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THE PIVOT

The Story of Ray Markman-Part 12

Friday, 4:40 pm

Ray MarkmanI’m winding up my own conclusions about Ray Markman’s bold assertion that he never worked a day in his life. At the same time, Loop Lonagan’s big boxing match with Alexander Harbinger is getting close. I don’t know how you feel, personally about the sad spectacle of a friend beating up on another friend—in cold blood in a rule-based arena—but I plan to be there to enjoy every second of it.

Lonagan’s feet rest on my desk. The guy seems entirely oblivious to the impending match.

“Okay,” I say, “I’ve got some stuff that needs saying. At this point, Ray’s outa the video business, on the loose, trying to decide what he wants to do and he tries a bunch of things: He teaches marketing at Northwestern and NYU. helps edit the classic book, DIRECT MARKETING by Edward L. Nash and writes the chapter on broadcast advertising.

“He gives a series of speeches to the Direct Marketing Association.  Then he gets a call from the US Secretary of Commerce. ‘Will you give that speech around the country? We’ll program it, pay your fare, provide a publicist for you at all times and we’ll pick the venues.’ He does that for two years and winds up with a personal commendation from the president.”

Lonagan looks at me slantwise. “So he’s right back on duh road? You gotta be puttin’ that outa sequence.”

“Maybe—but it happened and there’s more to it.

“Ray and his partner start doing town hall meetings to make people aware of economic issues. They start a company called FACT with 15 congressmen and senators—luminaries at the time. They support him and lend their names to it. When he begins his fundraising, a $500K donor asks him to come to New York first. ‘I’ll introduce you to some folks,’ he says.

Ronald Reagan

Ronald Reagan – Reagan Library

“Ray gets to New York and guess what.  This guy’s got a duplex overlooking the UN building. He walks Ray across the street and introduces him to the NFIB, the National Federation of Independent Businessmsn, an organization of a million conservative thinkers and businessmen. Then all of a sudden it’s, ‘Ronny, I want to introduce Ray Markman.’ And it’s Ronald Reagan. This is before he’s president. And Reagan gives a speech. He says everything Ray wants to say and more and Ray’s thinking, ‘They don’t need us. If he gets elected, he’ll have millions of dollars of public money and we have to raise ours privately. He’s gonna do it from the stump.’

The Meryll Lynch Bull

Meryll Lynch Bull

“So Ray gets out of public life because Reagan is doing the job for him. And Ray appreciates it, too.” I read the quote out loud: ‘He was terrific. The country was in a depression and he got us out of it. That’s when Meryll Lynch started running the ad: We’re Bullish on America. It was because of Reagan.’

Lonagan takes his feet off my desk and looks at me hard. “We done with all the do-good stuff? Good. Soes a friend—one of them five guys worked with him on his first companies—this guy’s a general agent in the insurance business—real successful. He says to Ray, ‘Why don’t we start a wealth management company?’ He’ll do the insurance and Ray’ll do the investing.

“So Ray takes his Series 7. He says, ‘Toughest test I ever took in my life. Six hours. A lotta work. But I passed the first time luckily somehow.’  Hell, I took my Series 7 and I’m here to tell yuh it’s tough.  Ray’s just bein’ modest when he says he got lucky passing it duh first time.”

Lonagan leans back in his chair. “So they hang out their shingle and start what he calls the Financial Life Planning Company.

“Of course, he’s lookin’ for investors to get started. And he starts with friends like everybody does. They’d say stuff like, ‘We got Meryll Lynch. But you’re a good friend. Howsabout $25,000?’” (I love the whiny voice Loop uses in his parody of a reluctant client.)  “Hey–truth is, Ray’ll take 25 cents! He ain’t got no business yet.”

Lonagan grins. “So he takes this course at duh University of Chicago in modern portfolio theory. He learns duh same stuff we all learn in that line o’ work—stuff outsiders don’t know about. Basically, it’s as simple as this: If you add a few non-correlated assets like real estate or commodities to a portfolio o’ stocks ‘n’ bonds, you make out real good. You increase return ‘n’ lower duh risk! That is, if you do it right. They plot it on a fancy curve called the ‘Efficient Frontier.’ But Ray goes at it a different way. Uses modern portfolio theory by investing in startups. And he builds a substantial business that way.

The Efficient Frontier

— The Efficient Frontier — (source unknown)

“But after a while, regulations change and broker dealers get even greedier. They want him to sell their own stuff exclusive. REITS, limited partnerships—boring kinda stuff—not the big returns he gets on startup companies.”

He pours more scotch. “So about that time, Ray and Len Bland start showcasing and funding startup companies. After some time, they build what I call a storefront. Startups come to them. They got a regular vetting process in place. They can pick the best companies outa the bunch. Meanwhile, they’re all comfy in their air-conditioned store, looking out their storefront window at all duh other consultants sweatin’ at duh curb, holdin’ out their tin cups fer work. And if it’s cold, Ray just turns up the thermostat.”

Renaissance Fund

Midwest Renaissance Fund

“So why shouldn’t they start a venture capital fund and pick the best companies they know? Just stands to reason. Ray comes up with the name ‘Renaissance.’”

“Here’s what Ray says.”  Loop reads from his notepad out loud: “’I had a partner helping me raise money. A terrific young guy—and he was a serial entrepreneur himself. He and I were working on projects. He was in Indianapolis. I said, ‘I’d love for you to join us.’ So he comes to Chicago and I introduce him to Len. Everybody likes everybody else. He has a lot of contacts and begins bringing people in. Pretty soon we’ve got a guy in Columbus Ohio, in Cleveland, three guys in Indianapolis which by the way is a real hotbed. Now we’re in eight states. And that’s the way this will happen.’”

