Chicago Ventures recently made a trip to Cincinnati for an Immersion Day. While they were here, we had the chance to sit down with Stuart Larkins and Kevin Willer. Stuart and Kevin are both Partners with the firm and they both oversee all aspects of Chicago Ventures including fund management, deal sourcing, investments and working with portfolio companies.
As previous operators and Midwest natives, Stuart and Kevin gave us some insight on how good startup companies operate and what makes Midwest startups different.
Cintrifuse: Can you tell us a little bit about your backgrounds and about Chicago Ventures?
Stuart Larkins: Kevin and I are both former startup operators. I was part of a company called Performics in Chicago that was an early pioneer in performance marketing. The company started in 1999 and I joined soon after in 2000 as part of the founding management team. Performics ended up selling to DoubleClick in 2005. I stayed with DoubleClick which subsequently sold to Google in 2008.
Kevin and I were colleagues and after my Google sale, I got into early-stage investing. I really loved it. I was fortunate to be able to do that without having to get paid so I ended up making a lot of angel investments and really enjoyed it.
That’s what got us interested in venture capital. We formally started our fund about three and a half years ago. We have five other folks on staff focused on early-stage tech ventures in the Midwest and we’ve invested in 43 total companies. Now we’re looking for more.
Kevin Willer: So we met through his time at Performics and DoubleClick and my time at Google. We also angel invested together early on and then he launched the fund in 2012 and I joined in 2013. Before that I was at Google until 2011 and then from 2011 to 2013 I ran a startup center in Chicago called 1871.
CF: You said you only invest in Midwest startups, why?
SL: That’s our focus. We have done some investments outside the Midwest but when we lead or co-lead it’s in the Midwest. This is for a couple of reasons. First, it’s a very underfunded market and there’s not a lot of attention at the early stage from, what I call, the flyover investors. The guys that just go from New York to Silicon Valley. So that’s a big reason why we’re focused on this region.
There are also a lot of good companies solving real problems for consumers or for businesses in the Midwest. You don’t see companies trying to invent things for people to adopt like you are in the Valley so it’s a lot easier to see paths to revenue and to exit with Midwest companies.
[pullquote]There are also a lot of good companies solving real problems for consumers or for businesses in the Midwest[/pullquote]
KW: We’re also ex-operators. A lot of folks in the venture world might be long-time investors and people from the finance world and that’s fine. But we think our operating background helps us identify entrepreneurs with the most potential and lets us really help them through the early stage of the company. We always tell entrepreneurs that they should look for the value an investor can bring to their company not just investors that write a check and say “Call me for the board meeting.”
CF: As ex-operators, what would you say are some of the most beneficial things entrepreneurs can do in the early stages?
SL: The most crucial thing for early-stage companies is to communicate well. You have to have a good culture and a good communication strategy and hat only comes from the leader.
I’ve seen too many companies falter because not everyone understands the goal and the mission. If you’re not communicating those things and you don’t have a good company culture, people start infighting or going off on tangents. That destroys companies real fast.
KW: We also like to see founders who are serial entrepreneurs. The people who have built something before and have seen it from the inside. If they haven’t built something, maybe they helped build something as an engineer or business development person.
[pullquote]I’ve seen too many companies falter because not everyone understands what their goal and their mission is.[/pullquote]
We also like founders who understand the marketplace they’re trying to disrupt. Entrepreneurs with founder-market fit so they’re not saying things like “Hey there’s a problem in healthcare. I know nothing about healthcare but I’m going to solve it.” That’s really hard.
We want to invest in folks who have felt the pain of the problem they want to solve. Maybe they’ve worked in a bigger company and want to solve a problem they saw in that industry. Having experience with the problem is critical.
CF: When you meet with an entrepreneur, what are some of the things you see that indicates they might not be the best investment?
KW: In this country we have a culture of pitching and talking about what you’re going to do. We really want to see what you’ve done. Don’t tell us about your plans and go through all the pretty slides and all the data that says it’s going to be a huge business. Show us what you’ve built, get it out there, get people using it and get customers giving you feed back so you can iterate. Show us there’s something real behind it instead of just talk.
