The Silicon Prairie

This Blog has Moved!

2011-01-05T08:36:00.002-06:00

Due to a variety of reasons, The Silicon Prairie blog has been moved. The new blog is titled Growth Equity and can be found at http://growthequity.blogspot.com. The focus will continue to be more on Chicago and the Midwest, but would like to cover building and investing in all high growth, earlier stage businesses. Please visit the blog at its new home and support entrepreneurship in the Midwest!

Best,

The Eight Best Questions We Got While Raising Venture Capital

2009-11-20T14:22:00.001-06:00

It's been awhile since I've posted anything to this blog, but this article makes me want to start up again:

The Eight Best Questions We Got While Raising Venture Capital

Now, I gotta hustle over to the Chicago Booth Entrepreneurship & Venture Capital Conference!

Chicago Booth wins Entrepreneur's Choice Award at National VCIC

2009-04-20T08:56:00.004-05:00

Congrats to the team from Chicago Booth who won the Entrepreneur’s Choice Award at National VCIC this weekend! Here are the full results:

VCIC 12 International Finals Results

1st - UNC Kenan-Flagler
2nd - Oxford Said
3rd - MIT Sloan
Entrepreneurs’ Choice - Chicago Booth

TARP for Dummies

2009-03-25T16:24:00.006-05:00

I thought this was pretty darn funny (click on picture to see the rest):

GrubHub Raises Series B

2009-03-25T13:15:00.002-05:00

GrubHub, an online service for ordering restaurant takeout and delivery meals, has raised $2 million in Series B funding. Origin Ventures and Leo Capital co-led the round, and were joined by return backer Amicus Capital. The Chicago-based company will use the capital to expand its services to Boston, San Francisco and New York City.

I had the honor of competing against these guys in the University of Chicago New Venture Challenge a few years ago when I was an MBA student (they won). Congrats on the continued success guys!

Congrats to Chicago Booth on VCIC Win!

2009-03-20T23:13:00.006-05:00

I know that most of us are focusing heavily on our March Madness brackets right now (go Kansas and Syracuse!), but I wanted to send out a congrats to the Chicago Booth team that recently won the regional VCIC competition at the University of Colorado (see VCIC brackets above). That team will now move on to compete in the international competition in April. For those of you who aren't familiar with the VCIC, it is a great program for MBA students...it is essentially a venture capital case competition.

Congrats to all the regional winners, and good luck in the finals!

Chicago PE Firms Raising Capital

2009-03-19T07:56:00.003-05:00

The following blurbs on Chicago PE firms raising capital comes courtesy of PEHub:

CIVC Capital seeks $575 million for its third fund, with a hard cap of $700 million. The fund, called CIVC Partners Fund IV, was formed in May of 2008. CIVC Capital’s prior fund had $650 million in commitments and closed in 2003. The fund hired UBS as a placement agent in 2008. CIVC is based in Chicago and invests equity slices of between $15 million and $85 million in business services, financial services, marketing and information services companies.

Wind Point Partners has raised at least $842 million in commitments toward its seventh fund. The fund, which has a target of $1.15 billion, according to regulatory filings, has at least 43 investors. The firm was slated to hold a first close on greater than $700 million, which is greater than its entire sixth fund, around this time last year. Wind Point has offices in Southfield, Michigan and Chicago, and 60% of the firm’s deals are add-ons.

Linden LLC is in the market with Linden Capital Partners II LP. The fund seeks $300 million, a slight jump over its prior, effort, a $200 million pool of capital which closed in 2006. The firm, based in Chicago, grew out of First Chicago Equity Capital, and invests in mature health care and life sciences companies.

AIG Bonus Stats

2009-03-19T07:50:00.005-05:00

Some facts to chew on:

The top recipient received more than $6.4 million;
The top seven bonus recipients received more than $4 million each;
The top ten bonus recipients received a combined $42 million;
22 individuals received bonuses of $2 million or more, and combined they received more than $72 million;
73 individuals received bonuses of $1 million or more;
Eleven of the individuals who received "retention" bonuses of $1 million or more are no longer working at AIG, including one who received $4.6 million.

There are enough people on the squawk box providing their views on the AIG situation, so I'll just pass along the facts and let you form your own opinion. However, my definition of a "bonus" is that it is only contractual so far as you meet performance goals...

...oh, and by the way, the bonus plan details have been released online. It appears that the employees of the financial products group had a 30% carried interest in trading profits (and most likely did not have to put much of their own capital at risk). I guess we know now where some of the Enron traders ended up after the fall of that house of cards...