“Hey Loop, look at the time. Better get your sorry ass over to the club or you’ll lose that boxing match by default.”

He glances at his smartphone and leaps to his feet. “I’ll get a cab. Split da fare with yuh.”

I nod in the affirmative. But how can a guy with that much money be so cheap?

And on the ride over, I make up my mind. After all the research and all the arguments back and forth, I believe what Ray said. I believe it when he claims he never worked a day in his life. And I like the way he put it: ‘I loved what I did. To me working was the greatest things in the world. I still average twelve hours a day. I never felt I worked a day in my life.’

My cell phone rings. It’s Bill Blaire placing a bet on Harbinger. $10K. He must be crazy. No way Harbinger wins this fight.  I take the bet.

Go to Part 13 – The Big Match

Go back to Part 1

Comment on this article — Name and email optional

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 © 2012 John Jonelis – All Rights Reserved

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Filed under Biography, Characters, Chicago Venture Magazine, Chicago Ventures, Conflict, Entrepreneur, Entrepreneurship, Entrepreneurship and Politics, Innovation, Invention, Midwest Renaissance Fund

SIX REASONS WHY TECH BELONGS TO THE YOUNG

entrepreneur@nuWhy are young entrepreneurs taking over the tech world? Who gets these kids charged with the kind of passion that induces investors to open their tightly held wallets?  They lick their chops like old men lusting after eager young virgins. We’re going to take a closer look at this phenonemon.

I’m at Northwestern’s all-day conference put on by “entrepreneur@nu,” their in-house accelerator for student startups.  This session is called “Tech for Non-Techies.” I asked Bill Blaire to cover the keynote address. I want to be here, at this session. I want to hear Mert Iseri who’s on the panel. I’ve seen him present at the Levi mastermind group with his parner Yuri Malina and I already visited their skunkworks on the Northwestern campus for a closer look. These guys are recent grads, young and untested. But I’d be pleased to work with them no matter what the venture. (Well, almost.) Right now, they have something exciting by the tail. But if it morphs in an entirely new direction, it’s a good bet they’ll succeed just as well at whatever that is.  Consultants are gathering like wolves but Mert and Yuri don’t need them–not yet, as you will see.

So here I am to hear Mert but I’m in for a surprise. I see what looks like an entire panel of Merts. Yes, every one of them is as electric as my favorite young entrepreneur. They each come from a different background, a different expertise, a different culture. But the reckless abandon is there in all five of them—and it’s addictive. I love it. Truly I do. So do the investors.

THE JOCKEY OR THE HORSE?

My belief in two young entrepreneurs begs a familiar question. Which is more important—the jockey or the horse? I’m backing the jockey this time. Am I right?

I mention this to David Culver of Extraordinary Success – www.extraordinary-success.com. He responds with an interesting comment: “Last time I checked,” he says, “nobody won the Triple Crown, finishing without a horse.” He goes on to say he’s seen plenty of enthusiastic entrepreneurs flame out. But I’m rooting for these two jockeys anyway.

Mert

I believe the entrepreneur is more important than the product or service at the very early stages. I believe this to be true especially if the leader is young.  There’s no doubt these young entrepreneurs are smart–scary smart.  But more than that, they’re having a whale of a good time.  They think business is a blast–a rush.  They’ve found a new drug.  Instead of greed, they’re driven by joy.  Look into their eyes and tell me you want to compete with them.  I believe that the young have earned a number of advantages over those who call themselves “seasoned.” I can cite a few good reasons for these beliefs:

1—An early stage product and an early-stage business model will go through multiple iterations during the maturation process.  I’m talking huge changes happening fast. Seasoning doesn’t prepare you to handle that kind of rapid change—quite the reverse. But the young seem wired for it—especially students who have no responsibility outside of their class work, their venture.

2—These kids bootstrap on the shoulders of a university-provided ecosystem. Free labs. Free PhD-level advisors. Free prototypes. Plenty of collaboration. We’re talking about a new kind of accelerator. As lean startups and with modern technology they can get up and going quickly. It no longer takes 20 years and millions of dollars to get a company on track. Old folks are financially responsible. These kids have little to lose.

3—They live in a Bohemian community of highly intelligent and creative people, wild new ideas, and a spirit of shared innovation. They feed on each other’s ideas and enthusiasm. They multiply each other’s output. Avaricious old men don’t do that. We chain ourselves to our desks. If we ever come up with a new idea, we immediately build fences. And how many of us want to go back to our college-day living standards? University students don’t live under such burdens. Hey, they finally got out of Mom and Dad’s clutches—that’s enough for the time being, right?

4—The university now teaches them an important lesson: Permit yourself to fail. Failure merely affords the opportunity to change direction. It’s called “pivot.” Under circumstances like those, the process isn’t that scary. Philosophically, it’s a paradigm shift. I was never told to fail anywhere between kindergarten and grad school. Were you ever told such a thing?

5—These kids are untamed and impulsive. They learn a lot and learn it fast. But it’s what they don’t know that makes them fearless.   Old farts know better. Knowledge breeds risk-aversion.  That’s why we don’t start companies such as Google, Facebook, Apple, or Microsoft.

