Category Archives: Chicago Ventures

POWER PITCH

by John Jonelis

What happens when you give kids—kids gifted in math and science—a real chance to bust out with their God given talents and excel?

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  • What if you trust them to lay their greasy little hands on equipment normally available only at elite universities?
  • What if you allow them to direct their own time?
  • What if you challenge them to construct their own goals and learn by themselves how to accomplish them?
  • What if you dare them to build real startup businesses at such a tender age?
  • And what if you throw them into a competition against a panel of critical judges from the real private equity world?

What happens? Good things! Good things happen! They happen here at IMSA – the Illinois Mathematics and Science Academy. I’ll give you an intimate peek at the inner works of this educational powerhouse so you can see for yourself what makes this one of the biggest success stories in the country.

Showcase – Chandra Gangavarapu

This is a high school with a serious entrepreneurship program. Many of the ideas, business models, and pitches produced here outshine what we’re accustomed to in the business world. Mere students, you say? Some of their companies have gained funding and gone to market. And many of these same students intern at real-world startups throughout Chicago.

According to Britta McKenna, Chief Innovation Officer at IN2, “Kids love to have real-world problems to actually work at. This space provides that opportunity.”

Today’s event is the grueling POWER PITCH. Each team presents its company twice before separate panels of judges—the finalists pitch three times.

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What Do the Judges Say?

The judges are all smiles as they feed at the idea bar after the first round. Competitors get whittled down by secret ballot. I corner John Lump. He’s a colleague at Heartland Angels and a professor at DePaul where I’ve lectured at his invitation on risk profiles in private equity. See IN YOUR FACE RISK.

This a practical guy who’s knee-deep in the real world of business as VP of Federal Home Loan Bank of Chicago. I can count on him for an honest opinion. Here it is verbatim:

John Lump — Judge

“I love being a judge here. Second year I’ve been doing it. And it’s exciting and a lot of fun. The enthusiasm and energy of the kids is just fantastic.”

Swelly – Tyler Stock

“I saw several interesting businesses.

  • Swelly is a temporary insurance company.
  • Blabl is a company to help students with speech disabilities.
  • Rethink Numeracy is one that helps students with Downs Syndrome learn math—a more visual approach.

Some really cool ideas here.”

Blabl – Ayan Agarwal

“Obviously these entrepreneurs are quite young. There are some still in Jr. High. You’re talking kids that are 10, 12, 13 years old and already starting businesses! At Heartland Angels, we see entrepreneurs in their 20s up to their 50s and 60s. So these kids need much more mentoring. But I think you’re going to see some business opportunities here.”

Rethink Numeracy – Akshaya Raghavan

I touch base with Moises Goldman. As I’ve said before, he’s an old hand at private equity in Chicago and a VIP here at IMSA. I’ve known him a long time, and trust what he says. He’s a guy that projects humility, but receives deference and respect.

Moises Goldman – Judge

Today Moises is bursting with exuberance and he speaks with more passion than I’ve ever seen. What he says is as intuitive and emotional as it is insightful.

“Two of these kids blew me away. The company is called Fast Exit. One brother is 12 and the other is 15. Twelve and fifteen! I looked at the father and just jokingly said to him, what is it that you do? These kids are very, bright. Very, very bright—both of them.

[Moises is talking about the Orr brothers, Joshua and Maxwell. The older brother is in 8th grade at Avery Coonley. They are each pitching their own companies today.]

“What blew me away was that they’re two brothers, so I look at the father and I just wonder, what are his challenges as a dad with these two amazing kids? Because the social environment that they have—it must be an alternative universe to the one that I’m used to—that I grew up in.”

Jim Gerry with Joshua Orr of Fast Exit

[I suggest to Moises that their home life must be very nurturing.]

“Yes, somehow. But I’m amazed. That really blew me away—that blew me away. Last year, the older boy had a drone project that was a game you could adapt to Dave and Busters in that kind of environment.”

[I recall that drone project and ask if they’re both planning to attend IMSA.]

“The 12-year old—I don’t know. The 15-year old is applying for the coming year.”

OneNote Quiz – Maxwell Orr

Today there are 17 judges at Power Pitch – Patrick Bresnahan, Dane Christianson, Moises Goldman, Joe Jordan, Sanza Kazadi, Christine Krause, Maria Kuhn, John Lump, Josh Metnick, Nancy Munro, Kelly Page, Jacob Plumber, Lance Pressl, Julia Sanberger, Chris Stiegal, Tom Voigt, Joe Zlotniki. I agreed to be an alternate and fortunately don’t get that tap on the shoulder. I want to see the whole event.

Shop Cheetah – Catelyn Rounds, Julian Kroschke

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Entrepreneurship

IMSA’s entrepreneurship program is called TALENT—Total Applied Learning for Entrepreneurship—led by Dr. Carl Heine, Britta McKenna, and Jim Gerry. Jim is technically retired from the program but still volunteers his time. This is too much fun to stay away.

Heat2Heal – Sushil and Pranav Upadhyayula

At this place, students get real-life experience and opportunities to solve real-world problems and bring ideas to market. The goal is to instill the thinking patterns and mindset of an entrepreneur:

  • Develop a product
  • Form a team
  • Communicate ideas
  • Formulate a business plan
  • Protect intellectual property
  • Work your network
  • Raise funding
  • Start the business

Really? These are high school kids—some even younger. In a world of schools dominated by gangs, drugs, and fear, who would think them capable of such positive desires and accomplishments? Then I come across one of the quotes on the wall:

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IMSA Fast Facts

  • Teaching philosophy – The Socratic approach. Self-directed learning and problem-based learning.
  • 99.8% of IMSA students attend college.
  • 70.1% pursue majors in science or math.
  • 47% of faculty is PhD.
  • Alumni hail from every district in Illinois.
  • This is the school’s 30th year.

The IN2 Entrepreneurship Center at IMSA

I snag Dr Carl Heine, as he moves between presentations. He’s director of IMSA TALENT, their entrepreneurship program. I ask him if IMSA still has a presence at 1871, the huge incubator in downtown Chicago, or if all the activity is at the new IN2 facility.

Dr. Carl Heine, Director of IMSA TALENT

“IMSA is still a member of 1871. We take our students on Wednesdays to intern at companies. They’re embedded in startup teams. We can’t teach a class that’s better than that.”

“We do it every Wednesday. 1871 is just one location. We have students at the James Jordan Foundation downtown. Three of them are interning there right now, working on summer curriculum. There are students at a variety of other spots, too.”

[“This year’s Power Pitch is better than I’ve ever seen.”]

“POWER PITCH is an event that makes people feel good about the future. I hope you feel that way as a result of your involvement.

“The top three high school teams are advancing to the Next Launch regional competition in Indianapolis on May 17. If you would like to continue to work with your favorite team as a thought partner, a mentor or more, the purpose of IN2 and TALENT is to make that happen.”

Yoda

[I decide that Carl is the Yoda of IN2. I ask him, “What other events are coming up?”]

“This has been an academy for 30 years now, so we’d like to have a celebration. We’ve put it on March 30th this year, so there’s a 30 and a 30. As part of that, we’re doing the ribbon cutting for the IN2 space, and the new science labs that are part of a capital campaign that just wrapped up as well. And we’re celebrating the accomplishments of the institution over the last 30 years.”

This is just brilliant!

IMSA trains students not to fear any subject. I noticed THEORY OF ANALYSIS on the course syllabus. Normally, that’s offered only at the university level and it’s a course that’s hated and avoided by math majors nationwide. Never be intimidated by difficult subjects.

Award Ceremony

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17 Student Teams

IMSA’s President, Jose׳ M Torres, and the Stephanie Pace Marshall Endowment present the awards.

The top three high school teams—Blabl, Heat2Heal and Flameless—advance to the Next Launch Regional Competition in Indianapolis on May 17. The two winning middle school teams are Fast Exit and Shop Cheetah.

