WBEZ | venture capital http://www.wbez.org/tags/venture-capital Latest from WBEZ Chicago Public Radio en Venture: Does venture capital help - or hurt - a business? http://www.wbez.org/content/venture-does-venture-capital-help-or-hurt-business <img typeof="foaf:Image" src="http://llnw.wbez.org/story/photo/2011-July/2011-07-25/Jason Freed_WBEZ_Ashley Gross.jpg" alt="" /><p><p style="text-align: center;"><img alt="" class="caption" src="http://llnw.wbez.org/story/insert-image/2011-July/2011-07-25/Jason Freed_WBEZ_Ashley Gross.jpg" style="width: 500px; height: 281px; margin: 5px;" title="Jason Fried, founder of Chicago-based software company 37Signals. (WBEZ/Ashley Gross)"></p><p>This week, engineers and entrepreneurs are converging at TechWeek – a showcase of Chicago’s burgeoning tech scene.</p><p>Many startups hope to entice investors to plunk money into their ideas. But one Chicago software executive says getting venture capital is exactly the wrong thing to do when starting a business.</p><p>Venture capitalists have money to burn these days and they’re racing to get a slice of the next Facebook or Twitter. But there’s a guy with a successful software business in the West Loop who says “Just say no.”</p><p>TAPE (buzzer sound): 37Signals.</p><p>GROSS: Oh hi, this is Ashley Gross here to see Jason Fried.</p><p>Jason Fried and two others started a company called 37Signals in 1999, just as the last Internet bubble was cresting. They each put in $10,000, but they never needed that money because they landed customers right away.</p><p>Once they started to get some success, he got so many emails from venture capitalists he said they started to seem like those scam emails promising to wire a million dollars to your account. He said thanks, but no thanks, and now he’s kind of an evangelist against venture capital. He’s even started a series of company profiles on the 37Signals blog called Bootstrapped, Profitable and Proud.</p><p>I asked him what’s so wrong with venture capital.</p><p>FRIED: I’m mostly opposed to it upfront. So most people don't go out and raise money, but in the tech world a lot of people do. The first thing they do is think about how to raise money right when they're starting, and I think that's the wrong time to do anything like that. Ultimately, I'm not opposed to taking investment way down the road if you're profitable and you want to do something else, but that's a different scenario than when you're first starting. The reason why it's bad when you first start is that it takes certain pressures off you, which sounds like a good thing but it's not a good thing if you're trying to build a business. And the pressure it's taking off you is the need to have to make money. If you don't have to make money, then you don't have to make decisions that matter about making great product, and treating your customers well because you have someone else's money to spend. I think you want to have no money in the bank and in some ways feel desperate and feel like you have to be scrappy in order to start making your own money.</p><p>GROSS: And you had told me that it makes companies feel like they have to grow really fast, right?</p><p>FRIED: Yes, especially in the tech world, which is what most of these companies are. There are pretty much no costs to entering the business anymore. You need an Internet connection, you need some computers, you don't need an office, you don't need a lot. So what you can spend money on is one of two things - marketing, which you don't have when you don't have a product to market yet. And the other one is hiring, because people will be the most expensive thing you'll ever have, probably. Occasionally you'll have a big expense, but mostly your salaries are what's expensive. So when you have a million bucks in the bank, if you only hire two people, what are you doing with the money? So you've got to spend that money, that's what it's there for. It's there to spend. And they want you to spend it because they want you to come back for more. Very, very few companies have one round of funding. It's like they get addicted to it and have to come back for more, and the VCs want you to spend it, and hiring is a great way to spend money. And again, I think the wrong thing to do upfront is to have too many people working on a problem. You want to have fewer people working on a problem upfront, so you can be as efficient as possible and creative. When you have all the resources in the world and all the people in the world, things slow down, they don't get faster. And you don't come up with better solutions, you come up with worse solutions that are more complicated, more complex, and those again are the wrong forces, especially early on.</p><p>So, venture capitalists of the world, defend yourselves. I called up a veteran of the VC world, Matt McCall, to speak on their behalf. McCall is a partner with New World Ventures, which is controlled by members of the Pritzker family.</p><p>He says venture capitalists help companies in a number of ways, including:</p><p>MCCALL: Capital, external validation, a very large Rolodex.