How to Tweet Your Way Out of a Job

2009-03-18T10:27:00.004-05:00

Love this...file under "things that make you go DUH!"

How to Tweet Your Way Out of a Job

Classic...

What, you mean Facebook's valuation is lower than what people previously thought? Really?

2009-02-13T07:00:00.001-06:00

Interesting snipped in one of the Wall Street Journal's blogs today:

"Remember when Facebook was supposedly worth $15 billion after Microsoft took a tiny stake in the company in 2007? According to The Associated Press, lawyers arguing over a legal settlement with another social network, ConnectU, revealed Facebook’s own appraisal had priced its privately held stock at $8.88 per share, giving it a market value of about $3.7 billion. That figure was determined in October 2007, just before the economy went into a tailspin."

A related story in the AP tells of the backstory...all pretty interesting, but all take a backseat in my opinion to "what are these guys thinking?" in terms of valuation...when Facebook has revenues in the range of $300 million (impressive, but a valuation of over 12x revenue just seems nuts).

And of course, that again was October 2007. What do you think the valuation should be now...given the state of the economy and the fact that many people still question whether or not advertising on Facebook is even effective at all? At $300 million in revenue, I can't imagine how you make a case for a valuation anywhere north of $1 billion...but that's just one guy's opinion.

Chicago Booth VCIC Competition

2009-01-29T08:09:00.005-06:00

I had the honor of participating as a judge in the 2009 Venture Capital Investment Competition (VCIC) at the University of Chicago Booth School of Business last Friday. It was an extremely well run competition (thanks to Ulrika Haug, the student who coordinated the event), with a very strong showing by both the student teams and all of the entrepreneurs. Congrats to the winning team, Bluth Venture Partners:

Greg Foster

Jasper Platz

Jim Shilkett

Josh Marehbian

Lisa Pinsley

Matt Mettler

Bluth Venture Partners will be representing the Chicago Booth at the VCIC Regional competition in Boulder, CO on February 13.

Congrats to the winning team and all those who participated for doing such a great job, and special thanks to Ulrika and her team for such a well run event!

Illinois Venture Capital Association is Now LinkedIn

2009-01-24T12:26:00.002-06:00

The IVCA recently launched the "IVCA Forum" group on LinkedIn. This group is intended for members to stay in touch with each other, send out requests for help or share information or issues that could help another member.

For more information: IVCA Website

Northwestern Law School Small Business Opportunity Conference 2009

2009-01-24T12:09:00.005-06:00

The Small Business Opportunity Conference is Northwestern Law School’s annual conference exploring various entrepreneurship and small business issues. The Conference will be held on Saturday, February 28, 2009 and will feature David "Buzz" Ruttenberg, JD ‘66, founder of the Belgravia Group, Ltd., as the keynote speaker, as well as panels and workshops covering several aspects of entrepreneurship. These include, among others, women entrepreneurs, gettig started, the state of the venture capital and real estate markets, as well as an examination of the causes and factors affecting our current recession.

The goal of the Conference is to provide its attendees with cutting-edge insight on entrepreneurship and small business issues, as well as opportunities to network with other participants in this vibrant sector of the economy. The Conference’s participants and attendees will consist of start-up executives, aspiring entrepreneurs, financiers, service-providers, thought leaders, and students from business and law schools.

Admission is free for those who registered online, or $10 at the door.

For more information.

To register.

Can you feel it?

2009-01-22T12:30:00.005-06:00

The weather is above zero degrees and the sun is out. It's a new year. We have a new president. And so I ask...how is everyone feeling out there? Seriously, I'm curious to hear...is it "Yeah, baby!" or do you still feel like you've lost your mojo? (I'd tell you how I feel, but I would hate to taint such a scientific study!)

TECH cocktail Chicago 10 Coming at Ya

2009-01-22T12:20:00.005-06:00

For those of you who have not attended a TechCocktail event before, you are missing out.

Date: Thursday, February 19, 2009
Time: 6:30pm - 9pm
Place: John Barleycorn’s - 3524 N Clark (where it always is)
Cost: $0 (per usual)

RSVP Online (but hint...if you get shut out, show up anyway!)

B-O-O-O-O-O-T-H

2008-11-10T15:41:00.003-06:00

Well, I certainly have been a slacker in terms of posting to my blog recently (I'll blame the economy, since everyone else is blaming it for all their issues as well). However, last week David Booth made history by donating $300 million to the Chicago GSB (a combination of cash and equity in his fund)...worth dusting off the old blog for such news!

