Despite pandemic, investments in Minnesota startups top $1B again in 2021

For the third consecutive year, investors committed more than $1 billion to rising and privately owned Minnesota startups, a sign the state's entrepreneurs are still able to garner dollars from wealthy institutions and individuals amid an ongoing pandemic.

In 2021, venture capital-backed Minnesota companies raised $1.34 billion, down slightly from 2020's $1.54 billion, but above 2019's $1.2 billion, according to a recent report from Seattle-based investment data firm PitchBook and the National Venture Capital Association.

An increasing amount of deals and investors pouring money into the state's fast-growing companies is essential for Minnesota's economy to keep growing.

"We know entrepreneurship is critical for cities and states to stay competitive in this global economy," said Neela Mollgaard, executive director of Launch Minnesota, an initiative of the Minnesota Department of Employment and Economic Development. "It creates wealth, it builds communities and it grows our economy."

While investment dollars dropped mildly, the number of investors involved in deals with Minnesota startups increased 15% to 214, and the quantity of startups involved in deals rose 33% to 160. Meanwhile, last year saw a record-setting 175 deals for Minnesota companies, a 37% increase compared to 2020, the report found.

"We're at an inflection point, and I think the investor community, nationally and internationally, know there's potential in the Midwest and in Minnesota," Mollgaard said.

To compare, investors poured over $10 billion into Texas startups last year, over $7 billion into Illinois startups, more than $47 billion in New York companies and $156 billion into startups in California. Startups in neighboring Wisconsin raised $520 million last year.

Overall, venture-backed companies in the U.S. raised $329 billion in 2021, nearly double the $166 billion in 2020.

While many initially thought the pandemic would stall investments if investors and startup CEOs couldn't have in-person meetings, the ability for investors to have virtual meetings with executives outside their region actually expanded deal opportunities, according to PitchBook and the NVCA.

The ability to reach elsewhere "leveled the playing field" for Minnesota startups, Mollgaard said.

"It's reduced that barrier to access to capital," she said.

In 2021, $10 million in angel tax credits were issued by the state to help more than 80 Minnesota companies raise over $40 million from investors.

To boost angel investing, the Legislature created the Minnesota Angel Tax Credit program, which provides a 25% credit to investors or investment funds that make equity investments in Minnesota startup companies.

Since its creation in 2019, Launch Minnesota has awarded 143 innovations grants totaling $3.8 million to more than 115 companies in the state. Between 2020 and 2021, at least 41 startups that received grant funding went on to hire about 40 people and raise an additional $35 million from private investors, according to DEED.

Minneapolis-based When I Work, a company that automates scheduling for shift-based workers, raised the most capital of any company last year — $200 million from a private-equity firm. Company leaders said in November the investment from Bain Capital Tech Opportunities, a private-equity fund of Boston-based Bain Capital, would be used to accelerate research and development, identify more potential markets and and pursue acquisitions.

The company's product helps shift workers in restaurant, retail, hospitality and healthcare settings, as well as warehouse and manufacturing companies.

Last July, plant-based food brand Wicked Kitchen, which is being led by a former General Mills executive, raised $14 million, a large sum for a Minnesota company not in medical devices, software or financial technology. The company is mainly known in the United Kingdom, but last year launched in the U.S. through a nationwide deal with Cincinnati-based Krogers, the nation's largest grocery chain, and Sprouts Farmers Market, which has more than 360 stores in the U.S.

The $14 million was applied toward expansion outside the U.K. into other parts of Europe. Wicked Kitchen recently launched in Finland through S Group, the largest retailer in that country, said CEO Pete Speranza. The company will also soon begin selling on Amazon, giving shoppers in the Twin Cities access to buy the brand's products, he said.

Since raising its Series A round last year, the company has received unsolicited inquiries from investors interested in the company, Speranza said.

"Innovation is always going to be at the forefront, so companies like ours, as well as some other interesting ingredient companies in Minneapolis, have really shined a light that Minneapolis is still a hub for innovation in the food space," Speranza said. "It's getting everybody excited, including investors. There's a lot of local investors that ask me about being included in the next round as we go."

By the Numbers

Total venture capital raised in Minnesota (per PitchBook)

2011: $436M

2016: $591.3M

2019: $1.2B

2020: $1.54B

2021: $1.34B