The Unicorn Rookery
The traditional view of early-stage investing is high-risk-high-reward. Therefore, it is regarded as a specialty niche were the brave play and later stage investors take advantage of the hard work done to lift these companies from start to exit velocity. That model has stood for decades. It works, but both early-stage investors and later stage investors are missing obvious opportunities to maximize their returns.
The conversation at the community level, and make no mistake that all startup companies are part of some community ecosystem and dependent on it, is about a capital continuum. That means education, true seed investors, and accelerators giving life to high growth potential ventures. That means that seed and Series A angels taking up the mantel. And, finally banks and later stage venture capital funds must be ready to accept the graduates of the angels and drive them to exit. This model inherently works, although often in a disjointed fashion, in traditional monetary center, but it is sorely lacking in the “heartland.”
The challenge the Heartland faces is a low density of angel investors, entrepreneurs, venture capital, etc. It is blessed with an intelligent, highly technical, hardworking people/founders in a lower cost of living geography that leads to capital efficiency. And, the Heartland is gifted with an abundance of intellectual property creating strong dealflow in deeptech, hardtech, medtech, cleantech, AI, advanced materials, advanced manufacturing, fintech, etc. because this where research universities, research laboratories, and corporations that form the backbone of the country live, work, and engage in their respective community ecosystems. The Heartland is an untapped wealth of uncorrelated, high-value dealflow. Savvy investors in the Heartland understand the fallacy of the spray-and-pray model and embrace the “active investing” model. Savvy investors in community ecosystems are more focused on viability and sustainability of fledgling ventures. In the words of Jean Ray, “this more akin to adopting a puppy than buying a lottery ticket.” The challenge is making that model scalable, but the outcomes can be spectacular.
The good news is that some of us have learned how to create this continuum in a functional, scalable model. it does not look like traditional venture capital. It looks more like venture development capital. And, it manifests in two mantras: “validate, accelerate, ignite!,” and “filter, focus, build trust, create wealth.” The first challenge is ensuring that technical founders have the requisite skills and knowledge to be investable. Often that means turning inventors into entrepreneurs. First, we work with specific accelerator, university, and national laboratory programs to identify technologies and founders that have world-changing potential (filter). Second, we invest time and energy into investor readiness programs, which are really business readiness programs (focus and validate). Third, we operate an angel syndicate in multiple cities in the Heartland with likeminded, successful professionals who want to create opportunities for wealth generation in their respective communities (build trust). That syndicate will make multiple investments (seed to Series A) over time maturing these ventures through capital and support (accelerate). Next, we have created a venture capital fund that is designed to drive these ventures to exit (ignite and crate wealth). It is a very efficient system for actively managing deep science and tech high-growth companies.
The good news is the model is working. Allura Capital, Sheltowee Network, and Community Equity Partners have joined together to scale the model. The Community Equity Partners angel syndicate has enjoyed six exits in the last four years from 2x – 6x cash on cash returns. Second, we have 13 companies that should exit well in the next 36 – 60 months that should create substantial, well-above market returns for our angel investors. And, now our Sheltowee Venture Fund II is poised to invest in these companies to drive them to exit creating more wealth. All of these companies are Heartland companies that we have invested millions of dollars and six months to eight years respectively with each to hone their leadership and growth dynamics. They are known quantities to us and that is why we can predict their outcomes, because we helped craft them.
This is how you derisk deep science and strong IP companies in the Heartland that will create wealth and impact. It is the ultimate anti-spray-and-pray model. And, we have proven it is scalable. Angel groups and funds are prevalent across the Heartland but are not typically syndicated horizontally or vertically. That creates a staggering opportunity for those with vision. We have that vision and a working model that is scaling and returning capital at venture sized rates of return. We live here and work here in the Heartland. That is critical in order to attach to the founders and dealflow, and we get to live a great lifestyle. That is why we can build the necessary trust with founders and communities to jumpstart these ecosystems.
We are not unicorn hunting. We have created a unicorn “rookery.” And, it is a self-sustaining and reinforcing system once the heavily lifting is done. Join us and take advantage of high-value. uncorrelated dealflow in deep science companies that are changing the world.
Copyright Eric Dobson, 2024