6—Do any of you recall the malaise of the ‘70s? No gas–no jobs? Cottage industries sprang up all over. It was a practical way to earn the money to buy peanut butter. That phenomenon is happening again. Unlike computer games and other labor-intensive projects, mobile apps and web-based services are a kind of cottage industry. So this isn’t really new—it’s just different. And it’s a whole lot more exciting than selling macramé at an art fair.

A NEW CLASS OF ENTREPRENEURS

These kids are wildly enthused—their creativity is launched by the fuel of an adrenaline rush. Sparks fly around them. Fireworks. One commented that he’ll probably live only another 15 years because he never sleeps. Is this sounding like a recipe for a new class of successful entrepreneurs? I think so. I’ll ask again:  Do you expect to compete with them? Think again.

NorthwesternHas Northwestern found a way to teach the joy of creative drive? Sure looks that way. And why shouldn’t these kids be enthusiastic? They don’t know any better. They’re fresh. Untried. No tire tracks across their backs. For the most part, they have yet to get knocked around by the world. And here they are—at one of the most prestigious schools on the planet, and they’re learning the entrepreneur game from professionals with every possible resource at their fingertips.

When I attended this school they taught venture capitalism. I remember the day they brought in a couple VCs. Those guys had a peculiar message. It was their job to steer us away from venture capital and point us in safer directions. The LBO was the big thing back then. Debt was cheap and easy. Times change. It’s not so simple to borrow any more. I’m convinced that the lousy economy is stirring up the recent explosion of new ventures. And it’s plenty lousy right here in Chicago. Adversity breeds creativity. Northwestern is nurturing it.

If youth is winning out over age and experience in this one arena, I cheer them on. What they’re doing was unthinkable when I was their age. And you have to admire them—they’re doing it so well. This is a highly creative response to tragic circumstances. Jobs are scarce. For many, entrepreneurship is the only career path open after graduation.

OUT OF THE MOUTHS OF BABES

I’ll give you the takeaways from what was a wildly dynamic session:

1 – BUILD A GOOD TEAM—You don’t have to be a tech wizard to work for a tech startup. The purpose of being technical is to build a scalable product that works. A good initial team is made up of three elements: a developer, a designer, and a “Husla” (the business end). These are complimentary skill sets. Each personality type is actively seeking the others. A world of opportunity opens up when you view the future this way. For example, a pure developer focuses on building a solid product but may not be sensitive to other issues. A startup also needs a designer to translate that code into a good customer experience. It also needs a businessman that can sell product and run the operation. Fill out your team with all three elements. One panelist admitted that he hadn’t taken math since HS. He stayed up all weekend and got help from students and a prof for a math test. He failed utterly. Then he visited a huge conglomerate and found his talent in the marketing process. Where do you fit? You need to discover what value you bring—your CORE competency. Work on that element. Translate it into language that customers and decision makers understand. Find somebody smarter than you are in the other areas you need—people that are passionate about your idea. Friends if possible because co-founding a new company is a close relationship. If you don’t know who to bring onboard, get a team of advisors to help you vet people. The university is a great resource for that.

2 – LEARN AS MUCH AS YOU CAN—One panelist developed a mobile app. But when he started out, he didn’t know anything about coding. So he learned all he could. Lots of listening. Lots of reading. Lots of playing with other apps. Another had to learn about payment processing to be able to empathize with customers. Another needed to learn about the medical industry and spent a lot of time searching on Google. If you know a little about disciplines outside your expertise, you make a good team leader. Don’t despair. Just knowing Java is awesome. Yes, top developers know lots of languages, but new languages come along all the time. Keep learning so you’re ready for the next opportunity. How technical do you really want to be? Learn the foundation. That understanding helps you find the tech people you need.

3 – GET A TECHNICAL CO-FOUNDER—You don’t need to be the company tech guru. Find a technical co-founder. Outsourcing all the development just doesn’t work. You need a CORE capability to do itty-bitty things and reduce the need to hire outsiders. Outsourcing everything uses up seed money too fast and isn’t the most efficient way to make small changes. It’s especially not a practical way to create a winning unified design. In-house technical competency allows you to put out fires on the spot. You can orchestrate your outsource money more intelligently. You stand a fighting chance of building an end product that isn’t a hodgepodge of aimless code.  Also, a co-founder can hear ALL of your ideas–every one of them.

4 – DON’T KEEP SECRETS—Inventors are typically afraid to tell anybody their idea. These kids believe that’s the wrong way to think. They say, there are ten people already working on your idea and they’re smarter than you. If your idea is so simple that it’s easily stolen, then it’s already been invented. These kids believe you should tell everybody your idea and get as much help and feedback as you can. In their world, entrepreneurs love helping each other. Any one of them may have 63 ideas here and 64 ideas there. Impossible to work on them all. They actually need to filter their ideas. What kind of company do YOU want? Are you passionate about solving THAT problem? Get yourself involved in the crazy growth of the Chicago tech community. If you have an idea, go for it. Here’s how far they’ve carried this philosophy: They say, “It’s better to grow the pie as a whole than to fight over individual slices. Instead of taking a fighting stance, gather a community and be the hub. Keep your friends close and your enemies closer. Make your competitors your friends.”

