- Venture Capital
Dundee Venture Capital: Champion of the Mighty Middle
Dundee Venture Capital is on a mission to lead the best seed-stage deals in between the middle coasts in North America. Referred to as The Mighty Middle by the team, this vastly underserved market is a huge missed opportunity for innovation– and Dundee Venture Capital is betting big on it.
Founders in the Midwest have bountiful access to engineering talent, customers, and angel networks, all with the advantage of leveraging a lower cost of living. However, Mighty Middle founders often lack a crucial ingredient: venture capital investors with the conviction and experience to lead their first round.
Traditionally, venture capital has been limited to coastal tech hubs such as the Bay Area and the Coastal Northeast. Over the past decade, San Francisco, San Jose, and New York City received about two-thirds of all venture capital investment for the top 20 cities. According to the NVCA-Pitchbook Venture Monitor, 70 percent of venture capital investment concentrates on California, New York, and Massachusetts.
Even among VCs that primarily focus on non-coastal areas, only one percent of investors ultimately lead early seed-stage deals. The lead is the lynchpin that invests the majority of the capital, drives negotiations, and takes a responsible board seat. Founders at this stage raising capital in the Midwest may be able to raise capital from investors willing to write small checks of less than $500,000. However, few investors actually lead the rounds of pre-product, pre-revenue, and pre-launch companies.
Dundee Venture Capital has taken the approach of becoming an active lead investor for seed-stage companies, providing them with necessary hands-on strategic advising, capital, and network access.
Despite the spike in seed investing, few truly lead the earliest companies. Until now.
Founders at the seed-stage are in the earliest phases of their company are typically in pre-product, pre-launch mode. It’s notoriously difficult to value seed-stage companies, a factor contributing to seed investing being the riskiest segment of the technology market.
Today, more institutional capital is flowing into the VC asset class, and more capital than ever is being concentrated into fewer, larger, higher-priced deals, creating more competition for investors to get in at the seed-stage. In 2006, the median pre-money seed-stage valuation was $3.75 million. Last year, it was $7 million, according to Pitchbook.
Seed-stage valuations have reached a new normal. Pre-money valuations at the seed-stage have increased by 75% since 2012, with the median pre-money valuation for angel-seed increasing by 90%.
Not only are pre-money seed-stage valuations increasing, but the number of high-value seed rounds is booming. The number of seed rounds over $5 million has increased by 258% since 2012, while seed-stage rounds less than $1 million have decreased by 25% over the same period. Seed rounds are growing in quantity and valuation, but the problem of high-conviction lead seed investors at the earliest stages remains.
Valuations for Midwestern companies tend to be half of those seen on the coasts.
These trends create ample opportunity for seed-stage investors focusing on the Mighty Middle, and often-forgotten segment of promising entrepreneurs.
Enter Dundee Venture Capital.
As an entrepreneur, Mark Hasebroock observed first-hand the lack of early-stage capital in the Midwest and Middle America and saw the limitations imposed on skilled founders building valuable companies in non-coastal markets.
Mark channels over two decades of proud Omaha entrepreneurial experience into the firm. Mark built GiftCertificates.com in the late 1990s and Hayneedle in the early 2000s all from his hometown of Omaha, Nebraska, and raised over $150 million in venture capital between both companies from Madrona Venture Group, Pershing Square, Sequoia Capital, and Insight Venture Partners.
Beth Engel, the 12th employee at Hayneedle, shared the vision to close the seed capital gap and formed a 50/50 partnership to launch Dundee Venture Capital.
Mark wanted to make a big impact on the entrepreneurship ecosystem in Middle America, and shifting gears from entrepreneurship to launching a fund was a different ball game. Mark entered the Kauffman Fellows Program with a motivation to learn the inner workings of the venture world.
It was in Kauffman Fellows Class 22 where Mark met Jessica Straus, who has since become a dynamic member of the Dundee Venture Capital team.
