Look Back and Look Ahead. Reflection on where we’ve been and… | by Nathaniel Harding | Cortado Ventures | Jan, 2023

CORTADO VENTURES

Reflection on where we’ve been and where we are going, and the growing landscape of innovation in the Midcontinent

When we started Cortado Ventures in the spring of 2020, we believed that technological innovation would infiltrate new areas, increasingly outside of the usual geography, as the “third wave” of venture capital arrived in places like the Midcontinent where we call home. We are a region which primarily includes Oklahoma, Missouri, North Texas, Arkansas, Colorado, and Kansas; the term “Midcontinent” has historically been used to describe a prolific region for the oil & gas industry, but we’re repurposing the term to describe our unique region’s growing tech sector.

The past two years have seen an unmatched explosion of innovation. It seems every few months there’s a new paradigm shift:

• The first mRNA vaccine was brought to market in late 2020.
• The metaverse entered global consciousness as Facebook became Meta in 2021.
• Augmented and virtual reality became mainstream with VR content surpassing $1 billion in sales.
• The James Webb Space Telescope sent back breathtaking images of the deepest space ever seen.
• Everybody finally got into cryptocurrency just in time for the collapse of FTX.
• Artificial intelligence got into art (but still can’t draw hands).
• ChatGPT went live at the end of 2022 and now every job in the world will be affected by AI.

This has been a remarkable time to start a venture capital firm with record amounts being invested globally. As I reflect on the past few years and the journey ahead, I’m awed by the broader context. We’ve accomplished quite a bit, and there is still much more we anticipate for the future.

Milestone Successes

Last year was full of milestones. After successfully raising our first fund of $20M in 2021, we have since reviewed over 1,700 companies and reached our goal of investing in nearly 30 of them. Early on, we made the decision to make executive coaching available to each of our portfolio companies, led by our friends at Magellan Executive Partners. Most of our companies are utilizing this resource and find it invaluable.

Last spring, we launched our second fund, doubling down on proven successes. Our conviction remains strong that there are innumerable opportunities in the Midcontinent with companies innovating in energy, logistics, and life sciences, overlooked by coastal venture capital.

We were overwhelmed and encouraged by the near unanimous re-ups from Fund 1 investors into Fund 2. We also celebrated the landmark of attracting several institutional investors after being vetted through detailed operational due diligence. Our investor base now spans around the globe. This leads to our upcoming announcement of reaching $60M towards our $80M goal. With this milestone, Cortado will be able to fully realize our vision and be a preferred partner with ambitious early-stage companies.

As we concluded the last of our initial investments from Fund 1, we began investing from Fund 2 into new companies without missing a beat. In 2022, we invested in eight companies from this fund. These companies include innovators bringing AI to market for refineries, SaaS solutions for automotive logistics, tech-enabled service for healthcare, and more within our themes.

By the Numbers

Our investments span our major thematic areas: energy, logistics, future of work and life sciences. Companies range from underground hyper logistics, satellite LIDAR technology, and those developing intranasal vaccines and a breakthrough treatment for diabetes.

• In 2022 we averaged one up-round per month, resulting in a seed graduation rate approaching 2/3rds — double the national average. With our follow-on investments in 2022, Recuro Health is growing at a remarkable pace with its acquisition of two companies and more announcements soon.
• We reached $80 million in assets under management in only 2.5 years since our inception, also becoming the most active seed investor in the Midcontinent, according to data from Crunchbase.
• We hosted and sponsored ten events with funders, founders, and ecosystem builders, totaling over 500 attendees from eleven states. This is an effort to build a vibrant and informed community around venture capital and entrepreneurship.
• At our annual meeting in November, we hosted over 100 people from nine states, including our friends at gener8tor and 19days.

People Make It Possible

Oklahomans are known for their caring, compassionate nature and their pioneering spirit. This is reflected in our investors, companies, employees, and partnerships — whether locally or globally. It’s yet another way the Midcontinent stands out from other venture capital hubs of commerce and paves the way for something unique.

We find tremendous value in connecting our investors with our startup founders. None of this would have been possible without the generous support of loyal partners including McAfee & Taft, amshot, First Republic Bank, Sensulin, HoganTaylor, Magellan Executive Partners, Build In Tulsa techstars, Saxum, The Verge OKC, and Regent Bank.

Our team grew larger — not just in number but exponentially in talent. We were joined by Mansi Patel, J.D. Baker, Hailey Moxley, Cody Merrill, and Simone Sparks.

Additionally, Cortado now has a dedicated team for sourcing and stewarding investments, supporting portfolio companies and providing top notch administrative support for our growing family of funds. Our leadership team completed several VC accelerator programs including Sutton Capital, VC Labs, SignalFire and Coolwater Capital.

With the help of a partnership with the Oklahoma Center for the Advancement of Science and Technology (OCAST), we’ve hosted eight interns to-date:

• Two interns have completed their bachelor’s degree, both now working for tech startups.
• Three interns are slated to complete their undergraduate experience this year.
• One intern completed their law degree in 2022.
• One intern completed their MBA program and now works full-time with Cortado.
• Our newest intern is a current MBA student.