5 – HAVE A LARGER PURPOSE—Out of all the insights, this one startles me the most. It goes like this: It’s easier to get people excited about saving 100,000 lives than to get them to believe in a device. Be committed to the PURPOSE not the SOLUTION. Otherwise, when you fail you’ll give up. I’m talking about a cause—something you believe in passionately—a larger purpose that keeps you trying when others fail. It’s crucial to hold strong beliefs, loosely held. Go to the customer. Show what you have. If the response is, “I won’t pay for that.” go back and find another solution that serves the PURPOSE. Before working on an idea, ask: “Am I solving an important problem?” The problems that you have in your own life are probably the same ones other people experience. Learn from your personal pain and passion. If you’re working on a larger PURPOSE, other people have the right to work on it too. You will actually welcome it.

6 – TELL A GOOD STORY—Somebody at Northwestern is teaching these kids to tell to do that. They’re poised. They’re concise. They’re on message. I will add to that, “WRITE a good story.” In consulting, I use a complex mindmap that asks one embarrassing question after another. If a client can answer all the questions, I know it’s a real business. One question in particularly seems extraordinarily difficult for entrepreneurs and nobody had ever answered it to my satisfaction. Then Mert did, and got it right—an immediate and strong response—just as if he’d rehearsed it. Amazing.

CLOSING QUOTES

“My entire life, I wanted to solve problems.” – “A lot of people don’t want to be consultants—do what you love.” – “When you’re a student you can take big risks and try new things without knowing what you’re doing.” – “Are you scared? JUST BUILD IT. You’ll be depressed for a little while because you’ll fail, but when you finally succeed, there’s no feeling like it.”

My thanks to Northwestern’s entrepreneur@nu entrepreneur.northwestern.edu for a brilliantly organized event, all the way from advance parking to orange-vested staff that pointed me in the right direction to a conference sparkling with excellent planning and execution.

And special thanks to the young panelists of this session—a group of people who can teach us all:

Elizabeth McCarthy, Moderator

Jeremiah Serapine of GrooveBuggroovebug.com

Stella Fayman of Entrepreneurs Unpluggd and Fee Fightersentrepreneursunpluggd.com and feefighters.com

Zach Johnson of Syndio Socialwww.syndiosocial.com

Mike McGee of Codeacadamywww.codecademy.com

Mert Iseri of SwipeSenseswipesense.com

Check out their sites carefully. They’re just as polished as big money but kids on a shoestring built these.

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GO TO – THE GROUPON EFFECT – “Throw yourself into the fire.”

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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 © 2012 John Jonelis – All Rights Reserved

27 Comments

Filed under Chicago Ventures, Events, Kellogg, Northwestern

SOMEBODY KEEPS MOVIN’ MY CHEESE

As told to John Jonelis

Cheese HeadEarly morning on Clark Street, I run into Loop Lonagan, former floor trader on the CME, venture capitalist, and man-about-town.  It’s been about two months and my feelers tell me something is wrong with Loop

“Hey, long time no see.”  That sounds awkward and I try to follow with a joke.  “Been locked up in the joint or what?”  I intend the prison reference as tongue-in-cheek, but Loop’s reaction surprises me.  He staggers to a standstill and then sidles over to lean against a light pole.  When he moans, I know it’s an act.

Then he slowly nods.  “No mercy.  No grace,” he says in a voice that sounds more like a growl.  “Prison’s gotta be better than what really happens to a man these days.  Lousy do-gooder sister.  A guy lets loose just once and next thing he wakes up in the tank.”

“Which tank is that?”

Loop cocks his head and looks at me with bleary eyes.  I’m not sure if it’s a hangover or just a typical early morning.  “You didn’t hear?” he says, “That’s right, your house burned down.  The old battle axe signed me up for a life sentence.  Detox, then my own private room.  For good.  I call in a few favors and get outa there just before the big holiday celebrations in Honolulu.”

“You always seemed to hold your liquor before.”

“That counts for nothin’ these days.  Let it rip once—just once—and they think they got you pegged.  Anyhow, I’m back.”

“What set you on a binge?”

He growls again.  “Don’t get me started on that.”

We walk into an eating establishment and shed our coats.  Loop orders bagels and lox.  I do the same.  He finishes and orders another helping, then downs a second cup of coffee.  I can see it’s doing him a world of good.

Then he looks straight at me.  “Okay John, if you wanta know about it.  But I ain’t got a lotta time.”  He takes another bite of bagel.  “Somebody keeps movin’ my cheese.”

“You mean like in the cartoon?”

“Yeah.”  The waitress fills his cup.  It steams and he slurps it carefully.  “You notice that GDP is back where it was three years ago?   But it don’t feel that way, right?”

I shake my head and wait for him to go on.

“The numbers.  They’s all back to what they was but things is different—way different.  Same numbers but the way business delivers ‘em is different.”

Loop finishes his second bagel and orders a third. By this time he looks like the old Loop Lonagan and goes on:  “One thing—access to capital is all screwed up after the housing bubble and banks got a real attitude.  We move thousands of working jobs out o’ the country.  Hell—R&D too.  The stinkin’ Internet changes way the way we do business.”

I sit there in shock.  Is it possible that this news flash takes so long to hit him?  “Listen, Loop.  Everybody knows all that stuff.  Everybody.”

“Yeah, yeah.  But here we get to the crux.  We redefine success.”

I swallow some coffee.  Redefine success—first time I’ve heard it put that way.

“Success with no access to capital gets you nowhere any more.  The lousy Internet changes delivery.  Access to information and business processes change.  People depend on referrals even more to make transaction decisions.  Everything’s different and less people needed—a lot less in the good old US of A.  So we get massive unemployment.  It’s all structural.  Ain’t goin’ away.  Everybody gets redefined.”

