Erica Wassinger knows startups. From keeping founder’s hours, to butterflies when delivering a pitch, to the joys of a truly symbiotic relationship between entrepreneur and investor, she’s helped small businesses flicker to life and gain traction in a way that’s been both career and vocation.
Now Wassinger – in partnership with her longtime sidekick Nathan Preheim, also a longtime entrepreneur of note – is putting that storehouse of experience to work for startups through a new entity, Proven Ventures. In collaboration with Burlington Capital, the organization manages a $10 million venture capital fund helping companies in a way that’s wholly different and, as Wassinger explains it, entirely Nebraskan.
“What I love about this fund is we don’t take the traditional playbook from Silicon Valley or elsewhere,” she said. “Just because something works there doesn’t mean it works here. What does work here is focusing a lot more on founders, getting capital, providing a cavalry and helping founders retain control and optionality.”
Serving what Wassinger calls the “barn-raisers, casserole-makers and harvest helpers” ethos that defines the Nebraska entrepreneur, Proven Ventures provides more than money. Entrepreneurs also have access to various kinds of expertise to help them broaden their overall skill set.
And most of all, Preheim said, they get a venture partner who understands not all ventures can or were intended to take over the world, but just as nobly to support an employee base or sustain a community.
“We’re a little bit different that way,” Preheim said. “We are what we call a refactored approach to venture investing for Nebraska founders and Nebraska funders. What that means is our customers are bootstrappers. These are companies really looking to operate in the black, be profitable from Day One. It’s less about a home run and more about let’s get on base, let’s build a sustainable business that starts here, grows here and stays here.
“Second, I always say we don’t invest, we partner. I think that’s a significant difference. We work in service to founders. We talk about something called cavalry, which are the men and women who have invested in our fund. These investors don’t want to just write a passive check. They want to roll their sleeves up a little bit and actually help.
“When a company is a going through a very specific challenge, we look at our bench of talent and we pull in someone who has likely fought that battle once or twice and we bring everyone together. I think that might be our most interesting, most uniquely Nebraskan value proposition.”
The VC Boom
The duo’s philosophy and insights were honed during their previous venture, The Startup Collaborative, where they would assist 900 business owners in refining business ideas, preparing pitches, focusing business plans and uncovering sources of capital. It was a bold and unprecedented venture in service to the state’s entrepreneurs.
“We realized there wasn’t a lack of good entrepreneurs in Nebraska, but there was a challenge because there weren’t people who had done it before and there wasn’t sort of a natural muscle memory,” Wassinger said. “We set out with that vision of radically improving the odds of startup success in Nebraska. We wanted to increase the quality and quantity of startups born and bred in our home state.
“The Startup Collaborative was really objective in nature; we loved every idea until the market told us not to. It was built on customers. It was built on cash-flowing businesses. It was built on a sort of pragmatic approach to thoughtfully and methodically starting a business. It lent itself to a new form of investing.”
Proven Ventures comes into being during a unique phase of venture capital history. Per the 2021 U.S. VC Valuations Report published by PitchBook, venture capital categories had a banner year in 2021 as investment occurred at an unprecedented pace. Last year, a record number of angel and seed financings happened and, unlike previous eras where such investment was curtailed by startups’ lack of revenue, such deals were punctuated by unprecedented deal size and valuation.
With larger investors plowing money into seed opportunities, companies have grown faster at earlier stages. The median seed size grew nearly 50%, while the median seed valuation increased 34.3%. This introduced investment diversity into the market as the quartile spread of seed valuations grew to $10 million in 2021 from a spread nearly half that just five years earlier.
Investors were similarly lathered over early-stage opportunities, with median early-stage pre-money valuation reaching $45 million in 2021, a gain of 50% year over year. Valuations also spiked, at 2.8 times the median and an average of nearly 5 times between rounds.
Also significant was the emergence of a “founder’s market” which enabled entrepreneurs to win considerably friendlier terms in 2021, a trend that saw investors overall claiming smaller shares of companies for their investment dollar. The report suggested wider participation of nontraditional VC investors played a significant role in all of these overarching trends. Nontraditional investor deals soared past the 5,000 mark for the first time and total investment in 2021 was about double that of 2020.
Improving the Ecosystem
Entering into this new ecosystem, Proven Ventures mirrors the nontraditional thinking at work, particularly when it comes to percent of ownership. Simply put, the organization purchases equity or convertible rights to equity as well as rights to payments set at a percentage of future monthly revenue. As revenue is paid back to Proven Ventures, equity is dynamically returned back to the founders. The payments come with a return cap, typically around three times.
