Here at Lightbank, we’re loyal Chicagoans.
We’ve built, partnered with, and invested in many local companies. Our founding partners chair Chicago Ideas Week. And despite opening a New York office, our favorite pizza is still deep dish.
That’s a long way of saying that our ties, loyalty, and connections to the Windy City run deep.
Our love for both technology and Chicago has given us a unique vantage point to see the recent growth of the local startup ecosystem.
And Chicagoans aren’t just starting companies; they’re building meaningful businesses.
By 2013, the community has seen three recent (billion dollar) liquidity events: Groupon, Grubhub, and Braintree, all of which served as another supporting data point to the world-class entrepreneurship and talent in Chicago.
These startup success stories are a direct result of the leadership of phenomenal Chicago founders and their teams.
But these businesses haven’t grown up in isolation. Many other players have become meaningful components in the broader tech community.
Co-working spaces (like 1871 and Catapult) serve as powerful communities and workspaces for early stage companies. Publications (like Built In Chicago and Crain’s) have covered and provided information about the local ecosystem.
Angels and VC funds have provided capital (at many stages of financing) and advice to startup. And countless law firms, design shops, PR agencies, and others have aided entrepreneurs along the way.
This community, led by its entrepreneurs, has become a world-class technology hub.
And it’s the job of that community to continue to reinvest in itself and its members.
That is why Lightbank is proud to announce that we’re opening up our doors a little wider to the Chicago community with the introduction of the newest Chicago co-working space: The Warehouse.
Folks who know Chicago well will inevitably ask, why another co-working space?
It’s a good question.
1871, Catapult, NextSpace/the Coop, and many others have built phenomenal communities that give space, resources, and more to local entrepreneurs.
They’ve each set the expectation that Chicagoan’s care about community and care about working alongside and supporting the local ecosystem.
But the community is growing (and it’s growing quickly).
More companies—startups, design firms, dev shops—are launching here than ever before.
This growth means that there is excess demand for space, particularly in the city’s tech hubs (buildings and neighborhoods housing startups and mature technology-fueled companies).
Additionally, as the ecosystem matures, there’s demand for a different kind of space.
Startups grow beyond a team of founders and have different needs, they optimize around different space and resources.
At Lightbank, we’ve always loved working side by side with our portfolio companies. The energy is infectious and we wouldn’t have it any other way.
So, we have decided to answer the demand for even more space and new resources by opening up our doors to local entrepreneurs (and, of course, any company that wants to relocate to Chicago).
Housed in 600 W. Chicago, a growing tech hub in the community, we believe that The Warehouse can be a helpful resource for startups hoping to secure a home and the opportunity to work next to other rapidly growing companies.
For more information and to apply to join The Warehouse, please check out: www.TheWarehouseChi.com.
Our associate Adam London shares his thoughts on UNCUBED Chicago, and the future of the Chicago tech ecosystem:
Any startup ecosystem needs a few things to be successful – and jobs, talent, and ideas are top of the list.
That’s why it’s been so exciting to watch the growth of Wakefield’s UNCUBED events.
UNCUBED is a unique event that attracts innovative companies and passionate talent because it’s approach to matchmaking is so much more than the blind pairing of resumes. It’s a high energy, creative hiring event for startups and larger tech companies that combines art, tech, music, beer, education, and interaction.
At Lightbank, we believe that the future of any ecosystem we invest in (Chicago, New York, Omaha, Montreal…to name a few) is directly aligned with the quality of the local founders and teams.
Great founders attract great teams that build great companies that help create (and eventually mentor and reinvest in) great ecosystems.
UNCUBED represents an important step in this process.
These events take place across the country. New York’s is now massive and Chicago’s is also growing rapidly. As a venture firm with offices in both of those cities, we think that’s awesome. (And we also thought it was awesome that Tarek and Chris, Wakefield’s founders, asked us to be a part of the event.)
At this fall’s Chicago event, we met students studying computer science at the Midwest’s top schools, entrepreneurs on their 3rd and 4th companies, and designers, filmmakers, and artists trying to repurpose their strengths and careers.
It was a fantastic collection of talent.
As UNCUBED isn’t a traditional career fair, this year’s event was layered with content—speakers, competitions, panels, etc. I had the chance to judge one of those competitions: the Paper Napkin Pitch.
The PNP is exactly what it sounds like: throughout the event, attendees scribble business ideas on napkins. At the end of the event, we pick a winner as a way to celebrate big, creative ideas.
Some of the pitches were a sentence or two written quickly. Others featured elaborate hand-drawn graphs and pictures.
Some of the pitches were just an idea. Others were already full-fledged businesses. (And some happened to be clones of existing companies. Whoops.)
We selected 5 finalists. These finalists than pitched their idea on stage.