Blabl– Ayan Agarwal

 

Social Good Category Finalists & Winners

  • BlablAyan Agarwal – A mobile application that engages speech impaired children in conversation with an avatar – $1000 prize, Top 3 HS team
  • Heat2HealSushil Upadhyayula, Pranav Upadhyayula – A hands-free, self-powered Arthritis Wrap that converts body heat into electricity to provide targeted massaging & heat therapy for stiff joints – $500, Top 3 HS team
  • Rethink NumeracyAkshaya Raghavan – Teaching numeracy to children with Down Syndrome, leveraging their learning strengths.
  • Double-CheckRishi Modi – A protective biometric alternative to prevent ID theft.

Heat2Heal– Sushil Upadhyayula & Pranav Upadhyayula

Social entrepreneurs create self-sustaining businesses that promote social good. The STEM category is for-profit tech companies.

Fast Exit – Joshua Orr

STEM Category Finalists & Winners

  • FastExitJoshua Orr – A life-saving solution for managing exit signs – $1,000 prize, middle school team.
  • Shop CheetahCatelyn Rounds, Julian KroschkeA groundbreaking store navigation system that saves times and routes customers through the store$500 prize, middle school team.
  • FlamelessSivam Bhatt, Nikhil Madugula – Extinguishing cooking fires automatically with sound waves – Top 3 HS team.
  • SwellyAneesh Kudaravalli, Tyler Stock – A mobile app that allows users to get flexible insurance on personal items in an instant.

Shop Cheetah – Catelyn Rounds & Julian Kroschke

 

Other Competing Teams

  • AlertAshritha Karuturi, Priya Kumar – An app that efficiently connects homeowners to rescue workers, saving time and lives.
  • Be BettahZoe Mitchell – The food search engine and cookbook series that allows for bettah nutrition without changing your lifestyle.
  • Electrofood Alex Orlov – A microbial fuel cell that converts food waste to electricity.
  • OneNote QuizMax Orr – The personalized quiz generator.

Flameless – Sivam Bhatt & Nikhil Madugula

  • SafeSeatElliott Cleven – An app to alert parents if their child is left in a car unattended.
  • ShowcaseChandra Gangavarapu – A web app for musicians and dancers to gain recognition for their art.
  • Social BreadVainius Normantas – Using social media advertisements to raise funding and awareness for communities in need.
  • StrobeJayant Kumar, Zaid Kazmi – LED light strip supplements for fire and carbon monoxide alarms to assist the hearing impaired.
  • Verifact!Shreya Pattisapu – An effective and efficient way to couter fake news.

 

Read Part 1 – THE NAME IS IN2

Hope you enjoyed Part 2 – POWER PITCH

Coming soon – INQUIRY & INNOVATION

 

 

IN2 Contact Info

Address – 1500 Sullivan Rd. Aurora, IL 60506

Website – https://www.imsa.edu/

Carl Heine – heine@imsa.edu

Britta McKenna – bmckenna@imsa.edu

Tami Armstrong – tarmstrong@imsa.edu

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Photography by John Jonelis

Chicago Venture Magazine is a publication of Nathaniel Press www.ChicagoVentureMagazine.com Comments and re-posts in full or in part are welcomed and encouraged if accompanied by attribution and a web link. This is not investment advice. We do not guarantee accuracy. It’s not our fault if you lose money.
.Copyright © 2017 John Jonelis – All Rights Reserved
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2 Comments

Filed under 1871, angel, angel investor, Chicago Startup, Chicago Ventures, Education, Entrepreneur, Entrepreneurship, Events, IMSA, Innovation, Innovation and Culture, Invention, investor, MIT, MIT Enterprise Forum, MIT Enterprise Forum Chicago, MITEF, MITEF Chicago, Social Entrepreneur, Startup, startup company, vc, venture capital

THE NAME IS IN2

by John Jonelis

What happens when you give kids—highly gifted in math and science—a state-of-the-art facility entirely dedicated to entrepreneurship? This could be the best-designed business incubator on the planet and the students are going to create real businesses here. Hey—this is too much fun! It sure doesn’t look like high school to me! Where did they put the usual long halls walled by the usual rows of lockers? Where are the standardized rigid rectangular classrooms?

This is IN2, the new entrepreneurship center at IMSA—the Illinois Mathematics and Science Academy—the Statewide high school for the best and the brightest. It’s located near Chicago and students live on campus, as if attending a university four years too soon.

IMSA will host a big party and ribbon cutting for the new IN2 innovation space on the 30th of the month—that’s the 30th anniversary of the school’s founding. I had the unique opportunity to preview this amazing facility. Here’s a sneak peek:

IN2 at IMSA (Note the unique tables and ping pong net)

Britta McKenna is the Chief Innovation Officer here, and led the team that put this together. As I fumble to get my recorder going, I ask her how they pulled it off. Without any hesitation, she pours out an amazing story—so here it is, verbatim:

[First of all, I asked about the name—IN2. What does it mean?]

“Innovation and Inquiry. When people were in focus groups and asked about IMSA, those were the two words that came up over and over. So the company we worked with used Inquiry & Innovation as IN-IN. That’s why it’s called IN2. So you can say, ‘What are you IN2?’ It can be playful.”

Britta McKenna, Chief Innovation Officer

“The story actually goes back 10 years. It was decided an innovation hub would be built—a physical space and a virtual space.

“Three and a half years ago, we got a gift of one million dollars from Steve Chen to build the innovation center, so then the work really began.”

[Chen is an IMSA alum and co-founder of YouTube and AVOS. I asked Britta how they came up with such a wonderful design]

“I got tapped, as chief innovation officer, to figure out what this would be, what it would look like, how it would operate, how it would be funded. It would have to be a private revenue stream to support this.”

[ALERT—All you budget hawks. She’s talking private funding—and she’s got the corporate connections and alumni to do it.]

Maker Space

“So I brought along students to Silicon Valley—15 of them. We went through Chicago to spaces like Northwestern, IIT, University of Chicago, Fermilab, Argon, 1871, Private Industry Chicago, Next Door, and we also went out to Boston to visit MIT Media Lab, and other spaces out there, including artist colonies to be inspired to by what people were doing coast-to-coast in innovation spaces.”

Multi-use conference rooms

“That was a 2-year research project and included the students all the way. They worked in three teams—Developing Technology, Programming, and Facilities. They helped co-design the space, because they are the users, and too many times, we design things in a box outside of the users. So we implemented a user-designed thinking approach.”

Lab space

“We went to Facebook, Google, Dropbox, AVOS, which is Steve Chen’s newest startup, WeWork, which is a co-working space, and Stanford’s StartX, so we literally have done our due diligence.

“And I asked, ‘What space gets used the most? What’s your favorite thing? And what did you do wrong?’

“It doesn’t mean that those things will all work here, but it’s likely that we might have success if somebody else already has. So we synthesized all of that and I became what is known as the ‘hashtag’ Super-User. And the Super-User is the one that funnels all of this information to the architects, because now it actually has to be designed.”

Idea space

“We went to the community. We came together—58 of us—anyone from a Chicago Public School teacher to a city administrator with City of St. Charles. We got public, private, parents, past parents, teachers—everybody came together and literally built models of this space. We went through the design process with architects, we used Cordogan Clark in Aurora, and we built this—it took about a year to build from the time we broke ground and now we’re opening up.”

Sharing space

“So all the spaces here are influenced either by student ideas or places coast-to-coast that we visited. And so we’d probably say that we’re the first secondary school innovation center in Illinois, and dare we say the United States because we haven’t been able to find something like this. First-to-market is great for Illinois, great for Aurora, and puts IMSA on the map. We invite people to come in and see what we’ve built here.”

