Sherpa, which was founded by Lewis in 1997, previously invested about $5 million from three partners in local start-up companies. Among its local investments are Eden Prairie-based Xiotech Corp., a network computer storage firm that was acquired by Seagate Technology, and marketing software firm Cognicity Inc. of Edina.
Using the new $15 million fund, Sherpa's average investment in a start-up company will be about $1 million, and the maximum investment will be $3 million to $4 million, Lewis said.
That means that as these companies grow, they will have to attract investment from venture capital funds other than Sherpa.
While Sherpa's fund managers hope to create long-lasting companies in the state, they concede that in the near term they are more likely to be funding start-ups which, if successful, will be acquired by larger, established companies in other parts of the country. Right now, the sale of a company is the best way for the original investors to recover their investment plus a profit because the stock market isn't favorable for initial public offerings.
Sherpa has been what Pederson called an "incubator stage" investor, but with the new fund it will wait until later in a company's life cycle to invest, he said. To qualify for the venture capital funds, companies already should have acquired good management, attracted some private funding or, in some cases, started selling a product.
But the best thing about the new venture fund is that will allow Sherpa to think about making bigger investments, Pederson said.
"Two years ago we would have had to scrape to raise $1 million to $2 million. Now we can offer a larger fund," Pederson said.
