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The Big Exit: Can Minnesota Expect Another One Soon? Why or Why Not?

August 25, 2019 / Graeme / 0 Comments

(Note: This story originally appeared at Starting Up North. It has been updated to include one more Minnesota tech company that has reached a valuation of more than $1 billion, and another that almost did in 2014.)

Has all this talk about “unicorns” and billion-dollar exits got you down? Doggone it, Minnesota needs some, right? So we can tell our friends in other states, “No, really, we have an awesome startup scene here! We aren’t Flyover Land.” You tell them we have some hot startups going on – you just haven’t heard of them yet. “You just wait – we’ll show you!”

Well, when exactly will we do that? That’s the main question we raise here, as well as why do we want such big exits? And we have some great local leaders who were kind enough to weigh in and give me their take on the subject.

What is an “exit,” anyway? One of three things: it’s when a company sells, has an initial public offering (IPO)… or, um, goes out of business. We’re gonna skip that last one! And the IPO thing we’ll touch on only briefly. We’re mainly talking here about companies getting acquired — by another company (strategic buyer) or a private equity (PE) fund — for multiples of the amount of money that’s been invested in them.

Minnesota Does Okay

First of all, we do have many successful exits here in our state on a regular basis. Granted, not many at $1 billion-plus, at least not what we might consider recent startups — let’s say less than 10 years old. Frankly, there aren’t any here within that young age range that have yet had what we’re defining as a Big Exit. Nor might many people think there will be any, outside the medtech/healthcare sector. Here are seven examples of Minnesota billion-dollar-plus company transactions or valuations in recent times:

• Cray Research was just acquired a couple of months ago by HPE for $1.3 billion. It was founded in Minnesota, sure — but that was 40+ years ago, when Control Data gave Seymour Cray some money to go off on his own. (It still has a presence in our state, and I’m guessing its name is likely to remain on that big building adjacent to the Mall of America for some time.)

• Ceridian, which also still has a major presence in Minnesota, did an IPO in April 2018 that valued it at almost $3 billion. But, again, this is a company that was founded in our state almost 40 years ago as a unit of Control Data.

• ConvergeOne, based in Eagan MN, was acquired by CVC Capital Partners for $1.8 billion in a deal that closed in January 2019. It’s a global IT and managed service provider of collaboration solutions. Founded in 1993, it went public in February 2018 and has more than 2200 employees worldwide, including a few hundred in Minnesota.

• Ability Network, a healthcare company in Minneapolis, was acquired by Inovalon in March 2018 for $1.2 billion. It provides secure web and private networks for healthcare providers and was founded in Minnesota way back in 2000.

• SPS Commerce, a retail supply-chain SaaS company that traces its beginnings to 1987, went public in 2010 at a valuation of $131 million. It now has a market cap of $1.8 billion and employs 1200, more than a thousand of which are based in its downtown Minneapolis headquarters.

• Help Systems, a low-profile IT management company based in Eden Prairie founded in 1982, was valued at $1.2 billion when a private equity firm in Palo Alto CA acquired a controlling interest in 2018. The company has more than 700 employees, about half of which are in Minnesota and neighboring states.

• Proto Labs, based in Maple Plain, was founded in 1999. It grew rapidly, then went public in 2012 at a valuation of $371 million. It achieved a market cap of $1 billion in early 2013 and has stayed solidly above that level since then, with a valuation most recently of about $2.5 billion.

But the fact remains: no Minnesota startup has achieved a billion-dollar exit or valuation in less than ten years from its founding. None has reached the “unicorn” status that’s been so vaunted in recent years. (Whether you believe that matters or not.)

However, one came very, very close in late 2010. That’s when data-storage tech company Compellent was acquired by Dell for a cool $960 million. Yes, we will call that a biggie for Minnesota! It was founded in 2002, so it was a very fast eight years to get to the Big Exit. (And I’ve heard this one created up to three or four dozen millionaires. Not too shabby.)

Another Minnesota firm that almost reached the magical threshold was Digital River, based in Minnetonka. In 2014, it was acquired for $840 million by PE firm Siris Capital (NYC) and taken private. It was one of the original Internet startups in our state and went public in 1998 at a valuation of $142 million. Its valuation today? That’s your guess.

But How Are Other Non-Coastal States Doing?

Let’s get envious now – and talk more recent acquisitions. Some of our fellow Midwestern states have major bragging rights over us when it comes to unicorn-level acuisitions of newer startups:

• Indianapolis’ ExactTarget was acquired by Salesforce for $2.5 billion in 2013. That acquisition has done, and continues to do, great things for that city and state.

• Ann Arbor’s Duo Security was acquired by Cisco for $2.35 billion in 2018. And, of course, the startup community there crowed about what that meant to them.

• Columbus Ohio’s CoverMyMeds was acquired by McKesson for $1.1 billion in 2017. This exit was the biggest in Ohio history.