I take my last bite of breakfast and think over what I’m hearing.

After another slug of coffee, Loop goes on.  “That means we redefine the planning process.  That means we redefine data sets.  Those now come from outside the business as much as inside.”

I hadn’t thought about that but it’s true.  I nod.

“Goals change.  Used to be you get your capital first then build a business.  Now it’s build a business then prove that you deserve the capital to grow it.”

That rings true for me as well.

“Collaboration changes, too.  Now there’s more going on between companies than inside them.  Lots more collaboration cross-country.  Overseas.  With customers.  Platform companies like Google and Facebook dominate what goes on with information—that’s why their shares get bid so high.  Then companies put together Content Management systems—can you beat that?”

“Loop, you may have noticed that my business card reads Content Specialist.”

“Yeah, but you’re a writer at heart.  Then I finally come to grips with what that term really means.  Manage what goes in the bag.  They used to call it marketing but now it’s about information more than product.  Trust the big guys to turn it into a science.”

Loop signals for the check and I ask a question.  “You don’t like it—the change, I mean?”

“Don’t make no difference what I like.  Gotta move with the market.  Anyhow, I put the past behind me with the help of my close friend Jack Daniels.  You know where that landed me—but that’s behind me too.”  He looks at his smartphone.  “Hey, I got a meeting.  Let’s have lunch later.  Gimme a call.  I got the low-down on the Zero Moment of Truth.  Good seeing you, John.”

And just that fast, he’s gone, and the check still sits on the table.

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.

© 2012 John Jonelis – All Rights Reserved.

40 Comments

Filed under Chicago Ventures

IS YOUR NEW COMPANY READY FOR THE REAL WORLD?

Business Network ChicagoAn Interview with Len Bland by John Jonelis

 This month, I’m fortunate to connect with Len Bland, who along with David Carman gives us BNC Venture Capital, a premier venue in Chicago for startup companies seeking funding.  BNC meets the first Tuesday of every month. http://bnchicago.org/  Even though Len projects a poised and reserved manner, he often quietly cuts to the bone with deep insights. 

 

Q—Let me ask you, Len, about your mission at BNC Venture Capital. 

A—Sure.  The straight answer is, we introduce investment opportunities to professional investors.

Q – Is there a higher level to that?

A – I think we’ve been successful fostering the growth of entrepreneurial activity in Chicago.

Q – You’re talking startups and new ventures.  How do you manage to come up with such good presenters every month?  (Editor’s Note—I’ve been attending personally.)

A – Actually, it’s amazing how many good opportunities are out there.  We’ve been able to choose interesting ones on a consistent basis.  We present no more than three entrepreneurs every meeting so each has enough time to give a meaningful picture of their vision. 

Q – That begs the question, who attends?                                                               

A – Meetings are open.  We get angel investors, early-stage venture capitalists, and private equity firms seeking add-ons.  Entrepreneurs attend as well as service providers.  It’s a friendly group but can be a tough crowd for a presenter that’s not prepared.  The questions from the audience sometimes get very pointed, but that makes for a healthy vetting process and a good learning experience for the presenters.  The ones that get coaching in advance from our group or others tend to do well.

Q – You keep a strict protocol.  Can you describe it in a few words?

A –Each presentation lasts 10 minutes, followed by 15 minutes of Q&A.  That includes the financial picture, not just the idea, so it’s brief enough to get an entrepreneur used to giving a fast-paced delivery and to enable the investor to make a decision on whether they would like to meet.  I think the driver behind the quality of the meetings comes down to five basic questions we always ask:  One—What is the product or service?  Two—Why will customers buy it?  Three—Why is this management team the best one to run the business?  Four—How does the company make money? And Five—How will the investor make money? That last one is important and entrepreneurs tend to miss it.

Len Bland

Q – You roll those off your tongue quite easily.

A – Well, I’ve been asking those same five questions for some time.  These simple questions form the basis for any business.  If you can answer all of them well, then you’re a real venture. If you can’t, then you’re not ready for the real world.  I actually poll the audience afterwards to find out if all five get across.

Q – I know you recently launched the Midwest Renaissance Fund and that portfolio draws in part from companies I’ve seen present here.  Is a synergy developing between those two entities?

A – Yes and we’re excited about that.  Our VC fund aims at a different kind of business than other funds and yes, we’ve screened a number of companies that we expect to fund through Midwest Renaissance.  http://www.midwestrenaissance.com/

Q – How does a person get invited to one of your events?

A – That’s simple.  Join the BNC VC Group Notification list at http://conta.cc/joinbnc.  We meet the first Tuesday of each month after working hours.  If you’re an entrepreneur and interested in presenting, contact us at vcgroup@BNChicago.com  The next meeting is January 3rd.

Q – Len, thanks for your time.  The food and bar are great.  I find the venue here at Polsinelli Shughart quite intimate with no empty seats.  http://www.polsinelli.com/ I’ve been enjoying your hospitality every month and have yet to be disappointed. 

A – Always a pleasure, John.

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Go to – BIG SHOT TALKS BIG STUFF

Back to – A PRICKLY INTERVIEW

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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.

© 2011 John Jonelis – All Rights Reserved.