Alan Greenspan may have spoken up and admitted, "Um, I guess markets actually aren't perfectly efficient!", but nonetheless Booth proves that if you can apply the efficient market theories to an investment thesis, you can make some serious cash. As a result of the generous gift they have renamed the school in his honor. Apparently it is the single largest donation to any business school anytime and anywhere.

David Booth, you da man!

For more info, visit the Chicago GSB....I mean the Chicago Booth website.

Ron May gets [Journalistic] Religion?

2008-07-22T22:30:00.003-05:00

The latest "May Report" by Ron May details a meeting he had with a roomful of his readers to get feedback on him, his report, and his "brand". File this one under "be careful what you ask for as you just might get it":

The May Report 07/18/2008

Let's hope he takes the suggestions to heart...everyone seems to hate to both read and (ironically at the same time) hate to miss his newsletter. There is definitely no shortage of things he can do to improve the format and readability of his report. That should be easy. Changing the way he behaves at events...I'll believe it when I see it! For the benefit of his readers (of which I am one) and for him, I hope he changes all for the better...with his level of commitment and passion for "the scene" here in Chicago (and an amazing amount of availability to attend every function under the sun), TMR could be really valuable to all. We'll see what happens...

Is it better to choose the horse or the jockey?

2008-07-14T07:07:00.001-05:00

"When a management team with a reputation for brilliance backs a business with a reputation for bad economics, it is the reputation of the business that remains intact."
--Warren Buffet

The Economist recently had an online article highlighting Prof. Steve Kaplan's research on venture capital. If you haven't heard about his research, its worth a read. I tend to agree with Matt McCall when he says "I'd like to have both!"...but still the research does make you think (and isn't that really the point?).

Bing Takes On Consumer Confidence

2008-07-13T13:00:00.004-05:00

There's a great post over on Stanley Bing's blog about how our (negative) perceptions of the economy (driven by the media in search of advertising dollars) are making our dwindling consumer confidence and economic depression a self-fulfilling prophecy.

Keep in mind, Bing is the back-page satirical writer for Fortune Magazine...a lot of people seem to be pissed off and commenting on his blog, taking him a little too literally.

I, however, love his smart-ass style...and as often is the case with sarcasm, it is based on truth. I made some comments similar to his sitting around the lunch table at a private equity conference several months ago, and people looked at me like I was nuts.

Read it. Think about it. Spend less time watching CNBC and more time doing something to benefit the world (or yourself...hey, its your prerogative)...the sun will rise tomorrow!

As Pacino said in the great Oliver Stone football movie, "On any given Sunday, you're gonna win or you're gonna lose!" In any transaction there is going to be at least winner. Figure out how to be that guy...

2008 Chicago GSB New Venture Challenge Winners

2008-07-12T08:06:00.003-05:00

For those of you who missed it, here is a nice article the recaps the winners of the 2008 Chicago GSB New Venture Challenge winners:

http://www.chicagogsb.edu/news/2008-05-29_NVC.aspx

I was unable to attend the finals and did not see the presentations of the winning teams, so I don't have specific comments on who was picked this year, but I will say this...as in recent past years, many of the winning or finalist teams prove that it is more the ability to present, sell, and (prove that you can) executive on your idea vs. coming up with the most novel and unique concept. Lots of the winning ideas in the past few years have been less than "groundbreaking, patentable" concepts (e.g. SAT prep, an online portal for ordering food, credit card processing, etc.). I'm not knocking these companies (in fact, as a past NVC contestant who did not win, I have huge admiration for what they have accomplished!), I'm just saying that if you have an entrepreneurial idea that you don't pursue because someone has already "been there, done that", you should think twice. I mean, hey...Yahoo and AltaVista were already household names in search engines when the Google business plan was written up, and those guys have done OK....

Logitech Webcam for Mac (about friggin time!)

2008-07-10T21:15:00.001-05:00

I've always been one to have a wide variety of tech around me. Know my history, and you know that I'm a geek at heart. Last December I decided to pop for a new home computer, and went all out on a new Mac Pro desktop with the works. Spent a pretty penny, but the plan was to use this not just for working from home (in XP/MS-Office using VMWare) but also as a place to edit my home movies (using Final Cut) and making home recordings (using Logic Express). After getting it all setup to my liking, I tell you...I couldn't be happier. After years of using a KVM switch and multiple computers (so I could access a Mac, Windows PC, Linux, laptop, etc.), I LOVE the ability to have a machine powerful enough and software good enough to run a virtual environments (experience in the past running Linux via VMWare was brutal).