• Chicago’s Clever Safe was acquired by IBM for $1.3 billion in 2015. It was one of the biggest exits in Chicago tech history and created 80 millionaires.

There have been billion-dollar exits in many other non-coastal cities and towns, too – Raleigh NC, Nashville TN, Lisle IL, and Boulder CO come to mind. You can read about many here, going back over the past decade or more.

Why Hasn’t Minnesota Had Many Billion-Dollar Exits Compared to Other States?

“We maybe have more than many think,” said Jeff Hinck, general partner at Rally Ventures, citing two of the Minnesota company transactions listed above. “And JAMF, which was acquired for a bit under, could sell for that today,” he noted. [PE firm Vista Equity Partners bought a controlling interest in the firm in 2017.] “Compared to the traditional powerhouse states like California, Massachusetts, New York – yes, (we’ve had) far less.” But he thinks we’re trailing other states by not that much. “The reason we have less big exits than some states is that we frankly have fewer startups. Austin, Boulder/Denver, and DC have far more startups, so far more exits. The startups-to-large-exit ratio is probably no different in Minnesota than in those cities — although it is versus those powerhouse states.”

Scott Burns, cofounder and CEO of Structural, sold his previous startup, GovDelivery, in 2016 to Vista Equity Partners (which has rolled it into Granicus). He has a take on why we don’t have more Big Exits: “Investors (here) sitting on a lot of upside are more likely to take an exit before the billion-dollar threshold. I do think we should take more credit for what we have, however. Look at SPS Commerce, which has somewhat quietly grown into a company with a $1.8B market cap.”

Michael Gorman, a managing director at Split Rock Partners, points out our state represents only about 1.5% of the U.S. population. “On most measures, we punch well above our weight based on the level of education, corporate depth, and so forth.” He brought up another local company to watch: “Bright Health has recently raised significant money — not yet an exit — at a healthy valuation, but I don’t know the exact figure.” That firm, plus the recently acquired JAMF, and the Minnesota billion-dollar exits we cite above “collectively still employ thousands of people in Minnesota and have generated great wealth and opportunity,” Gorman added.

So, Why Do We Want Big Exits?

I asked Justin Kaufenberg, cofounder and CEO of SportsEngine. His firm was acquired by NBC Sports in 2016 for an undisclosed – let’s just say “large” – amount: “It takes decades to build an ecosystem capable of growing unicorns,” he said. “You need a round of exits for first-time founders, who then go on to participate in the funding or building of the next round of companies. That second round then enjoys more seasoned founders and executives and more aggressive and patient investors.”

Similar comments came from VC Michael Gorman. [Note: his fund has been an investor in SPS and Help Systems.] “Great exits help reinforce the virtuous circle of innovation, whereby talent is developed, wealth is created, and the innovation capacity of the region is enhanced,” Gorman said. “When a company generates a great exit, it helps the immediate employee beneficiaries and creates additional financial freedom to pursue the next entrepreneurial impulse.”

What Do Other Midwestern States Have That We Don’t?

One M&A professional in Minneapolis had some pointed words in this regard. Rob Griggs is a regional VP for Seattle-based Corum Group, a 30-year old firm focused in sell-side M&A, primarily for small to mid-sized software firms, with more than 300 successful transactions to date. He gives tech-based M&A presentations multiple times per year in fourteen cities across the Midwest. In his previous life, Griggs raised significant funding for multiple startups. “My take is that, locally, we don’t have the focused approach that many of these communities have from universities, incubators, angel investors, successful entrepreneurs, and corporate VCs leveraging resources to build a thriving early-stage investment cycle. When you have even local government assisting, the returns, rewards, and community growth follows. Here, we just don’t have that approach, sadly, in my experience.”

Scott Burns offered a Midwestern example he’s familiar with: “Structural has an office in Indianapolis, so I spend a lot of time there. It had a terrific exit with ExactTarget building up there, executing a successful IPO, and then being sold to Salesforce for $2.5B… this infused a lot of capital and talent into the local tech ecosystem that’s led to a surge in tech startup activity and to a large Salesforce office in town, as well as satellite offices for other companies with headquarters elsewhere.”

Well, yeah, we could use some of that here!

Minnesota Angel Investors Stepping Up?

Are Minnesota founders who have had successful exits doing as much angel investing as their counterparts in other Midwestern cities?

“Not that I can see,” said Griggs. “The few I know pretty much leave town with their cash, more or less. They lose their appetite for risk once they get theirs, unfortunately. A few do a couple of deals, but I don’t see a strong mentor network, or aggressive angel network like I’ve seen in other parts of the country. Cincinnati and KC are very strong at local support.”

Scott Burns has a refreshingly different view. “I’ve seen a surge in founders with successful exits investing locally… putting money back into the community. I don’t have benchmark data to compare us to other communities, but I like the trend in the Twin Cities.”