6 Comments

Filed under BNC Venture Capital

THE YOUNG ENTREPRENEURS

An evening with legendary international investor, Loren Bukkett

by John Jonelis

Technori PitchI’m at the Technori Pitch event in Chicago standing beside the iconic figure of Loren Bukkett–the Prophet of Pekin.  Everybody’s seen him on the news but this guy blends into to any crowd. Unassuming. Cheap rumpled suit. A hundred percent Midwestern. I knew his wife before they got hitched—she almost posed for one of my paintings but somebody stopped her—probably Bukkett himself. He shakes my hand absentmindedly and tells me not to call him “mister” as he scans the milling crowd in the lobby of the Chase Auditorium.

“I don’t see anybody over 30 here,” he says. Then his famous grin. “Except for you, John.” He grins some more.

I shake off the fact that he still knows my name. Total recall, I guess. “What brings you here, Loren? I didn’t think you invested in new ventures.”

“The ticket’s only ten dollars and the pizza’s free.”

“You flew to Chicago for free pizza?” In what, his private jet? I know this guy’s frugal, but c’mon.

He stops scanning and looks me square in the face. I feel the power of intelligence behind that casual persona. There’s a reason people hang on this guy’s every word. You don’t make that kind of money getting lucky at the racetrack, so I’m all ears when he answers my question:  “Think about it,” he says, “Did you notice something unusual about the last two stock market corrections?”

“Yeah. Everything tanked. Fast and hard.”

He looks at me from beneath his bushy brows. “Do you recognize the importance of what you just said? Markets drop all the time. In the long run it doesn’t even matter. Tell me about the recent correlations with commodities and derivatives.” He waves a hand. “Of course, the big exchanges are right here in Chicago, so you know all about that. What do you see happening?”

The crowd gets loud and thick as I try to recall what I once knew about correlation coefficients. Finally, I blurt out an answer. “Just about everything dropped the same time, even the Futures.”

“You’ve put your finger on it. Correlations are all very close to one right now. That’s what’s so significant. Now look at all these kids. Do you suppose their startup companies move with the broader markets?  What’s their correlation?”

“So you’re shopping diversification.”

“For public consumption, I’m just enjoying myself. Have you tried this pizza?”

I’m doing zero carb so I look around the room to distract myself from the food. I hear this place holds 500. Looks like they’ll fill it. The crowd presses around us. Buckkett’s been recognized. A 20 something asks for his autograph, which he grants. Some people form a line. I gesture to him and push my way through the bodies. He follows me through a door and up some stairs to the projection room. “Thought it’d be quieter up here,” I say.

Bukkett looks around at the equipment. “This is nice. Any chairs?”

I push a couple to a place where we can see the stage then decide to prod him for inside information. “Listen Loren, some of these startups are only asking for a quarter million. Isn’t that kinda small for you?”

He glances at me—a look bordering on pity. “You actually mean to say you don’t get it?” He pauses but I have no answer. “Don’t ever forget what I’m about to tell you: These kids are the future of capitalism in this country. If I see something worthwhile, I’m glad to fund it. The good ones always go through several rounds. When we’re in one of those, we’re with it all the way to IPO or buyout, or we adjust the management team and fold it into the portfolio.”

“A 100% stake? What’s that come to?”

“You figure it out.”

Looks to me like he’s talking millions,  then the stage introductions start. I was right—every seat taken. Last month was standing-room-only so they moved to this beautiful auditorium. Clay Neighbor is onstage priming the audience, saying what a special place Chicago is to do business. We all know that. He gets a round of applause.

John Paski gets in a plug for the next Chicago TechWeek. At least half the audience raises their hands when he asks who’ll attend in June. That one will be on two floors of the Merchandise Mart. Cripes. 500+ speakers, 200+ sessions. Website www.techweek.com

Seth Kravitz—Tech guro and driving force behind Technori is speaking. He’s set up a Q&A method using text messaging. The audience gets to vote on what questions get asked.

Time for the presentations. Fifteen minutes each. I ask Loren for his take on what he hears.

LockBoxer

Jennifer Morehead – jmorehead@lockboxer.com

The company helps people create a home inventory and price their possessions. Type in your items, upload photos, and prices automatically post to your list from the company database. That’s valuable for insurance, for sales, and for the taxman who audits your giving. It places a hard valuation that stands scrutiny.

We hear about the recent WSJ profile of the company and the monetization plan. Their site links to the Salvation Army and Google. Major insurance agents are signing up for a pilot project to launch in January. Lockboxer is secure like a safety deposit box—that’s where they got their name.

I poke Bukkett. “Loren. Loren.  What do you think?”

He leans over to me. “This gal is comfortable, even though the tech booth people fouled up her video. I like the idea. Home inventories are a terrible nuisance. Have you ever done one? There’s competition out there but that just proves how good the idea might be.”

BankBadger

Brian Busche

Want to teach your kids to understand money? Want to make banking fun? Want a simple way to do it? In this online bank, the parents are the bankers and control all aspects of the experience.

They use Badges instead of dollars and each badge can represent any amount the parents choose. The format avoids legal restrictions so kids under 13 can participate. Wow, I wish this was around when my kids were small.

It’s is a freemium model. They source parent’s names through Facebook. When one million users sign on, they’ll launch a premium service, perhaps with a stock market.

Bukkett: “Look at this one. He’s bootstrapping so far. It’s is a minimally viable project that’s already up and running. He’s letting it evolve. That’s how these kids are beating the big companies.”

