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CHICAGO SPEEDS UP

OLYMPUS DIGITAL CAMERAAdapted from the Journal of the Heartland Angels

By Michael Gardiner

Chicago’s startup scene has grown dramatically in recent years. That includes a rapid increase in local accelerators, incubators, tech parks, and similar programs.

The term accelerator is used somewhat loosely, but the prototypical accelerator involves cohorts of between 10 and 20 startups that spend three to four months in a common physical location. Accelerators are sponsoring organizations that provide startups with a combination of small cash investments, intense mentoring, formal and informal networking opportunities, and organized investor pitch events—all designed to dramatically “accelerate” a startup’s development. Typically, graduating companies immediately seek a significant angel investment or venture “A” round funding.

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The Big Three

Seed-DB  lists three significant accelerators in Chicago: Techstars Chicago (formerly Excelerate Labs); Healthbox – Chicago; and Impact Engine.

Although small in number, accelerators form a significant part of the landscape in which Chicago-area angels operate.  These programs support and foster entrepreneurs, drive media attention, and attract capital. In addition, a startup’s participation in an accelerator tells us something about the company. Techstars, which by most accounts is the premier Chicago accelerator, produces portfolio companies that are highly vetted, coached, and connected. Techstars companies raise an average of $1.5 million in outside capital after the program.

In addition, accelerators take an investment stake and a significant advisory role in their portfolio companies. This level of professional involvement may be a positive or negative factor in any particular angel investment opportunity.  A company that graduates from an accelerator is typically relatively high quality but expensive from a valuation perspective.

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Everybody’s Got a Niche

More broadly, each accelerator program specializes in a particular field. Techstars focuses on web-based and software companies, Healthbox is for healthcare businesses, and Impact Engine companies address societal or environmental issues. These specialties point to trends in the startup market in general and give insight into the nature of a startup that was part of a particular accelerator.

Finally, accelerator programs conclude with a Demo Day.  On that day, angel investors get the chance to view the current standard for well-coached startup pitches and identify potential investment candidates.

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Incubator vs. Accelerator

An incubator rents space and provides a central physical workspace to a dozen or two startups.  The startup companies are often sponsored by an investor group or university. In contrast to accelerators, a company typically stays in an incubator on a long-term basis—until it needs to relocate to a larger facility. Mentoring and support varies, but is less intense than accelerators and generally comes from a sponsoring group, mentors brought in by the group, and other incubator companies.

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What about 1871?

Chicago’s best-known startup hub is 1871, located in the Merchandise Mart. It’s very successful in renting co-working space to startups, hosting classes and speakers, and generally raising the profile of entrepreneurship in Chicago. 1871 does not sponsor or invest in specific companies like an accelerator. But because of its massive size, incubators have sprung up within its walls.  Even Venture Capital firms keep office space in the facility.

 

Michael Gardiner is an Angel Investor based in Chicago.

For more articles in this issue of NEWS FROM HEARTLAND download the PDF.  [click here]

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NEWS FROM HEARTLAND – the Journal of the Heartland Angels, is published quarterly as an information service to its members. Articles may be reproduced in full with attribution for educational purposes.

Copyright © 2013 Heartland Angels – John Jonelis, Editor – John@HeartlandAngels.com

CAVEAT EMPTOR – These articles are for educational purposes and not investment advice. Investment involves substantial risk. Please perform your own due diligence. Contact Ron Kirschner – Ron@HeartlandAngels.com

For more information, go to: www.HeartlandAngels.com

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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 © 2014 John Jonelis – All Rights Reserved

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Filed under 1871, angel, angel capital, angel investor, big money, Chicago Ventures, Entrepreneur, Entrepreneurship, Impact Engine, new companies, pitch, Social Entrepreneur

7 TIPS FROM A WINNER

Funding Feeding Frenzy – Part 5

VERBATIM by Loop Lonagan – Investor and man about town,

as told to John Jonelis

FFF LogoLoop Lonagan here. I’m gonna go full circle at dis Funding Feeding Frenzy.

No, I ain’t drunk—well maybe I am by now—but what I mean is, I’m goin’ back to the start o’ this event. After all that stuff I already talked about, I’m finally gettin’ ‘round to the first speaker at the FFF—Palette App—the company that won last time.

Like I said, I seen the pitch before. I also seen them at BNC Venture Capital and later at their corporate offices. Research. A guy’s gotta check stuff out fer himself.  Anyhow, here I am at the FFF in the Chopin Theater to hear what he has to say.  And as it turns out, I’m very glad I to be here.

Chopin Theater Lobby

Lobby – courtesy Chopin Theater

The speaker is Jerry Freeman, founder of Palette App, and the guy’s real smart. He’s doin’ his pitch fer us as a demo—to break the ice before all the poor slobs face the judges.

So I’m sittin’ here next to Jay Kinzie, a colleague o’ mine from Mastermind Advisory Board in this cushy seat in the Chopin Theater. Rong Mayhem ain’t gonna wheel up behind me and start yellin’ like he did at that car barn they held this thing at last time. And the noisy crowd is banished to the trough downstairs.

Feeding Trough

Feeding Trough

That means I’m free. Free to concentrate on findin’ the companies I wanna follow up on. But first comes Jerry Freeman. He starts by giving his own pitch. I know it by heart so I’ll paraphrase:

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Da Pitch

Palette App logoPalette App helps architects and designers do their job better, faster, cheaper. (Jerry doesn’t actually say better, faster, cheaper, but that’s what it amounts to.)

They take away them old-fashioned sample binders that designers and architects been blowin’ their money on for 150 years. They hand ‘em this beautiful digital palette. It’s easier to put together, better organized and more efficient to use. You can make changes fer free! That’s a big deal in this industry.