There’s Something Crazy About Startup Funding These Days

Dave Dalvey, managing general partner at Brightstone Venture Capital, cites some startling figures. “We’re living in a capital marketplace with record high amounts of uninvested capital held by PE and VC funds looking for high-quality investments. The amount of capital raised and as-yet uninvested is referred to as ‘overhang’ or ‘dry powder’ in the industry. According to a recent report, the entire PE industry has more than $2 trillion in dry powder, with $1.2 trillion of this being held by PE buyout-style funds, and just over $400 billion in the hands of VC fund managers.” Most of this overhang lives in two geographic areas, he said, where the competition is particularly tight: the Bay Area and the New York/Boston corridor.

“History has proven that market environments where too much money is chasing too few deals is never a good thing for investors and their ultimate fund returns,” Dalvey continued. “Investors fearful of missing the next big deal throw everything they learned in business school about valuation out the window and buy into this trend towards unicorn pricing without much fundamental valuation support.”

All these competitive market factors, he said, “help build and feed the unicorns on the front end, and keep them fat and happy through the early years of their little unicorn lives — and even through their IPO years.” And he noted we’ve seen close to a dozen unicorn IPOs already in 2019. However, the number of IPOs overall is way down, so that route to an exit would appear to be unlikely for most.

Another surprising fact Dalvey cited, from the Pitchbook/NVCA Q2-2019 report: VC mega-deals (raises of $100 million or more) rose to 208 deals in 2018, or 44% of all deal volume. In 2013, there were just 36 mega-deals, or 13% of all deals. Yikes!

But Maybe We Shouldn’t Be Focusing on Unicorns and Billion-Dollar Exits

Joe Payne is the CEO of Code42. Previously, he led Eloqua to an IPO and, soon after, an acquisition by Oracle in 2013 for close to a billion dollars. “For starters, if you’re building a company, you’re not trying for a billion-dollar exit — you’re trying to build a great, lasting company with a billion-dollar valuation. It’s a subtle but important difference. Minnesota has plenty of billion-dollar companies across many industries that started as nothing and are now worth that kind of money. There is much to be proud of. What the state needs now is to replicate that historical success and apply it to technology companies.”

Another local player doesn’t pay much attention to all this billion-dollar talk. Cathy Connett, an angel investor and managing partner of Sofia Fund, said this: “We may not have had as many billion-dollar exits, but it’s important to look at exits generally in light of the amount of money raised to achieve those exits. First, you need to remove the ‘unicorns’ from the data set. Almost a third of the monies raised nationally in 2017 went into a few unicorns, which are driven largely by hype and are on the coasts. If you look at the data after the unicorns are removed, I think a big factor is our more efficient use of capital in Minnesota. Considering the money invested in Minnesota companies and the cash-on-cash return achieved on that money, you’ll find our companies perform on par, if not better, than other areas.”

Are Tech Company Valuations in Minnesota Simply Lower Than in Other Midwestern States?

“Not at all,” said SportsEngine’s Kaufenberg. “I don’t think there’s any real difference across the country right now. The best companies are all raising money in a fairly predictable and narrow band of valuation, and those deals are competitive.”

VC Michael Gorman agreed: “It’s not my experience that tech valuations in Minnesota are systematically lower. Strong teams and ideas have attracted capital at market rates here.”

I asked Kaufenberg if he’s seen any trend in the valuations of tech companies based in Minnesota. “There’s a lot of competition for the best companies,” he said. “Those growing at 300% in the early stage and 100% in the growth stage are having their valuations pushed up to historic levels. However, that next tier of companies can have a harder time, and valuations in that cohort feel as though they’ve actually come down across the country.”

Scott Burns had a comment in this regard: “We might get slightly lower valuations at the early stages, but even that fairly reflects the fact that we have fewer entrepreneurs with big exits in their past starting new ventures here.”

Will We Have More Billion-Dollar Exits in Minnesota in Coming Years?

Michael Gorman of Split Rock Partners believes so. “We will to the extent we have companies playing in very large markets, led by excellent teams, boasting tech that leads the category, and demonstrating extraordinary growth and/or substantial profitability.”

Jeff Hinck of Rally Ventures didn’t hesitate: “For sure – we have a couple that are already capable of that. We have a lot more that could be, and it will depend on execution and valuation environment at the time of the exit.”

A former VC who was just named head of the Minnesota High Tech Association (MHTA), Jeff Tollefson, had this to say: “While it would clearly benefit Minnesota’s economy to have more billion-dollar exits, I think we will see many more successful singles and doubles rather than big home runs, with exit values in the hundreds of millions, not a billion… Will we see more of those big exits? Absolutely. But I would much prefer seeing dozens of companies achieving nine-figure valuation exits each year and catalyzing future waves of entrepreneurial success in the process.”

