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Today: May 15, 2024
January 11, 2024
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Minnesota Companies: Battling the VC Doldrums in 2023

TLDR: Minnesota companies raised $1.2 billion in venture capital in 2023, marking the lowest amount raised since 2017 and ending a three-year streak of exceeding $2 billion in investor capital. Despite economic uncertainties, local funds like Arthur Ventures continued to invest, deploying over $200 million into high-growth companies. Experts predict that declining interest rates in 2024 will lead to increased fundraising activity.

Key Points:

  • In 2023, many Minnesota companies faced challenges in raising capital as investors became more cautious about spending amid concerns about a possible recession and rising interest rates.
  • U.S. companies overall raised $71.6 billion less from private investors in 2023 compared to 2022, according to a report by PitchBook and the National Venture Capital Association.
  • Minnesota companies raised $1.2 billion through 172 deals, the lowest amount raised since 2017 and ending a three-year streak of exceeding $2 billion in investor capital.
  • Local funds, such as Arthur Ventures, continued to invest in high-growth companies in Minnesota, deploying over $200 million into these types of companies in 2023.
  • Experts predict that declining interest rates in 2024 will lead to increased fundraising activity and more deal activity.

Full Article:

In 2023, it took Sean Higgins close to eight months to raise $6 million from investors for his St. Paul software company, BetterYou. In prior years — 2021 or 2022 — it would have taken half the time, he said.

For leaders of venture-backed companies, last year was a difficult time to raise capital as investors extended the due-diligence process. That was a sign they were overly cautious with their spending amid talks of a recession, federal interest rates hikes and rising inflation.

Last year, U.S. companies raised $170.6 billion from private investors, a drop of $71.6 billion from 2022 and down $177.4 billion from 2021, according to a report investment research firm PitchBook and the National Venture Capital Association released Thursday.

Minnesota companies raised $1.2 billion through 172 deals, ending a three-year streak of exceeding $2 billion in investor capital raised. It was also the lowest amount raised since 2017.

Higgins, who announced his funding in December, initiated talks with roughly 200 investors. After 100 introductory meetings and 85 follow-up meetings, he proceeded into the diligence process with 11 investors. That led to five new investors, all from the Midwest, who invested in the company, he said.

“We probably would have had 30 percent to 40 percent higher valuation and those types of things [in previous years] versus where we were at in 2023,” Higgins said.

In earlier years, companies were able to woo investors with numbers backing gains in market share or selling the dream of a company’s potential based on the business model. In 2023, though, firms were more selective, spending their time vetting companies with better metrics around financial stability and profit, entrepreneurs and investors said.

That differentiator

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