An Iowa first: Novy startup venture studio launches

Launching a startup is nothing new for Eric Engelmann, Krista Martin and David Tominsky. Still, as the three partners officially launch Novy – Iowa’ first venture studio – after months of rigorous market research and planning, they say they’re both enthused and anxious about the challenges of their newest endeavor. “When I think about the career paths the three of us have taken, we each bring different strengths to the table, but I can't imagine a better designed team to do what we're doing here,” said Mr. Engelmann. “Certainly not in Iowa. We’ve done all these pieces before. We've just never assembled it in this way before, so that’s exciting. It is trepidatious as well, but we're really confident that we've researched this as well as possibly could be done and put a plan together that brings our experiences to bear.”

So what’s a venture studio?

While Novy – from the Czech word meaning "new" – will be the first venture studio in Iowa, the concept is well-established elsewhere, with more than 800 venture studios worldwide. Applico defines a venture studio as “an organization that creates startups, typically by providing the initial team, strategic direction and capital for the startup to reach product-market fit.” In essence, a venture studio provides a full suite of resources for a startup business to get off the ground, gain traction and eventually spin off into a fully independent business. Mr. Tominsky noted that there have been several efforts launched in the past decade to support startup entrepreneurs, including accelerator models such as NewBoCo and the Iowa Startup Accelerator, which was founded in 2014. “That was more about making a small capital investment into a company, but you were investing in somebody else's company,” he said. “The big difference with a venture studio is that you're taking that funding and support piece, you're putting it under one umbrella, and you're actually co-founding the companies. So Novy, as a venture studio, will be a co-founder with that new entity. But maybe even more importantly, we're going to be focused on the first stage, before a company even gets created.” Mr. Tominky said his role with Novy will focus on the first two steps of launching a startup: ideation and validation. “I’ll be helping to determine which ideas even get created into companies,” he said. "So before we even decide what companies we’ll co-found, we'll be working to make sure that it's a validated idea and has the high potential of being a scalable company.” Ms. Martin’s role will focus on the next two steps: creation and growth. She’s had experience with a previous startup that was funded with venture capital, and in many cases, those relationships are based on the investor having a seat on the board of directors, or serving as an advisor and offering pieces of advice, “rather than hands-on work with the partners in the business.” “That's really how it's so different than if you're in an accelerator or receiving capital from that investor,” Ms. Martin said of the venture studio model. “At the venture studio, we're going to be in the day-to-day, helping them find the right people and use the right processes and tools, and helping them with capital as well. So it's just so much more hands-on. Their success is our success, and their failures are our failures directly. And that is a beautiful thing, when you can actually co-found and partner with the founders.” Mr. Engelmann, whose role will focus on the final two steps of startup – spinout and exit – said the creation of Novy will fill a major gap in the region. “We have venture capital, we have accelerators, we have fractional executives, but it’s piecemeal and fragmented,” he said. “This brings everything together in one place.”

How process will work

At the outset, Novy will co-found, fund and grow software companies in the health care industry. As part of the venture studio process, each company selected as a Novy client will receive up to $1 million in direct capital investment, along with two full-time executive leaders, in-house product development support, and a full suite of back office services including finance and human resources, with a total startup investment approaching $2 million. “It’s designed to provide significant capital very early, when most investors are pretty reticent to put in significant amounts of capital,” Mr. Engelmann said. “We’re talking $2 million at day one, or at least available at day one. That’s a lot for Iowa. For the coasts, it’s not that big of a number, but here, that's a very unusual amount of capital.” That process unlocks relationships with people who are creating intellectual property, but maybe aren't going to work for the startup company full-time, Mr. Engelmann said – perhaps a professor, a doctoral student, or a corporate leader who simply has an idea. “They're not going to leave their job, but maybe they’re thinking ‘this could be a business,’” Mr. Engelmann said. “We can put it through this process, validate it, give it the resources it needs, and then we'll go find the CEO who can lead the company. To a venture capitalist or an accelerator, that would never work, because it needs the CEO, and if that person isn’t the CEO, it can't work. So the model has a whole bunch of advantages, but that's one that I think stands out, and something we don't have today.” Mr. Tominsky said the startup ideas themselves could come from a variety of sources. “Our model is to have ideas coming internally from our team, and certainly from out in the community as well,” he said. “The idea of having an (online) application is that anybody with an idea that they think has the potential of becoming a great company, we'd certainly want to encourage them to put that idea in. We’ll refer to it as the top of our funnel.” He said he anticipates gathering a list of perhaps 50 startup ideas, which would then be validated to a list of five potential companies, only one of which is expected to be created within Novy’s first year of operation. “We’re talking about a very selective process, he said. “It will be pretty rigid up front, so that we can feel very confident that we're creating only the best companies and then working with Krista and her team to grow and scale those companies.” Mr. Engelmann will then focus on helping the startups move to increasingly independent operations. “We expect the companies to raise enough money to slowly sort of leave the nest, so to speak,” he said. “We’ll still be involved as board members, we’ll still be co-founders, and we may continue to be involved in the business indefinitely. It’s possible some of our team members will continue in that company all the way to the end. It’s not necessarily the three of us building the company every day, although we'll be involved in it. We're also bringing in a team to help grow the company that will work full-time on the business.” Novy’s investment is recovered through a fee structure that takes effect once the startup begins to develop an independent revenue stream, Mr. Engelmann said. He also noted that Novy has lined up investors to fund the company’s initial operations. The entire Novy startup process, Ms. Martin said, is expected to span 18 to 24 months, “before the company gets a little bit of their wings and additional investment outside of just the studio.” Not every business concept will conform well to Novy’s startup model, she noted. “If you need to build something that takes 18 months to produce and you can't have any sales coming in the door until after 24 months, it just won't work for our model,” she said. “That doesn't mean it's not a great business, but certain businesses will thrive within the process that we've designed, which does expedite a lot of the big milestones in a business. So we’re focused on software companies in industries that can reach the market and win in that market early.” The companies will also have to fit Novy’s chosen industries, Mr. Engelmann said. “There are a lot of options out there for people to build companies,” he said. “We think this is a really great way to do it. But it's only going to fit a certain subset of the universe of potential startups out there, and we're going to want to be the right fit for that.”