Joe Payne, the CEO of Code42, also thinks we’ll have a number of winning companies with billion-dollar valuations. “There’s one mind-shift change that will help Minnesota companies be successful more quickly. Because technology is portable and doesn’t need to be ‘shipped’ in order to win, you must be the best in the world in your space. That’s a mind-shift change for many in the Twin Cities. You can’t be best in Minnesota or best in the Midwest — you have to set your sights higher. You have to be the best in the world.”

No denying Payne has ambitions. “Given our fantastic customers at Code42, our market-leading products, and our world-class team, we have a very good chance to be a billion-dollar company in the next few years.”

Something More Important Than Money?

I asked Jeff Hinck how equity should be structured in order for a big exit to truly have the impact we want in our community. He had this to say: “A sizable number of people should have equity, especially early employees who take more risk joining a startup. If someone does well in a startup, they’re more likely to start one themselves, join another, or recommend to friends asking if they should join startup to go for it. That said, I think more of the reward of being part of a startup is usually the atmosphere and culture of the good ones. It’s just more fun. And what’s better than having fun and being paid more for it?”

So, remember to add that three-letter word when you’re bragging to your friends about the quality-of-life in Minnesota – and that only gets magnified when you’re part of a great startup!

The question now is, are you working in one — or on one — yet?

Will Another Minnesota Startup Ever Become a Fortune 500?

June 24, 2019 / Graeme / 0 Comments

{NOTE: I originally wrote this article for a new publication called Starting Up North, which launched in early June 2019.]

Pretty much every Minnesota company on the Fortune 500 list began as a startup, as hard as that may be to imagine today. Sure, some were spinouts of large, established firms, such as Target, originally an internal startup at then Dayton-Hudson Corporation back in the 1960s.

Image by skeeze from Pixabay.

But think 3M in the early 1900s, rising from the obscurity of the Northern Minnesota mining industry, or Medtronic, which began as a repair shop in the 1950s in Earl Bakken’s garage in Northeast Minneapolis – both giants in their respective industries today. (Medtronic dropped off the list in recent years only because it’s now headquartered in Ireland.)

Obviously, the startup-to-Fortune 500 story can take decades to happen. And many, many American firms that reached this coveted designation have faded away over the years. But one wonders when another scrappy little Minnesota company might break out and hit the big time.

But should we even care? It’s just a list. Nonetheless, it’s fun to imagine… what startup out there could possibly be the next, however many years it might take?

What Even Qualifies a Company to Be On the Fortune 500 List?

Despite what it may seem, the Fortune 500 isn’t simply a list of the 500 largest firms of all types. Minnesota has at least one giant — Cargill, the largest privately-owned company in the U.S. – that’s never on the list. Surprisingly, there is no set amount of revenue that gets a company onto the list — though companies are ranked by revenue. (The threshold for making the list is different every year; for 2018, it was $5.4 billion in revenues – 6 percent more than 2017.) It’s a list of only American companies, meaning incorporated in and operating in the U.S. The companies can be public, private, or even cooperatives, but they must file financial statements with a government agency to qualify. (Cargill doesn’t, but we have other Minnesota companies that do and have made the list, even though they are not publicly traded: CHS and Securian. But, it should be noted, Securian dropped down on the list that just came out; it’s now #506.)

Profits aren’t part of the criteria. Crazily, you can lose money and make the list, even tons of it (looking at you, Tesla). Fortune magazine, which publishes the list annually, says its other criteria focus on a company’s long-term goals and adaptability. They rightfully point out that the road to the 500 will take a lot of years, and whatever your company is currently offering probably won’t get you there.

So, who might make it someday from Minnesota? What industry might they represent? First, let’s look at the industry sectors Minnesota Fortune 500s represent today:

• Healthcare/Medtech: 2
• Retail: 2
• Logistics/Transportation: 1
•¨Insurance: 1
• Food/Agriculture: 6
• Manufacturing 2
• Banking/Financial: 3
• Energy/Utilities: 1
• Water/Hygiene/Food Safety: 1

Notice not a single one is classified as “technology” in Wall Street terminology (meaning IT, software, computers, semiconductors), though the current Fortune 500 list has many such companies — by my quick count at least 18. Sure, looking at it another way, what company today would not be considered a technology company? It runs through everything. But the fact remains, Minnesota is not a technology company hotbed anymore. And that causes people to wonder how that happened, with our long history in the state as an information technology innovator. It’s been since the mid-1980s that a computer-related firm in Minnesota made the list. That would be Control Data (where I was a manager early in my career, in that company’s glory years). It broke itself up long ago, though its legacy remains strong. It spawned literally thousands of startups over its four decades of existence, scattered all over the country. At least three books have been written about Control Data and the era of tech dominance in our state.

Steve Grove, Minnesota’s new Commissioner of the Department of Employment and Economic Development (DEED), wrote about the state’s computer legacy in an excellent column in the StarTribune in January: Reboot required (or seeking a Minnesota Miracle 2.0).

