Increased funding options offer opportunity for SE MN entrepreneurs

Access to capital is a common obstacle faced by entrepreneurs looking to launch and grow businesses. Communities that offer diverse funding options for innovators tend to be healthier and more prosperous than those without.

Since there is no single blueprint for financing the launch or expansion of a business, area leaders have worked tirelessly to create new funding sources to help enhance the local entrepreneurial environment and get these businesses off the ground.

These funding sources will be of critical importance to Destination Medical Center (DMC) as the DMC Development Plan positions Discovery Square as a keystone to the DMC economic strategy, resulting in the need for multiple sources of readily available capital for new and growing businesses.

The Rochester Economic Development Fund

Rochester Area Economic Development, Inc. (RAEDI) recently announced the Rochester Economic Development Fund (EDF) has invested over $1.5 million in 15 companies in the past five years. The fund, administered by RAEDI but received from the City of Rochester via a local sales tax, was launched in 2012 to assist businesses who demonstrate strong potential for creating jobs and generating new dollars for the local economy.

EDF funds have been distributed in one of three ways: 1) as a loan to be paid back with interest; 2) as an investment where the EDF becomes a shareholder in the business; or 3) as a loan that can be converted into an investment (called a “convertible note”).

In 2017, the fund supported four companies, including Vyriad (biotechnology for cancer); Craniovation (medical device to treat brain tumors); Smart LabHood Solutions (laboratory equipment); and Spark.DJ (music company) for a combined total of $240,000.

To date, EDF companies have created nearly 100 local jobs and occupy nearly 48,000 square feet of space in Rochester. Fifty-six percent of the businesses are women- or minority-owned.

“We couldn’t be more pleased with the positive impact of the Rochester Economic Development Fund to our local economy,” said Xavier Frigola, RAEDI’s Director of Entrepreneurial Programs and manager of the Fund. “Being the first investors allows us to have a greater chance to retain companies in Rochester. In return, fund companies are investing in Rochester where almost 100 jobs have resulted. The potential for their real growth lies ahead of them.”

The Southeast Minnesota Capital Fund

From left: Xavier Frigola, RAEDI Director of Entrepreneurial Programs; David Herbert,  SEMCF Chair; and Aaron Keenan, CFO & Co-Founder of Sonex Health LLC

The Southeast Minnesota Capital Fund (SEMCF), an “angel fund” managed by RAEDI, invites private investors to pool resources and help fund promising businesses. “Angels” are affluent individuals who provide capital for a business startup in exchange for ownership in the company. The fund launched in August 2017 with $775,000 and 25 investors. In just seven months, the fund has grown to $1.4 million and now includes more than 40 investors. Like the Economic Development Fund, the SEMCF will help support the increasing number of new companies in our area that have the potential to deliver significant returns.

Recently, the SEMCF announced its first two investments: Rochester-based Sonex Health (medical devices to treat carpal tunnel syndrome) and Minneapolis-based Oculogica (diagnostic device for concussion).

“Our investors are incredibly excited to make our first investments in these two companies,” said David Herbert, SEMCF Chair. “They show great promise for growth, job creation, and an interest in staying in our region and state.”

L.J. Johnson, SEMCF Vice Chair agrees. “We expect to see many medical and information technology opportunities, but we are also watching for worthwhile investments in other fields that are strong in our area, like agriculture, manufacturing, and service businesses.” While SEMCF dollars are not restricted geographically, the primary focus of the fund’s investments will be in the southeast Minnesota region.

For more information on the funds, click here.