Photos by Hillary Ehlen
Talk to most people in startups in the Red River Valley and they’ll tell you how difficult it is to get access to capital. Well, thanks to Ross Almlie and three of his partners, the Northern Plains Fund hopes to help those entrepreneurs grow their businesses and promote the Midwest as a viable spot for startups.
What it is?
The Northern Plains Fund is a new venture capital fund based in Moorhead that will serve the Upper Midwest. Ross Almlie, the owner of Future Bright and the managing partner of the fund, believes this is the first early-stage venture capital fund to intentionally serve our area. However, the idea of launching this fund isn’t just for investment purposes but to help start-ups grow.
“We’re not trying to promote the fund to any specific individual,” said Almlie. “We’re promoting the concept of a void that we’re filling within the community. It’s really about the opportunity for local entrepreneurs that’s never been present in the marketplace.”
While there are numerous stories in the Red River Valley about businesses that have bootstrapped their way into success, the simple truth is that it’s not always feasible.
“We’re just trying to bring together the great ideas with the folks who are looking to help fund companies and growth in the community and who also have the money to do so,” said Almlie.
The fund stemmed from a need that Almlie saw in the market. As the owner of Future Bright, an investment firm in Moorhead, he sees many entrepreneurs with great ideas who can’t find access to funding. However, he’s not just aware of this from his own experience. He heard the same thing from organizations like Emerging Prairie, Economic Development Corporation and others. But, it’s also Almlie’s entrepreneurial background that showed him the need for this fund.
“Ross has done this on his own on the entrepreneur side and went looking for money for a business startup idea and found out how hard it was to get capital,” said Randy Sidener, a general partner in the fund. “No banks are going to give it to you because it’s too much risk for them and you can’t show them any profit yet. He’s gone through the process and I think that really helped spawn the idea.”
Who it’s for?
Based in Minnesota, Almlie and his partners, have decided that the Northern Plains Fund is looking for opportunities in South Dakota, North Dakota, Minnesota and Iowa.
Historically, many funds in the VC universe still charge a two percent annual management fee for the work they do to vet companies and bring in investors and they also get to keep 20 percent of the profits on any exits of the company.
That’s not how the Northern Plains Fund works, though.
“We’re not interested in the 20,” said Almlie. “This is not a money-grab. This is about how can we help spawn investment in our community to create more great companies.”
All venture capital funds must create a Private Placement Memorandum, which is their legal document and explains the terms of the fund offering and the risks. In the Northern Plains Fund, they have spelled out six industries they are focused on.
While it’s important to note what companies they’re looking for, it’s also important to note what they’re not focused on, which includes retail, restaurants and more localized ideas. They’re looking for scalable companies.
Another sector that they’re staying away from is real estate, which might be surprising considering how hot of an investment opportunity that is around here.
“It’s a really crowded space around here,” said Almlie. “The key ingredient for us is that it has to be scalable, not just regionally but nationally and hopefully internationally … That’s really a critical component of what we’re looking for.”
Venture Capital Vs. Angel Fund
While on the surface level, angel funds and venture capital funds seem similar, there are some important differences. Almlie explained that angel funds are when individuals with large wealth come together with their own personal capital to collaborate on investment opportunities within an area. Both types of funds must file a notice filing with the SEC stating they meet the criteria that makes them exempt from filing as an “investment security.”
Venture capital typically takes on a more formal organizational structure that enlists general partners and a formal board to operate the fund, but then also enlists a select group of fund advisors, each who bring advanced knowledge and experience in the specific industry categories it seeks to fund. Venture capital is also a preferred arena for accredited investors to find investment opportunities in the private sector by having other qualified people do the heavy lifting of research and vetting.
What Entrepreneurs Should Know About VC
Venture capital is often misunderstood and there are some important things that all entrepreneurs should know before seeking funding. The first thing to know is that entrepreneurs are going to have to give something up to the investor community.
“There’s a fair amount of equity that’s out there,” said Almlie. “I don’t think it’s a good idea for an entrepreneur to give up too much equity but have you ever watched ‘Shark Tank’ where they go in and say, ‘We need $2 million for three percent of our company.’ Really? That’s a $50 million company before they even made a dime. They just need a reasonable understanding of where they’re at in their life cycle as a company and understanding how much help they need.”
However, it’s also important to figure out how much equity you are giving up.
“When they go to some of these bigger venture capital funds, I think the venture capital funds on the coast know that they can get whatever they want so they’ll invest with you but they’ll want majority ownership of the company,” said Sidener. “Obviously, we are tasked to make money for our fund partners, but we’re not here to take somebody’s idea and monopolize it. We want them to find what’s the right amount for them. They’ll learn quickly if they are not offering up enough.”
Leadership is also extremely important when it comes to deciding which companies they invest in. That can often be a make or break when deciding on investing in the company.
“Not every company deserves money,” said Almlie. “It’s a hard conversation to tell an entrepreneur that they’re not ready. It’s hard to digest but it sure builds the conviction in that person. You’ll know if you have a leader in place after a conversation like that depending on how they respond to that.”
The Northern Plains Fund is deploying partner contributions into its very first investment at the time of this print, but they expect to vet a steady stream of more investment opportunities in the months and years ahead. If you have questions about how venture capital works, you can reach out to Ross Almlie at [email protected]