Innovation in the Heartland: Balancing Inspiration with Funding in Tech Startups

Nebraska’s tech industry has come a long way over the past few decades, creating an innovative community spurred by colleges and universities and supported by several organizations looking to help bring inspiration to the market.

In the tech space, there have been many recent successes that have put Nebraska on the map: Spreetail, a Lincoln-based e-commerce company received a $208 million funding round in February; this past July, Lincoln’s Monolith, a producer of clean hydrogen, carbon black and ammonia, received a $300 million round.

When it comes to funding at the early stages, however, it can be hard to come by.

“Like most ecosystems, talent and funding are pressing issues, particularly available pre-seed/seed funding in the range of $100,000 to $1 million and management talent to help move early startup businesses forward,” said Brad Roth, president and executive director of NUtech Ventures and associate vice chancellor of technology development at the University of Nebraska-Lincoln.

“Every early-stage founder or somebody that’s just starting out, at some point sooner or later, will need access to capital and that’s a really tough thing to come by,” said Jake Burklund, president of the board of Scale Omaha.

Crunchbase reported that of the top 26 states in early-stage funding activity in second quarter/third quarter 2021, six were in the Midwest. Of these, half (Ohio, Michigan, Minnesota) were up between 500% and nearly 700% and the other three (Illinois, Colorado and Missouri) grew between 86% and 210%. Nebraska, however, was nowhere to be found.

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Good Ideas Abound 

With the number of ideas and innovation being brought forth by Nebraska entrepreneurs, local organizations are spurring more efforts to bring those ideas to fruition.

Nebraska Enterprise fund, which provides funding and loans to small and micro-businesses, is administering $10.5 million in State Small Business Credit Initiative funding through the Nebraska Department of Economic Development.

According to Executive Director Jim Reiff in a press release, the SSBCI funds administered by NEF will focus primarily on what are termed the SEDI populations – social, economic, disadvantaged individual business owners.

Pitch competitions are also giving opportunity to newly-formed businesses such as Pitch Black, hosted by the Midlands African Chamber, UNO’s BigIdea! Pitch Contest and Get Started Omaha. 

These efforts, however, can only accommodate for some of the ideas on the table.

“Nebraska has a vibrant startup community in ag tech, food tech, fintech, HR tech, sports tech, among others,” Roth said. “Additionally, Nebraska is ripe for continued development and expansion of the ag tech and food tech market verticals in view of the existing customers in production agriculture and food manufacturing.”

Experts agree that potential has never been the problem in Nebraska, a fact that invigorates various entities set up to foster and grow the state’s startups. Burklund’s organization, for example, broke away from The Startup Grind to adjust to more local market forces and opportunities in the belief that connecting entrepreneurs and various resources, financial or otherwise, best starts at home. 

“Our mission is to gather, educate and inspire local entrepreneurs and hopefully facilitate meaningful connections through events,” he said. “As an organization, we really want to get all of the local entrepreneurs together and anyone that’s really adjacent to that as well, connecting with the investment community and supporting organizations around Omaha.

“Being our own organization, we can focus on our own ecosystem, which does have differences from Silicon Valley and even places like Austin, New York and those types of cities, which are a little bit different.”

NuTech Ventures, a nonprofit affiliate of the University of Nebraska providing technology commercialization services for the UNL and University of Nebraska at Kearney campuses, has also leveraged the power of partnerships both inside the state and with entities in other states that mirror Nebraska’s opportunities and challenges.

“Certainly, it is important for NUtech to continue to strive to maximize the opportunities we have to commercialize more university technology with the aim to provide broad, real-world impact,” Roth said. “We are committed to this mission and seek creative ways to grow our business and impact. 

“Part of the solution is to partner judiciously, yet broadly, with our ecosystem partners on, and outside of, the university campus. To that end, we have existing partnerships and dialogue with most, if not all, of the entrepreneurship programs on campus, as well as with Nebraska Business Development Center, NMotion, LPED, Invest Nebraska, Innosphere Ventures in Fort Collins, Colorado, the NSF Great Lakes I-Corps Hub, Pipeline Entrepreneurs in Kansas City, Destination Startup in Boulder, Colorado, and others.”

Solutions

These partnerships notwithstanding, Roth said there are steps Nebraska leadership could take that would have an immediate and substantial impact on the startup ecosystem right here at home.

“The whole matter of pre-seed or seed capital is a really big deal. There’s a lot of money that’s on the sidelines right now,” he said. “Having a pre-seed match through the state would immediately help, having more access to pre-seed capital that could be used as a match for a lot of the state programs. And I’m talking in the $100,000 to $1 million range, which is really a sweet spot and really hard money to get sometimes. At that point in their development, startup companies are very early, and the risk is pretty high.”

In the meantime, progress comes slowly and generally one relationship at a time. Beeso Studio, a four-year-old organization that partners and advises selected startups in exchange for a stake in each company, provides the intensive one-on-one management acumen that’s often hard for startups to hire on their own.

“We provide four main services,” said John Bunting, CEO. “First one is fundraising; we support and help our startups raise capital from angel investors, from friends and families, and when they’re at the right point, we make introductions to VCs and such. 

“When you’re at the very early stage, funding is definitely local, definitely from who you know and who’s in your network. But as you get traction, revenue and growth, your audience expands, investors you can talk to also expands and we support and help with that. If you’re very early on, at the cocktail napkin stage, a VC is not going to talk to you; we help guide and support and give strategy and direction, pitch decks and everything around fundraising.”

Management is Key

Bunting said the organization’s other areas of expertise – building technology in-house, providing marketing education and support and developing sales channels – all combine to make companies more sound from an operational perspective, things prospective investors are looking for.

“One challenge for investors is finding good quality deals,” he said. “We sort of de-risk a lot of the normal challenges to investing in startups, because we apply a lot of control and guardrails for the tech startups in our portfolio. That’s one particular advantage for investors to work with us.”

Beeso Studio works with companies at all stages of development and Bunting said the challenges of funding don’t always lie at the feet of the startup. Often, potential investors need to be educated to recognize opportunities as well.

“Don’t get me wrong; these investors are very astute with respect to business. They’ve run successful businesses. They’re very familiar with real estate investing and other types of investing,” he said. “But when it comes to a tech startup, we have to educate them around cap tables and what return they should expect, when they should expect that return and what they should expect in general with the companies over the next several years. There’s a lot of education that we’ve been doing there to get them to the point where they’re comfortable with making that investment because it is a new thing to do.”

As for the workforce that will support and advance the state’s startup ecosystem, Burklund said radical ideas are what’s needed to spark more attention to the work and opportunities that exist here already, which would help attract and retain the best minds available.

“I’ve heard this quote thrown around a few times here: Nebraska doesn’t have a talent problem or a talent attraction problem, they have an interesting company problem,” he said. “People these days, specifically the newer generation, want to work on really interesting ideas. 

“They want to work with great people and they want to do meaningful work. In Silicon Valley, there’s a ton of interesting, grandiose visions and I think Nebraska could use more of that; more founders with really crazy, big, fun ideas. I think that is the best tool that we could have in attracting talent and retaining the talent that is already here. Hiring remote employees doesn’t necessarily solve the problem of attracting and growing companies here locally as it just doesn’t have the significant impact that we would hope it to have. We really want those employees to be here and live here and enjoy Nebraska the same way that we do.”


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