This is a guest post by investor Mark Hasebroock
In Nebraska, valuations are low, potential revenues are high, and founders are humble to a fault. Entrepreneurs from the region work their tails off to create a business — that’s the Midwest mentality and approach.
From my perspective as an entrepreneur and now venture investor, Nebraska’s relatively unknown ecosystem was a perfect place to launch a first, second and soon-to-be third fund because of these very reasons. I recognize that there’s work to be done to put more of our successes on the radar. Indeed, our quiet approach to building our startup ecosystem presence is a double-edged sword.
‘Heads Down’ attitudes
Many of the founders and early startup teams here take ‘heads down’ approach to building their business. The tendency to dig in wholeheartedly is inherent in Midwest founding teams. Working long, hard and smart is commonplace around here.
I very much think it is because of our agrarian roots — the old adage goes that if work hard, you’ll be rewarded with a great harvest.
The benefits of this mentality? High-quality, focused startups led by founders with a strong work ethic. I’ll invest in founders, who are laser focused on results and traction any day.
The cons may be harder to see, but exist nonetheless. This ‘heads down’ approach can be a hindrance to valuable networking and relationship building. While there are many outstanding events (Big Omaha being one) in our region to support community building, several founders find themselves unable to break away from business development to join the conversation.
Talk to five founders from Nebraska and four of them will tell you they aren’t ready for more capital yet. Founders here are scrappy. Many want to build products on their own, and not owe anyone any favors. Others want to make sure their ask is perfectly poised for success with the venture capital community. Regardless, this bias toward bootstrapping the business as long as humanly possible is something we see regularly.
Several of the startups making headlines from the Prairie State were built on the back of customers, not investors. They see the value of creating a real, sustainable revenue stream for a company to live on for years, not quarters.
If they take capital, they want to fully understand what comes with it. It isn’t just about the money. It needs to come with more and needs to fill a distinct void like financial operations, marketing, connections to new markets, and more.
MindMixer, one civic engagement startup in our portfolio, had more than 10 customers before they even considered a seed round. In their case that meant about a dozen different cities had agreements to leverage the online town hall site in order to build their next community initiative. Now, MindMixer has more than 500 cities on board, one million engaged users, and 38,000 great ideas logged to improve communities nationwide.
Many times, this bootstrapping bias works without a hitch. The startups build out their product and generate revenue, while keeping budgets lean. Profits stay with the founders until revenues are consistent enough to split among the VCs. By the time we engage, there is already revenue to celebrate — and we’re a seed-stage firm!
The best part for other investors is that the valuations here are low, in comparison to similar startups on the East and West Coast. This means there is a huge opportunity to get in early — and there is deal flow! We consistently see 50 to 75 unique solid startups per month from Nebraska, and surrounding states.
The downside? Founders are a bit more cautious to scale too quickly. These companies thrive quietly for several months — and for some, a couple years — before they consider a first round to take them to the next level. They turn down funding if they don’t feel it has been vetted to the ninth degree.
Bring on the brags
When I get to San Francisco or New York and meet with startups, I am barraged with pitches. The fever these founders have to gain more capital, make connections, and share their business’ story is contagious.
This is a typical conversation you get from a Nebraska entrepreneur. “Business is good. [mumble, mumble]. How’s the weather?”
Being a Nebraska native, I get it. You don’t want to brag. You don’t want to sell yourself. Again, it goes back to our roots. We really believe that if you do great work, you’ll get noticed.
This humble nature lends itself to listening closely to customers and to partners. It also creates a more even-keel approach to business. There are not as many peaks, troughs and valleys. Founders seem to accept challenges and defeat much easier. Yet, they don’t celebrate successes very much.
At the end of the day though, we have to be more aggressive about selling ourselves in the larger marketplace of startups. We need to stop being apologetic that we’re from the Midwest.
All in all, the Nebraska approach to business — the same tenants that have led to success with ConAgra Foods, Union Pacific and TD Ameritrade — makes for good business. The hard working, ‘head down’ approach, humble nature and bootstrapping bias found among many Nebraska entrepreneurs make up the startup ecosystem. While there are drawbacks with this approach, there are also huge opportunities for the right investors.
Mark Hasebroock is the founder of Dundee Venture Capital, a firm that invests seed and early stage capital in startup e-commerce and web services businesses in the Midwest. Dundee is a $15 million fund with specific skills adapted from a “been there, done that” experience.
Mark is the former chief operating officer of GiftCertificates.com.
Follow him on Twitter @dundeevc