Plus, meet the fund’s first Iowa portfolio company
Wisconsin-based venture capital firm Idea Fund of La Crosse recently made its first investment in an Iowa startup since announcing a new fund in May that would reach more Midwest states.
The $31.5 million fund is targeting startups in Iowa, Minnesota and Wisconsin that are pre-revenue or very early-stage revenue.
“Our strategy is the earliest money almost always has to come locally. … Our real role is to come in early, take the risk, support the entrepreneurs in the earliest stage, and help them get to the point where, if they need the money, it’ll be available from a larger, later stage investor,” said Jonathon Horne, Idea Fund’s managing director.
Horne said establishing a geography they could spend a lot of time in was important to Idea Fund’s investment strategy for the second fund. They set up a 200-mile radius, which from their homebase in La Crosse, Wis., reaches the Des Moines and Cedar Rapids areas in Iowa and the Twin Cities in Minnesota.
As Wisconsin and other Midwest states develop their startup ecosystems, Horne said Idea Fund recognizes its role in developing founders with hopes they achieve successful exits and reinvest in a new venture or other entrepreneurs.
“There’s a lot of attention around bigger funds and bigger funding rounds … For developing areas like Wisconsin and Iowa, it’s not the big flashy stuff that makes a difference over time.
It’s building strong foundations over time, and it seems slow, but it compounds and it builds on itself,” he said.
“That’s what I think people’s focus needs to be is let’s build the foundation. Let’s get people, get some wins and keep growing on that.”
Idea Fund’s investment focus is software solutions, but the firm is open to any industry. Horne said he thinks there are “huge opportunities” to disrupt traditional industries like health care and supply chain that have not seen the same transformation as other parts of the economy. One of the keys to unlocking that potential is founders with industry experience, he said.
“A lot of the best founders in our area are coming out of industry,” Horne said. “They’re entrepreneurial and they’ve got the drive, but also have this knowledge base … that you don’t get unless you’ve spent five to 10 years in one of these businesses.”
IdRamp, the first Iowa company to raise a round from Idea Fund, is led by a veteran of the security industry.
Founder and CEO Mike Vesey is a serial entrepreneur, founding three startups before IdRamp, all focused on information technology and security.
Des Moines-based IdRamp aims to streamline identity verification and reduce identity-related cyber breaches through its platform that uses official sources, including government-issued identification, CLEAR verification and biometrics (a fingerprint or face scan), to vet customers, potential hires and employees. (Read a Q&A with Vesey below)
“Mike Vesey has an exceptional ability to see around corners and identify emerging needs in the security industry,” Horne said in a news release announcing the investment. “His deep expertise and foresight in this space position IdRamp to not only address current challenges but to anticipate and solve the problems of tomorrow.”
Before launching the second fund, Idea Fund had to navigate the current fundraising environment. Horne said the challenges they faced were in part driven by the record valuations and fundraising some startups received in recent years.
The increased fundraising activity in 2021 and 2022 means a lot of funding is tied up in existing investments, he said. Investors have also seen lackluster return on those investments, causing limited partners to generally pull back from the venture capital asset class. He said the combination results in “a double whammy of less dollars and a higher portion of those dollars not going into new investments.”
Horne said he credits consistency in the fund’s mission for getting the second fund raised.
“I think our investors really appreciated that we’ve really found a niche that’s underserved and that’s valuable and that we’re really going back to do more of the same [investments], which is giving our local founders a shot,” he said.
History of the Idea Fund
Idea Fund started in 2016 as one of five Wisconsin-based venture capital funds created through the Badger Fund of Funds, an initiative to recruit and train first-time fund managers. It came at a time when Wisconsin was ranked last in the nation in startup activity by the Kauffman Foundation, Horne said.
The Badger Fund received $25 million from the state of Wisconsin to help launch the five funds. The family of Don Weber, who founded Logistics Health Inc. in La Crosse and sold it to UnitedHealth Group Inc. in 2011, was also a lead investor.
A La Crosse native, Horne was recruited from his investment banking job in New York to come home and be trained to manage the Idea Fund.
“Venture wasn’t on my radar at all. … I started looking at it and it was like this can’t stand,” he said. “There’s no reason it should be like this. There’s so many reasons we can have a more successful ecosystem.”
Horne said the Badger Fund put emphasis on developing the people needed to make Wisconsin’s startup ecosystem successful in addition to providing money. He’s brought that mindset of starting with people to Idea Fund.
“When you think about what does it really mean to be a successful startup ecosystem, it’s because you have people that have done this time and time and time again,” he said.
Eight years into leading the fund, Horne has connected with the mission of creating opportunities to build successful startups throughout the Midwest.
“I’ve got a five-year-old at home and maybe he has a job that he’s really excited for some day in La Crosse [and] you don’t have to go to Chicago or Kansas City for that,” he said. “To build up these kinds of resources in your home area is the most meaningful thing I can think about doing.”
Read a Q&A with IdRamp founder Mike Vesey here