Collaboration space

“This is really meant as a convening space. Innovation doesn’t happen unless there are people here. We learned from going coast-to-coast that you can have the coolest space ever, but if there’s nobody there, there’s no innovation happening. There’s nothing happening. It’s all about connecting people.”

Coffee Bar

“One of the biggest places we found is around food. So we have a built-in cafe around the corner because you want to meet somebody for a cup of coffee. You just want to have a casual conversation. You want to have a back-of-the-napkin sketch, that can happen there or it can happen in our idea bar.

“We have Idea Baristas that we’re training. They actually wear aprons, and will help people advance their ideas here. They’re all volunteers.”

Idea Baristas.

We’ve got a mentoring office like 1871. We hope by the fall to have regular office hours. So I am a non-profit mentor. On Tuesdays from 4-6:00, I volunteer my time to mentor non-profits in the community. I can go to them. They can come to us.”

Mentoring Office

“Mike McCool, who’s an alum and a software engineer, wanted to donate and I said, ‘How ‘bout we get the McCool View?’ So he funded the beautiful windows that we have.”

The McCool View

“Our reach—about advancing the human condition—can, I think, really be actualized through this space. Not that we weren’t doing it—it just gives us that new front door. The space is just literally right by the front door.”

A huge competition between student startup companies— POWER PITCH—is going on here today. I’ll give you an inside look at that in the second article in this series.

Moises Goldman – Judge at POWER PITCH

I run into an old friend, Moises Goldman—angel investor, a big driver at MIT, and an important contributor at IMSA. Today he’s one of 17 judges at POWER PITCH. I ask him what he thinks of the new facility. Moises responds in his gentle, deliberate, and old-world manner, condensing his thoughts into a few words:

“I think it’s always been the desire to be in a type of space that recognized talented students. This is our recognition of these students. That makes a difference to me.”

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Notable IMSA Alums

The school’s alumni reflect its excellence. Browse through a few:

Steve Chen – Co-founder/Chief Technology Officer of YouTube and AVOS. Early engineer at PayPal.

https://en.wikipedia.org/wiki/Steve_Chen

Steve Crutchfield – Chicago Trading Company. CBOE Advisory Board, Head of Options, ETPs, Bonds at NYSE Euronext.  2012 Crain’s Forty Under 40.

http://marketswiki.com/wiki/Steven_Crutchfield

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Dr. Julia Comerford – Astronomer. Discovered several supermassive black hole pairs—occurring in the merger of galaxies.

http://www.sci-news.com/astronomy/pair-black-holes-distant-galaxy-03546.html

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Dr. Scott Gaudi – Astronomer, discovered over a dozen new planets and a new solar system.

https://www.imsa.edu/news/releases/2012/08/06/president-obama-honors-dr-b-scott-gaudi-91-highest-honor-early-career-scien

http://www.astronomy.ohio-state.edu/~gaudi/

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Nathan Gettings – Co-founder of Palantir. Founder of robotics company Robotex.

https://en.wikipedia.org/wiki/Palantir_Technologies

Also – http://www.robotex.com/

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Ramez Naam – Software developer and international bestselling author. Developer at Microsoft Outlook and Internet Explorer projects.

https://www.amazon.com/Ramez-Naam/e/B001IOH84S/ref=sr_tc_2_0?qid=1489516515&sr=8-2-ent

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Mike McCool – Software Engineer at Google, Robot Invader, Aechelon Technology, Netscape, and many others.

https://play.google.com/store/apps/details?id=com.robotinvader.fooding&hl=en

Rob McCool – Software developer and author. Developed the original NCSA Web server, later known as the Apache HTTP Server. Part of original NCSA Mosaic team with his twin brother Mike.

https://en.wikipedia.org/wiki/Robert_McCool

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Tim Meyer, PhD – Chief Operating Officer, Fermilab

http://www.fnal.gov/pub/about/timothy-meyer.html

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Yu Pan – Co-creator of PayPal and the first employee at You Tube. Co-founder of kid’s kraft company Kiwi Crate.

https://en.wikipedia.org/wiki/Yu_Pan

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Dwan Prude – Financial Analyst, Boeing Company. Motivational speaker.

https://www.imsa.edu/news/releases/2012/08/20/dwan-prude-97-gives-passionate-and-motivational-2012-convocation-address

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Russel Simmons – Co-founder of Yelp. Early developer at PayPal.

https://en.wikipedia.org/wiki/Russel_Simmons

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Clara Shih – Bestselling author, THE FACEBOOK ERA. Founder of Hearsay systems. In 2010, she was named one of most influential women in tech.

https://en.wikipedia.org/wiki/Clara_Shih

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Kevin Wang – Founder of TL;DR Legal. Theil Foundation fellowship recipient.

https://www.imsa.edu/academics/talent/kevin-wang-new-thiel-fellow

Also – http://www.geekwire.com/2012/kevin-wang/

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Sam Yagan – American internet entrepreneur. Co-founder of SparkNotes and OkCupid. CEO Match.com. Named in Time Magazine’s 100 most influential people in the world list.

https://en.wikipedia.org/wiki/Sam_Yagan

 

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Hope you enjoyed Part 1 – THE NAME IS IN2

Go to Part 2 – POWER PITCH

Coming Soon – INQUIRY & INNOVATION

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IN2 Contact Info

Address – 1500 Sullivan Rd. Aurora, IL 60506

Website – https://www.imsa.edu/

Carl Heine – heine@imsa.edu

Britta McKenna – bmckenna@imsa.edu

Tami Armstrong – tarmstrong@imsa.edu

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Chicago Venture Magazine is a publication of Nathaniel Press www.ChicagoVentureMagazine.com Comments and re-posts in full or in part are welcomed and encouraged if accompanied by attribution and a web link. This is not investment advice. We do not guarantee accuracy. It’s not our fault if you lose money.
.Copyright © 2017 John Jonelis – All Rights Reserved
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1 Comment

Filed under Chicago Startup, Chicago Ventures, Education, Entrepreneur, Entrepreneurship, IMSA, Innovation, Innovation and Culture, Invention, new companies, Public Schools, Social Entrepreneur, Startup, startup company

HAT TRICK

20161220-20150207-_jaj5090tby John Jonelis

He can feel it, hear it—his heart—beating hard, beating fast. Pounding above the din of those big nubbly tires and the blast of snow hitting the wheel wells. Is it anticipation? Fear? Primeval blood lust?

How will it feel to gun down a living animal? Can he really pull the trigger?

Today, Loop Lonagan joins seven seasoned hunters and four highly trained dogs to indulge in what his editor calls one of the great joys in life—slaughtering a few of God’s creatures. He’s a last-minute stand-in and rounds out the party to eight. Two hunters per dog. Perfect! How did he let himself get roped into this?

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Seasoned hunters?

Loop is a man that loves a brawl—loves it more than anything in the world. He still uses his fists when he gets a chance, but he’s never taken the life of a fellow creature—at least nothing bigger than a cockroach. Today, for the first time, he will attempt to kill pheasant with a shotgun—and for some reason it makes him itch.

Pretty soon, the storm gets mean and he wonders if it could be the weather that’s crawling under his skin. Both highway and horizon fade to white. Only a stray stop sign proves they’re even on a road. And the driver tools along as if nothing’s the matter. Loop shakes his head and mutters under his breath, “Dis is ridiculous. Gotta get myself under control.”

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White out

“Hmm?” Jonelis flips on the wipers and smears half-frozen slop off the windshield. “You say something, Loop?”

“No—no, nothin’ John” Loop goes silent. No way he’s gonna slobber all over the boss with his stupid fears. Just look at the guy! He’s barely touchin’ the wheel. He’s wearin’ that big satisfied grin like he’s in some kinda bliss. What’s he thinkin’?

Wind buffets the truck. Loop looks mournfully out the window.

Finally he can hold it all in no longer. Pointing to the GPS, he shouts, “Dis don’t look much like Route 47 to me, John boy. We shoulda oughta turn back.”

