Gravity Ventures Expected to Boost Arkansas Startup Community - Innovate Arkansas
Gravity Ventures Expected to Boost Arkansas Startup Community
By Mark Carter, 2/28/2011 12:00:00 AM
Arkansas' high-tech entrepreneurial community has grown during the last decade from barren patch to a plot with the potential to produce fruit, and the entry of Gravity Ventures into the market is expected to help stimulate further growth.
Gravity Ventures is an angel capital fund founded in Indianapolis in 2008 by Kristian Andersen, who grew up in Conway and saw in Arkansas an emerging startup environment with promising tech ventures ready for the plucking.
Gravity's member-managed Arkansas fund officially launched in December and has already made an investment in Fayetteville's Acumen Holdings, an e-commerce firm that builds online specialty retail shops, and is on the verge of making another.
The fund has 21 partners, all of whom live in Arkansas and are engaged in the Arkansas startup community in some capacity. Each partner is required to invest a minimum of $25,000 in the fund.
Andersen, who moved his family to Conway, splits his time between Arkansas and Indianapolis, where he manages Gravity's original two angel funds. Andersen's model entails smaller investments in early-stage companies. Gravity investments range from $75,000 to $125,000 with a focus on getting promising startups off the ground. Sometimes, it will provide follow-up investments of up to $75,000.
Wilson Kanaday, co-founder of Little Rock startup Vertical Studio, believes Gravity's model of small, fast bets on many companies, as opposed to the traditional venture capital model of large bets on a few ventures, will serve Arkansas' early-stage ventures well. Rather than wait for home runs, Gravity's take is to score runs by hitting singles and doubles, getting those entrepreneurs out of the dugout and onto the base paths.
"Risk-capital investors here will change their model based on Gravity's influence," Kanaday said. "The model has been borne out again and again."
In Indiana, Gravity has made seven investments totaling less than $1 million in just over two years. (See Gravity's portfolio here.) Its original Indiana fund made six investments before a second fund was launched there last year.
"Kristian may well be a model of how to go into emerging startup communities," Kanaday said. "Arkansas could well be one of those emerging, untapped markets."
The Festivus of Funds
Andersen has irons in several successful fires, including software company Tinderbox and design consulting firm Kristian Andersen Plus Associates. He's even on the staff of Conway startup Pathagility. His involvement with these startups helps him maintain the entrepreneurial edge he first sharpened after graduating from Anderson University in Indiana and launching a money-making branding and design firm.
Andersen calls Gravity a "venture fund for the rest of us." Its partners won't be mistaken for the Monopoly man, flitting about town in top hat and tails and twirling a cane. Neither are they the rich dentist next door who dabbles in investments on the side, he said.
They're folks like Jeff Amerine of Fayetteville, a founding partner of Gravity's Arkansas fund. Amerine is an entrepreneurship instructor at the University of Arkansas, technology licensing officer for the UA, adviser for Innovate Arkansas and former Silicon Valley entrepreneur and executive.
He has experience on both sides of the investment game and said Gravity partners' broad range of expertise would benefit local entrepreneurs.
"The idea is for emerging investors that have varied expertise to come together and review great early-stage companies and in the process learn the rigor and methods required to do a competent job in venture investments," he said. "Some of us have been down that path on both sides of the table in the past. Many have not, and we need knowledgeable, experienced early-stage tech investors here in Arkansas. In addition, every member has to be willing to actively help and mentor the companies Gravity selects for investment.
"This is not a passive deal."
Gravity's entry into the Arkansas market is heralded as further evidence of the state's progress in creating an environment that attracts jobs - not just more factory jobs, but potentially high-paying, high-tech jobs. The tenants at the UA's Research & Technology Park in Fayetteville employ more than 300 workers with an average annual salary of $63,000, nearly twice the state's median household income.
Little Rock's James Hendren calls the environmental change in Arkansas during the last decade a dramatic one. Hendren is as plugged into the Arkansas business scene as anyone. Along with Kanaday, he was among the 28 invited guests of U.S. Sen. Mark Pryor at a CEO roundtable discussion held last week in Little Rock. A former chairman of the Arkansas Economic Development Commission, Hendren is the force behind the growth of Arkansas Systems, sits on the boards of Virtual Incubation Co. in Fayetteville, Fund for Arkansas' Future, the Arkansas Science & Technology Authority and Accelerate Arkansas, and is heavily involved with numerous local startup ventures.