Partners have extensive startup backgrounds

This is the first time Novy’s three founders have worked together on a business venture, but Mr. Tominsky, Ms. Martin and Mr. Engelmann are all well-versed in starting, leading, advising and investing in startups and tech companies. Mr. Tominsky founded an IT recruiting company, CoreTCS, in 2010, then led the Iowa Startup Accelerator. Most recently, he served as the chief relationship officer at the nonprofit NewBoCo, where he led their technical and creative services teams building products and prototypes for startups. Ms. Martin has operated and advised many startups as a product management and growth executive. Before starting her own consulting business, she was the second employee at Boardable and helped grow the business from launch to $5 million in revenue as the vice president of product and growth. And Mr. Engelmann founded health care software company Geonetric in Cedar Rapids, as well as NewBoCo and its Iowa Startup Accelerator program, and venture capital fund ISA Ventures. Combined, the three have worked with hundreds of startups for over a decade.

Where the Novy idea began

Mr. Engelmann said he and Mr. Tominsky had been discussing the idea of creating a venture studio for the past three years, and came to know Ms. Martin more recently. The three have been researching the idea in depth since last fall, he said, and attended a “boot camp” last fall hosted by Morrow, a group of thought leaders for accelerators and startup studios, and organized by the Global Startup Studio Network. The boot camp included sessions on business models and legal structures for venture studios, and included contacts with High Alpha, one of the nation’s top venture studios with which Ms. Martin had developed connections during her time working with Boardable in Indianapolis. “We were able to learn from the folks that actually started some of the most successful studios in the world,” Mr. Tominsky said. “We've been thinking about this model for a while. And when Krista moved back to town and we learned about her experience, that helped kind of push us along, and we saw some of the other opportunities to tap into that global network that we've been part of, really, for 10 years.” Then the operational pieces fell into place, Mr. Tominsky said. “Even when I think about the Iowa Startup Accelerator, we've always pushed on the model,” he said. “We’re taking a template from others and starting from there, but we’re also looking at how we can make it better. We believe strongly that this venture studio model will be a better way to build companies here in Iowa. This is a hands-on team. We're not building their company for them, we’re building a company together with them. I think that's a very significant difference that will reap rewards for the entire state.”

Hiring, business goals

At launch, Novy is comprised solely of its three co-founders, but Mr. Tominsky said the company is targeting a total of 15 employees by the end of 2024. “If we co-found a company with direct capital that’s invested, that portfolio company can make their own hires as well, so where we're at the process will determine that,” Ms. Martin said. “So you’ll have the (Novy) employees and then you have those founders of the new companies, but then those companies hire people as well. The talent pool is really big that we are looking to get and start making connections that have deep industry expertise in health care, because we're going to need a lot of great talented people.”

Future ambitions

Mr. Engelmann said he plans to continue his work with ISA Ventures, but for Ms. Martin and Mr. Tominsky, Novy is the primary component of their professional futures. And for a variety of reasons, they say the time is right for the launch of a company like Novy in the Corridor. Ms. Martin said that data shows startups founded by a venture studio have a 60% success rate, as compared to 10% for startups outside the studio model. And Mr. Engelmann pointed out that venture capital has been in ever-shortening supply in the past few years, opening opportunities for new models like Novy’s. “It's an exciting project,” he said. “It's additive to the ecosystem in the Midwest. And given that it's anchored in the Corridor, it’s kind of a big deal for this entire region.” Anyone interested in co-founding a business with Novy is invited to submit an application or reach out to the Novy team.

Novy FYI

• Address: 415 12th Ave SE, Cedar Rapids (in the Geonetric building)
• Phone: (319) 214-0292‬
• Email: hello@novyventures.com
• Website: www.novyventures.com