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What road?

The driver squints out the corner of his eye. “Turn back? TURN BACK?” He raises his voice to a roar. “WHAT ON EARTH FOR?”

Loop goes silent. He’s stuck here. He’s gotta tough it out.

“C’mon Loop—don’t pout like that. It snows in Chicago—every year it snows—you noticed that, right? And this whole bottom end always gets hit worst.

No response.

“Thirteen years, and my F-150 still gets me where I wanna go. It’s made for this weather.”

Still no response.

John suddenly cranks the wheel hard.

The truck swerves.

The faint white horizon flashes past the windshield at sickening speed and Loop grabs hold of something, anything.

When the truck straightens out, they’re again pointed the way they started. A 360 degree donut maneuver. Jonelis drives down the snowy path grinning and placid as if nothing happened. The guy’s gone psycho!

“Man, I love winter. Here, I’ll show you again.”

“NO!” Loop breathes fast and hard. “ARE YOU CRAZY?

“Sorry Loop. I guess I just enjoy being immune to the elements. This front is supposed to be headed east in a narrow band. We’ll probably break out of it soon.”

Loop shakes his head, grunts, and takes his hand off the sissy bar. Certifiable—the guy’s certifiable. On pure reflex, he balls his powerful hands into fists and utters a silent prayer for a different ride home. But what’s he gonna do now—walk? He drops his chin to his chest and quietly moans.

John reaches across and pats his shoulder. “Loop, you’re a bundle of nerves. Get control of yourself or you’ll be useless during the hunt.”

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Soggy bottom

Further south, they break out of the winter storm, just as forecast. The sun bursts through the clouds. Now it’s leftover snow banks and soggy ice-water puddles.

So they’re gonna live after all.

And Loop’s brand new Gore-Tex boots will prove a good investment today. He likes good investments and for the first time feels a twinge of optimism about this excursion.

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At the Club

Everybody’s in the clubhouse. But Loop still sits in the parking lot, staring out at a field, trying to ease his racing heart.

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Hunting field

All his life, he’s feared nothing, but that truck ride riled him up bad. Now he tastes bile. He swallows hard. Slows his breathing. Gotta focus on what happens next.

He goes over his fears one by one. What if he can’t hit what he aims at? What if he accidentally shoots another hunter? Or worse, a dog? These guys might forgive the first, but never the second. They spend way too much time training those little mutts.

Funny—none of that seems like such a big deal any more—not since the boss pulled that donut stunt. For the first time, Loop cracks a smile.

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Zeke on point

When he steps out of the truck, his new boots sink into mud and gravel. This sure ain’t the streets of the big city. He opens the tailgate and rummages through his gear, slips on a borrowed blaze orange hat, a borrowed blaze orange hunting vest, and dumps a borrowed box of twenty five high-brass #5 shells in the big pockets.

Slowly unzipping a soft camo gun case, he hefts a borrowed 12-gauge side-by-side, replete with elegant scrollwork and Turkish walnut stock. This is a heavy and absolutely gorgeous field piece. It’s gotta take guts to lend $3,500 worth of the gunsmith’s art to a sloppy amateur.

He works the safety and practices loading shells. Loop has never actually fired a shotgun and his doubts run wild. Sure, he aims a rifle or maybe his favorite Smith & Wesson Shield at stationary targets. But from what he’s heard, this sport sounds more like baseball or maybe even golf than the gun range.

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Practice

He practices mounting the shotgun one last time, swinging the muzzle past a nearby stand of trees, following through after each imaginary shot—just like they told him. It feels smooth and surprisingly natural. The stock fits him well.

“Okay, dat’s DAT! Time t’ face da music.”

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Clubhouse

Inside, Loop joins the party lounging around a big table. Introductions fly by him like dry leaves on a high wind, and in this cloud of new ideas he forgets every single hunter’s name. Strange—he remembers what they call all four of the dogs. Loop loves dogs.

Then one of them lays out the ground rules and mechanics of the hunt. It sounds a whole lot more organized than he imagined and he wonders if his 85 lb bull terrier Clamps can be trained to do this.

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Clamps

A sweet gal sits at the table and slides across a mug of beer. “Initiation time!” she says. “We don’t drink before a hunt but you’re new. You get one beer—just one. Afterwards I’ll allow you the pleasure of buying the first round for the rest of us.”

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Some gals hunt

Loop slurps off the foam and downs the lager with relish. He wipes a sleeve across his mouth, and sighs.

Another group of hunters come in from the barbeque grill and offer a plate of pheasant tamales. Loop bites into his. Delicious! Like nothing he ever tasted before.

Now he’s leaning back in his chair. No more pounding heartbeat. Yeah—everything’s gonna be fine. Time for da hunt.

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Killing Fields

The group’s got two large fields today—one next to the other—all to themselves. They form a line and slowly march side-by-side, spaced well apart, dogs running all over the place, sniffing for birds ahead.

It’s almost impossible to see a pheasant running through this grass. But when one hunkers down in the brush, the dog finds it and holds its point until a hunter flushes the bird. A good dog will hold its position till the shot is fired.

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Hunting formation

Today each hunter will log 5 miles over broken ground, rocks, holes, tall grass and brambles, and slog through wet snow and water, but these little dogs each put in at least 15 miles and get wet doing it. They never seem to tire out.

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Exuberant dogs

Loop’s realizes that his bull terrier would plop down for a nap after half a mile. If he ever retrieved a bird, he’d crush and shake it until it was no longer fit for the table. But hey—Clamps is at home in the city, where he belongs. Every dog has his job.

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Clamps in his element

The guy next to him (Rick, Gregg, Bob?—Loop can’t recall) moves ahead of Shiloh’s point, flushes a bird, and fires. The pheasant drops a leg and flutters down about fifty yards away. When the dog retrieves it, the bird is wounded but still alive. The hunter immediately breaks its neck to stop any suffering. All done so precisely. Very neat and clean.

Loop gapes at that rooster in awe. This is what they’re hunting? The color of its plumage takes his breath away. And look at the size of that thing—there’s gotta be alotta good meat on that bird.

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The beautiful pheasant

When the hunter slips it in the game sack at the back of his vest, they continue their march. Loop looks at his elegant field piece and something changes inside of him.

Maybe it’s the sight of blood.

Maybe the finality of the kill.

As boots crunch through the brush, instinct takes a firm hold and his fear and doubt fade to the background. He zones in on his surroundings with a focus more intense than he’s ever experienced. The bite of fresh air. The array of indescribable wild smells. Four dogs running, leaping. Subtle pheasant prints in the snow. A sparrow flock bursts skyward to his left. A hawk circles high overhead. But most of all the dogs. He tries to keep them all in sight. Impossible.

Mud sucks at his boots, and looking ahead, he sees the field entirely drown in snow melt. No way around it. He utters a silent prayer of thanks for Gore-Tex boots, checks the line of his fellow hunters, and adjusts his position.

They slog on to the next snow bank.

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Dry feet

“Duke’s on point! Hey Loop—your turn!” He sees Duke in thick cover just ahead—nose down, teeth clenched, saliva dripping from his mouth. The animal can barely restrain himself. Wow, do these dogs love to hunt! Loop knows a bird hides somewhere within 20 feet.

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Duke on point

He makes his approach and a huge gaudy rooster flushes, cackling as it flies.

He mounts his gun. Swings the muzzle to shoot. Suddenly two dogs run into his sight picture, chasing under the bird. Nope—can’t risk a shot over them. The pheasant glides safely beyond the tree line. Yeah, those dogs broke training, but after all, they’re excited, just like he is. So what? He might still get another chance today. And maybe somebody will take that bird later.

Just like investing, hunting is lots of hope.