It was amazing to meet so much passionate talent in Chicago and even cooler to hear their ideas and see their creativity.
Ultimately, however, there could only be one winner.
This year’s UNCUBED Chicago winner was a student at the University of Michigan who pitched a vision of civic infrastructure built and powered by the sun. (Think: solar panel filled sidewalks that power streetlights, etc.)
The idea was big and bold. Her pitch was energetic and fantastic.
Every startup community needs passionate entrepreneurial talent to build the next great company and to strengthen the teams at existing companies.
While the pitch competition was only about thoughts scribbled on napkins, it was clear that those in attendance were founders who can and will execute on big, bold ideas.
It’s the growth of this talent base that will help build Chicago’s tech ecosystem…and we were excited to be a part of the beginning of the journey for many of the UNCUBED participants.
That’s less than that of a goldfish.
Elevator pitches need to be brief and make an impact. So here’s how to leave someone with a limited attention span with a cliffhanger:
- Tell me enough so I can understand your current business and your vision for how big it could be.
- Illustrate the size of the problem you’re solving, and prove that the perfect time to solve it is now.
- Give me a quick, clear understanding of how you’re going to make money.
- Tell a great story. Science shows it helps synchronize our brains, making me care more about our chat and remember it long after we’ve left the building.
- Edit ruthlessly – clean out all excess words that cloud your story so it can shine on its own.
- Think like Apple. Keep the design of your pitch sleek and crisp, including only the essential and most captivating elements.
- Leave me convinced you’re the best person on the planet to execute your idea.
The average person spends less than a minute on a webpage, so with that ticking clock in mind: Make your elevator pitch genuine, passionate, compelling and leaving me wanting more.
This article first appeared on the Wall Street Journal’s The Accelerators: http://blogs.wsj.com/accelerators/tag/brad-keywell/
“Many ideas grow better when transplanted into another mind than the one where they sprang up.”
If you want to have a more dynamic, collaborative company, follow President Ronald Reagan’s famous words: “Tear down this wall.”
While he may have been referring to the Berlin Wall back in 1987, that sentence carries over to the nonpartisan issue of work environment today. Fewer walls equal more communication, which means more collaboration and functionality. Michael Bloomberg knew this from his corporate life which is why as mayor of New York City, he tore out the walls at city hall and directed city agencies to do the same. For entrepreneurs, this lack of division within the office is both literal and symbolic.
Startup workspace options can include incubators, loft spaces and standard corporate offices. But more important than where you work is HOW you work – do you collaborate in a space that encourages interaction? Working together today is much more spontaneous than it was in the past. “Work” now happens more often in hallways, impromptu meeting spots and during sporadic moments throughout the day as opposed to a 30-minute block in a conference room, according to a 2009 study by Steelcase, a global manufacturer of office furniture.
Steelcase cited that about 82% of white-collar workers feel they need to partner with others during the workday to get things done.
That’s why we removed as many walls as possible in our new Lightbank office. The conference rooms (named after great philosophers) are enclosed by glass. And within the large open spaces there are no vertical dividers – not even those three-inch high desk delineators.
As a venture capital firm focusing on early-stage startups, we want people from our array of portfolio companies serendipitously bumping into each other, interacting and collaborating. Or even playing ping-pong. Companies in pursuit of innovation and growth need to pay attention to their workspace – because while the geographic location of an office may be important, the environment inside is where things either accelerate or else slow down due to unnecessary friction.
I recently trekked to Steelcase headquarters in Grand Rapids, Mich., and was blown away by how they think about office layouts during a tour of their innovation center. While IDEO and Stanford’s d. School are famous for spreading the magic of design thinking, Steelcase is applying that thought process to the office spaces that impact us in our day-to-day lives. They even have anthropologists on staff – proving our workspaces are not only revolutionary, but also evolutionary!
“Innovation requires collective ‘we’ work,” said Steelcase CEO Jim Hackett in a Forbes interview. “To this end, it’s critical to design spaces that not only support collaboration, but augment it (with) spaces that promote eye-to-eye contact, provide everyone with equal access to information and allow people to move around and participate freely.”
Design thinking cannot be limited to designers. Your workspace should support your broader company vision and brand so that it can permeate everyone who comes in contact with it. Steelcase even identified a continuous loop, where a company’s brand equals its behaviors, those behaviors build the culture and the culture is shaped and reinforced by workspace.
But despite all those studies, Steelcase discovered that work environment is being terribly neglected by some companies.
In a survey of 123 corporate real estate leaders, 77% believed the brand was a critical driver for their business – but only 15% said their environment reflected the brand very well, according to recent Steelcase and CoreNet Global studies.