Jessica Straus started the Kauffman Fellowship after a decade working in policy, startups, and venture capital. Prior to joining Class 22, Jessica was a Congressional speechwriter, in an operating role at enterprise SaaS company SocialFlow, several years at the National Venture Capital Association, and an Entrepreneur-in-Residence at GE Ventures in Menlo Park.
Prior to meeting at Class 22, Mark and Jessica had spent their careers focusing on underserved markets, people, and sectors. Today, together with their team of seven– including Beth Engel, Greg Beaufait, David Mann, Allie Esch, and John Jenkins, have built Dundee Venture Capital into a key champion for high-growth early-stage startups outside of coastal tech hubs.
Over the coming two years, Mark and Jessica spoke at length about the investment opportunity in underserved markets. In June 2019, Jessica joined the Dundee team as their first Venture Partner based in San Francisco to expand the firm’s networks across the continent. As members of Kauffman Class 22, Mark and Jessica look back on their unique experiences and how becoming involved with the Kauffman Fellowship forged their paths to broaden the horizons of Dundee Venture Capital.
We got a chance to connect with Mark and Jessica about how their unique journeys led them to becoming prominent champions of an otherwise under appreciated, yet incredibly valuable, sector of the American startup economy.
In your opinion as an early-stage fund, how can a VC add value to a portfolio company beyond just capital?
Mark: The early stages necessitate a bit of handholding. It’s not so much about how a company doing quarter by quarter, but how is it doing by day. Let’s establish these KPIs, not six months from now, but by tomorrow morning. We don’t jump in and try to run these companies. We invest in the people for a reason.
Our greatest value is our network and it fills in the gaps for our portfolio companies where we need to. For example, identifying strategic upstream relationships. I’ve learned a holistic perspective on seed through private equity through the foundation, and simply being part of Kauffman Fellows has helped add that credibility to fast forward things. The Fellows program helped catapult things much faster and much further.
What did the world look like for each of you before Kauffman Fellows?
Mark: We started this fund almost ten years ago, but it feels more like 30. I founded a company called Hayneedle in 2002, and it was a very formative experience for my mindset with Dundee. I saw many of the challenges entrepreneurs outside of tech hubs had to face first hand. We were based in Omaha, and we had significant trouble raising seed capital. It was tough finding access to capital in our geographic market. We had to go to the coasts.
I wanted to change how startups outside of major tech hubs raised capital. I wanted to explain to the world why there was a big need to support startups in Middle America. I didn’t have mentors in the space and quite frankly, I was alone. I didn’t have any mentors or anyone that could teach me what this venture world was about.
“I wanted to change how startups outside of major tech hubs raised capital. I wanted to explain to the world why there was a big need to support startups in Middle America.”
From top to bottom, there wasn’t a universal resource that allowed me to learn things like how to structure deals, building a brand for VCs, deal-flow, and everything associated with running a fund.
I ran into the Kauffman Fellows Program but I figured it was too late to join. I did some research about the program and everything hit on all cylinders. It spoke to me at the right time and the right place. I needed a network to help me with this. I wanted to build something that was going to last many years.
Jessica: Before Kauffman, I had spent the previous decade immersing myself in the startup ecosystem from different vantage points. I started out as a Congressional speechwriter working on the JOBS Act and ERISA reform. I decided to trade policy for product. I joined SocialFlow, a then-Series B startup in New York. I worked on a non-profit accelerator that brought young entrepreneurs to different cities in the United States by train. Together all these experiences led me to investors’ side of the table and because of my policy experience, I joined the National Venture Capital Association.
At NVCA, I was inspired by venture capital investors who go against the grain who focused on underserved markets, people, and products. Incredible investors like Kate Mitchell, Carmichael Roberts, Sue Siegel, Ray Leach, Scott Sandell, and David Morgenthaler helped me to learn the VC industry from the ground up and the importance of getting involved with big-picture challenges that affect all firms and entrepreneurs. It was 2014, and at that time very few were talking about the need for greater diversity in the venture capital ecosystem.