</p><p>For example, getting the stamp of approval from New World Ventures can help grease the wheels for a brand-new company.</p><p>MCCALL: One of our companies right now proudly touts – he goes into close deals and they say who’s your backer and he says the Pritzker family. It brings instant credibility. They kind of check off the box, okay, financial stability, don’t need to worry about that.</p><p>And McCall says he can help businesspeople avoid mistakes because he’s witnessed a lot of companies implode.<br> Jason Fried of 37Signals says yeah, definitely, that advice and those connections can be valuable.</p><p>FRIED: But you have to think about how valuable is it in comparison to what you’re giving up. There’s lots of valuable things, but is it worth 30 percent of your company? Is that advice or connections? Maybe they are. There’s certainly some incredibly smart people in that world, but I’m sure there are quite a few others and I know there are because I’ve heard many stories of this – of them giving the money and the advice is not very good at all. And it’s clear their advice is just being positioned to sell something, to build something to a point to sell it, not to make something great for customers who are using it.</p><p>Fried says he still gets emails from venture capitalists eager to invest in 37Signals. &nbsp;</p><p>Instead of accepting, he turns around and makes jokes. Two years ago, he put out a fake press release saying 37Signals was now worth more than $100 billion after an investor bought 0.000000001% of the company for a dollar.</p><p>He says he’s happy to just focus on making profits and skip the investment bubble altogether.</p><p>And now for this week’s Windy Indicator.</p><p>That’s where we veer off the main roads on to the side streets of the economy</p><p>Today — The Neighborhood Bike Shop.</p><p>AMBI: he’s looking for a bike...</p><p>Lesley Tweedie wasn’t really sure what they were getting into when she and her husband Alex opened Roscoe Village Bikes in 2007.</p><p>Turns out…</p><p>TWEEDIE: The bicycle business tends to be a little bit recession proof.&nbsp; The bad economy actually inspires people to ride.</p><p>Revenues reflect that. Tweedie says business has gone up each year since they opened … and still seems to be increasing.</p><p>She counts competitive bikers, commuters and families with kids among those riders ... and shoppers.</p><p>AMBI: Kids playing with bells; phone ringing</p><p>Though her bike shop is thriving, Tweedie says that some of her customers are feeling a financial the pinch.</p><p>TWEEDIE: I would say at least once a week if not everyday someone says they’d like to get a new helmet or replace a lock but they need to wait a little bit.</p><p>The bike shop isn’t selling as many high-end, fancy road bikes this season.</p><p>TWEEDIE: “A lot of our customers do come in with used bikes or old vintage things, then we tune them up and get them working as well as they can.”</p><p>Tweedie says her tune-ups and repairs are up 20 percent compared with last June -- a sign that more people are updating instead of upgrading.</p><p>AMBI: Customers: Like a thumbs up good? so is this the one we’re going to go with? Like walking out with it right now? Okay!”</p><p>Next week, the Windy Indicator gets a stitch in time.</p></p> Mon, 25 Jul 2011 05:01:00 -0500 http://www.wbez.org/content/venture-does-venture-capital-help-or-hurt-business Chicago's startup scene: The one that got away http://www.wbez.org/blog/city-room-blog/chicagos-startup-scene-one-got-away <img typeof="foaf:Image" src="http://llnw.wbez.org/apps-bump.png" alt="" /><p><p>You&rsquo;ve heard of <a href="http://www.groupon.com/chicago/">Groupon</a>. How about <a href="http://bu.mp/">Bump Technologies</a>? For Chicago, Bump is an example of the one that got away. <br /><br />David Lieb and his friend Jake Mintz hatched the company at the <a href="http://www.chicagobooth.edu/">University of Chicago Booth School of Business</a> when they discovered in that flurry of the first few weeks of school that they really, really hated manually typing all their new friends&rsquo; contact information into their phones. <br /><br />So, along with their friend Andy Huibers, they figured out a way to &ldquo;bump&rdquo; two phones together to transmit that contact info. And their new smartphone application was born on March 27th, 2009. Things moved fast from there - they won the school&rsquo;s <a href="http://research.chicagobooth.edu/nvc/index.aspx">New Venture Challenge</a> business plan competition and in the summer of 2009, just like Gold Rush era miners of yore, they packed up and headed to California. <br /><br />They didn&rsquo;t go with the intention of staying. After all, Lieb and Mintz still had another year of B-School ahead of them. But like lots of good tech companies, the train barreled down the tracks at breakneck speed. <br /><br />They took part in a summer business incubator program run by <a href="http://ycombinator.com/">Y Combinator</a>. By the end, they got a big, fat $3 million check from the venture-capital firm <a href="http://www.sequoiacap.com/">Sequoia Capital</a> and some Valley angel investors. <br /><br />But just because they got the money there didn&rsquo;t mean they had to stay. They could have come back to Chicago. But they didn&rsquo;t. They opened their headquarters in Mountain View, California, and now have 15 employees there and are &ldquo;aggressively hiring.