Sramana Mitra: A couple of questions emerge from what you have said. I’ll ask them in sequence. What is the current dynamics of companies building out of Minnesota?
You talked about Zencoder which started in Minnesota. Did they move to Silicon Valley or did they continue to operate from Wisconsin?
Robert Weber: Initially, Zencoder maintained their operations here, but they were under some pressure to relocate to the Bay area and they did that. In the case of Field Nation, it had grown quite a bit more than Zencoder ever did.
They maintained their headquarters here in Minneapolis and continue to grow to this day. That’s one of the challenges of working with YCombinator. There is certainly some pressure.
Sramana Mitra: I think people are increasingly becoming comfortable with companies being elsewhere. COVID has just accelerated that trend.
I was asking you this question in more of a contemporary sense and not what happened ten years ago. The dynamics ten years ago was different. Silicon Valley still operates in the mode where we like our companies to be headquartered here within 30 minutes of drive time.
I think that is changing. Since you work with Silicon Valley investors and companies in the Midwest, I’m trying to gauge what you are seeing now in the last six months in particular.
Robert Weber: I completely agree with you. In the last 10 or 20 years here in the US, there has been a lot of effort to build capacity around the country including here in the Twin Cities and the surrounding region. We now have several early-stage funds.
The Twin Cities, as an example, has over 20 accelerators. You don’t need to go to YCombinator. Tech Stars has multiple programs in the Twin Cities. The most dominating accelerator in the Midwest is a company called Generator. They are nationally ranked 10. You can benefit from mentorship from accelerators and we certainly don’t have a shortage of large corporates if you are selling to the enterprise.
I started my company when I was 20 years old, and that was 20 years ago. The capacity to support us was really weak. I sense that this is true all around the world as pointed out. There is much more willingness to support companies wherever they may be these days.
Sramana Mitra: As you pointed out, your preference is to invest in companies that have already achieved product-market fit and are in the early growth stage. All Silicon Valley investors, especially if they are investing in companies elsewhere, have that mindset. They want the product-market fit already built in. They want to see an early growth stage company.
That is a lot cheaper to do outside of Silicon Valley. It’s very difficult to do bootstrapping in Silicon Valley. If you are expecting that the company would have bootstrapped to a certain degree of traction, that is not easy to do in Silicon Valley.
Robert Weber: From Q1 2020 this year, the median seed round in the entire US was around $9 million or $10 million. That was the valuation. Our median valuation has been $5.5 million. We’ve done 22 deals in the last three years.
I don’t think it’s a detriment to the founders necessarily in how they are valued lower, which is half of the national average. The cost of living, salary, and operating cost is much lower in general.
Most of the founders have the ability to maintain ownership when they are based out here than, let’s say, San Francisco or New York. I think it’s a great place to start a company these days.