The Collective Funds — a new venture capital group in Kansas City — will be exclusively targeting early-stage firms in the area starting as early as this summer.
Led by four Kansas City entrepreneurs, the $10 million fund aims to fill an area funding gap as well as inspire a cultural shift among local investors that may be hesitant to support startups.
Fund partners say they’ll accomplish those missions by making successful deals and via the fund’s offbeat model. The fund is comprised of a “collective” of both accredited and unaccredited investors, allowing it to tap a wealth of insight from investors’ respective business experience.
[pullquote]“Changing investment culture is one of the most important things that anyone in the city can do.” – Eric Wullschleger[/pullquote]The fund will be managed by a team of experienced early-stage businessmen: Blake Miller, partner at Think Big; Alex Altomare, co-founder of BetaBlox and founding president of The Lean Lab; Erik Wullschleger, director of LiveKC; and Shane Spencer, an independent fund manager.
Wullschleger, a managing partner of the fund, said that the collective understands the challenges that entrepreneurs and investors face in Kansas City. Unfortunately, he said, the challenges have largely remained the same for about 30 years.
“Changing investment culture is one of the most important things that anyone in the city can do,” said Wullschleger, who also co-founded the Sprint Accelerator. “There’s that constant battle between ‘there’s not enough money in town’ and ‘there’s not enough good businesses in town.’ But when you dig into it, this problem is something that people have been talking about for years.”
The fund was in part inspired by a Greater Kansas City Chamber of Commerce report published in 1989 that outlined the metro’s challenges with early-stage capital. The same problems outlined in the “Seed and Startup Capital in the Kansas City Area” report still remain, which has curbed the area’s growth, Wullschleger said.
Wullschleger said that if you removed the report’s date, it would read as though it were produced today.
“We can confidently state that Kansas City is at a competitive disadvantage in funding early stage businesses,” reads the report, which was chaired by Cerner CEO Neal Patterson. “Kansas City must not continue to languish in financing new ventures. The initiation of new firms is of vital concern as the seeds to nurture future economic growth. … The lack of available equity funds for these seed and start-up investments means that many of a community’s best prospective businesses will never see fruition.”
The Collective Funds will be comprised of high-net-worth accredited investors and up to 35 unaccredited investors from the Kansas City area thanks to relatively recent changes to Title IV of the Jobs Act. Leveraging non-accredited investors as part of a venture capital organization is relatively rare for Kansas City, Miller said. The new rules allow the fund to act similar to a crowdfunding organization, though it will be more selective via rigorous due diligence.
“These unaccredited investors will be able to be involved and learn about a different risk-tolerance type of investing than they’ve been exposed to before,” Miller said. “We’re going to do a lot of teaching them not only how to make those investments but what to be looking for and the due diligence processes. We’ll be leveraging a lot of that through the expertise of our collective. … We’re bringing the power of an entire community to put it behind our entrepreneurs.”
The collective will aim to syndicate deals with other regional capital groups, but will exclusively focus on firms with a “significant Kansas City tie,” Miller said. That means the company must either be headquartered or have a large office in the metro area.
[pullquote]“We want to be entrepreneur-friendly — we don’t want to ‘slow no’ anybody and kill their business.” – Blake Miller[/pullquote]
The fund will eye about 20 to 30 companies with its $10 million, injecting capital ranging from $100,000 to $1 million. Its sweet spot, Miller said, will be in the $250,000 range. In addition to tech startups, Miller said the collective will eye local firms in hardware, goods and services.
The fund will use Kansas City tech firm Venture360 as its platform to manage applicants. The platform allows investors and entrepreneurs to communicate regarding deals and share progress.
Miller, who’s launched several businesses, said that area entrepreneurs can expect the collective to be active within its portfolio companies’ operations. As a funding partner, Miller said the Collective Funds will work to ensure its portfolio firm’s success, whether that means offering advice or helping drum up sales.
And if the Collective Funds isn’t attracted to a particular deal, they’ll receive a quick, respectful “no.”
“We want to be entrepreneur-friendly — we don’t want to ‘slow no’ anybody and kill their business,” Miller said. “We’re going to fund and support our peers and the entrepreneurs that are growing this city. … We want to be a good part of the ecosystem and spur growth. We want to play our part and maybe inspire others to do more, too.”
