Dwolla Corp. not only announced today that it raised $5 million in outside funding, but also made a commitment – Des Moines will remain its home.
“I think it’s a huge statement for Des Moines,” said Mike Colwell, executive director of the Business Innovation Zone. “I don’t think we can overestimate how huge of a statement it is, that one of the biggest venture firms in the country just sank a lot of money into a local company here and said, ‘We’re OK with you staying in Des Moines.’”
New York City-based venture capital firm Union Square Ventures is the lead investor in the deal for mobile-phone payment system Dwolla, founded by Ben Milne. The same firm has also invested in technology industry giants such as Twitter, Foursquare and many others.
Part of the deal is that Dwolla, which currently completes more than $1 million in transactions per day, will stay in Des Moines rather than move to a more tech-heavy area such as Silicon Valley in California, which is often a prerequisite for funding. Albert Wenger, a partner at Union Square, will be on Dwolla’s board.
The deal shows that Des Moines can be seen as an attractive place for entrepreneurs, Colwell said. It shows the local community that start-ups can survive and thrive without having to leave Des Moines. It also shows that the global investment community is comfortable investing in a Des Moines start-up.
Having a prominent investor from outside the state could also show potential local investors that there are start-ups worth funding, said Christian Renaud, principal at StartupCity Des Moines. He foresees local investors regretting not being a part of the deal, especially if Dwolla goes on to be successful. Hopefully, he said, it will make them more willing to fund the next successful local start-up.
As a start-up tech company that has been successful thus far, Dwolla has already provided an example that a lot of fledgling start-ups look up to, said Brad Dwyer, creator of a Facebook game called Hatchlings.
“I think it would have been a huge blow if Dwolla would have come out and said they were moving to (Silicon Valley) or something like that,” Dwyer said, adding that Milne has been a big supporter of the area colloquially referred to as Silicon Prairie, which includes Iowa and surrounding states. “If they can do it, why not somebody else? There’s no reason to think that you have to move away from here to do something awesome.”
For his part, Milne isn’t looking to be the “cool kid at school,” he said. Dwolla’s goal from the beginning has been to have a positive impact on people around the world, he said.
Dwolla has been inundated with investment opportunities for about six months. Milne’s thoughts were that if the company could continue to grow in Des Moines, it should.
“Our team is here, their families are here, everybody’s jobs are here, their homes are here,” Milne said. “It doesn’t make any sense to uproot all of that just for the sake of moving it. ... It would be a distraction. Dwolla needs to make sure we don’t get distracted, that we just keep executing.”
Typically, said Renaud, venture capitalists would stipulate that the company they invest in move to a tech-heavy area like Silicon Valley. The fact that Milne was able to work out a deal that allowed Dwolla to stay in Des Moines was remarkable, Renaud said.
It could be risky; he notes that a potential acquisition or merger in the future would be easier if Dwolla was on one of the coasts. But Renaud, who said he has had a number of conversations with Milne about the pros and cons of staying in Des Moines, knows that Milne made a very calculated decision.
“Ben did so much diligence,” he said. “He’s a very, very smart guy. He will go around and talk to 50 people about the same thing, and really get a 360-degree perspective on all the risks and everything like that to inform his decision.”
Milne doesn’t see staying in Des Moines as risky, and said that getting such a well-known investor to fund the company shows that Des Moines is legitimate place to grow a start-up.