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Upland game field

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Hat Trick

One guy is shouting at the white dog named Jack. That one ranges too far and finally breaks with the group to sniff out an area hundreds of yards to the side.  Loop likes Jack best of all the dogs and breaking from the line of hunters, follows him.  He feels one with him and shares the joy of the hunt as if he were an extension of the animal.

When he gets close, the dog is already holding point. Without warning, a rooster takes wing!

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Jack on point

Without stopping to think, Loop swings his shotgun and fires. Bird #1 tumbles into high grass.

Beginner’s luck.

He’s about to search for it when Jack goes on point again. Loop moves ahead of the dog and kicks at a tangle of brush, then he tries another clump. It seems impossible that a big colorful bird can hide here, but Jack’s still holding that point.

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Flushing a pheasant

The pheasant flushes behind his back.

On pure instinct, he wheels and shoots. An explosion of feathers—the bird drops straight to the ground. Loop fired way too soon—way too close. A real waste—not much meat left on that carcass. He chalks it up to inexperience and tells himself to slow down. But that’s bird #2.

Both barrels empty, he pauses to re-load. But Jack is on point again!

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Jack on point again

He moves ahead of the dog, eyes wide open, searching, wanting the kill. The pheasant erupts from the brush and into the sky. This time, he waits for some shooting distance, then the muzzle roars. Bird #3 down!

Three shells, three birds—all in the space of a couple minutes!

A hat trick!

Jack retrieves one bird, then another, his tail wagging. Loop stuffs both in his vest and picks up the one he pulverized by shooting too soon. He glances at his hands, smeared with blood from the ruined bird, and amazingly, it doesn’t bother him. A couple hours ago he wondered if he could pull the trigger and now he doesn’t even want to wipe his hands clean. He reflects that the blood of these birds is a gift. His game pouch bulges out behind and he enjoys the weight of it. He can hardly believe that he gets this privilege—to experience this primal sport and come away with real food. Again, he utters a silent prayer of thanks.

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One for the Road

Giddy from the hunt, Loop heads back toward the group, all his misgivings gone, every emotion urging him to break into dance. For the most part, he restrains himself. Zeke joins up with Jack, and Loop closely watches those two dogs.

He hears hunters call to each other in the woods.

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Jack and Zeke

Two shots! He pivots toward the sound. Two more shots in rapid succession! A pheasant flies out of the trees, fast as it can go, well out of range of the barrage of pellets aimed at its tail.

Before it can fly past him, Loop swings his gun, leads the bird, and fires.

A head shot! It instantly falls out of the sky.

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Zeke retrieves

Zeke retrieves the bird and Loop stows it, feeling a deep satisfaction he’s never known. That’s bird #4—and he’s spent only four shells! Plenty for the day! He won’t fire his shotgun again this trip.

The hunters form ranks and march across another field. And Loop gets treated to an amazing site. Shiloh points a bird. Zeke and Jack honor that point like the well-bred canines they are. How do they train dogs to do that?

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Zeke and Jack honor Shiloh’s point

Loop draws in a lungful of cold air. What a great day! Everybody gets at least three birds. Even John shot birds, but he claims it happened by accident.

On the way in, he pulls out his phone and snaps off a photo of the group.

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Hunting party

Then they head back to the clubhouse to clean up, drink beer, smoke the compulsory cigar, and tell lies.

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Meat on the Table

Back at the lodge, Loop makes a proposal that they all immediately accept. Dinner at his downtown penthouse.

He phones home. “Yeah Meadows—tell Anatole t’ dig out dat recipe fer Pheasant Zummer. I’m brinin’ da birds. And pick out da best wine. Yeah, all da trimmins, too. I’m showin’ up in an hour with seven happy guests in muddy boots!

He hears a professional, Very good sir,” and can hardly wait to experience the joy of a feast with his friends. These aren’t just any birds—these are HIS birds—birds he hunted down alive and killed himself! He’s sure every one of those hunters feel the same way about their kill. And he remembers something John said—words that got him here: “That feeling of satisfaction lasts for days, maybe weeks.”

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By accident?

Loop’s fallen in love with this place. A hunter’s paradise! It’s gotta be one of Chicago’s best startups and he wonders if they need another investor. The place looks prosperous enough. There’s no membership fee—no monthly dues—no volunteer work—you pay for your birds—that’s it. Nice clubhouse and bar. Good fields. Extended season and no bag limit. You can hire a guide and dog here. They even clean your kill. Wanna go?

And he decides to ride home with the same crazy driver that got him here.

..

Erienna Hunt Club is located one hour south of downtown Chicago. The season runs from September 1st to April 15th. If you’ve got any primeval instincts left in your modern mind, check it out!

http://www.eriennahuntclub.com/

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Favorite club

 

All photography by John Jonelis and Loop Lonagan, with thanks to all his hunting mentors, especially Gregg Patz, Rick Bohning, and Frank Spellman.

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Chicago Venture Magazine is a publication of Nathaniel Press www.ChicagoVentureMagazine.com Comments and re-posts in full or in part are welcomed and encouraged if accompanied by attribution and a web link. This is not investment advice. We do not guarantee accuracy. It’s not our fault if you lose money.
.Copyright © 2017 John Jonelis – All Rights Reserved
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ENGINEERING YOUR PITCH

jockey-and-horse-t-ms-officeInsights from the Cornerstone Angel Meeting

by Stephanie Wiegel

Angel investment deals aren’t made on the spot as the TV show Shark Tank suggests. Instead, entrepreneurs are excused from the meeting after delivering their pitches. If you’re vying for early investment money, what’s said behind these closed doors can make or break a deal. Continue reading

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BEST GIFT

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by Mark T Wayne

“Whaddaya think is da best Christmas gift o’ dem all?” Loop Lonagan puts this puerile question in a peculiar verbal form he calls the American language just as Donatis Ludditis and I innocently raise a Christmas toast at that notable Chicago landmark, Ludditis Shots & Beer. The place offers several distinct advantages.  Our host never presents a bill for our proclivities and the back room houses our magazine offices.

“I got best gift! Is this!” Ludditis states his case in his Lithuanian accent, and passes fancy boxes across the table. “This one for you, Mr. Wayne. Is Christmas!”

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Ludditis’ combo glass

I tear off the bow and wrapping paper, and then study the packaging a moment. Pictured on the exterior is a shocking freak of glassware—a combination beer and shot glass.

Ludditis quivers with excitement. “See, you must only wash half so many glasses! You like? Is good?”

“No.” This curt observation issues from the foul Lonagan creature.

I stretch a leg and carefully squash his foot under cover of the round Formica table and he instantly emits a mist of good whiskey from his tightly closed lips. Never permit a boot heel to go idle when the opportunity arises. Meanwhile, I ingratiate myself with our host. “Such a fine gift, sir! I accept it with profound appreciation and gratitude! This most excellent glassware shall fill a special place in my extensive liquor cabinet!”

Ludditis gives a little bow along with a flourish of the hand.

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Chicago landmark

“But,” I continue, “I believe the man that sits betwixt us hints at something on a far grander scale. Perhaps he seeks the ultimate gift that one can receive.”

The table goes silent, so I set about to stir the creative juices.  I clear my throat. “Before any serious hypotheses are put forth, may I suggest that we set some rules for the game?”

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Donatis Ludditis

Ludditis interrupts, spreading his arms wide. “American million-dollar bill! Five feet long! Good gift!”

Lonagan is massaging his injured foot. “I s’pose da greatest gift of all—what ever’body really wants—is da eternal salvation of yer immortal soul.” He looks up from his foot with a curious and piercing gaze. “Just a handful o’ faith unwraps dat package, ‘n’ it’s fulla God’s grace ‘n’ love. Joy on earth ‘n’ heaven in da hereafter.”

“Who amongst us can buy a thing such as that?” I bark the words. And quite privately, I am shocked! Shocked, I say! I never considered the execrable Lonagan capable of formulating such a deep and sensitive notion. Since when did the man get religion? As a confirmed atheist, this sentiment makes me itch like a boy wearing coarse woolen underwear.