Company officials note the strategy of revenue as repayment works to the founder’s advantage by ensuring alignment to consistent, stable revenue growth. While Proven Ventures does retain a small amount of originally purchased equity, allowing them to participate if there is an outsized exit later, the end result is founders receive the financial infusion they need, yet still come out with a company to hand down or simply avoid having it be sold out from under them.
“The thing we kept hearing from both Nebraska investors and Nebraska founders was there is plenty of capital here, it just doesn’t do more than provide money,” Wassinger said. “That shaped the way we invest, such as following a formula that allows founders to buy us out over time. They are always the majority shareholder, so they know they won’t get forced into the sale of their business if they don’t want it.
“We’re not going to be on the other side of the table saying, ‘We’ve held our shares for eight years. Now you have to have an acquisition because we need out.’”
It’s one thing for an entity like Proven Ventures to want to structure something so differently, it’s entirely another for its financial backing to agree with the approach. Yet, that is exactly what Wassinger and Preheim enjoy with Burlington Capital and its individual fund contributors who from the get-go have been as willing to provide guidance as they have been to kick in dollars.
“In December of 2020, we came in and said, ‘We think there is a different way to do venture capital and we think the way Nebraska needs venture capital is very different than what might be working in Silicon Valley,’” Wassinger said. “And, by the way, we think you guys would be great partners in this. Do you want to do that as investors? [Burlington Capital] said we do, but we want to be general partners not just investors in this, because we’re not good at being passive.
“Our investors are raising their hands to work with founders too. A few weeks ago, some of our investors led a summit on public speaking and presentation training skills. At the end of January, some of our investors led a broad HR summit which starts with what are your company’s values? What do you stand for? How are you going to hire around that? That’s what we mean when we say we’re providing a cavalry. We are in a really privileged position to get the benefit of our fund investors’ minds, experiences and capacity.”
Room for All
Another differentiating aspect of Proven Ventures is the high degree of diversity represented in its leadership and in the makeup of the founders of companies in its portfolio.
“It feels like capital providers are still primarily older white guys,” Preheim said. “With Proven Ventures, three of our five general partners, the ones who effectively have check-writing authority, are women. That’s a major point of differentiation when 60% of the check writers in your fund are women. It’s like a women-run fund and as a result, we are partial to deploying capital to women if we can, and people of color. Not only is it the right thing to do, but the data shows these segments return capital back to investors quicker.”
Pam Finn, president of business development for Burlington Capital, knows what it means to be on the short end of financing requests. A successful entrepreneur with more than three decades’ experience as owner of an international design and manufacturing company, she remembers well the era when she felt she wasn’t taken seriously by the powers that be.
She said while these barriers still exist, being able to help the local market evolve for today’s entrepreneurs is one of the great perks of her role working with Proven Ventures.
“I remember having to go to several banks to get my first loan for inventory when I had a lot of orders from big companies,” she said. “Being young, I just thought, ‘Well everybody has to see five banks before they finally find somebody that will talk to them.’ That was just the way it was for pretty much all the women entrepreneurs that I was networking with at the time.
“In today’s world, and I don’t know why it is, it’s still very difficult for women and people of color to go to a traditional bank. Even in true venture capital, you see the number of companies being invested in by venture firms are run predominantly by white, young men.
That’s not saying that we won’t give capital if a young white guy comes in here. We absolutely would if the metrics fit in what we’re looking for. But we also want to give every opportunity to people of color, minorities and women.”
Asked what brought Burlington Capital to the party, Finn said in addition to the unique strategy they were presented with, officials were most impressed by Wassinger and Preheim themselves.
“When I started meeting with Erica and Nathan, you could just see the passion that the two of them have for helping startups and helping entrepreneurs,” she said. “It takes a special person to do that kind of work, someone with a lot of patience, a lot of energy and enthusiasm. There’s days those entrepreneurs really need a pep talk and there’s days you want to share the excitement with them. You go up and down.
“It’s an emotional rollercoaster in the startup world. I’ve lived it. They’ve lived it. You can tell, there’s just such a great energy on the team and I think that’s pretty rare to find.”
For their part, both Preheim and Wassinger say the fund is operating on the cusp of something really unique in the local startup community.
“I think Nebraska is well-placed for the future,” Wassinger said. “What I’m really excited about, speaking really candidly, is we’re only one of five or fewer funds in the country with the same financial mechanisms. When I think about that in Nebraska, I think that sets up a lot of founders to build incredible, scalable and sustainable businesses where they’re not worried about somebody buying or acquiring that business and then all those jobs leave our market.
“That’s a story we’re all too familiar with and the way our financing works, our return isn’t contingent on that moment. We like to say we are always sitting at round tables with founders. We’re not opposite them, we’re on the same team.”