Steelcase also found that it’s virtually impossible to alter an organization’s culture or brand in significant ways without also adjusting its environment – and those transformations can only happen if the entire team is on the same page in a supportive, collaborative workspace. As startups naturally pivot and evolve, it’s vital that their environment enables the conception and execution of rapid changes.
I’ve often said that a B+ team working in the same space can get more done than an A+ team working in different places sans any in-person contact. The parallel, mythical startup “garage” has been the birthplace for legendary companies like HP and Google partially because it is a space that forces founders to be together – to talk, agonize, collaborate and think. As our companies grow, we’re challenged to maintain that garage feel and work-together-play-together mentality. As you think about your entrepreneurial journey, be mindful of your space – make sure it enhances the ability to play off each other’s strengths while also taking advantage of the serendipity that is often critical in the life of a startup.
This article first appeared on the Wall Street Journal’s The Accelerators: http://blogs.wsj.com/accelerators/tag/brad-keywell/
From Brad’s blog:
The short story is that nothing has changed in regards to Lightbank. Eric and I are Co-Founders of Lightbank, and shortly after its inception we brought on Paul Lee to help us run it. In the two years since we started Lightbank, we have invested in over 70 companies.
Today, and going forward, our focus remains the same – look for great entrepreneurs running strong companies where we can invest both money and our time and expertise, and spend time with our portfolio companies to help them grow and win in their spaces.
Earlier this year when Eric took on the role of Groupon Interim CEO, Paul Lee and I sharpened our focus on running and growing Lightbank, while Eric took on the role of Special Advisor to Lightbank. This structure will continue to be in place going forward.
Sorry there is not more drama here – just business as usual. Now back to work!
“If no one ever took risks, Michelangelo would have painted the Sistine floor.”
- Neil Simon, American playwright and screenwriter
When Marc Lore and Vinnie Bharara launched Diapers.com in 2005, most baby supplies manufacturers wouldn’t sell products to a startup. So the duo rented trucks and made road trips to wholesalers up and down the Eastern seaboard to buy supplies in bulk. They were parents themselves, motivated by bringing an end to midnight diaper runs once and for all.
Marc and Vinnie have since grown from recruiting friends to fill orders and field customer service calls to employing more than 1,100 people through parent company Quidsi – not to mention that Amazon.com acquired Quidsi for $540 million in 2010. Not bad for two guys who’ve been close friends since their elementary school days in New Jersey, and a great example of a startup that did an excellent job positioning itself to scale.
Just as was the case with Diapers.com, a startup’s scalability boils down to two things: risk and reward.
And with 70% of failed startups tracing their deaths to premature scaling, the importance of evaluating scalability can’t be emphasized enough. The potential reward must outweigh the risk you’re taking and the time you’re giving – not to mention the headaches, all-nighters, etc. Apply this litmus test to your vision:
- How big of a problem are you solving?
- How many customers need the product or service you’re creating?
- How often will customers use it in a given day or week?
Use the answers to guide your analysis of the size of the market and the scope of the opportunity you’re taking on.
Marc and Vinnie saw baby and toiletry markets where consumers spent a considerable amount of money on products they purchased all the time. For disposable diapers in 2011 alone, Procter & Gamble estimated that the annual cost is $1,500 per child, each year, for parents who changed them six times a day. And with one of the most recent U.S. birthrates at 63.2 per 1,000 women of childbearing age, the demand for baby gear isn’t drying up anytime soon.
They were tackling a market with huge demand and a specific problem: Parents wanting more time with their kids and less time supply shopping. That left them to figure out the two levers of the business – creating a warehouse system to make shipping cost-effective and convincing people to buy the products online instead of in stores.
“Let’s work with the most perfect thing we can do, the best possible consumer experience, and then now, analytically, let’s try to figure out how to do that as efficiently as possible,” Marc said in a 2009 Inc.com article.
The best friends were able to scale Diapers.com because they built software to maximize efficiency in pairing box sizes with purchase orders. They also added orange robots to the warehouse floor to constantly move products. They also hooked busy parents on their 24/7 customer service and fast, free shipping on all orders of $35 or more.
Mark and Vinnie ultimately solved a problem for the nearly 1 million parents who now use Diapers.com, and they successfully scaled to form Soap.com for beauty and household goods, Wag.com for pet supplies, YoYo.com for toys and more. They calibrated their risk with a space that offered huge rewards, positioning themselves for scalability from the start. And it paid off.
This article first appeared on the Wall Street Journal’s The Accelerators: http://blogs.wsj.com/accelerators/tag/brad-keywell/
Here’s a recap of what Jason taught us:
- When to start talking to corp devs. Start relationships with potential acquirers as early as possible. Get on their radar.
- Who to talk with. Build relationships with product teams in addition to corp dev. They’ll be critical stakeholders in any deal and can provide meaningful introductions into the corp dev process.