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Mark T Wayne

“It’s somethin’ you ain’t never gonna unnerstand, ya old crank,” he says with evident conviction. It is Lonagan’s turn to pour shots from our dusty bottle of single malt and he proceeds to do so. “Nobody buys off God. Salvation is free! But ya gotta open da gift t’ own it.”

His words raise the hackles at the back of my neck and interfere with my normally placid demeanor. “What possible value, sir, is a gift that is free for the taking by any derelict off the street?” I honestly have no idea what this lout is driving at. I know of rumors that Lonagan took a first in finance at the University of Chicago’s graduate program, but to hear his vulgar turn of phrase, his vernacular of deeze and doze, one would take the man for a complete idiot. There may be something there that explains his secret to success—maybe. I will study the matter.

“I change,” blurts Ludditis. “I agree with Loop. Forever with Creator is better than million-dollar bill. Is Christmas!”

I quickly gather myself and recognize a need to set reasonable limits if we wish to come to a practical conclusion. “Gentlemen, I will delineate the rules of the game:

  • “The gift should serve some specific utility.
  • “It must require fervid imagination, and fevered preparation
  • “A large monetary outlay must be expended—but something of a size that one of us might actually be inclined to shell out.”

I fill the combo glasses and everybody downs another shot.

Without warning, Lonagan slams a meaty fist to the table.  Then he blurts out something totally inappropriate. “We gotta do somethin’ fer Jonelis.”

One never knows what to expect from this fellow.  “I fail to follow your train of thought, sir.  Perhaps you refer to the gift of which we speak.  Certainly I can think of no individual less deserving than Jonelis, unless we care to speculate about you.”

“C’mon, use yer brain.  I’m only here ‘cause o’ him.  Same with you, Don.”  Then he squints at me.  “But I dunno where YOU come from, MISTER Mark T Wayne, with yer mass o’ bushy white hair ‘n’ yer musty old white flannel suit dat never gets smudged. Ya crummy hack writer!  Whadidya do? Fall outa da 19th Century by accident er somethin’?”

I square my shoulders and look down my nose at the man. “I do not hail from your gutter, sirrah. Through my literary efforts, I enjoy the pleasure of knowing both King Arthur and Tom Sawyer, but never have I come across the likes of you.  Should you care to indulge further in personal invective, I may be excused for requesting satisfaction.  Pistols at dawn is the usual procedure.”

Ludditis cracks a walnut in his naked hand and then scatters the pieces on the table. “You want fight—go out in street! Not in my place! Is Christmas!”

Ludditis is an amazing fellow. Not only is he a powerful and possibly a dangerous Lugan, but the man is also pushing one hundred years of age.  He refills the diminutive end of our glasses with the skill of an accomplished bartender and we all consume our shots of single malt.  “I vote Mr. Yonelis.” Ludditis always pronounces it that way. “That make majority. What we give him, huh?

Lonagan runs a finger around the larger rim of his combo glass until it raises a faint musical pitch. “A monetary gift, eh? Well I ain’t givin’ da guy no Lexus with some sappy red bow on top. That ain’t worth nothin’ t’ him.”

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Lexus sales event

Ludditis: “Maybe we get for him hair transplant. That cost lots and lots of money. I think he look good with hair.”

Lonagan: “Naw, he likes his shiny dome. Brags he don’t even comb it. What Jonelis wants is t’ enjoy God’s creation.”

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God’s creation

Again Lonagan’s spiritual reference grates at my nerves, but his genius amazes me. I must seize his notion, build upon it, and bring this conversation back to the physical realm. I make another pronouncement: “Gentlemen, I have a satisfactory answer.”

They both turn to me like schoolboys.

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Jonelis

“I believe I understand the man’s deepest cravings.  He yearns to experience the wilderness, but not its inconvenience.  In this age, such a thing can be done!

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Wild nature

“I know a place where a man can immerse himself in wild nature—where no roads exist for hundreds of miles—a place dotted with thousands of pristine lakes rimmed with Jack Pine and Aspen forests. Populating the woods are bear, moose, deer, and untold numbers of avian species.

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Ecotourism

“The waters are teaming with an entirely natural and burgeoning population of gigantic Northern Pike, which by afternoon, lounge so thick in the bays that a man can walk across the water on their backs! Shall I continue?”

They both nod with eager and toothy grins.

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Island sactuaries

“In this place, a man indulges in the savagery of nature. Living off the land. Yes sir! Exercising one’s right as an animal at the top of the food chain—except, of course, for the great bear.

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Wildlife

“Such an excursion exerts a powerful pull on one’s primal urges and instincts, which lie hidden beneath that rumpled business suit. A brief experience of such raw pleasure will leave an indelible mark of satisfaction on a man—a feeling akin to bliss, followed by an insatiable longing to return to this wild paradise forthwith and forever. I believe the term ECOTOURISM is currently in vogue.”

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Shore lunch

Lonagan’s chin is cupped in both hands and he’s grinning. Then he breaks from his dream and inspects me with one eye. “Ecotourism—ain’t dat fer tree huggers?”

Ludditis returns from a quick trip to the bar with a fresh bottle. “Why you think this idea work so good?  John no hug tree—what he do?”

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Log cabin

“He lives in a log cabin heated by a wood fire! He drinks water straight from a virgin lake! He battles monster fish with hook and line. He wolfs down fresh meat for sustenance. That is what he does, sir!

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Heavy tackle

“I know a place almost inaccessible to most and untouched by human hands—unchanged since the last ice age. The largest unspoiled land mass in the world—almost entirely devoid of human habitation! A trackless wilderness of immense beauty and majesty!

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Trusty boat

“I speak to you of the Canadian Shield—a landscape of exposed bedrock, created by severe glaciation during the ice age. This is the ancient geological core of the North American continent—a place more than four billion years old!”

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Canadian Shield (in red)

The sharp intake of breath, the squeak of a chair, then silence. I continue:

“This planet’s Boreal Forest, rings the Northern Hemisphere, and a good third of it lies on the Canadian Shield! Yes sir! Canada’s Boreal landscape contains more lakes and rivers than any landmass in the world! It is estimated that the region contains over two million watersheds—the largest intact forest on earth, with millions of square miles still undisturbed by roads, cities or industrial development! Picture that, gentlemen!”

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Boreal forest

From their glazed expressions, I can only assume they picture it in their minds eye.

“In the northern reaches of Manitoba—at the 55th parallel—we find the perfection of conifer and aspen forests and an uncountable quantity of ancient lakes, some over fifty miles long, each with hundreds of rocky islands. That sir, is the northern fringe of the forest. North of that lies tundra!

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Boreal forest – Manitoba

“And fish, gentlemen—fish in untold abundance! I know a place where one can set out in a rude boat and catch a hundred fighting Northern Pike in a day by hook and line using spoons and streamers—some fashioned by one’s own hands!

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Trophy pike

“And this, gentlemen, is Jonelis’ favorite lake in all the world. Given a choice, he would live here.”

Lonagan rouses himself. “Hey, I love dat place too. Ever’body dats been there does.”

“Certainly, certainly. Not even a churlish cad could fail to express such a sentiment.”

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Trophy pike

“But it’s 50 below up dare now. Farenheit!”

Is the man deliberately obtuse? Any fool knows one must travel those parts during the proper season.

Ludditis appears greatly agitated. “I lose track. You put old man out in cold? Is Christmas!”

“Certainly not at Christmas!  No sir!  At this time of year, a man makes his plans and rushes to secure a booking, hoping one is still available.

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Another trophy pike

“No, I do not intend to be rude, Mr Ludditis. I speak of North Star Outpost on KNEE LAKE, Manitoba.  A luxurious wilderness haven, available during THIS lifetime.  A place where awe and wonder forever change you.  It lies due north of where we now sit—modern transportation whisks you away to this paradise in the space of a few hours.  There are no roads.  Airplane is the only practical access, and it can be reached, at most, three months of the year. 

