Next Level Ventures launches with focus on Iowa companies

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Iowa's first certified innovation fund, Next Level Ventures, launched in December and is ready to invest in growing Iowa companies.

Innovation funds provide investors with tax credits from the state of Iowa. In May 2013, the legislature approved an amendment to House File 615 and allocated $8 million per year for these tax credits.

Tax credits for qualifying investments have existed since 2011, but they were not favorable enough for venture capital fund managers to take advantage of them, said Craig Ibsen, managing partner of Next Level Ventures, who worked alongside the Iowa Economic Development Authority and the Iowa Innovation Corporation to push for the amendment.

“There were some limitations to the tax credits initially which made them not as attractive as they needed to be. There were a handful of people who really focused on working with the Iowa legislature to change those tax credits so the market would find them attractive,” he said.

The tax credit was increased from 20 percent to 25 percent of every dollar invested, and a three-year waiting period to claim the credit was removed.

“It makes a big difference in the legislature when the business community, along with the state agencies, come together with key legislators and find common ground," Ibsen said.

To qualify for the tax credit, an innovation fund must be certified by the IEDA and invest only in Iowa-based companies. The funds must also focus on companies in biosciences, information technology or advanced manufacturing (three priority areas for the IEDA) and meet reporting requirements.

Next Level Ventures is the first fund to take advantage of the credits. The fund has raised more than $15 million, and plans to raise up to $50 million.

Major investors in Next Level Ventures include United Fire Group, Veridian Credit Union and the Iowa Corn Growers Association.

For United Fire, the opportunity to invest in other Iowa-based companies was a motivating factor. The company has an investment portfolio totaling around $3 billion, said Bob Cataldo, senior portfolio manager at United Fire Group. Most of this is "safe and high quality" investments in bonds and publicly-traded securities. The chance to invest in growing local companies was a way to diversify, he said.

"We do believe in being a good neighbor," Cataldo said. "We like to know the people in our backyard."

The geographic limitation is the biggest difference between the innovation fund and other funds he has managed throughout his career, Ibsen said.

Next Level hopes to invest in eight to 12 Iowa companies, with a typical investment between $1 million and $4 million, and Ibsen noted that some investors wondered if that would be possible within the state's borders. However, Ibsen said innovations he has seen in the state over the past 10 years give him confidence. Two offers have already been extended.

“I'm able to communicate back to our investors, and our limited partners, that yes, we are absolutely going to be able to deploy this capital in the state of Iowa.” Ibsen said.

Before starting Next Level, Ibsen had been on both sides of the venture capital equation. An Iowa native, he worked for Maytag both in Iowa and internationally. He then launched a software company, Appliancezone, in London with the backing of venture capital. When he returned to Iowa, he worked with Minneapolis-based LFE Capital to make a bid for the Amana division when Maytag was sold to Whirlpool. Although that attempt was unsuccessful, Ibsen has continued to work with LFE as a senior advisor since 2006, investing in companies around the Midwest. Ibsen is also a co-founder of Rebound Enterprises, based in Northfield, Minn.

The ability to start a fund in his home state, with support from the state, is a source of pride.

“There's an economic development component we're very proud of,” he said. “When we write a check, it has an impact of creating jobs."