- Timing. Be upfront about when you are ready to be acquired. Don’t beat around the bush. Let them know you are at a point where you can either raise money or sell and why you are leaning towards selling.
- Talent vs. asset acquisition. Expect more money up front for an asset acquisition (companies will try to incentivize talent to stay longer at the company, they will always have the asset).
- Process. Most companies will take weeks (not months) from the first meeting to complete their diligence and issue a term sheet. Ask them about their process and what to expect. Make sure you’re talking to a decision maker with authority.
- Bankers. Don’t use them.
- LOIs. Don’t get your hopes up. A deal isn’t done until it’s done. However, when you sign an LOI, you usually sign a no shop, so make sure you are committed at this point.
- Competitors. When talking to a competitor, phase out the information sharing.
- What can kill a deal:
- - Not having a genuine attitude that you want to be part of their company and do something bigger. Understand you won’t have autonomy at a large company. You will have to fit in to their culture. Let them know that this is okay and you want to help them grow. (Be sincere, they can tell when you are lying.)
- - Having unreasonable price expectations
- - Lying or fudging the numbers early on (they will uncover this in diligence and will question your ethics)
- - Being overly aggressive in shopping the deal (while you might need to shop the deal, being overly aggressive after an LOI or term sheet can end up killing the deal)
This summer, we launched Lightbank Design, a three month program that gives designers the opportunity to work with our portfolio companies and experience our startup community. One of our designers, Jessica Gandham, wrote a blog post about her experience so far, and we wanted to share it with you here.
Lessons Learned on Building an Efficient Design Process
The Lightbank Design program is in full swing, and we have hardly had a second of downtime over the past few weeks. Vicki Levine (principal) and Amy Cwalina (recruiter) of Lightbank carefully planned the program down to every last detail to ensure that it was a fulfilling and productive experience for us and for the portfolio companies that we are working with. The projects that each of us were assigned to were carefully chosen to ensure a good fit and a great learning experience. The work we are taking on this summer includes branding, UI design, mobile design, illustration, poster design, package design, and more. We have an unprecedented amount of independence in these projects, as we each meet individually with our clients, handle the design process head to tail, and manage our own schedules for the full 10 weeks. That kind of individual creative freedom and accountability is almost unheard of for a young designer, and I am definitely not taking the privilege for granted…although it does cause some crash-course on-the-job learning! This structure makes me recognize that I feel comfortable managing my own projects and love the creative independence of working directly with a client, but also makes me recognize that I still have so much to learn.
I am currently working on several projects, including full re-brands of two portfolio companies. The client I am currently working with briefed me on their needs and showed me some design inspiration that they had collected during their research, and from there I dove into doing a logo and visual identity system for the company. The project seemed cut and dry; they had collected great visual examples, they were in an industry that I knew and loved, and I totally understood the look and feel they were going for. As I started feverishly sketching ideas (some good, some totally off-the-wall), I settled on a few different concept directions that worked for their business. After my first presentation though, I realized quickly that just because I create options that fit the brief and the business,doesn’t mean that they match the client’s vision. It’s an interesting change of perspective from being in design school, where we designed countless logos for fictional substance-less businesses, with only the requirements being to create a sharp-looking logo. However, just because a logo looks visually stunning doesn’t mean it speaks to the client or their goals. Many established designers still grapple with this concept; in a desire to create the most clever, creative, and unique works, designers sometimes forget that the client’s goals and preferences should come first. In just the few weeks working with this company and its owner, who has a great sense of where her business fits into the market and what her business should ‘feel’ like to its audience, I have learned more about creating a successful visual brand than I did in my four years in school….
Creating a successful design requires putting the ultimate goals of the business first, the client’s preferences second, and my designer ego last. It is not about creating the coolest looking logo, it is about creating the brand that functions best in the company’s niche.
Creating a successful design requires you to ignore the clock. Many days I worked late in the office or worked hours at home sketching and coming up with concepts, which only reaffirmed my belief that most of the best concepts do not just pop into existence organically or without a process to coax them out of the designer’s mind. Be sketching at the dinner table, on the couch while watching Game of Thrones, while sitting in a coveted seat on the el in the morning, etc. Work sketching and concept generation into your whole day because design is not the kind of job that should be left at the office.
A successful design cannot be created with only one or two working options. In a review it only takes a second to discard an option that took 6 hours to create…so you better have backup! That doesn’t mean “create dozens of options based on every idea I heard someone say and then wait for feedback” (ahem…learn from my mistakes!), it means create several equally viable options, with strong design rationale behind each one and don’t get attached to one design over the others.