At NVCA, we launched the industry’s first diversity initiative that was driven by research, a industry-wide pledge, and initiatives. That’s when I realized I wanted to dedicate my career to investing in people and places that most investors overlook – that’s where the opportunity lies.
After three years at NVCA, I decided I wanted to be part of changing the dynamics of the industry from the investor-side. So I applied to Kauffman Fellows, moved to San Francisco and started as an Entrepreneur in Residence at GE Ventures.
How did things change immediately after Kauffman Fellows?
Mark: During Kauffman Fellows, Jeff was very adamant about journaling and radical self-belief. This played a big role in helping me develop our new investment thesis with an introspective human dynamic. I thought the human dynamic was a bit mushy, but funny enough, after two years, it’s become a significant part of my growth, and ultimately the driver of the whole thing.
Our KF class, right or wrong, is arguably the best class KF has had, and everybody in their own way gelled together as a group. I remember meeting Jessica early on and thinking, wow, she’s a very clear thinker. At the same time, I wanted to expand Dundee’s horizons. I was leaning into becoming more of a global thinker, and thought that Jessica was someone that could help us do that. She was a doer, and it’s tough to meet people outside of the KF program with the same sort of tenacity.
Jessica: Speaking of journaling, I’m a lifelong journal keeper. Some are digital, some are in paper. After the Tokyo Summit, while I was thinking of what my next moves should be, I revisited my journals and came across an astonishing entry from 2015. I actually wrote about how I admired Dundee Capital in a career goals review.
Thanks to my experience at NVCA, I knew I wanted to do something that drives value to serve diverse entrepreneurs. The Fellowship introduced me to investors from all over the world. I knew I wanted to work with emerging managers in emerging markets, whether they were located in the Middle East or the Midwest.
Dundee was a firm I had heard about and admired from my time at NVCA. It was sheer serendipity that Mark and I ended up in the same Kauffman Fellows class. Mark and I got to know each other through the Fellowship, sitting in the modules, making the occasional joke. The community within our KF class is really helpful and important to us.
“Mark and I got to know each other through the Fellowship, sitting in the modules, making the occasional joke”
Jessica: To be successful in this industry, you really need to gel with people, and that’s very important to me. I’m now going into the second decade of my career and it takes a lot of experience to find the right opportunities. The most important thing is people, and everything else will follow.
What’s really important to me is that the teams are designed so that everyone can be their best selves. Teams that give everyone the flexibility and trust to succeed. Greg, David, Allie and Beth are really good people and really committed to the work. Mark is an incredible leader. I made Mark sit down with me in June, and I asked about his whole career. He built and scaled two companies from Omaha, but all the while remains very humble, and approachable, and as a leader of the firm, he wants to enable people to be who they are. I think those are the qualities of a successful firm.
What do the next ten years for Dundee Venture look like?
Jessica: Having spent time studying the industry as a whole, the biggest challenges for any VC firm are: sourcing deals, building high quality syndicates, and succession planning. For most firms, succession planning is their Achilles Heel.
Often, firm founders don’t relinquish control to the next-generation. Ultimately, a lack of succession planning can undo a firm. When I think about my next ten, twenty, and thirty-plus years, I wanted to be at a place where I can grow alongside everyone else, and the culture at Dundee is this place. A fund needs firm leadership that enables people to do a lot and act in their zone of genius.
Mark: Over the next decades, we want to continue to build our capacity to serve entrepreneurs in the middle of the country and we continue to add super talented people, continue to do what we do best, stay focused, and not bow to the whims of what the market is or isn’t saying, we’ve got a clear formula for success.
Whether I’m here or not shouldn’t matter. One of my personal goals is to build an organization where people come to us because of our integrity, relationships, and abilities. I want people to say, “wow, your team is amazing.” If we can work with anybody and have honest conversations, then we’ve done our job.