A CONTRARIAN VC MODEL

Midwest Renaissance FundMidwest Renaissance Fund Launches in Chicago

As told to me by Loop Lonagan –

“Hey, I’m a Futures trader but that ain’t workin’ these days.  I seen these computers swallow up 75% of the market.  Used to be 7,500 floor traders here in Chicago.  Now I count just a few.  Most of those oh-so-carefully-tested trading strategies don’t work no more and the old rules get broken all the time.  Bonds don’t look so good either.  Our own government got downgraded for heaven’s sake.  Real estate is in the tank and still sinking.  Even gold took a plunge this month.  Maybe 20% of the country is out of a job.  Nobody hiring.  Nobody lending.  I think the VCs are asleep in bed.  Cash just sits. Lots of it.  This economy is all clogged-up and nothing moves—it just shakes real hard.  The bank pays exactly the same interest as my Serta Perfect Sleeper and inflation looms.  So tell me some good news.  Where do I put my money?  I wonder.  Is this that rare time in an investor’s life when the smart money—the real smart money sees blood on the streets and buys for the long run?  Warren Buffett seems to think so. Gotta go with Warren.

“So the food is great. I like the people. I sit in this plush chair in a room of 60 others.  Not the retail crowd. These are the pioneers of today.   Yeah, lots of ’em got MBAs from Kellogg and Booth and I know some guys here got their Ph.D. I also know some of those grew up on the tough streets and fought their way to the top. Now they’re all movers in the financial world. Any one of ‘em can plunk down a quarter mil without even mentioning it to the wife.  Like tipping a waiter.  I stick to coffee and listen real close while most of my friends hit the hard stuff.  The room gets hot and I take off my Hart Shaffner and Marx suit jacket and loosen my hundred-dollar tie.  This is what I hear:

“Len Bland, Ray Markman and a real big team of experts are ready to launch the Midwest Renaissance Fund.  Len built this organization brick by brick. I watched him do it. That gives me confidence.  Now he’s ready to pounce.  Does he smell blood on the streets like Buffett does?

“I like to see discipline in a fund.  I also like a strategy told in a few words. In my experience, the best ideas are clear and simple.  Here’s their plan:  Invest in and mentor early stage Midwest companies at a discount in under-invested sectors. Hey, that sounds pretty good.  What do they look for in a company?   A good product.  Good management.  Okay, that makes sense.  What makes a good team?  Education.  Straight thinking.  A track record of success.  Those are good old-fashioned business values.  I can relate to that big-time.

“I ask a few questions and like the answers.  This bunch has their own skin in the game—even more, they committed their own sweat. If a company in their portfolio needs a manager, one of the founders of the fund does the job or sees his stake get knocked down.  They even help manage some of these companies before they put in any money.  They plan to monitor progress day-by-day.  How’s that for oversight?  This is way beyond the usual seat at the board or quarterly checkup.  So I sit straight, grab my gold Cross pen and scribble notes all over their full-color brochure.

“What do they invest in?  Mobile apps?  Biotech?  Silicon Valley?  Nope.  They’re into consumer packaged goods, software, financials, healthcare, clean tech—wherever their team can make a difference.  All under-invested sectors.  That means Midwest businesses.  The Big Ten states.  The breadbasket of the world where you almost never see a VC.  And their target is a sweet spot called “The Valley of Death.”  Don’t let that throw you.  It’s is a stage in a company’s life when they’re too big for Angels and too small for VCs so they can’t get funded no matter how good they are.  And what kinda return do they expect?  They’re talking 25-35% IRR.  That’s huge.  I scooch up straighter in my chair but I notice that the numbers don’t faze anybody in the room.  That’s normal stuff in the VC world.

“What’s safe these days?  Sounds like venture capital might be.  Strange world, isn’t it?  Renaissance is gonna stay small and nimble and they’re already 85% of the way to their funding target.  That means I gotta get my research done and make up my mind.  Am I in or out?”

That’s what I heard.  What did you hear?  Comments welcome.  View the Midwest Renaissance Fund website at www.midwestrenaissance.com

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Go to – EVERYBODY GETS FUNDED

Go to – BNC SUMMER #4

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Find Chicago Venture Magazine at
www.ChicagoVentureMagazine.com
Comments and re-posts are welcomed and encouraged. This is not investment advice – do your own due diligence. I cannot guarantee accuracy but I give you my best.

Copyright © 2011 John Jonelis – All Rights Reserved.

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15 Comments

Filed under BNC Venture Capital, Chicago Ventures, Events, Midwest Renaissance Fund

15 responses to “A CONTRARIAN VC MODEL

  1. Bill Blaire

    These guys talk all right. Are they for real?

  2. Jim Kren

    I think the point here is that their portfolio is made up of companies whose stock isn’t yet available on any exchange. They’re way too small. That means a good selection of companies should outperform the market and also be non-correlated to it. In a sense the market doesn’t matter. By investing in a fund, you get a portfolio effect because they invest in many companies. Does that help?

  3. Bill Blaire

    Yes, if they pick the right ones.

  4. Jim Kren

    I also got a kick out of John’s imaginary character. Reminded me a little of Mike Royko.

  5. Janet Case

    If John says it’s worth a look, I’m taking a look.

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  6. Ann Brice

    Same with me.

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