CF: When you go around the Midwest and you meet with founders and startups in the Midwest, is there anything that sets them apart from the founders and startups on the coasts?
SL: They’re a little bit more realistic.
CF: Do you count that as a strength?
SL: I do. Realistic in the sense that they understand the limits, you don’t see crazy revenue numbers. But you also want to see optimism. That kind of reach-for-the-stars type of person. It’s a fine line but, as I mentioned earlier, companies in the Midwest tend to solve problems that are immeadly monetizable or have a clear path to monetization.
KW: Quite frankly for us and for investors in Midwest companies, we need that clear path. That’s more of our culture.
CF: Do you have any examples of companies or founders that do a good job of walking the line between realism and optimism?
SL: In our fund, there’s Marc Halpin the CEO of Kapow Events. We were their first investor and in the first meeting Marc said “I’m going to start making money in month one and here’s hows I’m going to do it.” He showed how it was going to be a billion dollar opportunity and, so far, he’s proving he’s going to make it.
Not in our fund but another great entrepreneur that has a blend of optimism and realism is Brian Spaly. He’s the founder of Truck Club which sold to Nordstrom last year. He’s very practical about running a business and being diligent but has that kind of shoot-for-the-stars attitude.
CF: If I’m a founder or somebody working at a startup, what’s the best way to approach investors?
SL: With a very clear and articulate ask. We look at 1500 plans a year from companies raising money so if you’re not raising money and saying “Hey, I just want to introduce myself”, that’s not going to fly. We’re a small fund. We’re not Sequoia that has 100 people on staff and can afford to sit down and do things all day long. We do want to know the community and want to know entrepreneurs but be very specific with what you’re asking for.
[pullquote]We do want to know the community and want to know entrepreneurs but be very specific with what you’re asking for.[/pullquote]
KW: Also, never reach out cold. It immediately works against you. If you’re a strong entrepreneur, you network into folks like us. You need to get an intro from someone we know and respect. The source of a referral is critical. It just helps the vetting process if we get a referral from one of our LPs or one of our CEOs.
And don’t forget that a lot of times we actually have to go out there and find entrepreneurs. Everybody thinks the entrepreneur chases down an investor but, a lot of times, investors are trying to find them. So the best way to get attention is to build a great business. The investors will find you. That’s easier said than done but its critical to think about that too.
CF: What should entrepreneurs look for in an investor?
KW: You know we talk a lot about the Midwest being the home to so many great Fortune 500 companies and how critical relations with them are. A lot of times it’s hard for founders to go and see the head of corporate development or innovation or marketing at some big corporation. Investors can help make those intros for them.
That’s something we take a lot of pride in. Through our backgrounds, we have connections to all the Fortune 500s in the Midwest and around the country. They listen to us and they like it when an investor who put money behind a startup says “This is a good company, you should listen to these folks.”
So advice to entrepreneurs – find investors that work on your behalf.
CF: It seems like a lot of Midwest startup ecosystems have similar problems with things like funding and talent. Can you compare and contrast the things you see in Chicago with the things you’ve seen in Cincinnati?
KW: I think it starts with the pieces. Cincinnati and Chicago both have a wealth of pieces that make a strong ecosystem. You have the entrepreneurs, you have the community coming together, you have the universities and the big corporations, you have the public support and you have capital here. You have all the pieces in place and Chicago has them too.
[pullquote]So advice to entrepreneurs – find investors that work on your behalf. [/pullquote]
The Dotcom Boom came to Chicago late and ended early. So for a long time, no one really talked about the city. Then Groupon took off and companies like GrubHub, Trunk Club, Braintree, and Fieldglass took off. We’ve had a nice track record over the last few years with big exits or IPOs. That really helped drive the ecosystem when the people who were rewarded for success started reinvesting back into the community.
It seems like that’s starting to happen here but that track record takes time to build up. We’re confident that Chicago and the greater Midwest only has upside ahead of them. It just takes patience and diligence to make it happen.
I’ve seen the Cincinnati ecosystem build up over the last three years and it’s really impressive. This isn’t pandering it just is what it is. It’s impressive what you’ve accomplished here and it seems like you’re on the road to a lot of success in the future.