Here’s the closing line: “With pride in our entrepreneurial roots and a bold vision for the future, Minnesota can become a nation-leading tech hub once again.”

Let’s Start With a Counterpoint

When seeking commentary for this article, I especially wanted to hear from Tom Kieffer, one of the most prolific and successful serial tech entrepreneurs in our state. He’s had four successful exits in his career in the IT sector, the latest being the sale of a majority interest in Virteva just this spring. (A company I had a role in helping him launch in 2005.)

“I think the question you raise with this article is the wrong one,” he said. “It’s an outdated measure of success. I think history will show the pursuit of Fortune 500-ness in this day and age is a fool’s errand.”

He went on: “The real question is, how well is Minnesota positioned to build the companies — and jobs, careers, communities, and clusters — of the future?”

That future, he said “lies somewhere between the gig economy and the GE-style conglomerates of the past — and it’s certainly closer to the small end of that spectrum. The world is getting smaller, and we’re not going back –- ask any millennial or Gen-Xer.”

Look at the history of the Fortune 500 phenomenon, Kieffer said. “A major benefit, and definition, of being one of these companies is access to ‘cheap’ public funding. But it’s really not that cheap anymore. There are many ways to access capital these days, from Kickstarter to private equity in addition to legacy VC. And there are plenty of exit paths for startups beyond selling to a public company.” (Exit alternatives he knows well.)

Many of the Fortune 500 companies created in the past 10 years are the so-called ‘unicorn’ style, he noted — such as Amazon, Facebook, and Uber. “However, I think the public financing approach is going out of fashion now, just as the current wave of unicorns goes public.”

So much for Fortune 500 (and IPO) adoration.

Running the Numbers

The quantity of Minnesota firms on the Fortune 500 list has remained relatively stable over several years. I can remember it being as high as 21 or 22, then it dropped to 17 in 2016. In 2018, it went up to 19. On the most recent list, just published in May 2019, we’re back down to 17 Minnesota companies. So we’re hanging in — somewhat.

Minnesota DEED says on its web site that our state ranks third in Fortune 500 companies per one million people. And, by number of firms on the list, our state ranks #10 in the U.S. Yes, Minnesota represents well.

How many more Minnesota firms are on the second 500 of the Fortune list? Don’t get excited: only six more. So, a total of 23 Minnesota firms now on the Fortune 1000, as of their 2018 list (just published). What we’re asking in this article is, are there growing companies in our state that might be among the 2000 or 3000 largest right now – or maybe an upstart we’ve barely heard of yet – who could be capable of rising up over the years (decades?) to become dominant corporate leaders in Minnesota?

Ecosystems Matter

Does Minnesota have an ecosystem that can ensure we will continue to produce Fortune 500 companies?

“We do have some things in our favor related to eventually producing additional Fortune 500 companies — such as a patient workforce,” said Mac Lewis, who’s been CEO of a public company (Computer Network Technology, acquired by McData in 2005). He’s also a venture capitalist with Sherpa Partners, was CEO of Field Solutions (acquired by Field Nation), and currently serves as CEO of Phocus.io. In addition, he’s a longtime board member of the Minnesota High Tech Association. “Employees here tend to stick with a company.”

He notes that many Minnesota startup companies do have experienced leadership and a culture for producing value, with revenue-based business models – that is, “a real product or service, versus plans to capture eyeballs and then do advertising.”

Other benefits of our business community, according to Lewis are “a skilled workforce, experienced leaders and managers, high-caliber support in the legal, regulatory, and financial areas, and many mentors.”

Phil Soran has been a CEO and cofounder of two successful Minnesota tech firms, one being Compellent, which went public and was later acquired by Dell (in 2010) for close to $1 billion. (In essence, it almost became our own little unicorn.) “Minnesota does have attributes that could produce more Fortune 500 companies in the future,” he said — role-model companies with experienced management not being the least. “We tend to build on sustainable business models as opposed to hyped trends. That’s the foundation of a company that can be a future industry leader.”

How have things changed over the years in Minnesota? “It’s much more accepted now to be an entrepreneur — that was not the case previously,” Soran said. “This is very important. We now need more large successful startups to role model success in this new environment. I do see some current growing younger businesses in our state that could grow into Fortune 500 companies.” (No, I couldn’t get him to name them.)

“It’s a hard task to accomplish,” Soran added, “but made easier as many Fortune 500s are being acquired, providing openings for new members.”

Soran said we’re very lucky to have so many “large, ethical companies in a variety of industries providing very good employment opportunities.” But he sees two issues: “I do not think our community and government appreciate their impact nearly enough.” Also, though he sees lots of “spinoffs” that alumni of these companies have started, “many of them are not as visible as their success might dictate.” Too shy? Too Minnesota-nice to brag?

