Iowa Ventures Attract More Investors – Conditions are improving in the state, experts say

John Schillinger first explains his company, Heartland Fields, to the group of investors: The Des Moines"seed to plate" company has created flavorful soybean that it uses to create food products – from chili to"sausage" pizza toppings.

By:
Donnelle Eller
Des Moines Register

Then Schillinger outlines his company’s markets: food distributors, universities and health-care facilities, among others.

Finally, he wraps up with his capital needs: $1.5 million for market expansion and company growth.

The response? One investor talked with him after the venture capital network meeting.

"It’s slim pickings out there," said Schillinger, who is hopeful he will hear from more investors after they assess his company’s financial and market information.

Raising money from Iowa investors has historically been difficult in Iowa – the state was among the bottom five states for venture capital investment last year. But there are signs that conditions are improving, experts say.

Community-based investment funds have sprouted up in Mason City, Iowa City, Cedar Falls-Waterloo and Cedar Rapids, said Gregg Barcus, president of Des Moines technology incubator Emerging Growth Group, which operates an investment fund.

"There’s still a lack of early stage venture capital, but there is an excitement, an anticipation that . . . for the first time, Iowa is moving in the right direction," Barcus said. "There is a light at the end of the tunnel."

Among the initiatives Barcus and others point to:

* A state program that provides a tax credit to investors that equals 20 percent of their investment.

* A pledge by Iowa insurers to invest $60 million in Iowa companies over five years in exchange for a reduction in the state insurance premium tax.

* The $100 million "Fund of Funds" program that’s being developed to build venture capital investment in Iowa.

In nine months, Iowa insurers have invested $20 million in Iowa companies and programs, said John Schachterle, executive director of the Federation of Iowa Insurers.

The efforts include a $5 million commitment from Wellmark Blue Cross and Blue Shield to work with new businesses through John Pappajohn Entrepreneurial Centers; $5 million more from Aegon USA in a Cedar Rapids investment fund; and nearly $9 million invested in seven Iowa companies by FBL Financial Services, Principal Financial Group and American Republic Insurance.

"We’ve already seen a third of the $60 million commitment," Schachterle said. "I think it’s an indication of the need and an indication that there are some really good" businesses seeking money.

Barcus said an improved investment environment has increased start-up company interest. His group has fielded dozens of calls and business proposals.

"There are a lot of people out there with great ideas, and a growing proportion of the company-creation proposals are much more solid," he said.

Now some of the community-based venture funds are working together on investments, spreading out the risk, said Barcus. "Now there’s a pool of money in those communities where there wasn’t one before," he said. Schillinger said he is determined to grow his soy company.

Already he has some major food distributors, such as Sysco Foods, interested in selling his products. And Heartland Fields has signed up college food service clients throughout the country to meet a growing interest among students for vegetarian meals.

"I have the products ready to go, and the production and the technology. I just need the people and the inventory, and I’m going after that from several directions," said Schillinger, who has ambitious plans to take his soy products into fast-food restaurants. "I have a textured soy that can be flavored with beef, chicken, crab, whatever they want. It’s wonderful."