Utellit

rishi@utell.it

Text and social media are dominating communications and they’re here to stay. Utellit enhances text messaging with voice. “Shoutouts” take the place of “Tweets.” Not only that, the system converts voice to text and posts it on Facebook. Other features make the app fun, including full-motion cartoons.

So I’m thinking, hey, I can text and I don’t need to fool around with that tiny virtual keyboard. Sounds good to me.

Bukkett makes no comment. I don’t know if that means he’s not interested or already in.

jumprope

www.jumpropetheapp.com

Loren sends me out for pizza and when I get back, he’s smiling.

Bukkett: “Look how fast these kids move. They’re launching this thing tonight. Great pitch—Don’t you get sick of waiting in lines? These guys make it possible to cut in line and the price depends on the length of the line. It’s mobile, social, local, and free to download. It interfaces with Facebook, Twitter, and email. Think this one might go?”

I can’t believe Loren Bukkett asked me a question like that. “You just like it ‘cause it’s free.” That raises a laugh out of him.

Berst

Matt & Kaleb Foster. Email: team@berstapp.com  Website: http://berstapp.com/

Where are your friends? Want to know? Want to text your group and share photos from your phone? Imagine a social media site that’s mobile and aggregates Twitter and Facebook with GPS. With Berst, you STAR members to your private group or use the search function to form an elastic group on the fly. At a sporting event, text chat becomes group chat. This one’s both Android and iPhone ready with Windows and Blackberry coming. It’s already in the App Store.

Bukkett: “This falls into the category known asl the creepy app because it keeps track of where you are. Young people don’t seem to mind it but the old folks do. They don’t like to be hunted.”

WizOra

Dan Devias, founder.

This company started at the recent Chicago TechWeek. The winner of the Bloomberg tech competition, it already has thousands of followers. It asks you five basic questions and pulls personal info from your social media sites, then feeds you recommendations for food, fun, savings and more. You rate the restaurants and see ratings posted by others. Over time, the software learns everything about you and gives highly targeted recommendations. It’s web based, with mobile on the horizon.

Loren taps me on the shoulder. “See how creepy it gets? Their asset is the knowledge of everything about you.”

“So you don’t like it?”

“I wouldn’t put it that way. Never let personal bias stifle dollars.”

Junto

Marcy Capron, Joe Poeschi, Matt Wanske, founders@thejun.to

Junto is the everyman incubator. It helps non-techs apply, fund and build their venture. Is your idea any good? Are eager users waiting? Can you build it? Can you get funding? What do you do next?

Junto helps you identify a minimally viable product then connects you with a community to crowdsource R&D, testing, mentorship, and funding. The community votes on ventures and funds them. It takes the risk out of a startup.

Most applicants are MBAs with good business plans. Junto helps these not-technical clients round out their offering. This company launched just nine hours before the presentation. They already have three startups. Junto doesn’t take equity from users, but rather a 5% share of the profits.

Speechless, I turn to Bukkett.

He nods and gives me a knowing look. “You help companies write plans and get funded, don’t you? This could run you out of business.”

We slip out into the pleasant evening air. Loren invites me for a hamburger. We wind up at Uno for a deep dish and beer.

The next Technori Pitch is Nov 29, 2011, 6:00 PM – 8:45 PM, Chase Auditorium. Sign up early—it’s bound to sell out. http://www.technori.com/

That’s what I heard. What did you hear? Comments welcome.

John Jonelis

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.

© 2011 John Jonelis – All Rights Reserved.

43 Comments

Filed under Chicago Ventures, Events, Technori

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.

15 Comments

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

THE MIT WHITEBOARD

John Jonelis

White Board Challenge

MIT ENTERPRISE FORUM – CHICAGO
We’re planning the new season at MITEF–a good time to reflect. To me, this is a premier event:

As I heard it –

The Challenge: 
1.) Present an overview of your idea in less than 5-minutes
2.) No slides, no assistants—White board only.

An interesting note—all four winners received coaching from my colleague Terry Flanagan. 

CommuniTeach – Sarah Press

This was a sparkling presentation with an imaginative collaborative approach to education-on-demand.  It might be called a “Meet-up.com for learning.”  They provide free learning communities.  Clients sign up and create profiles with skills they want to learn and skills they want to teach.  Teachers and students meet on a the web.  The pilot project is scheduled for this summer. The company goes beyond the not-for-profit scheme and is also testing private paid networks for corporations.  Companies spend 140BB on training each year, $40BB on training consultants. Communiteach is a way to use existing employees to do the jobs that are typically hired out.  It builds a social network between employees.  Communiteach has gained CNN exposure and interest throughout country. They offered an invitation to their audience to learn or teach what they want. The company is based in Chicago and Pittsburg.  Will they be able to make it a reality?

CVT Innovations Corp.  – Thomos Capote

The technology – Continuously variable transmission for heavy equipment to offer a 20% fuel savings to the nation’s truck fleet and other large equipment. That’s huge. CVTs are already available in light cars but so far have not proven durable enough for heavy equipment because exisiting CVTs use pulleys and belts that are prone to failure.  Solution—a patented design replaces pulleys with toothed gears.  Belts are replaced with chains.  Result—The CVT produces high torque and can be used in SUVs, trucks—even ships.  The  US consumed 200BB gallons/yr on the road.  Cut that by 20% and you’ve solved a big part of the energy crisis.  The biggest gain for the country as a whole is to install CVTs in large fuel-burning vehicles.  They plan to offer CVTs to existing industries and license the technology.  CVT Innovations profits from royalties and consulting engineering.  Opportunities are forseen for joint ventures.  The application isn’t limited to heavy equipment since CVTs are lighter than automatic transmissions and could replace existing units in light cars. Can they gain industry acceptance and attention?