Creating a successful design requires the designer to know when to comply with the client’s wishes, and when to push back and provide insight and advice. In the case of my current project, I did not follow this rule and instead I just create an option based on any and all ideas that any of the company’s team had- I thought it would be easier to “show” why an aesthetic didn’t work rather than explain it. However, this lead to a dizzying selection of options, without a clear linear progression in any one direction, and a perception that I was simply there to “operate the computer” rather than to offer educated and valid design advice- all of which could have been prevented if I had outlined my process from the start, defined my boundaries, and been more effective in my communication of why certain ideas did not align with their goals.
Creating a successful design will require you to get your butt off the computer. Sure, everyone says they “sketch”, but creating a truly bespoke and captivating logo will really require you to really put your graphite to the grindstone. Not only is it a great way to visually brainstorm, make connections, and keep organized, it allows you to have the ability to test out ideas almost instantaneously on paper where creating the option in illustrator might take hours. Who woulda’ thought that pen and paper could be more efficient than a computer?!
There is definitely a learning curve in transitioning to leading true branding projects after graduation, but what I learned with my first client is already proving invaluable as I work with my second branding client. Every day in this program, I am learning how to improve and streamline my own process, communicate more effectively with clients, learning how to read between the lines and ask the right questions to understand the client’s needs, growing technically in design and presentation methods, and learning how design fits into the fast-moving world of start-ups.
“The truth does not change according to our ability to stomach it.” - Flannery O’Connor, author
During autumn in the 1970s, you’d find Bill Campbell on the football field as the head coach of the Columbia University Lions. But he traded locker rooms for boardrooms and has become a legendary technology company adviser, serving on the board of directors for Apple Intuit and PayNearMe, while counseling everyone from Google’s Eric Schmidt to John Doerr of venture-capital firm Kleiner Perkins. Friends tell me Bill is so special because he calls it like he sees it with the straightforward approach of, well, a coach.
A great adviser listens, learns and reacts with blunt feedback to help entrepreneurs build the best playbook for winning in their industry. Putting together a great board of directors is a critical step for startups — the sooner young companies can assemble a team to help map out what would otherwise be unknown territory, the better. And while it’s great to have advisers from diverse backgrounds, they should all have at least one trait in common: Bill’s brutal honesty.
We need great coaches serving on our boards. Coaches don’t waste time on politics and fragile egos – they are decisive and react immediately to impact the outcome of the game. Entrepreneurs need to be willing players and acknowledge they don’t have all the answers. They need to seek input. They need to crave challenges. And they must have a balance of confidence, drive and self-awareness so they can accept that they can’t grow a startup on their own. Too often entrepreneurs view themselves as infallible and build weak boards, cementing their futures in mediocrity.
As legendary feminist Gloria Steinem said, “The truth will set you free, but first it will piss you off.” “Yes”-men and “Yes”-women do not belong at the boardroom table. Entrepreneurs must be open to being pissed off by independent minds that are not afraid to speak up — even if they have a diametrically opposite opinion. These coach-like advisers push our imaginations. They challenge our views. And they do it because they want us to succeed.
It’s not always easy to hear the truth when you’re wrong, but it’s crucial to success in the fast-paced entrepreneurial world. Make sure you choose people whom you respect — and who respect you. You’ll be more willing to accept reality and swallow that pill if it comes from someone you trust. Along the way, you’ll realize that unvarnished feedback is one of your biggest assets, just as entrepreneurs appreciate and value investor and former Square COO Keith Rabois for asking tough questions and telling them things they don’t want to hear.
It’s also important to strike a balance as far as who sits on the board and to avoid limiting it to the standard composition of founders and venture capital investors. Diversification is valuable – gender, age, background, etc. – in creating an honest and balanced-sounding board. People from different sectors can offer a kaleidoscope of perspectives and add color to an otherwise grayscale operation. The range of contacts, wisdom and guidance you’ll absorb will be invaluable for weighing everything from key hires to team salary to stock option structures and business contract terms. And make sure you’re selecting people who will put in the time and effort it takes to nurture the company – and beware of those who put up a façade of sincerity while trying to get lots of your equity for doing minimal work.
While entrepreneurs want everyone to love their vision and follow their lead, the one group they should desperately want NOT to just love them is their board of directors — because success is most likely to come in the wake brutal honesty. I think Khaled Hosseini, author of “The Kite Runner,” put it best: “Better to get hurt by the truth than comforted with a lie.”
Each week, Lightbank co-founder Brad Keywell writes a column for the Wall Street Journal’s “The Accelerators.” His articles discuss startup ideas, industry challenges, entrepreneurial spirt, and business growth.
We decided to share Brad’s posts here to give you a flavor of his viewpoint and advice. Check back each Monday to see Brad’s latest post, and share your thoughts in the comments.
“Concentrate all your thoughts upon the work at hand. The sun’s rays do not burn until brought to a focus.” –Alexander Graham Bell
The match was tied.