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Accessible only by air

“What do you say, gentlemen? Shall we provide the means for our mentor, our friend, to taste and enjoy the delights of this earthly paradise?”

Lonagan lets out a deep sigh. “I wonder if he’s gonna ask us to go with.”

“Perhaps. Consider that if one wishes to wager at poker, it is necessary to bring companions.

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Nightly poker

“The same need serves us well if he longs for a competitive round of pool in the evening after a refreshing hot shower.

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Game room

“Gentlemen, I propose a toast!” Ludditis and I clash our combo glasses in a hearty cheer. “To the greatest Christmas gift!”

And Lonagan joins our toast.  “Dat money can buy!”

 

Go to: HOW TO TREAT THE OLD MAN

 

Contact information:

North Star Executive Outpost

Knee Lake, Manitoba

Call Hope Levenhagen 1-800-563-7151 hopelevenhagen@northhavenresort.ca

General email info@northstarresort.ca

Address N28W23000 Roundy Drive, Suite 102

Pewaukee, Wisconsin 53072

 

Sources

Charts and Maps—The Manitoba Museum. Wikipedia. MS Office.

Photography by John Jonelis.

Glassware distributed by Samsonico USA

Chicago Venture Magazine is a publication of Nathaniel Press www.ChicagoVentureMagazine.com Comments and re-posts in full or in part are welcomed and encouraged if accompanied by attribution and a web link. This is not investment advice. We do not guarantee accuracy. It’s not our fault if you lose money.

.Copyright © 2016 John Jonelis – All Rights Reserved

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INVESTING: IT’S ALL ABOUT THE CASH

by Scott M. Anderson

Angel investing is influenced by many factors affecting the startup including: technology, unmet demand, scalability and, most important, the founding team. These and many other factors will have a critical impact on the success or failure of the investment. However, there is one common factor to them all: Cash. cash An investor and founder are in the elevator together. The investor says “Nice idea, how much capital do you need?” The founder says “$750K”. Investor says “Why $750K?” Founder says “We believe it’s the right amount based on other startups I’ve heard about.” Or she might say “It seems like the right amount based on the size of other angel investments.” Or she might say “It just seems like the right amount.”

Those responses are all wrong!!

A more appropriate response would be: “We’ll need $450K to fund losses the first two years, $250K to buy tooling and another $50K for inventory and other working capital needs.” After hearing this better response, the investor thinks: “As with most founders, I’m certain her numbers are worthless. However, this founder seems to have specific numbers which suggests she’s analyzed them and may be a good overseer of my invested money. I’m interested in her assumptions. I’d like to meet with her again.”

At a minimum, any founder must have a high level understanding of how much capital is needed and the reasons why. She must be prepared to communicate these reasons as part of her elevator speech. Similarly, each investor should ask for and expect an immediate response from the founder, which reflects her understanding of why the investment is needed.

How does the founder determine what she needs? And how does the investor determine if the investment amount is right? A cash projection will meet the needs of both parties. An analysis of the startup’s cash inflows and outflows will confirm the company’s investment needs. At a high level, the cash projection is easily calculated as net profits + capital expenditures + required working capital (such as inventory stocking required to achieve sales). More complex business models would require a more in‐depth treatment.

The investor met with the founder again and received the following projected Income Statement (in $000s). table-1 Let’s examine these numbers to see if they confirm the founder’s response in the elevator:

  1. First 2 years of losses of $450K. The loss in year 1 is $242K and the loss in year 2 is $208K. These sum to total losses of $450K. RESPONSE IS CONFIRMED.
  2. Tooling cost of $250K. The Capital Expenditures (CAPX) in year 1 is $250K and $0 thereafter. RESPONSE IS CONFIRMED.
  3. Working Capital needs of $50K. The working capital is required to be $20K and $30K for years 1 & 2, respectively, totaling $50K. RESPONSE IS CONFIRMED.

The founder has provided numbers at the meeting which agree with those she cited. That’s good. The founder would lose all credibility if they did not support her elevator speech. But, has the startup asked for enough at $750K? Let’s examine a projection of the cash in the startup’s bank account. With an investment of $750K in year 1, the following is a projection of the startup’s cash in the bank: table-2 The cash bank balance is projected not to be negative at the end of any year over the projection period and the total financing received exceeds the total cash out, so an investment of $750K would be adequate based on the earnings performance projected by the Income Statement. However, the large cash balance of $238K at the end of year 1 suggests that the timing needs of the startup may not match the investment. In fact, the investor would rather invest the excess cash of $238K in year 1 for a different investment which would pay off within 12 months. Such an alternative investment would enable the investor to realize a financial return on the excess cash while still fulfilling his total commitment of $750K to the startup. Following this thinking, if the investment were made in two installments versus one, the following projected cash balance results: table-3 A two installment investment better matches the startup’s need since no excess cash exists at any time during the financing period. The investor would suggest to the founder that the $750K investment should be made in two installments: $512K in year 1 and $238K in year 2. An investor’s diligence process should be stepwise: a layer of information is requested, and provided by the company. Additional information is requested and provided, until the investor is completely clear about the startup’s execution strategy.

From the founder’s perspective during the diligence process, it’s critical that each diligence level be consistent with all prior levels. In our example, the founder responded in the elevator with a high level description of why she needed $750K. That was diligence level one. The projected Income Statement, CAPX and working capital projection provided by the startup was diligence level two. Fortunately for the investor and the founder, the level two diligence substantiated the information established in the elevator.

My recommendation to the investor for this startup is that the next diligence layer should focus on the detail behind the rows on the Income Statement. Examples include: with sales, which customer(s) will account for 80% of the sales in the projected years? For cost of sales, what are its major components? What explains the increase in gross margin percentage from year 1 to year 3? For the expense row, what are the major expenses and what explains the increase in year 2?

Responses to each of these inquiries will have a direct impact on the cash projection. A complete diligence discussion is beyond the scope of this article. However, the diligence process would continue until the investor is satisfied with the strategy and underlying assumptions. Throughout the process, focus must be maintained on the cash projection to understand how the diligence analysis will impact the amount and timing of the anticipated investment.

Scott M. Anderson is a principal at Anderson Financial Services, LLC and has been performing cash projections for decades as an investment banker, a workout specialist and, recently, as an advisor to investors and startups. He can be reached at scott@andersonfsllc.com.

Image from MS Office

This article appeared in NEWS FROM HEARTLAND

 

Chicago Venture Magazine is a publication of Nathaniel Press www.ChicagoVentureMagazine.com Comments and re-posts in full or in part are welcomed and encouraged if accompanied by attribution and a web link. This is not investment advice. We do not guarantee accuracy. It’s not our fault if you lose money.

.Copyright © 2016 John Jonelis – All Rights Reserved

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IN YOUR FACE RISK

by John Jonelis

“Oh, you’re an angel investor! Isn’t that risky?” I hear such drivel all the time. Are people afraid of outsized returns? Or perhaps they don’t understand risk, don’t know how to measure it, or how to take control of it. Yet all that is quite easily done and it’s a real charge to play the game using a Monte Carlo simulation (MC). I’ll show what’s likely to happen if you follow three simple rules. Then I’ll break one rule—just a little bit—and we’ll use the simulator to see what happens.

fear-color

Rules of the Game

Rule #1 – Diversification and the Law of Large Numbers—This is the only free ride in the investment world. Invest in as many dissimilar companies as possible.

The portfolio technique known as the Efficient Frontier suggests you indulge in alternative investments to the tune of 10% of your overall portfolio to maximize return and minimize risk—that’s right, both! Angel investment is definitely in the alternative camp, so restrict your fun to 10%. No more! It’s true—angels are like anybody else. They also own stocks and bonds, futures and options, currency spreads and real estate, antique cars and art collections.

