Thoughts on NestMint

NestMintlogo_taglineNestMint is a new “idea-stage” equity fund for startups in Iowa.

I was recently asked about my thoughts on NestMint. Specifically: “Do you think it’s valuable to the community? Why? What impact do you foresee this investment fund having on the overall economic health of our startups in Iowa?”

I’m no expert on the subject, but here are my thoughts:

I definitely think there’s value to the community in NestMint. To me it feels like the money portion of a startup accelerator.

Prior to business validation, most entrepreneurs use their own money and possibly money from friends and family to start building their company.

Before NestMint, the standard advice to startups (in Iowa) thinking about raising money was to “build it first and prove the business (via traction, etc.) and only then seek angel investment”. That’s still good advice (and that’s what I’m doing with Locusic), but doing it that way usually means building the startup part-time. That’s because you still need to keep your day job to earn a living – unless you’re fortunate enough to have three to six months worth of living expenses in the bank. So, because you’re only working on the startup part-time, things take a bit longer. And because you still have a day job there’s less of a sense of urgency to make your startup succeed, so things take a bit longer still.

NestMint gives another option for early stage startups in Iowa – especially for younger entrepreneurs whose expenses are lower. Seed, or idea-stage, financing from NestMint could allow a startup’s founder(s) to focus 100% of their energy and time into building their new company. And when you’re able to go “all-in” there are many psychological effects in play that pressure you to succeed (or not fail).

Possible negatives:

The requirements to apply seem a bit onerous to me – specifically the business plan and financial plan. It’s a bit ridiculous to require a “plan” for a startup at the idea stage, since you really don’t know what you’re building yet. Your plan will most likely be flawed, so if you precisely follow it you will most likely fail. Startups at this stage need the flexibility to pivot to different business models as they learn new information about their customers, market, etc. If I didn’t know better, I’d think that the NestMint fund might be a bit out of touch with the dynamic nature of startups. But knowing that Mike Colwell and Tej Dhawan (two key supporters of the Iowa startup ecosystem) are involved with NestMint, I bet I just don’t understand enough of the details about these requirements, or what they mean by “plan”. The site alludes to a plan “template”, but it hasn’t been posted yet.

Contrasting with an accelerator:

A startup accelerator, like Y Combinator, Techstars, Gener8tor, or the new Iowa Startup Accelerator, provides similar amounts of financing for startups. Y Combinator hopes to get one “home run” out of the 50 or so startups they accept for each “class”. Y Combinator accepts only the best of the best of early stage startups from around the world, they provide world class mentoring, and their startups are immersed in a culture of other startups all working very, very hard to achieve success.
NestMint will only be accepting applicants from Iowa. They may accept applicants from early-stage companies other than high growth potential startups. It’s unclear (to me) what kind of mentoring or other scaffolding will be in place, if any, to help their companies succeed. I hope the NestMint investors are realistic and the fund won’t be called a failure if it doesn’t get the same rate of return as a world-class accelerator.
To me it seems a bit easier to apply to an accelerator than for financing from NestMint. Although, it might be easier to actually receive financing from NestMint than be accepted to an accelerator.
Accelerators usually require the startup to relocate to near the accelerator’s location, at least temporarily. With pure financing from NestMint, an Iowa startup could stay where they are – around the resources, talent, and potential customers they already know.

I’m interested in or curious about:

  • what kind of additional mentoring, if any, that NestMint financing recipients will receive from the people backing the fund.
  • which kinds of businesses, besides high growth potential startups, will receive funding.
  • what additional burden does taking this funding put on the entrepreneurs (e.g. paperwork, reporting to the partners, a board seat?).
  • for the more successful startups that receive NestMint funding, will the people (managers, investors) behind NestMint help those startups secure additional (A round) financing?
  • terms – as I write this, the investment terms for entrepreneurs hasn’t been posted to the NestMint site.
  • Are there restrictions on how the founders can spend the money?
If the fund continues to invest in startups over the next several years (and they evolve and work out the kinks during that time), I think it could be a key contributor to the success of the Iowa startup community.
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One comment

  1. tejdhawan

    Hi Jake – thanks for the post. Though many of your questions will be answered by the entrepreneur docs to be posted as soon as fully blessed by counsel, let me try and address the onerous-ness of the application.

    Since we aren’t running a grant program, we need and expect thought behind the idea, a strategy for execution, a look at the potential numbers, and ultimately, a set of initial questions that the entrepreneur goes through and validates themselves, with an attorney, a CPA, and a local ED representative. You’ve been at enough pitch events to know that the popular ideas can occasionally receive popular support but never find legs to stand on in the market, survive the financial meters, or attract employees/partners to work on them. The initial set of filters helps us keep the cost of the program low, put the onus of thought on the entrepreneur, and lets us focus on the economics of investing rather than helping craft the business.

    This program is not about mentorship or incubation/acceleration. There are resources statewide for those efforts and we’d rather work with the resources than duplicate them here. This is strictly an investment vehicle for investable business ideas.

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