As a competitive tennis player who traveled hundreds of miles for this high school tournament, all I could think about was how much I wanted to win. I needed to win. And in that moment…I lost.
I fixated so much on the outcome that I wasn’t 100% focused on the next shot. Athletes’ downfalls come when they’re thinking so much about things that are out of their control — like the wind, their opponent or the end result — that they’re not fully executing the things that are in their control.
The same goes for startups. Spending time focusing on eventual outcomes (going public, being acquired, etc.) is a waste of precious time. You are attempting something very difficult — creating a company from scratch that will eventually thrive — and while it’s challenging enough in the first place, it becomes even more so if you obsess over the outcome instead of the multitude of tasks at hand. The twists and turns of the startup journey will take you in the direction of the best outcome for your situation — you need to trust that your journey and your ability to navigate it will lead you to the right place.
Judging yourself by a specific outcome will only set you up for disappointment. For example, if you define success as having your company go public, that lack of peripheral business vision may cause a great acquisition or partnership opportunity to pass you by. To put the IPO path in perspective, just 13 Internet IPOs got done in 2012 — out of only 128 total IPOs for the year. And the number of operating companies investors can buy stock in has evaporated from more than 6,600 businesses in 2000 to just about 3,600 in 2012, according to the Wilshire 500 Total Market Index.
A startup needs to focus on what it can control and not waste valuable time on what it can’t. Devote your mental energy on product innovation, enterprise sales, finding viral levers to make your brand spread by word of mouth and intelligently managing precious cash flow. Delight your customers, blow their minds through amazing customer experience and create a loyal following.
The best entrepreneurs relentlessly focus on the next decision, the next product iteration and the next move that can accelerate growth. They do not waste their time on outcomes — because outcomes are a natural result of their hard work.
Cancer survivor and author Greg Anderson put it best: “Focus on the journey, not the destination. Joy is not found in finishing an activity, but in doing it.”
“To succeed, jump as quickly at opportunities as you do at conclusions.”– Benjamin Franklin
Take a deep breath. Now exhale. And take another.
Your lungs just infused oxygen into your blood cells for transport throughout your body. And just like oxygen fuels you, money fuels startups.
When you launch a tech company from scratch, you need money to hire your team, create version 1.0 (and beyond) of your product, build (or rent) infrastructure and more. Funding is a necessity for all but the most frugal of startups, and one that’s becoming scarcer as the number of startups multiply while the number of active venture capital firms shrinks. In 2011, rates of early-stage entrepreneurial activity around the world grew by about 60 percent. But many studies show the number of U.S. venture capital firms decreasing – the National Venture Capital Association estimates the number of active firms investing at least $5 million in companies dropped by more than half, from 1,022 at the height of the tech bubble in 2000 to just 462 in 2010.
So don’t look a funding horse in the mouth. Take advantage of the opportunities you have and avoid turning down capital unless the details of the deal kill your motivation and your team’s drive. Rare is the complaint about having a few less points of equity because you raised at a lower valuation — but plenty are the regrets from turning down funding once you realize your cash burn is high and revenues are lacking. And for those who turn down funding in favor of bootstrapping, the burden of credit-card debt and personal loans can be particularly painful. The good news is that venture capitalists are planning on your success while still being prepared for possible failure, and this high-risk/high-return capital is there to help you win.
While receiving venture-capital funding is not an automatic recipe for success — about 75% of venture-funded companies don’t return investors’ capital — it is an essential building block for technology startups. Even companies like Nasty Gal and GitHub, which proselytized the glories of bootstrapping, got to a point where they needed VC funding to reach their potential.
And both were appropriately picky in their search for partners. GitHub took a $100 million investment from Andreessen Horowitz. And Nasty Gal partnered with Index Ventures for a reported $49 million investment over two rounds.
Crowdfunding is an alternative to venture capital funding. A London startup raised more than $755,000 in a week through crowdfunding, and platforms like Kickstarter, Fundable and AngelList exist to help you raise money. That is not to say it’s easy – of the approximately 100,000 Kickstarter projects launched, fewer than half have been successful.
So do your homework on which funding form or firm is the best fit for your company. Venture-capital funding is one of the most volatile, emotional, subjective capital markets that exist, which can make for treacherous waters for those exploring its opportunities. You should diligently shop around for VCs who are passionate about your business, connect with your culture and mission, possess experience and resources that will increase your odds of success and offer the best terms and valuation. I list valuation and terms last because too many entrepreneurs are blinded by discussions of valuation at the expense of forming an optimal entrepreneur-VC relationship — which itself is priceless.
The bottom line — be wary of turning down funding unless the dilution is so great that your drive to succeed is squashed by how little you’ll be left with at the end of the day. Don’t wait until you are running out of cash to begin raising money, as the process is generally long. And remember the maxim of entrepreneurial fundraising – a smaller part of something big is better than a bigger part of nothing at all.
