A new fund that would invest in Iowa startups is in the works after receiving certification from the state.
River Glen Venture Partners aims to raise a pool of $25 million it would invest in early-stage companies, fund founder Matt Busick said.
“We think that’s the right number to build a portfolio over four to five years of 10 (startups) of between $2 and $2.5 million each” in investment, Busick told the Register.
Busick is also managing director of River Glen Private Capital, a West Des Moines-based investment firm and manager.
The Iowa Economic Development Authority certified River Glen Venture Partners as an “innovation fund” on Friday. The certification means investors in the fund can receive tax credits based on the amount they invest in Iowa startups.
River Glen Venture Partners is still in its infancy, and Busick said it has yet to raise the $25 million. Before doing so, he said River Glen wanted to ensure the fund would be certified to receive state tax credits.
It is also just the second investment fund to take advantage of the state tax credit program.
State lawmakers set up the tax credit program in 2013, making it so investors could receive up to 25 percent of their investment.
The tax credit program was thought of as a way to help decrease the so-called “valley of death” in Iowa’s investment community, referencing a gap in between what the state can provide to startups and investments from larger venture capital firms.
Next Level Ventures signed on as the first Iowa-certified fund in 2014 and has invested in five Iowa companies so far.
Busick said, at the time, River Glen was hopeful other investment funds would form in Iowa.
“But, what’s happened is we’re two-and-a-half years down the road, there’s only one fund in the marketplace, it’s (Craig Ibsen’s) Next Level Ventures,” he said.
While Next Level has made its goal to invest in companies that are already taking in revenue, Busick said River Glen Venture Partners plans to invest mainly in earlier or seed-stage companies.
“I serve on the investment committee of Next Level’s fund so I know the challenges they face in finding investable deal flow that meets their criteria because there aren’t enough companies making it from seed through early to post-revenue to make it work,” Busick said.
Specifically, Busick said the fund wants to focus on ideas coming out of Iowa’s three state universities that can be commercialized, known as “technology transfer” opportunities. He pointed to medical technology work out of the University of Iowa, financial technology work out of the University of Northern Iowa and agriculture technology work from Iowa State University as potential areas where new companies could form.
“Our primary focus will be to closely monitor invention across the Regents and step up with a significant amount of capital right off the bat,” Busick said. “It’s not just about money. Our goal is to really roll up our shirt sleeves and work with these folks to get the market properly aligned and so on.”
The Economic Development Authority can award up to $8 million of the tax credits each fiscal year.
Under the Iowa program, certified funds have one year to raise at least $15 million.
How River Glen would invest
When it starts investing, Busick said River Glen will plan to invest between $2 million and $2.5 million in each startup.
Instead of handing over the lump sum all at once, though, Busick said the fund wants to base how much a startup receives on certain goals the company meets.
“We plan to commit $2 million or more per company, but that doesn’t mean that we’re going to give them $2 million and let them figure it out. We’re going to dribble the money in and very carefully, very responsibly along clearly defined milestones, growth pattern,” he said.
Dribbling in the money, Busick said, would hopefully help startup founders focus on their work instead of worrying about the next fundraising round.
“Our idea is if you get a startup better funded from the beginning and you don’t dilute their focus by constantly having to raise the next six months of runway then you might have a greater degree of success,” Busick said.