&rdquo;<br /><br />Lieb says the main reason was because Huibers lived in California already. But there was another reason that speaks to Silicon Valley&rsquo;s dominance. <br /><br />&ldquo;We knew we needed to hire a bunch of people, and being here in the Valley is really where all that technical talent is,&rdquo; Lieb said in an interview. <br /><br />And even though they did talk with venture capitalists in Chicago, there aren&rsquo;t as many of them and they&rsquo;re more cautious, Lieb says. <br /><br />&ldquo;Here in the Valley, firms are okay with putting in $3 million to $5 million to $7 million in a Series A deal for a completely unproven company with some idea they want to build,&rdquo; he said. &ldquo;Whereas in Chicago, you have to convince people a bit more about what&rsquo;s your business model, how are you going to make money. Those things aren&rsquo;t as big a deal here in the Valley.&rdquo;<br /><br />These are the things that have perennially kept Chicago as an also-ran instead of a tech heavyweight. But big changes are afoot. <br /><br />All of a sudden, business incubator programs are popping up here. This year, <a href="http://www.exceleratelabs.com/">Excelerate Labs</a> launched in Chicago, mentoring 10 startups over the summer and providing them seed money in exchange for an equity stake.<br /><br />Mad-dash weekend-long incubator programs like <a href="http://chicago.startupweekend.org/">Startup Weekend</a>, <a href="http://chicago.theleanstartupmachine.com/">Lean Startup Machine</a> and <a href="http://www.socialdevcampchicago.com/">SocialDevCamp</a> have also arrived. They throw developers together with the hope of hatching viable business ideas by the end. And in September, 1,500 people attended the first-ever <a href="http://midventureslaunch.com/">midVentures Launch</a> conference, at which 35 startups presented their ideas to investors. <br /><br />&ldquo;We don&rsquo;t have a lot of places where startups can go to get information on raising funds and developing their technology,&rdquo; says Jon Pasky, senior vice president at MidVentures. <br /><br />But increasingly, there are more places like that. This summer, a space in the West Loop called the <a href="http://syncubator.com/">Syncubator</a> opened up. It provides desk space and advice to budding entrepreneurs.&nbsp; And its founder, Mike Rhodes, is launching a $5 million early-stage investment fund. <br /><br />Groupon, of course, though, is the big kahuna. Groupon founders and serial entrepreneurs Eric Lefkofsky and Brad Keywell started a $100 million investment fund called <a href="http://lightbank.com/">LightBank</a> earlier this year and have invested in eight startups so far. They&rsquo;ve become evangelists for Chicago as a rival to Silicon Valley. <br /><br />&ldquo;Eric and I are outspoken about the awesomeness of Chicago and of the ability to do great things right here and continue the heritage of our city, which is make no small plans,&rdquo; Keywell said in an interview. <br /><br />Lots of people are paying attention to this activity &ndash; including startup entrepreneurs who are weighing whether to stay here or tread down the well-worn path to California. Chiara Piccinotti cofounded her company, <a href="http://www.applyinthesky.com/">Apply in the Sky</a>, with a friend last year when they were both applying to business school. They created software that manages that process for you &ndash; keeping track of deadlines and application requirements. Piccinotti now goes to business school at the University of Chicago and is running her company at the same time. <br /><br />Their office is in San Francisco, where Piccinotti&rsquo;s cofounder, Emily Chiu, lives. So will they stay in California? Is there any chance they&rsquo;d move the company here? <br /><br />&ldquo;What we&rsquo;ve found so far is the resources at this point are much greater in the Valley, especially for a web venture of this sort,&rdquo; Piccinotti says. <br /><br />But she acknowledges the environment in Chicago is abuzz. <br /><br />&ldquo;Chicago&rsquo;s an exciting place to be in right now because it does feel like there&rsquo;s this excitement around Groupon,&rdquo; Piccinotti says. &ldquo;Things are changing. But to say that it&rsquo;s the same as the Valley now &ndash; it&rsquo;s a bit premature. When you move out to San Francisco, you see friends around you starting companies and you just feel it everywhere. You want to go out on your own and start something innovative. Here, it&rsquo;s great, but it doesn&rsquo;t sweep you like the Valley.