In 1943, American psychologist Abraham Maslow organized a hierarchy of human needs. The foundation of his pyramid laid out the most basic essentials: food, water and sleep. Climb a little higher, and you’ll find safety, higher and you’ll see love and friendship, and above that self-esteem and confidence. But the highest point, the ultimate accomplishment of human beings, is self-actualization – which Maslow said includes things like creativity, morality, spontaneity, problem-solving and acceptance of facts.
It’s a recipe for culture.
The elements that constitute the highest level of human needs are the elements that make for an excellent startup culture. Startups have their own pyramid of needs, but the majestic spot at the top is the same. The goal of an entrepreneur should be to build an electric culture that sends sparks of positive energy pulsing throughout the company. There must be passion, collaboration, inspiration, dedication and so many more “ions” to keep the pulse strong.
We see so many strong examples of culture in successful companies – from the hacker ethos at Facebook with 24-hour hackathons and coding mantras, to the welcome box Square CEO Jack Dorsey gives to each employee, to the free perks and free time to explore new ideas that are part of the fabric of Google.
Examples also abound closer to home. At Echo Global Logistics, a company I co-founded, the weeks of employee initiation emphasize the importance of mentorship and partnership, and they explain why transparent data and metrics enable every team member to act like an owner. People just starting out at Echo sit with veterans in a “buddy system,” forming invaluable bonds for learning and assimilation.
At Groupon, the spirit of resourcefulness and entrepreneurship is impressed on every person who works with local merchants. These employees become part of the company-wide communications platform with advanced CRM tools, and they’re given the freedom to conceive innovative deals that will provide unique appeal to customers in a specific area.
And at Belly, one of our Lightbank portfolio companies, the importance of “the team” (to paraphrase many a football coach) cannot be missed. There are team meetings, team pep rallies, team socials and team-based performance metrics.
If you’re wondering how to measure the metrics of culture, check out Sprout Social, another of our portfolio companies, which has a dashboard tracking the number of high-fives they have given, energy drinks consumed and Ping-Pong games they have played.
The leaders of those companies have allowed their passion to be worn on their sleeves, and therefore on the sleeve of every person in the company. They have transformed that passion into experiences, messages, tools and information that touch every employee, every day. This passion, this culture, is what makes the long days in a startup more promising and more hopeful, and this sentiment is what separates great startup entrepreneurs from all of the rest.
A person without a soul is said to not be alive – and similarly, a startup without a culture has little chance of long-term success. Entrepreneurs have to speak up and be explicit about how to include their vision of the company’s culture in all the company does. Impart the culture to all employees. Include cultural perspectives in all sales strategies. Remind those whom you interact with outside the company (customers, vendors, professionals and partners) why that culture is important to you and your entrepreneurial vision. To expect a culture to just magically develop is too risky for such a vital element of success.
The lower levels of a startup’s pyramid include capital, a business model that can make money and talented people who add value to daily activities. Those are basic needs — without them, the startup can’t exist. The unique role of the entrepreneur is to convince new employees, investors, customers and partners that this “new” enterprise will become an established, permanent one, and that the newness is an asset to be trusted, not a liability to be doubted. How does an entrepreneur achieve this and scale? Culture is the key, the psychological X Factor that everyone at a startup feels with their sixth sense and can identify with to have faith in the company’s mission and success.
Infuse culture at the core of the business, and the chances of scaling the pyramid to triumph and creating massive wealth are greatly improved. Ignore culture, and you may find yourself stuck at the bottom, wondering why the top seems so far away.
Back in July of this past year, we put up a job posting for an associate role for Lightbank. The role is demanding – I often joke with the team that I know they’re ready to be promoted when they look haggard, cynical and tired (the mark of an experienced associate). The job entails doing a ton of research and analysis, working under tight timeframes, meeting with hundreds of entrepreneurs per year and interacting with the partnership on a daily basis.
That all might sound daunting, but we think the role is a unique opportunity.
Based on our past experience, the criteria we were looking for was someone with 2-3 years of investment banking or strategy consulting experience (battle hardened by long hours and polished by meeting with clients), a passion for technology (all we do is look at technology companies), and an intellectual curiosity about entrepreneurship (we encourage our associates to consider a move into an operating role with one of our portfolio companies at some point).
That formula seems to have worked well as we’ve been happy with the performance of our current associates. Marina Dedes, our first associate hire, came from an investment banking and analysis background. Her ability to quickly carve through a startup’s growth assumptions, as well as her ability to research the competitive landscape, has been invaluable for us to quickly learn about new spaces. David Wald and Sasha Gribov came with experience as analysts for Bain Consulting, which allowed them to quickly pull together frameworks that help our portfolio companies to think strategically about which milestones they need to achieve.