"It's great to have another angel fund in Arkansas," he said of Gravity's presence in the state. "I'm glad to have somebody to kind of co-invest with. This will allow everybody to diversify a little."
Hendren credited state government with changing its mindset during the last decade concerning business. The 2007 Equity Investment Tax Credit of 33 1/3 percent has helped launch businesses, and investment in small-business development through organizations such as the Arkansas Small Business & Technology Development Center, with offices at each of the state's major four-year universities, and Innovate Arkansas, a joint public-private venture that provides startups with almost everything but actual capital, have been instrumental in spurring startup growth.
Hendren appreciates that Gravity will provide more access to capital for Arkansas companies.
"Early startups need any investment they can get," he said.
Gravity represents one more positive development for Arkansas' entrepreneurial community, according to Jeff Stinson, director of the Fund for Arkansas' Future.
"It's one more step on a list of things the state needs to happen to encourage entrepreneurial development," he said.
It's All Casual
Andersen wants Gravity to represent the opposite of what he calls the typical VC experience - a long, drawn-out process of interviews, personality tests and waiting.
With Gravity, partners meet every two months over pizza and beer and invite promising startups to come pitch. At each meeting, partners vote on the previous meetings' pitches, and Andersen is likely to call with a yes or no the next morning. Hopefully, he said, it's to tell an entrepreneur to come pick up a check.
"At this early stage, it's all conjecture," Andersen said of investing. "We're basing our decisions predominantly on the team that's pitching the ideas. The market and other factors are less important."
Neither is Acumen Holdings a typical startup. Co-founded by John James, a doctor who relinquished his practice the day he completed seven years of medical school and residency to devote himself full time to an entrepreneurial practice, Acumen is Gravity's first Arkansas investment. Gravity helped facilitate a $5 million investment in Acumen from Noro-Moseley Partners of Atlanta, perhaps the leading venture capital firm in the Southeast, before throwing its own money in the hat.
Amerine said the Noro-Moseley deal represented the first significant tech investment in Arkansas by an out-of-state VC fund "in recent memory."
"That deal was unique because of the overall size but is characteristic of the sort of leverage the Gravity team hopes to be able to bring to Arkansas," he said.
James called Gravity's Arkansas commitment the "most significant in the history of the previously desolate Arkansas startup scene."
"I hope their fund is only the tip of the iceberg, however. Their small, focused fund will only move the needle so much," James said. "There is a huge hole in the business funding continuum in Arkansas that Gravity is beginning to fill. Specifically, our state is lacking early-stage risk capital, capital to turn innovative back-of-the-napkin ideas into real businesses."
'Bullish on Arkansas'
The economy's reluctance to bounce back and resemble something close to normal represents all the more reason for Arkansas startups to benefit from Gravity's presence.
"Local entrepreneurs are forced to fund their ideas themselves or scrape together seed money from friends, family and rich idiots," James said. "This risk is just too great for all but the most daring entrepreneur, especially in this economy.
"There is no lack of viable ideas, nor a lack of talent in our state. The only thing that's lacking is a vehicle to incentivize the creation of innovative new companies."
Andersen is ready to get behind the wheel of that vehicle. He loves his adopted home state; he moved to Conway from Long Island, N.Y., with his family at age 5 and graduated from Conway High. He's sees in Arkansas not only home and a good place to raise a family, but opportunity.
"There's no shortage of smart folks here with good, innovative ideas," he said. "The shortage is around funding. The hardest money to get your hands on is early-stage capital."
Andersen liked what he saw when he began inspecting the Arkansas startup environment.
"I was delighted by the level of activity I saw here around entrepreneurs and startups," he said. "A large part of that was organizations like Fund for Arkansas' Future and Innovate Arkansas helping to create an environment where entrepreneurs did have access to capital."
Through Gravity Ventures, Andersen plans to help make sure that access is always there.
"By virtue of what's happening here, we'll be investing more in Arkansas," Andersen said. "I'm pretty bullish on Arkansas."
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Before founding EquityNet in 2005, Judd Hollas was division manager for Beta-Rubicon Inc. of Fayetteville, a consulting firm specializing in technology assessment and business due diligence services. He has 20 years of experience as an independent technology analyst and investment manager in the private and public domains.