Palette App

Palette App

It saves a designer about 30 business days a year. That’s alotta man hours. And that kinda time’s worth a few bucks. The digital palette’s better for the client too. That’s why I been excited ‘bout this company right from the first.

Palette

Palette

The software usta be just on iPad ‘cause that’s what designers and them kinda people use. But now it’s on Android too. There’s a version for architectural design schools, which turns out to be a big deal. You can read all about it at https://chicagoventuremagazine.com/2012/07/16/150-years-of-waste-meets-technology/

The company is up-and-running and generating revenue. They already got 35,000 products loaded in their system. They got multiple profit centers. They make money whenever a designer orders a sample. And they make money through subscriptions.

Far as capital goes, they already raised $700K and the first round is gonna close pretty quick. 70% of that came from the last FFF. You can read about that at https://chicagoventuremagazine.com/2012/11/23/shark-tank-meets-the-apprentice/

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Da Interview

So after his sample pitch which I kinda butchered—but hey—how ya gonna spoil something as good as that? Anyhow, Jerry sits down with David Culver and does an interview about what it’s like to run a startup. This is good stuff and I learn something.

Jerry Freeman and David Culver

Jerry Freeman interviewed by David Culver

Raising Money

This seems to be the biggest question on ever’body’s minds. Jerry says, keep pitching at every event you can ‘cause it’s the best way to get connections to lotsa investors. Raising money is a full time job. As CEO, raising capital turns out to be his #1 job.

Then there’s cold calling. You start by pitching on the phone to some junior-level gatekeeper. Then to the next one up, then the next. Then maybe you gets a face-to-face with a decision-maker, fly way out somewheres and run up the old expense account.

All that takes months. Then maybe you get a commitment. Whoa—the money ain’t in the bank yet, fella. Gotta go thru due diligence. Paperwork. It takes six months to get the check, if it comes at all. People drop out. Meanwhile, how you gonna pay yer staff? So you gotta watch yer cash flow real close.

So he says to keep entertaining small investors till the big checks come through—just to pay the bills. The little guys come through quicker.

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Crowd Funding

Glenn Gottfried

Glenn Gottfried

Let’s talk about the new self-directed IRA. Lotsa baby boomers got millions stashed in their IRAs. All those add up fast. There’s five trillion in investment dollars hidden away in these accounts. That’s right—I said five TRILLION dollars—almost a third as big as the national debt! It dwarfs private capital. Blows it away! And deals like that close in thirty days—not six months like with VCs and Angels.

This is a form o’ crowd funding. Usta be only charities raised money that way. Now there’s brand-new laws that open it up to investors. So far it’s only for accredited types—people with a million bucks plus. That’s gonna change but the government is draggin’ its toes—nothin’ new about that.

So fer now, friends ‘n’ family ‘n’ Kick Starter is still the best way for small cash, then

Loren Minkus with Jay Kinzie

Loren Minkus with Jay Kinzie

millionairs with self-directed IRAs. Pretty soon we might see the dam burst on crowdfunding and money’ll flow all over the place.

Jerry gives 7 more tips on how to run a startup:

7 Tips

  1. “The shorter your pitch, the better,” says Jerry. If you think yer gonna get through it in eight minutes, cut it back ‘cause it’ll always take longer. “Practice 21 times,” he says, “so you’re not nervous.”
  2. “Simplify. If you’ve got twenty ideas, narrow it down to three,” he says. When Steve Jobs came back to Apple, he cut down their product line to about five. Now they’re huge.
  3. “Challenge is important.” He asks himself why he ain’t tripling his users every month. You gotta find creative ways to reach that target.
  4. “The dot bomb era is over.” Start raising revenue ASAP. That helps attract investors way better than flashing yer goofy projections on PowerPoint. “When you can say, We already started generating revenue, it puts you in a different pile from the rest.”
  5. “Crank up sales fast because sales sell. Get to risk mitigation ASAP.” That’s important ‘cause investors is more risk-averse than dey ever was before. And the banks ain’t lending. Actual sales sounds a lot less risky.
  6. “Keep your people motivated.” Use every success to get your people rejuvenated. Tell ‘em stories from the road. Celebrate small successes.
  7. An entrepreneur is somebody who goes from failure to failure to failure without getting discouraged.” It’s good to come from a sales background so yer already used to rejection. “If you’re a wallflower, get over it,” he says. Then David Culver follows that with, “The fortune is in the follow-up.”
Chopin Theater

Stage – courtesy Chopin Theater

Gotta Go

I gotta catch a cab to another meeting, so after plenty o’ good food ‘n’ drink, I say g’bye to the FFF kinda early. Two guys tag along to share the ride. One’s an investment banker, the other a VC.

And wouldn’t you know it—I trip on another pothole, right there on the sidewalk. Now my suit’s slashed in both knees. Neither o’ these guys helps me up like the bums did.

And when I drop ‘em off, neither offers to share the cab fare.

Happy New Year to all o’ youse out there.  Cheers from da merry land of Shark Tank Meets the Apprentice.  

NOTE TO JOHN – I seen your articles on a buncha sites.  One o’ dem usta be a real good tech jounal run by the Huffington Post.  It went through a buncha changes.  Now it’s runnin’ third-rate soft porn right along with da articles.  Don’t know what’s with that but thought you’d wanna know.

NOTE TO LOOP – Thanks for the heads-up.  I’ll check it out and maybe put a stop to it.

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Continue to WHAT’S GOOD?

Go back to Part 1

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Da Contacts

Palette App – www.paletteapp.com

Funding Feeding Frenzy – www.facebook.com/FundingFeedingFrenzy

The Chopin Theater – www.chopintheatre.com/event.php?id=2275&pageId=soon

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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 © 2013 John Jonelis – All Rights Reserved

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