Rule #2 – Identical Minimum Sum—Nobody knows whether a company will succeed or fail. Nobody. Even the best, most experienced, wisest, most savvy investors can’t tell. So out of your alternative portfolio, invest the identical minimum sum in each and every deal—no more, no less—no exceptions! Make it as small as you can. 2% is a good number to shoot for. Ideally, with profits taken along the way, you’ll eventually own 50 to 100 companies!

Rule #3 – Join an Angel Group—Contrary to public opinion, most investors aren’t multi-millionaires. An angel group allows you to invest small sums in concert with others in the group, and coincidentally, it makes it possible to obey Rules #1 and #2.

I also assume that a personal research staff isn’t in your budget. A good angel group solves that problem by splitting the workload among its members according to their particular expertise. A strong group will accelerate your learning curve. The trust and camaraderie you build with other members makes angel investing a real joy. My own experience as a member of Heartland Angels has broadened my horizons and given me so much more than I could ever contribute.

It’s not a rule, but read the book ANGEL INVESTING by David Rose. You’ll be glad you did.

dice

Beware

If you don’t like to help companies grow from raw idea to industry leader; if you aren’t willing to participate in the fascinating and often perplexing details of a new business venture; if you can’t stand people; if you’re afraid—then invest in a mutual fund or put your money in gold coins and count them every day, just for something to do.

 

Picture Your Risk

I’m visually oriented. To paint the picture of risk, I use a Monte Carlo engine. MC is a sophisticated and arcane statistical tool that any child can use. If you’re a spreadsheet whiz, you can set it up yourself. I downloaded a program called Equity Monaco that makes it easy to enter investment outcomes, and analyze results.

NOTE: If you find yourself gazing at a bunch of confusing readouts with a vacant stare, read my paper, ALTERNATE HISTORIES. It’s written in plain language. It’s short. You’ll be an expert in no time.

angel

How Angels Make Money

Angel investing is long term—3-10 years. But like any investment class, you’ll cash out of one deal and put that money in another. It’s a continuing cycle. It’s also a homerun strategy. Can a homerun strategy be a winning strategy? Let’s run the numbers and see.

First, we need a data set of ordinary, average, run-of-the-mill trade results. Turns out, the Kauffman Foundation keeps statistics and publishes them.

Here’s the bottom line, according to Kauffman, 38.1% of startups grow and get acquired by a larger company, at which point all the investors throw a party! 11% become lifestyle businesses. These may provide a nice living for the employees but it takes the investors a really long time to cash out. 50.9% of companies go belly-up. Of those, 0.9% just disappear!

startups

Actual Angel Returns

Let’s keep this simple. From the investor’s perspective, all the returns from Kauffman’s wealth of past data boil down to five distinct outcomes. I express these as multiples of cash invested. (“10x” is a return of 10 times your investment.) Then I list the probability of each outcome.

return-vs-probability

Return as a multiple of investment vs. probability

Kauffman Foundation

 

Using these numbers, and applying our rules, it’s simple to build a simulated portfolio that represents likely outcomes.

Let’s assume that 10% of your portfolio amounts to $50K. Your angel group’s minimum investment is 10K. That means you need to plunk down 10% of your stake per deal, rather than the recommended 2%. You’re undercapitalized! Your Identical Minimum Sum, is high.

What does that mean to you? You’ll participate in fewer trades than some rich slob. All other things being equal, your results will be less predictable. The rich get richer, etc. etc. But you’re young and aggressive. Let’s say you go ahead anyway.

Now create a list of outcomes, based on Kauffman’s stats.

how-deals-shake-out

Notice that you follow all three rules. You invest exactly the same amount each time. Using an angel group, you invest the smallest amount you can get away with, and you participate in as many attractive deals as you can.

 

The Face of Risk

We’re ready to run our simulations. Feed those numbers into your MC engine and let the computer do the work. (I apologize for omitting legends from the charts, but the numbers in my program are too tiny to read. Hey, these are actual screenshots from my software package. So permit me to clue you in:

  • The X axis is about 100 deals.
  • The Y axis runs from zero to almost $2,500,000.
  • All equity lines start at $50K—your alternative portfolio.

std-10-long

10 possible equity curves

Here’s an MC output of 10 runs from the set we just built. Each line is a distinct equity curve that represents your portfolio. All are possible. Notice that two of them go negative quickly and never recover. But the rest do quite well. This isn’t enough data to draw any valid conclusions. Let’s run more simulations, using the same data set.

std-30-long

30 possible equity curves

Here we have 30 equity curves. The projections are getting clearer. Let’s run a few more, using exactly the same data set.

std-100-long

100 possible equity curves

Ah! Here we go—100 outcomes. The variation is nice and tight. Kurtosis is evident in the plot—in other words, the most likely results cluster around the mean. Looks like a good experiment to me. Let’s use this one.

 

ANALYSIS

Analyzing these plots is amazingly intuitive. For this experiment, the equity lines all start at $50K—your portfolio. A few outcomes go negative, but most look quite promising. The luckiest investor walks home with $2,450,000. MC plots don’t necessarily follow a standard distribution, but the mean looks to be about $1,450,000. Let’s focus on that number.

If we achieve the mean, we’re looking at an average return of 28 times investment. Does 28x get your attention? It gets mine! It even raises suspicions about possible survivorship bias in Kauffman’s numbers. But these are the best statistics we have so we’ll go with them.

How much is 28x as an annual percent return? That depends on turnover of deal flow. The shorter the hold time, the larger the IRR. 3 years is better than 10.

By the way, you may be wondering which curve is yours. There’s no answer to that question. But since your portfolio is so small, you’re more likely to find yourself on the fringe. An investor that’s filthy rich and participates in many more deals, enjoys a more predictable outcome and probably lands close to the mean.

 

BREAKING THE RULES

Let’s find out what happens if we break just one rule. And who doesn’t do that? So you invest $100K in a really juicy deal. It’s the best prospect you’ve ever seen and you figure it’ll make you rich. This thing can’t miss! Hey, it’s just one investment—how much difference can it make? You have just violated the Identical Minimum Sum rule. I know. I made this mistake once.

We add it to our data set and run the simulation. For this, we increase your portfolio size and retain all the same trades from the last run. This is what the hotshots call sensitivity analysis.

undis-100-long

100 possible equity curves – breaking one rule

Whoa! Look at what that one lapse in discipline does to your projections! The mean is now flat—zero times return! Half the outcomes are negative. No, I don’t’ want to play in this sandbox.

Successful investing is primarily adherence to a solid set of rules. That’s called discipline. The goal of discipline is to keep the probabilities in your favor. Discipline defines success.

That doesn’t mean that a successful angel can get by without a good skillset. You need to exercise brilliant judgement. You must perform your due diligence. Knowledge and experience are huge. Always keep the human side in mind. And you need to follow-up. Watch your companies closely as they pivot and grow. I leave you with this thought:

david-rose-quote

Also read – ALTERNATE HISTORIES

 

John Jonelis is a writer, investor, fisherman, author of the novel,

THE GAMEMAKER’S FATHER, publisher of Chicago Venture Magazine, and editor of News From Heartland.

The term IDENTICAL MINIMUM SUM is from the author.

Thanks to David Rose and his book ANGEL INVESTING.

Statistics from the Kauffman Foundation.

MC plots from Equity Monaco by TickQuest.

Graphic courtesy MS Office.

DISCLAIMER – Do your own due diligence. It’s not my fault if you lose money.

Chicago Venture Magazine is a publication of Nathaniel Press www.ChicagoVentureMagazine.com Comments and re-posts in full or in part are welcomed and encouraged if accompanied by attribution and a web link. This is not investment advice. We do not guarantee accuracy. It’s not our fault if you lose money.

.Copyright © 2016 John Jonelis – All Rights Reserved

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