The proximity of these interns to the companies we vet and invest in provides them experience in understanding transformational tech growing in Oklahoma and sets them on a career path to continue the advancement of innovation.

Features and Publications

In 2022, we continued sharing information through our Medium blog site, publishing articles on our insights and the local market, our diligence process, and the themes driving our investments. Our content was read by over 10,000 people last year alone.

Cortado and our companies were recognized in the Wall Street Journal, Fortune, Forbes, Venture Capital Journal, and many more. National media is taking notice of what’s happening here in the Midcontinent. Where other markets are flailing, ours is thriving.

Our Ecosystem

Any business is a reflection of the city in which it resides, and Cortado is no exception. The Midcontinent remains a fertile ground for entrepreneurship, innovation, and acceleration. We are thrilled to see new incentives and opportunities for current and future entrepreneurs in our own backyard.

Last year brought the beginning of an innovative entrepreneurship hub in Oklahoma City, The Verge, led by Kristin Garcia. With sponsorships from philanthropic partners Flourish and the Inasmuch Foundation, The Verge is a home for Oklahoma entrepreneurs to find resources, support, and funding to form and launch their businesses. The Verge hosted several events around Global Entrepreneurship Week and Minority Enterprise Development Week. We’re looking forward to the full launch on February 23rd.

The State of Oklahoma has continued to make progress to invigorate our growing entrepreneurial and tech ecosystem. In recent years, the Oklahoma legislature has passed legislation that provides more public funding for startups, creates a tax deduction for investing in Oklahoma venture capital funds, and rewards tech talent across the state. Software and cybersecurity engineers can qualify for a tax credit up to the amount of $2,200. The Invest in Oklahoma Act, which passed in 2021, provides that public funds, such as the Tobacco Settlement Trust Fund (TSET) or pension funds, may invest up to 5% of their assets in Oklahoma-based venture capital funds. This law is a catalyst to creating more access to capital for businesses and startups across the state.

Through the Oklahoma Accelerator Program, the state invested $15 million for accelerator programs in OKC, Tulsa and rural Oklahoma, with each geographical area receiving $5 million. Along with Boyd Street Ventures, we are proud to provide a match for the OKC accelerator awardee and nationally-recognized accelerator, gener8tor. This Wisconsin-based accelerator has programs all across the United States focused on transforming the tech and arts startups scenes in emerging markets like Madison, WI, Milwaukee, WI, Birmingham, AL, Oklahoma City, OK, and many others.

Our commitment to support this growing ecosystem remains strong. In 2022, we provided over $10,000 in sponsorships for Oklahoma nonprofits including Techlahoma, OKC Innovation District, OKC Minority Enterprise Development Week, Oklahoma Women in Tech, and TEDxOKC.

Looking Ahead

As we look ahead to 2023, we are poignantly aware that venture capital funds that succeed and thrive in recessions are rewarded. It can be difficult to raise money in this kind of environment. But while others are taking cover, we are more ambitious than ever.

Our membership and collocation with The Verge puts us in the center of gravity for what we do. Sharing space with organizations like Techlahoma, OK Coders, Oklahoma Craft Nano Brewhouse, Skyline Event Center, gener8tor OKC, and the University of Oklahoma Biotech Startup Programs (OKBioStart) unites us under the shared mission of The Verge: Where Ideas Take Flight.

We look forward to many great announcements in the coming year. We’re now able to provide liquidity to our Fund 1 investors just 2.5 years in, critically important in an environment where DPI is king (distributions to paid-in capital).

We also plan to announce our unique Opportunity Zone fund, enabling our investors to realize tax advantaged gains. To further support the development of a robust venture capital and entrepreneurial community, we’ll announce our foundation this year. Lastly, expect news of our future home at the intersection of the central business district and the Innovation District, where we will anchor a new development.

Our second biggest announcement this year will be reaching $100M assets under management, a truly remarkable feat for a firm not yet three years old. This is possible because of our investors who believe in our thesis and strategy, and by the many tech founders who take the career risk to launch new ideas.

Midcontinent Inflection Point

The Midcontinent market is seeing an inflection point. In the past, the idea of quitting your day job and starting a new technology company was terrifying and fraught with peril. Fail and you have to start over. Now, with a critical mass of entrepreneurs and support apparatus, starting and failing just means that you quickly move to the next opportunity. “Fail fast,” they say.

This is the mantra behind iterating and nailing product market fit. This couldn’t have come at a better time with the overall changes in the workforce. Now more than ever, creative people are not complacent with simply having a job. The pandemic has given license to many people to pursue their passion and take risks. This is why we’re seeing an unparalleled era of technological disruption. This is why every few months there’s a paradigm shift.

In 2023 we’ll see many changes in venture capital, affected by interest rates, cost of capital, and an overall sobering of business development. Corporations seeking to innovate will increasingly turn to acquiring technology companies to remain competitive. R&D dollars will go down, as will deployed capital in innovative companies. But technology companies will thrive if they offer real value to their customers.

For decades venture capital was the domain of Silicon Valley, New York, and Boston. In the early part of the 2000s, the second wave was built in Chicago, Austin, and Miami. Led by a new breed of industry hardened entrepreneurs, the third wave of venture capital has arrived in the Midcontinent. And Cortado Ventures is excited to pave the way.