However, after purchasing the best that the Mac store had to offer, I made a horrifying discovery. Not only does the Mac Pro not come with a webcam (which I knew in advance), but there is no good option for adding a webcame to a Mac computer. What the f@#$! When you drop so much money on a machine, I could not believe what I was hearing. Talked to the Mac store folks. Researched it all over the Internet. Just could not believe it!

Yes, Apple made an external iSight camera at one time...but for reasons that I still cannot figure out they no longer offer it. You can buy a used one on eBay for a premium, but that just doesn't sit well with me.

Instead I opted for a Logitech camera that was "supposed" to work. I was able to find drivers on the web and get basic functions working, but quality sucks because the software that really makes the thing perform well (adjusts for light environment, cuts out sound feedback, etc.) only runs on Windows. There are a few Mac-specific webcams, but from what I've read on the Internet the quality isn't much better on those.

It should be noted that if you own one of those (cheaper) Macs with a built-in camera, you don't have this problem. Silly me, I bought their premium product...and now I'm screwed (Skype with my parents so they can keep in touch with their grandkids is one of main uses of the computer these days). I think this ranks up there with one of the bigger screw ups by Apple. Way to take a PC convert and make him wish he'd bout that souped up HP instead of the Mac Pro...

However, now Logitech has (finally) released a Mac version of one of their better and more popular webcams. About friggin time! I'm ordering one of the QuickCam Vision Pros on Amazon today...huge opportunity for Logitech if the product really is as good on a Mac as their products are on a PC. Will let you know how it works out...

July BNC Venture Capital Luncheon

2008-07-09T00:05:00.014-05:00

I had an opportunity to drop by the ITA for the first half of the BNC Venture Capital meeting today and watch the first two presenters:

Zota Green Tea Soda

Given the recent success of drink companies like Izze Soda (bought by Pepsi in 2006 for something like $75 million, which was about 3x revenue) and Honest Tea (40% bought by Coca Cola in 2008 for about $40 million, giving a valuation of greater than 4x revenue), it seems like beverages companies are being started in garages almost as often as web start-ups these days. The production side can be easily outsourced (in fact many of the new bev cos all use the same bottler up in Minnesota, Cold Springs), so what the current batch of bev entrepreneurs are really challenged with is (a) coming up with great flavor profiles, (b) setting up distribution (i.e. sales and marketing), and (c) figuring out how to stand out from the crowd. Not easy tasks...

Anyway, I think Zota is off to a good start. They are a bit too early / too small for my firm to invest in at this point, but if you are looking to get involved with and invest in a beverage company, I would take a serious look at them. I tried their product today, and gotta say that it was really, really good. My only problem with the product is that it is really more akin to green tea pumped up with some (lots of?) sugar water, as compared to something like Izze that gets its sweetness from real fruit juice. It just seems that people going for "natural" and "organic" green tea benefits won't want to load up on so much sugar (but I could be wrong). However, then again, it was actually very tasty...

J. L. Powell

J. L. Powell has the kind of clothes that most guys only wish they could wear (i.e. afford). It is really, really nice stuff. If you currently shop at Brooks Brothers, and you want to take it up a notch or two, go shop at J. L. Powell. Check 'em out...they primary sell through their catalog, but also sell online and through their flagship store in Michigan. And they are also raising money, so if you really like the product, you could also be an investor. Not only do I really dig the clothes, but when you go to the web site, all the model shots appear to actually be the founder Josh Powell himself (how's that for livin the brand?).

Thanks to Len Bland and the BNC for setting up the meeting...and also to the ITA for hosting. Len's format for these meetings is first the entrepreneurs pitch to the group, and then they leave the room so the group can discuss...and then Len brings the entrepreneur back for the room to share their thoughts. It is a nice way to practice your pitch and get some good feedback.

Hyperbole and Overstatement: The Great Credibility Killer

2008-07-08T18:01:00.003-05:00

Amazon.com was sued back in the late 1990's by Barnes & Noble for saying it was the "world's largest bookstore". Amazon may have had a longer list of books for purchase, but B&N claimed that it actually had a larger physical selection and stock of books (i.e. Amazon simply passed a lot of orders through to book distributors and did not stock the items, so B&N said that they should not count). At least give Amazon some credit for being right if you looked at it a certain way.

However, I see a lot of plans that use so much hyperbole and overstatement that it starts to damage the credibility of the plan's author. To use an example in the public domain, there was a story in PEHub today about a company called DriverSide receiving a seed investment. I know nothing of the company, so I scanned to the "About DriverSide" section that is at the bottom of the press release. It starts out...

