Here at The Mill, Bloomington’s nonprofit center for entrepreneurship, we recently received some exciting news. The U.S. Economic Development Administration awarded us $400,000 to expand Flywheel Fund, our startup investment fund, to create a second fund.
Our grant comes from the EDA’s Build 2 Scale program, specifically its Capital Challenge. We were one of only two Indiana organizations to receive an award, and we’re thrilled that it will allow us to invest in more innovative Hoosier startups that will in turn create good jobs and grow our economy.
So what is Flywheel Fund? Flywheel is an member-managed investment fund that provides up-and-coming Hoosier tech startups with the capital they need to grow quickly. Each year, SEC-qualified members join Flywheel and contribute to a pool of funds. Each cohort or “round” of investors lasts until all the funds are dispersed (usually one year).
The Mill and our partners screen companies for potential investment and distribute due diligence information to members: a report that includes bios of the founders, market analysis, financial projections and so on.
Our members then meet once a month. The first half of the meeting is the “pitch”: The founder presents the company, and investors ask questions about how they’ll use the funds, their go-to-market strategy, their vision of the company and so on.
The second half of the meeting is an executive session: The founder drops off Zoom, and the investors discuss the company privately. They candidly explore what they like, what they don’t like and whether the company’s team can fix those things.
Afterward, members vote on whether to make an investment. For our current round, a first investment in a company is typically $50,000. Like most funds, Flywheel sets aside money for follow-in investment. A company that’s performed well since an initial investment may receive up to $150,000 more, if the members so vote.
If you’ve read stories of tech startups securing millions of dollars in investment, these numbers may surprise you. Flywheel invests in early-stage startups that are somewhere between acquiring their first customers and earning $250,000 a year in revenue. For them, this modest, fast, early influx of capital is essential. Unlike traditional small businesses, timing is everything in the tech world: If you don’t build out your idea quickly, the technology will go obsolete, or a competitor will beat you to the market. This early-stage investment is what will allow some of our startups, we hope (and expect), to make million-dollar headlines further down the road.
Here in Indiana, The Mill and others, like our friends at Elevate Ventures who received the other EDA Capital Challenge grant, have been working hard to increase the amount of available startup capital. We’re building not just an ecosystem of new startups, but an ecosystem of new investment.
In fact, most Flywheel investors are brand new to startup investing. Our members generally have deep business backgrounds, and they may have invested in the stock market or real estate. Only about a third of our members are experienced startup investors. We even have a few professional investors who want to both support our local economy and earn a return on their investment.
So how will this EDA award of $400,000 help us over the next three years, the term of the grant?
Just like a Flywheel investment in a startup, this influx of capital allows The Mill to quickly ramp up. In Year 1 of the grant, we’ll expand Flywheel Fund by adding more investors, and we’ll start preparing to launch a second fund.
By Year 2 of the grant, we hope to have 99 investors in Flywheel, the legal capacity for a fund of its type and to see some investors increasing the amount they contribute. In Year 2 we’ll also launch a second, smaller fund, Turbine Fund, for seasoned investors who can make a bigger investment over three years.
By the end of Year 3, if we are successful, both funds will become self-sustaining operations.
Since its launch in 2020, Flywheel Fund has made 12 investments in nine companies. Those companies have created or retained 72.5 jobs and leveraged $11 million in outside investment. In other words, for every $1 that Flywheel Fund invested in a company, that company attracted $25 of investment from other sources.
Four of those nine companies are from Bloomington:
- Stagetime: a social network for noncorporate professionals such as stage performers.
- Civic Champs: software that helps nonprofits manage and leverage their most important asset, volunteers.
- Boost: software that uses iPhone notifications to improve student success by a full letter grade.
- Blueprint Stats: software that helps high school athletes gain an advantage on the court with access to searchable game film and advanced box scores.
We’re currently in our second round of Flywheel and have deployed two-thirds of the capital our members contributed. We expect the third round, with the support of our EDA grant, to grow at least 50% and raise $1 million to invest. If that seems ambitious, well, from its first round to its second, we grew Flywheel 500%.
We’re proud that Flywheel’s track record and our model have inspired the EDA’s confidence in awarding us a Build 2 Scale grant. We’ll continue investing in early-stage technology startups throughout Indiana, with our thumb on the scale for Bloomington companies.
To learn more about Flywheel Fund visit https://www.flywheelfund.vc/.
NOTE: This article and its description of Flywheel Fund is not a public solicitation for investment.
Pat East is Pat East is executive director of The Mill, an entrepreneurship center whose mission is to launch and accelerate startups and whose vision is to become Indiana’s center of gravity for entrepreneurship.
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