M.O.R.E. Live – Urba Mandrekar/Blak Wolfe

Technology—A mobile operating-room.  The goal is to improve how you respond to natural disasters.  During the Haiti earthquake, hospitals were overwhelmed. People flooded the city spreading disease. M.O.R.E. deploys modular tents to deploy and assemble as portable hospitals in remote locations.  The US Military has a DRASM tent which weighs 5-10 tons, needs a truck to deploy, cost 100K and most importantly—cannot reach remote locations.  M.O.R.E. has a better tent.  It weighs only 5,000 lb and breaks into components to be carried as backpacks into remote regions.  The cost is only $10K per unit.  Each tent features 600W of self-sustained power, LED lighting, an air compressor, an operating table, and a medical cabinet.  The roof is designed to create a sterilized sheet of air.  It’s a complete mobile operating room, easily transported and used in remote locations.  In a world of natural and man-made disasters, can they deploy this technology and help the world?

Fun Captcha – Bryan Arturo

This is an imaginative idea offering by a strong speaker—interactive Internet advertisements based on captchas. (Captchas are warped text posted by sites to differentiate humans from computers.)  For example: Post an ad showing a bottle of Coke next to a tabby cat. Question—“What’s next to the Coke?” You answer—“Cat,” or you click on the cat.  Result—Coke has scored an ad.  It’s fun. It’s visual. It attracts attention.  It encourages clicks.  It’s a new way to advertise on the Internet. Do you see its potential?

Energy Recovery Technologies – Ron Fleckman

The technology—Re-cycle outgoing HVAC to reduce energy used in the heating/cooling cycle.  Their technology is called ERV—Energy Recovery Ventilation.  It increases energy efficiency in large buildings.  HVAC is the largest hog of energy in commercial buildings.  There is a need because the existing technology hasn’t been effective for 30 years.  ERV separates both heat and moisture from air.  It’s a simple process with high reliability high and 90% efficient.  Efficiency is monitored and transferred via web for remote management.  It’s already tested in two stores—Florida and Chicago, and succeeded in cutting energy in half.  ERV carries an estimated nine month payback.  They see a 14BB overall market.  How much of that market can they capture?

Fear Experiment – Saya Hillman, Mac’n Cheese Productions

Saya told stories about her to-do list—all the things she wanted to learn to do.  Story #1 was to learn to dance.  Using email, she sourced 50 people that considered themselves bad dancers.  She rented a dance studio and hired an instructor.  They learned and at the end of the training, performed on stage for $17/ticket.  Story #2 was for those who believe they are bad at improv.  Same model.  Story #3 was all about leveraging the previous groups.  Called “Fear Experiment,” she used the previous groups to teach underprivileged kids to get over their fears.  At the end, they put on a big show.  Can she make headway as a non-profit or monetize the idea for the consumer?

Blood Vessel “Bulls-Eye” Locator – Colin O’Donovan

Technology—Creates a “bulleseye” to target for a hypodermic needle.  If you’ve ever had a bad experience with nurses and needles, listen up.  Today, medical professionals locate patient’s veins visually and 77% don’t find the target on the first try.  Nine attempts are typical and it can easily take 45 min.  A critical patient can die by that time.  This new offering uses an electronic chip installed in a patch to give a bulls-eye location for needle. The marketing strategy is like the razor blade model.  Low up-front cost, revenue on the disposables.  The product sells for $20, profit is $16.  If there are 15 MM procedures, that equated to 250MM in revenue for the entire market.  If they only capture 1% of the market, they still gain 8MM in gross revenue. Do you want your next shot to use this technology?

I-Go Peer-to-Peer Car Sharing – John Brophy

Problem—It costs $8K/yr to own a car in Chicago when you add up insurance, gas, maintenance, tickets, parking, tolls, cost of lease or purchase. Solution—A peer-to-peer car sharing service using cell phone or laptop.  You make a reservation. A car in your area gives a signal.  You use the car and bring it back full of gas.  Currently 8K cars are shared by 500K people.  They expect 4MM members by 2013. The company doesn’t maintain a fleet because members both borrow and share.  To share or borrow a car, you set up a profile online. Then you rate your experience. Their competitor—Zip Car, doesn’t have peer-to-peer rental.  Will people be willing to share their cars?

Energy Distribution Unit (EDU) – Eduardo Sampedro

Technology—A solution to the problem of standby energy consumption (wasted power). It’s modular and scalable.  On a small scale, it’s a portable power strip on steroids.  On a large scale, it’s a central unit that can calculate metrics and transmit them by Internet to provide statistical analysis of power use in a  homes and offices.  The existing technology is expensive.  These modules are only $15-$45 each. Is the world ready for a better power strip?

Green Zephyr, Inc. – Michael R. Weinman

What’s on your table and how did it get there?  Goal—to deliver fresh produce to your table faster.  Solution—Green Zephyr can piggy-back four trucks per railroad car—a low-tech solution to fast shipping.  The company is already profitable. I like the words, “Already profitable,” but what kind of return can they generate? 

That’s what I heard. What did you hear? Your comments are welcome.

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GO TO – MIT WHITEBOARD CHALLENGE

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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.

5 Comments

Filed under MIT Enterprise Forum