entrepreneurship,” he said. He did offer one constructive criticism that Indiana needs more experienced executives who have built businesses and have deep connections getting involved in the ecosystem.
“I think more executives should take the leap, frankly, and get involved with startups and go on these incredible journeys–because the entrepreneurs could really use their business acumen,” Ryan said. “Indianapolis and Indiana have a lot of good things happening, but one thing that could really make a difference is if you had more risk takers and found a way to build more risk taking into your community culture.”