New VC fund breathes new life into KC startup ecosystem

When the KC Chamber rolled out its Big 5 initiatives back in 2011 – especially the goal of making Kansas City “America’s Most Entrepreneurial City” – I must admit I was a little skeptical. I was, of course, in favor of the effort, but it seemed like a steep hill to climb.

I’ve never been so glad to be wrong.

In fact, our hometown has been making news not only in the Midwest but around the country for the positive steps we’ve taken. Momentum started early with the announcement that Mayor James was bringing the City Age “A New American City” to town in 2012, followed by the formation of LaunchKC the creation of Startup Village, and many other milestones.

Today, there’s no slowing down, as you can see with some recent stats from KCSourceLink’s We Create KC, the state of entrepreneurship report:

  • On average, 4,400 startups in Kansas City hire their first employee each year.
  • There was a 290 percent increase in available capital for early-stage entrepreneurs from funding organizations in Kansas City.
  • Kansas City ranked as one of the top tech cities in the U.S.

However, even as I revel in this good news, I also remind myself we still plenty of room for improvement, especially when we compare ourselves against the coasts. For example, venture capital activity in Silicon Valley reached $35.2 billion in 2016; Kansas City was at less than $2 billion.

We think we might have found an answer to that.

Filling the funding gap for founders

One area where Kansas City is lacking is early-stage funding. While you can find some VC firms in this space on the coasts – such as Afore Capital in San Francisco or Kepha Partners in Massachusetts – it’s virtually non-existent in the Midwest. Yet, it’s critically important if we’re going to attract the type of innovative and successful entrepreneurs we say we want.

So, what is “early-stage” funding? It’s that stage of funding that lies between the friends and family round of $50-100K and the traditional Seed or Series A round of $1 million and above. The concept is still relatively new but it’s gaining traction because more and more people are recognizing the unserved need in the market. TechCrunch explains it this way:

“Raising pre-seed funding helps build and distribute the product, providing early traction with the least amount of capital. Founders are increasingly realizing that seed investors do not write the first check––with most seed capital coming 2.4 years after a company’s founding … These investors supplement the friends and family round, providing institutional capital previously available much later.”

A better way is born

Target Hill Capital was really created out of a desire to fill that early-stage space in Kansas City—to give the region a competitive boost as we keep climbing toward that ambitious goal the Chamber defined seven years ago.

Let’s face it: The old way isn’t working. Currently, Kansas City venture capital is concentrated in the seed to growth capital stages. While there’s an ample supply of capital at both stages, many of these VC firms invest in the same deals without a consistent due diligence process. And few conduct process-driven, consultative follow-up.

We wanted to really bring a Silicon Valley mindset and risk tolerance to Kansas City with a specific focus on B2B tech companies. In addition, Target Hill conducts follow-up and enforces those practices that help ensure portfolio companies make it to the seed round, better positioning them for success. For investors, Target Hill offers both VC holdings as well as high-quality, income-producing multi-family real estate assets to mitigate the risk and balance its portfolio. The approach reduces the volatility of early-stage venture investing without sacrificing its benefits.

We want to serve as the true cornerstone of Kansas City’s functioning startup ecosystem—joining the right resources with the right network with the best and brightest tech startups. Our goal is to not only fill a gap in the local VC landscape, but also to construct scalable-growth companies and investment opportunities to ensure everyone hits the mark.

With any luck, we can check off one of those Chamber Big 5 goals a little earlier than we thought.

Marshall Dougherty is a partner at Target Hill Capital, a venture capital firm dedicated to building scalable growth companies and investment opportunities backed by unmatched due diligence to exceed VC success rates and investor IRR. Learn more at targethillcapital.com or share your thoughts on Facebook, Twitter or on LinkedIn.