A proposed seed venture fund that was planning to invest in medical technology startup companies based in Iowa will not come to fruition after difficulty raising the necessary capital.
River Glen Venture Partners—a fund first announced in 2016—has been abandoned after not being able to raise enough capital, according to fund founder Matt Busick.
The fund was first announced in February of 2016 and the Iowa Economic Development Authority certified River Glen Venture Partners as an “innovation fund,” meaning investors in the fund could receive tax credits based on the amount they invest in Iowa startups. Busick was originally looking to raise a $25 million pool of money, for 10 startups in the portfolio.
River Glen Venture Partners initially raised $7.5 million within the first 90 days in 2016. Then in February of 2017, River Glen Venture Partners was approved for a nine-month extension by the Iowa Economic Development Authority Board. The one-year extension gave River Glen Venture Partners until February 2018 to raise the minimum amount.
“What we ran up against is that a seed fund is a scary proposition to a traditional institutional investor,” Busick explained. “Because a seed fund means you are probably going to be in the fund, as a limited partner, for 10-15 years. And that time frame doesn’t match well with a typical institutional investor, it’s too long.”
Busick said because of the lack of a presence of institutional investors—which make larger investments—he had to focus on individual investors.
“We couldn’t get enough individual investors, there are constraints you can only have 100 investors in these partnerships,” Busick said. “So if you raise $25 million in 100 slots, the average investment needs to be $250,000. And there’s just not that many angels willing to invest that in a single fund that is constrained to investing just in Iowa.
“So you are forced to go after institutional investors and you are back to the same problem.”
Busick said he learned the hard way that the time frame associated with a seed venture capital fund was not in sync with the investment timeframes that apply typically with private equity allocations.
“It’s not easy to talk about, it’s tough,” Busick says. “We really tried hard and we risked both time and money over the course of two years trying to get it done. Ultimately the environment just isn’t there so we decided to abandon.”
Passing the baton
Busick said River Glen Venture Partners was going to focus and support the regent universities and the effort to commercialize MedTech inventions across campuses at the University of Iowa and Iowa State and Northern Iowa Universities.
“There’s a lot of interesting invention taking place but not a lot of people willing to step up with the capital to support those businesses when they are trying to commercialize,” Busick said. “So we aimed to be a fund that would do that.”
Busick viewed River Glen Venture Partners as the first runner in a relay race that would handoff to Des Moines-based Next Level Ventures, the first certified fund in 2014 and has since invested in nine Iowa companies.
“They—Next Level Ventures—advertise that they were aiming to be a later stage fund, investing after a company had revenue,” Busick said. “We felt there was a pocket of opportunity being a seed fund, we could work together with Next Level Ventures.”
Proposed River Glen venture fund refocusing on MedTech – Feb. 20, 2017