So when it came to targeting potential candidates, we were looking for the same criteria as when we hired Marina, David and Sasha. We interviewed somewhere between 50-60 qualified applicants from a pool that was substantially larger. A sizeable majority (~80%) of the applicants had the functional qualifications; a good percentage (~40%) had an intellectual curiosity about entrepreneurship, and/or a demonstrable passion for technology. After an exhaustive interview process, there were a handful of candidates we were ready to extend offers to.
Then I got an email from James Dickerson.
We had met James about a year ago when he had graduated from the Brandery, a brand focused incubator out of Cincinnati. He was pitching his startup, Leap – a mobile app for social challenges between friends (“let’s see who can get her phone number first!”). We weren’t crazy about the idea, but we definitely liked James. His energy, quick thinking and mostly his hustle shined through in the meeting. We passed on the investment and he decided to move to San Francisco to pursue his dream of getting his startup of the ground.
Fast forward nine months and I get an email from James with the subject line “associate at lightbank” and the following presentation attached (shared here with James’ permission). The pitch outlined his background, what he had achieved, what had happened since we passed, and why he wanted to apply for the Lightbank associate role. All of this was done in a creative, non-traditional way.
The other really helpful thing about James is that his body of work is transparent and present on the Internet (go ahead and Google “James Dickerson” and “Leap” and you can see for yourself). We could see that this wasn’t a passing fancy for him; he’s been blogging and hustling in the startup space for a number of years. So, instead of a resume, a link to his LinkedIn, or a request for coffee, he cut to the chase and went all in.
Now, I’m not saying that everyone should randomly email people with PowerPoint presentations of themselves, but in this case (knowing what we knew about James) the presentation was perfect. We flew James out the following week and he met with the partnership and the rest of the team. He didn’t have the traditional banking or consulting background, nor did he have the transactional experience that we would have preferred. But we loved the fact that he had tried and failed with his startup, gained significant operating experience, and had been transparent about his passion for technology and entrepreneurship.
So why am I writing this post? To be completely honest, I wrote for selfish reasons. Our associate program is meant to be a transition role into a startup role or a more senior role within Lightbank, and I’m afraid we’re doing entirely too good of a job. Marina Dedes was promoted to Vice President. David Wald recently joined the startup world where he will head up operations at a Lightbank funded stealth startup. Sasha Gribov accepted an outside promotion to be Chief of Staff at Groupon. Finally, James Dickerson, our associate referenced above, is leaving to start our growth hack team (more about that in a future post).
So…. All that said. We’re hiring new associates. If you want to take the journey, be creative and get at us by sending your materials to email@example.com (please mark “Lightbank Associate” in the subject line).
Our friends at Chicago Tech Academy made an awesome video reflecting on a recent visit from Brad Keywell. Brad sat down with a small group of students in the class of 2016 to talk about his journey as a tech entrepreneur in Chicago and share a few lessons he learned along the way. Two of the students, Josh and Tommy, decided to share their reflections in this video here.
Thanks, guys! We love it.
Lightbank’s Founder Cocktails are back, and we kicked 2013 off right last week with our guest Sam Yagan, founder of OKCupid.
We started Lightbank Founder Cocktails awhile back for our portfolio company founders and other friends in the tech community to get together outside of the office, drink a few brews and learn a thing or two in the process. Even though some of the Lightbank companies work out of the same space, not all of them are able to set time aside each day to collaborate with members outside of their team and hear about new ideas or strategies they might be implementing.
So…we thought Founder Cocktails would be a good way to change that.
We usually invite an industry leader (like Sam) as a guest who can talk about his or her experiences with everyone, too. In the past, we’ve had guests like Ron Conway, Kevin Willer, Shervin Pishevar and Dave McClure…to name a few. The format is pretty laidback – there’s a brief intro to the guest (after a drink or two…of course) and then the floor opens up for a candid Q&A session.
Sam shed some light on what his entrepreneurial journey has been like, building the right team, raising money in the “vintage” VC days (pre-2008 recession), how you look at an industry in need of disruption and make a fundamental change happen (in terms of both product and branding), as well as what it’s like to go from no-hierarchy-or-rules entrepreneur to C-level at Match.com.
All eyes were on Sam even as delicious smelling wings and nachos made their way out of the kitchen, which is a pretty good sign that he had some great insight to share. A couple of our founders said they even went straight to their teams the following day to brainstorm some of the knowledge bombs that Sam dropped.
Thanks to Sam for hanging out with us. We’ll see you on Tinder
If you’re in Chicago and interested in joining us for the next Founder Cocktails event, just let us know. We’re aiming to have one next month!