New $20M fund supercharges VC dollars in Kansas City

In conjunction with a metro-wide effort to boost the area economy, Kansas City will soon have a new co-investment fund that aims to accelerate early-stage businesses.

As part of the KC Rising economic initiative, the “KC Rise Fund” hopes to improve a common gripe in Kansas City’s entrepreneurial community that there’s not enough capital to fund local innovation. The fund, which already has raised nearly $10 million in soft commitments, will co-invest in local startups that successfully nab a term sheet from another venture capital organization. Local partners will invest at least $1 for every $5 invested by a VC.

The co-investment model reduces risk and streamlines the necessary due diligence to review an opportunity. Darcy Howe, managing director of the KC Rise Fund, said that capital formation is imperative for the future of Kansas City’s entrepreneurial community.

“Capital is the engine, the oil and the glue of our economy,” said Howe, who’s worked in investment banking for more than 30 years. “When you don’t have capital, great ideas don’t happen. The idea of additional capital formation in Kansas City is really important. Hopefully, it will help grow the economy and make Kansas City grow more like our peer cities.”

Already with broad support, the fund has about 60 investor entities that have pooled their capital together to accelerate area businesses. Alongside families and individual investors, three Kansas City organizations have also joined the fund. Great Plains Energy Inc., the University of Kansas Medical Center, JE Dunn Construction and Lockton Inc. have each offered capital to the fund.

Howe said the fund will target businesses located within the 14-county area that represents the Kansas City metro. Howe said that once the fund reaches its $20 million target, it will likely have a ripple effect in the local economy of more than $120 million in capital in about 10 years.

“Success breeds success,” said Howe, who also co-founded the Women’s Capital Connection. “We need businesses to be successful in a public way. We need the community to be more aware and excited about the innovative things going on in Kansas City. When that happens, it will breed more success.”

Led by more than 200 volunteers, the KC Rising effort hopes to improve Kansas City’s economic standing after the region’s slow recovery from the great recession. The 10-year initiative will measure progress in three primary economic categories — gross regional product, number of quality jobs and median household income — against 30 cities of similar population.

KC Rising will target two industry “clusters” — design/construction and life sciences — to help the area grow via trade, ideas and human capital. Though comprised of dozens of partner organizations, KC Rising is primarily led by the Kansas City Area Development Council, Mid-America Regional Council and the Civic Council of Kansas City. The group plans to create a live dashboard to track progress over the years.

Scott Smith, the retired CEO of HNTB Infrastructure and co-chair of the KC Rising Steering Committee, said that the effort aims to instill a more strategic mindset in Kansas City.

“Let’s look at it like a business: If we’re Kansas City Inc., how would we go about dealing with stagnated economic performance?” Smith said. “Nothing can change overnight. It will be a longer-term 10- or 20-year perspective. … Part of this is about helping the Kansas City business community as a whole become more strategic, nimble and always looking forward.”