Chicago-based venture capital firm Lightbank is looking for innovation in small tech firms, and partner Paul Lee says it’s easy to get on their radar. Lightbank execs look for passionate management leaders who have a proven track record in the previous endeavors and a firm understanding of their new startup’s niche. Lee emphasizes that it’s not about PowerPoint and board meetings anymore; some of their biggest investments have been initiated through social media contacts and other unconventional pitch techniques. For more on this continue reading the following article from The Street.
The market for technology startups is vast and growing, but it doesn’t take pages and pages of business projections or even an off-the-charts innovative idea to get a venture capital firm on board.
Lightbank is a Chicago-based firm focused on early-stage technology companies. Its founders, Eric Lefkovsky and Brad Keywell, were the brains behind the hugely successful daily deal website Groupon.
Lightbank looks to invest primarily in early-stage technology companies. But the firm also serves as mentor, taking a hands-on role to help promising entrepreneurs grow their businesses.
Paul Lee, Lightbank’s newest partner, spoke with TheStreet about the companies the firm is eyeing and how small tech firms can get noticed.
What are some specific technology areas with a lot of startup activity right now?
Lee: One is what I’d like to call customer acquisition. That really is like a Groupon. The beauty about Groupon is it’s the ultimate performance marketing — you’re only really paying for customers that are literally walking through your door. The flip side is the loyalty aspect. Of your existing customers, how do you get them to come back? We’ve actually been looking at that space.
On the customer acquisition side, we announced [Wednesday] an investment in a company called OpenChime — a consumer can get bids on any service you’re looking for. I used the service to get quotes on roof repair. For those companies it’s a great source for new leads.
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The other aspect of performance marketing is that small businesses don’t really have time to manage their social media tools. What they want is to manage them in-house, but not hire expensive consultants to do that. We invested in Sprout Social, which will manage their brand online.
What characteristics does Lightbank look for in an investment?
Lee: Right off the bat, a passionate and intelligent management team. You’d be amazed at the number of companies we pass on because we’re not as bullish on management. Also, is the sector they are attacking really a large market? At times, business owners’ original theses are flat-out wrong, and so what needs to happen is that the business needs to pivot into something that does work.
At the end of the day, we’re betting on the management teams. We’re really looking for a track record of excellence in whatever they’ve done.
How does a business get noticed?
Lee: It’s going to sound simple, but: Be unconventional. One company — 60mo — the way he got our attention was he sent us a message through Twitter. He literally said ‘Hey Lightbank, check us out.’
What you should never do is show up at the office without an appointment. That actually scares people. I don’t think you want to start a business meeting that way.
So you recommend using social media avenues to get attention?
Lee: For small businesses particularly, you’re busy running your business. Given the relevance of social media and the ability to really generate business — we invested close to seven figures in a company that really started with a 140-character message — there is a lot of value in that. Times are changing. We generally like to see people who are direct.
What are some concerns or questions that generally come up when evaluating a company?
Lee: Similar to what I said earlier, we want to see passion and what the person is doing to demonstrate his passion for the business. We often get people who submit seven different business plans. It’s difficult to be passionate about all of them.
Has the business owner taken out a second mortgage or borrowed money from friends? These are signs that the person truly believes in what he is doing.
Also, does the CEO have a really good understanding of what the key drivers of his business are? Are they focusing on all the right things? Does he know the unit economics?
Being well-versed, being intelligent, having studied the industry — that obviously helps. All those things are great signs for us.
This article was republished with permission from The Street.