&rdquo;<br /><br />&nbsp;</p></p> Wed, 15 Dec 2010 12:00:00 -0600 http://www.wbez.org/blog/city-room-blog/chicagos-startup-scene-one-got-away Groupon ignites Chicago startup boom http://www.wbez.org/story/andrew-mason/groupon-ignites-chicago-startup-boom <img typeof="foaf:Image" src="http://llnw.wbez.org/IMAG0315.jpg" alt="" /><p><p>Now that the dust has settled and it’s clear the online discount company Groupon has reportedly walked away from six billion bucks from Google, we wanted to find out what else is going on in Chicago’s tech scene.&nbsp; Turns out, the hog butcher for the world may in fact be moving toward a cyber future.<br> <br> Ashish Rangnekar unlocks a door in Groupon's sprawling headquarters in the old Montgomery Ward building.<br> <br> He’s leading me to the office of Watermelon Express, his test-prep software company.<br> <br> RANGNEKAR: And then we are here.<br> <br> In this building, Watermelon Express is like a tiny barnacle stuck to the side of the Groupon battleship.<br> <br> It’s an example of how Groupon is transforming the culture of Chicago, creating the right atmosphere for small companies like this one to get a start.<br> <br> RANGNEKAR: I would say the last nine months have been phenomenal. I would not want to be in any other city but Chicago right now.<br> <br> And here’s the lineage to Groupon.<br> <br> Eric Lefkofsky and Brad Keywell are serial entrepreneurs who bankrolled Groupon.<br> <br> They discovered Rangnekar at the University of Chicago business school and funded his company in July.<br> <br> It’s one of eight startups they’ve invested in this year out of a new $100 million dollar fund.<br> <br> Keywell says Chicago's tech scene is starting to get the ego it needs to rival Silicon Valley.<br> <br> KEYWELL: There are enough successes now in our community that young entrepreneurs can look at those successes and say to themselves I can absolutely do it here, I can do it here in a unique way that I probably couldn't do it on the West Coast, and time to go, let's do it.<br> <br> And that's a big change.<br> <br> This city has long trailed Silicon Valley, New York, DC, even Dallas-Fort Worth in tech jobs.<br> <br> And get a load of this – Netscape, PayPal, YouTube – those could have been Chicago companies.<br> <br> Their founders studied at the University of Illinois but then quickly left for Silicon Valley.<br> <br> Groupon founder Andrew Mason says Chicago lacks a kind of entrepreneurial savvy and he says that even applies to himself.<br> <br> MASON: It didn't even really occur to me that there were people out there who would give you money on the promise that maybe someday it would turn into more money. I just was lucky enough to work for Eric Lefkofsky, who heard about one of my ideas and said hey, stupid, why don't you drop out of school and we can turn this into a company together?<br> <br> There are lots of theories about why the city’s lacked that entrepreneurial spark… everything from an aversion to risk to a fear of failure.<br> <br> But now long-time observers like Steve Kaplan say Chicago is becoming more of a place to launch great business ideas.<br> <br> He's a professor of entrepreneurship at the University of Chicago.<br> <br> KAPLAN: I've had in my office a couple of East Coast venture capital firms saying we now view Chicago as a place to look for businesses – that didn't happen, that hasn't happened in my memory.<br> <br> Chicago investors are also getting in on the action.<br> <br> INVESTOR: I may have blanked out but did you say how much money you're looking for and what you're going to do with it?<br> BUSINESS OWNER: Yeah, we'll be looking for approximately $500,000.<br> <br> At this event called the Funding Feeding Frenzy, CEOs pitched their ideas to investors.<br> <br> Scenes like this have been taking place a lot this year in Chicago.<br> <br> As for what it would take for Chicago to become the next Silicon Valley, Andrew Mason of Groupon has this characteristically goofy take.<br> <br> Remember, he’s the kind of CEO who once hired a man to walk around the office in a tutu just for laughs.<br> <br> MASON: What’s made Silicon Valley Silicon Valley is the fact that there have been a lot of great companies that start there and then they get big and they get too big and they become a sucky place to work and then all those really smart people that learned so much go off to start their own things. So I think for Chicago to really develop a strong technology community, we need companies like Groupon to get really big and then start to suck and then for all our people to go off and do other things. So I'm actually against the idea of Chicago becoming a technology hub. I just want everybody to work for us and never leave.<br> <br> He’s mostly joking, but he has hired almost 900 people in Chicago this year.<br> <br> That alone isn’t enough to create another Silicon Valley, but with other new companies cropping up, it’s a good start.</p></p> Wed, 15 Dec 2010 06:01:00 -0600 http://www.wbez.org/story/andrew-mason/groupon-ignites-chicago-startup-boom