What Are We Lacking?

So, all the positives aside, where does Minnesota fall short?

According to Lewis, “Relative to other parts of the country, Minnesota does not have the entrepreneurial personality to ‘swing for the fences’ — that is, leadership and vision for a company that can paint a big picture of its future, in which it can be the next ‘unicorn’ with a market value in the billions.”

But there’s a bigger problem, he said: “There’s less local venture leadership and other financing for companies that may need mid-to-high hundreds of millions of dollars of funding to support large, sustained investment in product and distribution – things that are critical to building such a ‘unicorn’.”

Soran sees an ongoing issue, a common refrain of local startup CEOs (and one he himself has experienced): “I still find it very hard for young local technology companies to win business at larger companies in town. There’s still a little bit of the notion that ‘it cannot be good if it’s not from the coasts’,” he said.

Listening, Fortune 500 execs?

Lewis said some large Minnesota companies do seem interested to work with local startups as initial local customers, “to help them establish their market,” he said. “I believe this has been an initiative of the Itasca Project and other business groups. However, I don’t think it’s been easy to implement, and, as a result, has had only a minor positive impact.”

What’s Better: Becoming a Fortune 500 or Having a Big Exit?

Some say we’re unlikely to produce as many Fortune 500s as in the past because too many fast-growing Minnesota firms opt to be acquired rather than go public.

“Early-stage companies get acquired for many good reasons,” said Lewis. “They get financing and much larger market exposure by becoming part of an established company,” he said. “Investors and leadership teams get a payout and liquidity.”

But he points to another benefit for the seller: “It can be less risky and less costly than staying independent. In the 1990s and earlier, smaller companies were able to tap public markets for funding and liquidity. Now there’s a higher bar to go public,” Lewis said, “including (the costs associated with) Sarbanes Oxley [a U.S. Federal Law] and desire or need of investment bankers for fees from larger and larger transactions.”

Soran said, “Going public is a challenging hurdle for young companies to clear — and there have not been many in Minnesota in the recent past.” (His Compellent was one of the last big, successful ones, certainly in the tech sector.) “There are lots of benefits for companies jumping this hurdle — in branding, sustainability, and credibility. Nationwide, the number of IPOs is way down, with other options like private equity providing liquidity, growth capital, and equity upside to entrepreneurs.”

Care to Pick a Winner?

What sector is likely to produce our state’s next Fortune 500?

“I’m not sure,” said Lewis. “I don’t see an easy path for any Minnesota company to become a future Fortune 500. But I’m an optimist — as an entrepreneurial personality — and believe there will be some. Considering industry segments, I’d probably prioritize the likelihood like this: healthcare services, medtech, agtech, software, or financial/insurance services.”

“Our economy is changing quickly,” said Soran. “Technologies such as data analytics, artificial intelligence, digital records, and information security will provide leadership opportunities for Minnesota startups.”

Does One XL Beat Five Mediums?

Is continuing to attract educated, highly paid workers to our state dependent on growing new Fortune 500 companies to our ranks? Or if we produce, say, 5-10 fast-growing startups, each achieving $50-100M in annual revenue, will that lead to the same result?

Lewis likes the former: “Having a local company grow to be a market leader would have larger impact on our local economy and job base – like Seattle with Microsoft and Amazon. Multiple smaller successes are good and will have positive impact, but not close to the impact of one or more big success stories. UnitedHealthcare is an example of such impact recently in our market.” (That company, which is Fortune #5, dwarfs the other 17 Minnesota firms on the list – and how many “spinoffs” of various types has it produced already? I don’t know the exact number, but it’s many and growing!)

What Role Should Minnesota Fortune 500s Be Playing to Support the Growth of Startups in the State?

So what are some things — right or wrong — with the current situation?

“Engaging newer companies as vendors is the most important support that’s needed,” said Soran. “That’s where Fortune 500s can have an impact.”

Another way they can play: collaborating with and supporting incubators or accelerators in their respective markets. “The impact that Target, Cargill, and Ecolab are creating with their Techstars programs is palpable. Keep it going!” (And UnitedHealthcare also recently launched such a program. Gener8tor, too, is coming on strong with its accelerator programs in Minnesota and other states.)

What about the part local higher-ed institutions can play? “The universities I am involved with have a strong appetite for collaboration,” said Soran, “Much more so than in the past.”

Lewis echoed that actively engaging newer companies as vendors is at the top of his list. He also agrees with Soran about incubators and collaborating with our local universities.

So What’s the Verdict?

There’s no question our startups can learn much from their successful predecessors in the state. But it’s time they got more love and support from them, too. Minnesota’s strong entrepreneurship legacy can and will continue to roll on. Our startup community is hot! Even Fortune’s archrival, Forbes magazine, has told us that.

If you’re a Minnesotan (or even if you’re not), what’s your take? Are the best days ahead for our state when it comes to being a center for Fortune 500 companies?