"Founded in fall 2007 by Internet Entrepreneurs Trevor Traina, Adam Jackson, and Jad Dunning, DriverSide is the first Web site specifically designed for automobile owners."

Uh, gee...I've not been specifically tracking automobile owner focused web sites, but I'm pretty sure that without even looking that the following sites exist, are focused on that target audience, and were around before 2007:

Cars.com
Autotrader.com
Carmax.com
Edmunds.com
AAA.com

In fact, if you type "automobile" into Google, you get 159,000,000 results. Not to get all Andy Rooney on these guys, but you get my point...they may have a great service that exists for drivers, but upon finishing that first sentence my brain automatically goes "Are you kidding me?"

One of the most important things (to me, at least) when presenting your plan is credibility. You only have one chance to make a first impression. It would be much, much more powerful to start out with, very simply "Pain point ABC exists and we solve that problem with X, Y, and Z...which are superior to current solutions because of points 1, 2, and 3."

Don't try to impress by saying you are the "first", the "premier", or even the "best". You may be faster, better, or cheaper...but say why that is important and how it is defensible. Most important...be credible!

Hope that helps...

Term Sheets vs. Intent

2008-07-08T08:22:00.003-05:00

There's a really nice post on Rick Segal's website about "intent letters". Here are my comments...if that interests you I suggest you go read the original post.

I agree that this "letter" is a great approach, really in the best interest of both parties. I would also add that the later stage the company and round of funding, the more standard this practice is. It is fairly common on growth equity deals, and pretty much standard on acquisitions, for interested parties to submit a non-binding "indication of interest" letter that includes the following sections:

Valuation (often stated as a range, but people just view the high end as the same "best case" number anyway)
Structure (key points that will go into the term sheet)
Financing (when debt is applicable to the deal)
Key Due Diligence Items
Timing and Approval Process

Of course, a lot of times these letters are required because of a more formal process being run to raise money (i.e. investment bankers)...but it has the same positive effect as what is outlined above. It's a good way to get a base of expectations on the table and be judicious with everyone's time...not to set terms in stone, but if two parties are simply way off in terms of thinking, best to not waste everyone's time, or at least focus the conversation on some key "make or break" points.

Don't Forget the Executive Summary!

2008-07-04T09:41:00.002-05:00

I spend a fair amount of my time screening investments, and it continues to amaze me how many people send us a 50 - 100 page business plan with no executive summary. Venture capital and private equity firms look at a lot of deals...a TON of deals. The goal of the executive summary is not to get me to invest, but rather to make me interested enough to read past the executive summary. There is a really nice write-up on what makes a good executive summary at Garage Technology Ventures, also available on Guy Kawasaki's blog (though the content is from his colleague Bill Reichert).

Here are my favorite points from their write-up:

The job of the executive summary is to sell, not to describe (see my earlier point...it's all about getting me to go beyond the executive summary vs. shooting this thing on the spot)
You have about 30 seconds to grab an investor’s interest (again, we get a ton of plans to read)
What specifically are you offering to whom? (no point in being abstract or talking in hyperbole here...just lay it out)
No matter what you might think, you have competition (there is no better way to destroy credibility than through bravado)
Understand what your real, sustainable competitive advantage is...and state it clearly
How specifically are you going to generate revenues, from whom, why is this scalable, and what are your projections and metrics? (you'd be surprised how many people fail to articulate this...and again, wild projections are a good way to destroy credibility)
How much money are you asking for...AND what will it be used for (this is one place where a little extra detail goes a long way, i.e. a list of key marketing initiatives is way better than "we need $5 million for marketing")

Be sure to read the whole post on Guy's blog...lot's of gems in there, for example his point on "purple farts". Also, as my firm invests in later stage deals than Guy's firm, let me also throw in a few more points about growth equity or even buyout deals:

If you have historical data, provide it as far back as it goes (within reason of course, but if you are a 5 year old company and only show the last 2 years worth of data, you will just raise suspicions)
If your past financials have some sort of funkiness (e.g. a year where sales, growth, margins, etc. were "off"), give some sort of explanation...and be honest (i.e. better to say "we took our eye of the ball but learned a ton" than come up with some b.s. reason that doesn't hold up in court, i.e. due diligence)
Calculate key metrics in your financials, e.g. gross margins, growth rates, etc. We are going to have to do this, and forcing us to stop reading and pull out a calculator vs. just presenting the data is a waste of time and could be a mark against you (hey, just being honest)
If you email the plan, email a spreadsheet version of the financials (see previous point about wasting our time...not that we are so important, but that our time that we can allocate per opportunity is sliced thin...so don't give us a reason to "move on")

Hope that helps...