Taking a risk to fund Nebraska's software future

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October 24, 2011 - 7:00pm

Compared with other states across the U.S., Nebraska struggles to attract private venture capital. Out of more than $23 billion in private venture capital invested across the country in 2010, only $12 million came to Nebraska. Nebraska Global in Lincoln is hoping to turn that around. Since launching in the summer of 2010, the venture capital and software development firm has raised more than $37 million. Money that it plans to invest in new Nebraska software companies. NET News' Grant Gerlock talked with Steve Kiene, a veteran software entrepreneur and managing principal of Nebraska Global, about what Nebraska needs to become a software and technology hub in the Midwest.


Graphic by Hilary Stohs-Krause, NET News
 

Click the image for a larger version of this chart.


Graphic by Hilary Stohs-Krause, NET News
 

Click the image for a larger version of this chart; by comparison, the average and mean for the U.S. as a whole in this time period was $25,133 and $24,766, respectively.


 

Photo by Grant Gerlock

Steve Kiene, managing principal for Nebraska Global


GRANT GERLOCK: You're looking for good ideas from Nebraska, and you're hoping they stay in Nebraska, too?

STEVE KIENE, NEBRASKA GLOBAL: Exactly. We want to see ideas from Nebraska. We want to see the people of Nebraska, our young folks, be part of starting these companies. We want folks that have left Nebraska to see Nebraska as a great place to come back to when they raise their families and want to settle down.

GERLOCK: What are you doing that's different from other people who have been working in venture capital in Nebraska?

KIENE: A lot of it has to do with our ultimate goals and the timeframes in which we want to accomplish those. We have a very long time frame compared to most venture capitalists. They'll look at things in terms of maybe 5 years that they want to see a return on their money. And they want to see a very significant return. We're looking 10 years and beyond. And we're not looking to sell the companies that are started. We're looking at keeping those companies growing so they can spawn off more companies themselves. So, our goal absolutely is to create financial return for our investors and for all of the employees in those companies. But we believe we can do more than just provide a financial return.

GERLOCK: What is your vision for creating a software and technology hub in Nebraska? What is it you want to be part of?

KIENE: We want to be part of leveraging the strengths that we have in Nebraska. You think about Nebraska, we're hard working. We're loyal. We're ethical. The types of companies that come out of this are companies that will grow slowly. They'll grow in a pragmatic fashion. They'll weather downturns. They won't expand as fast during the upturns but they'll be steady companies. Those are good foundational companies, as we call them. We won't be doing things like social network companies. We'd never come up with something like Facebook. Probably won't do much in the gaming space right now. There are other people doing things like that. But we want companies that really reflect the way that Nebraska really is. It's kind of the down and dirty software, if you will.

GERLOCK: What do you need? What does Nebraska need? Is it talent, ideas, or is it really just money right now?

KIENE: Money, surprisingly, is the least of our problems. We've got a lot of money in the state. We've got a lot of people that are willing to leverage the money they've made to make the state better. And that's very unique compared to a lot of places, especially Silicon Valley. Most of the folks with money there are just trying to make more money, where here people want to use their money for good as well as make more. Our biggest gap I think is in the talent we need. And part of that stems from just the confidence level and the mindset of our younger folks. They're less apt to be risk-takers here. The ones who really are risk-takers tend to move away. We want to slowly bring those folks back, but we want to encourage the really talented young folks here. Let them see that they really do have what it takes. Give them the confidence and inspire them to reach for more, take a little bit bigger risks. Part of that comes from, if you look at where a lot of our young folks grow up, they grow up in farming communities. And if a farmer does not typify and entrepreneur, I don't know what does. They face unknowns every day. They have to solve problems that no one else can solve for them. Everything is a challenge and they persevere. We've got all these young kids growing up in that environment. They just need that spark to realize, hey, I'm an entrepreneur. I can do this.

GERLOCK: I want to ask you more about entrepreneurship. That's a word that gets thrown out a lot these days by officials, politicians, and other people looking at entrepreneurship as a way to rebuild the American economy. How is it that an entrepreneur is different from the next person?

KIENE: I think a lot of it just comes down to people's tolerance for risk, their tolerance for mistakes, how they view failure. I've made a lot of mistakes in my lifetime. I've failed at a lot of things. But to me it's all part of a process. Steve Jobs is someone people are talking about these days since he's passed away. They're really talking about all the successes he's had, and he had amazing successes. But he had a lot of spectacular failures as well. And that's something that's important. If you can look past the failures and view them as part of the process, as opposed to that's the end, that really is a lot of the difference. Folks who don't want to take risks, who say I'm happy with how things are, are not really entrepreneurs. But those who look at something and can see something better. Just seeing beyond what's currently there. That's really an entrepreneur.

GERLOCK: Another word that's being connected to the economy right now is uncertainty, the idea that uncertainty is one of the things holding the economy back and keeping it in this stalled position that it's in. As an investor, are you uncertain?

KIENE: Not at all. I like to study history. Most of the history I study is more recent. The dot-com boom and crash around 2000 is something that I've looked at from about every angle imaginable. And one of the things I saw was that the companies that emerged the strongest post the dot-com crash 2002, 2003, and 2004 are the companies who invested far more during the crashes. That when everybody else was laying off people, going out of business, those companies had the financial strength to make greater investments. They started hiring the best people who were laid off. They invested in new products that they felt were going to be needed at some point. And they had the financial ability to sit on those things until the market did come to them. That's a lot of what we're trying to do. Whether we're in a recession or a depression or a boom or whatever, the time to invest is now. Things will always get better and if we've got companies started and we've got people on their trajectories to build their companies now, then when the booms happen again - and they will, we know that - we'll be much better positioned because we'll have already hit the ground running and have the momentum that other folks don't have.

GERLOCK: So you're not feeling uncertain about gambling $37 million in this economy right now?

KIENE: Well, if I thought it was gambling I wouldn't do it. I joke with people that I never take risks. For me, it's about calculating the potential failure, and the potential success. And for us one of the paradigms we have, being a quasi-fund and a quasi-startup, is that we can invest in multiple companies and we don't expect every one to succeed, but in general we expect more to succeed than fail. And our financial models, if you will, are built on having failures and still having a good financial success. So we'll get some things wrong and we'll get some things right, and that's part of it. If we needed every single thing to go right, we would absolutely fail. And that was one of the biggest things that happened during the dot-com crash. There were business plans that were predicated on everything going perfectly in order to succeed. I never understood how people could do things that way. If you think of a farmer, if they tried to say in order for me to break even I have to have the weather perfect every day, I have to have no weeds, and the crops all have to germinate, they'd never make it. There's resiliency built into their plans. The same thing for us. Some of the companies will fail. That's okay. We'll still succeed overall. So for us, we don't view it as a gamble, we view it as a strategy and a plan that is going to weather the failures we'll have.

GERLOCK: Steve Kiene, thanks a lot.

KIENE: Thank you very much.

By way of full disclosure, Steve Kiene made the lead gift to the NET Foundation Inspire Nebraska Campaign.

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