MedCity INVEST Chicago – April 23-24, 2019 – Live Blog

April 23, 2019 / Graeme / 0 Comments

NOTE: This live blog is no longer available here, but I duplicated it in this Linkedin post that I published soon after the event.

My Adventures in Metal Credit Card Land

April 2, 2019 / Graeme / 0 Comments

(A version of this post first appeared at Grit Daily.)

Are you carrying around a lot of plastic in your pocket?

Why? You should think about going metal. Yeah, it weighs more. But, if you can slim down your wallet by pulling out a bunch of plastic credit cards you don’t use anymore, replacing them with a couple metal ones, you actually come out lighter — and thinner, too. That’s what I did.

It’s not a good idea to close those old plastic accounts, by the way, as that can have a negative effect on one’s credit score. So just throw ‘em in a drawer, never to be seen again.

But the real story is the benefits you get with certain metal cards.

I first went heavy metal a few weeks ago. Wow, did I love that American Express Business Platinum Card when it arrived! It had that certain luxury feel like, you know, a fine watch or something. Kinda how I felt when I first strapped on my stainless steel Apple Watch. I get spoiled, ya know? And the unboxing experience was almost Apple-esque. No stinking envelope for this metal card!

Why did I apply for it when I already had an Amex Delta Skymiles Platinum Card? Because of a killer perk Amex added recently to this top-of-the-line Platinum Card: a free WeWork membership for a year, which allows access to any of their global locations. Not that I plan to travel that much, but I could see myself hanging out at my cool local WeWork facilities when I get tired of working in coffee shops or in my home office (and, ahem, drinking their free coffee and beer). I would undoubtedly make some great new connections there, too.

WeWork claims the value of the membership is $2700 annually, so pretty crazy, huh? Huge hat-tip to my friend William Harris for alerting me to this awesome perk.

So, I’m dropping that other (plastic) Amex card, which I used for business expenses and paid a card fee of $195 annually. The new card is $595 per year, so $400 more to get that WeWork perk — and a bunch of other cool benefits as well. No brainer for me.

But Wait, There’s More… Metal

No sooner was I just beginning to use my new Platinum Card when another card comes along — which I also now gotta have. Maybe you heard a little bit about it? Yes, um, it’s metal. Titanium. Oh, the thrill! It has no number on it, no expiration date, no security code. Just my name and a chip, baby! And, double-um, it has — are you ready? — no annual fee, no late fees, and a lower interest rate than most cards, for those who don’t pay off their balance each month.

“Pinch me — this can’t be true!!” I screamed at my MacBook Pro as I watched the big Apple Event. And did I mention it was metal? Apple has one-upped Amex (and lots of others) on this one.

You don’t even have to call some bozo salesperson to activate the card. And how about this: you just text for support — no more calling some g-damn 800 number the back of your card. Everything about it is all in your phone, securely, in Apple Wallet.

Did I mention you get cash back with every purchase — 1, 2, or 3 percent, depending on the type?

Now, the prospect of having two metal cards in my wallet, come this summer when Uncle Timmie sends me my new one, has me doing downright crazy things. Like writing this post. About credit cards. What??

Yes, this is the strange world of the Apple fanboy. Always going heavy into the latest Apple buzz. Even writing about their chips, no less. And I’m not done yet!

(Photoshopped images of my credit cards courtesy of my awesome buddy Steve Borsch.)

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UPDATE 4/5/19:

So, you were wondering why Apple would get into such a crazy new business?

Apple Credit Card Could Be Worth $1.5 Billion in 5 Years, Analyst Says – Barron’s

Partying at SXSW for Your Health

March 15, 2019 / Graeme / 1 Comment

(NOTE: This post first appeared at GritDaily, a brand-new media site I just learned about prior to SXSW, where I am now – magically – a contributor. Shout-out to my buddy Will.)

People go to South By Southwest for all kinds of reasons.

Nonstop parties would be one. Call me crazy, but I went for the conference sessions in the healthcare track. (Okay, a few parties, too.) I wanted to learn about disruptions and innovations in the biggest monster market of ‘em all – at $8 trillion and counting. Knowing there was so much startup action in the healthcare and medtech sectors, I was anxious to learn more about the trends and issues driving all the excitement and change — really gnarly, difficult change — in this space.

One panel I landed in over the weekend taught me about something being touted as a “real sea change” in consumer healthcare.

Turns Out Your Doc Has Been Talking Behind Your Back

But I guess we knew that from watching this Seinfeld episode.

Seriously, physicians have to continuously write notes into your medical record as part of your normal healthcare. They have to fully document your symptoms, diagnoses, treatments, drugs prescribed, etc, etc, in great detail. They don’t just do it for your benefit – it’s a legal requirement. It’s all entered digitally now into your Electronic Health Record (EHR). But did you know that, until recently, patients didn’t get to see those notes? That was the basis for a panel at SXSW called “Transparency in Healthcare” — which was all about a movement that’s blowing up that old notion of, well, it’s-none-of-your-business.

It’s called Open Notes, and what it’s doing (quite successfully, I learned) is getting institutions. to allow you, the patient, to see those doctor notes whenever you want. That may not sound radical to you — maybe just common sense? But change tends to come s-l-o-w-l-y in the healthcare industry.

Why would this matter to you if you’re a healthy person — just, say, getting an occasional physical, or going in for a sore throat? Not much maybe. But if you have a chronic health condition, requiring you to see a physician – or physicians – frequently, it matters a lot. And one of the panelists, a former punk rock drummer, had that kind of story to tell as a malignant brain tumor survivor.

Consumer In Charge

“Healthcare has been physician-oriented for too long,” said Trevor Price, a VC on a panel I caught the previous day. “It lacks consumer focus, which is crazy,” said Lynne Chou O’Keefe of Kleiner Perkins, another on that same panel. So, I was ready now to hear what these Open Notes folks had to say about how “transparency” in healthcare is playing into that trend.

On this panel were Cait DesRoches, executive director of OpenNotes (she’s also an associate professor at Harvard Medical School), and Liz Salmi, a strategist with Open Notes and a former cancer patient. (The punk rocker referred to above, who actually once performed at SXSW when she was 19.) They were joined by Rasu Shrestha, a radiologist and big supporter of this new movement, who’s also chief strategy officer of Atrium Health. The excellent moderator was Bryan Vartabedian, a physician at Texas Medical Center, and also a writer and podcaster.

“It’s not software, we’re not a vendor — rather an international movement, funded by philanthropy,” said DesRoches of OpenNotes. “That way, we’re free from conflict of interest.”

Just how consumer focused is healthcare becoming? “We go see ‘Dr. Google’ first, before we see our own doc,” said Shrestha. Up to 7% of all Google searches are healthcare related, according to panelist Liz Salmi – more than 70,000 per minute.

“I’ve never seen anything like this (the reaction to Open Notes),” she said. “People want this!” Some 200 organizations in 20 states have already signed on to the Open Notes program.

But Are the Docs Buying In?

Okay — but how have doctors reacted? “When I first heard about this, I was freaked out,” said the moderator (a physician). “It’s a real culture change,” said radiologist Shrestha. “Initially, the thought was, we’re all gonna get sued more!” He also heard doctors saying, “We don’t have time for this.” Which caused him to think to himself, “What, you don’t have time for your patients?” But he’s since seen the “embrace from the physician community going way up” in his work at Atrium Health in North Carolina.

“Patients do now have a legal right to their records in the U.S.,” said Open Notes’ DesRoches. Still, most healthcare organizations “don’t make it easy.” With increasing adoption of Open Notes, it is getting easier, she said. “But culture change has to come with it.” Training of clinicians and nurses must play a big role.

Has there been a change in doctor behavior because of Open Notes, where it’s been adopted?

At first, DesRoches said, they tend to think they’ll get buried in calls and emails after patients are able to read their notes. “But for every one that does call, we find two that didn’t because they now better understand their instructions.”

Do doctors have to change the language they use in notes, because they know patients are now reading them? “We think of this as a backdoor to empathy that can only lead to better healthcare,” said DesRoches.

“We now have an opportunity to turn the EHR into a living, breathing, realtime document,” said panelist Shrestha. At Beth Israel Deaconess Medical Center, Open Notes’ DesRoches said they’re even starting to have patients write a short note about what’s happened since their last visit, and actually make that a part of their own medical record.

Shrestha, the radiologist and strategy officer at Atrium Health, said it’s now possible to leverage voice and AI technology “to have conversations with our patients that can go into the legal document – a co-created record.”

Then he stood up, tore open his blazer, and revealed a “Fight Burnout” t-shirt. “Doctor burnout is a huge problem today – read the studies,” he said. Because of the increased time physicians have to spend at the keyboard, entering so much data into the EHR, “docs now have their backs to the patient 44% of the time. That’s not why I went to med school!”

The clear message? If Open Notes can help alleviate that pressure, via the promise of that “co-created record,” it can only help lessen the burnout problem. Do you want a doctor who’s so stressed out, he or she can’t focus on you?

Of Open Notes, Shrestha said, “We’re seeing transformation before our eyes. We’ve cracked open (the EHR) to let the sunlight in.” Open Notes exec director DesRoches added, “Change is here – we’re not going backward.”

Yep, that’s an advancement in healthcare worth partying about.

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Update 3/18/19:

You can’t read this post and not read this (just published):
Death by a Thousand Clicks: Where Electronic Health Records Went Wrong | Fortune
Some serious investigative journalism here. Long read, but definitely worth it.

Graeme Thickins on Tech

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