Startups and Burritos

I had a great conversation with Jeff Carter yesterday on Twitter about the evolution of the Chicago startup ecosystem. (H/T to Chicago Inno and this interview of J.B Pritzker for prompting the conversation).  The question at hand was: how do you build a startup ecosystem?

In building anything significant, there is always an order of operations.  For instance, for legendary 1980s Miami startup entrepreneur, Tony Montana, the order was as follows:

1. Build high-margin pharmaceutical business (get the money); 2.  Whack boss/competitor, Frank Lopez (get the power);  3. Proceed to order the Peking duck (get the duck).

In the world of startup communities, the order of operations looks something like this: 1. Build Big Sexy Startup that draws in top talent; 2. Talent spills over to rest of community helping fuel new startups; 3. Venture capital begins to pour in.

Or…if we’re using the parlance of Scarface, first you get the startups, then you get talent, then you get the money. Here’s a brief history of how this has played out over the last seven years in Chicago.

Chicago Startup Community Timeline

2008–2009: The Tech Desert Era

When we launched GiveForward in 2008, the startup ecosystem didn’t really exist in Chicago. In fact, I honestly don’t think I even knew the word ‘startup’ at the time.  That’s not to say there weren’t a few burgeoning tech companies and tech meetups sprinkled throughout the city, but it was still very much an underground movement.  If you were looking to join a startup or invest in a startup in 2008, it was pretty much a tech desert

Today, it’s easy to take for granted all the mentorship programs, accelerators, co-working spaces, and educational events that take place every night of the week in the city, but in 2008 none of that existed. There was no Techstars, no Technori, no 1871, no Lightbank, no BuiltIn, no Techweek, no Starter League, no Dev Bootcamp, no Internet, no Impact Engine etc. Here’s what did exist:  Midventures, BARcamp and Ron May. MidVentures (which later became TechWeek) was three dudes, (Geoff Domoracki, Jonathan Pasky,  Brian Mayer) and a lobby. Every three months or so they’d have a startup event called MV Mixers where four or five companies would give a 10 minute pitch in front of 15-20 people in the fancy lobby area of Geoff’s apartment building.

Here’s some photos from a February 2009 event where GiveForward and Groupon were both pitching.

In early 2009 Groupon was a side project and Andrew Mason was actually still pitching The Point.

This also happened >> People had Blackberries.

BARcamp Then there was BARcamp.  If MVmixers were for the suits,  BARcamp was for the true nerds and it was even scrappier than the mixers in Geoff’s lobby.   Anyone who wanted to be a BARcamp sponsor pretty much could be, including GiveForward. Hooray!

Mind you, in 2009, we were bootstrapped, we had made a whopping $6000 in revenue at that point and our website looked like complete ass.  We had no business sponsoring events but we did it anyway, because why not. We were like, you know, one of the biggest startups in the city. Yep, we were total big shots!

The startup bench was pretty thin in 2009, so event organizers would take any crap sponsors they could get. Hell, they even took us!

That was 2008-2009 in a nutshell. In general, there was some small underground stuff going on but there was no national spotlight on Chicago. That would all change in 2010.

2010: Groupon blows the fuck up and Techstars comes to Chicago

In 2010 Chicago got its Big Sexy Startup.   Groupon started blowing up, big time coastal VCs invested, and all of a sudden people are starting to look at Chicago in a different light. At the same time, something else awesome is taking place: Excelerate Labs (now Techstars Chicago) launches.  GiveForward was super-lucky to be part of the inaugural class.  For us, it forever changed the trajectory of our business.  But I think from a more meta-standpoint, Excelerate Labs helped change the trajectory of the entire Chicago startup community. Everyone wanted to be the next Groupon, and now there was a program that could help make that a reality.  It was a paradigm shift for the city.

2011: GrubHub blows up.

In 2011 GrubHub quickly followed Groupon as the next big success story when they announced they were raising a massive $50M round of funding. The business was going gangbusters and by this point they are well on their way to an IPO.

2011–2015: The Groupon + Grubhub Talent Explosion

As much as our low-interest-rate fueled, Techcrunch addicted startup culture lionizes the ginormous funding rounds and valuations we’ve all witnessed in the last few years, investment capital is not the primary driver of a startup ecosystem’s success.  The real driver is a deep talent pool. The effect of Grubhub and Groupon on the Chicago talent pool cannot be overstated. Engineering, product, ops, and marketing talent all moved into the city from elsewhere to be part of these rocketships. And once these companies IPO’d, many of their employees eventually spilled out to join the city’s new generation of startups.

At GiveForward, I can say we’ve been very fortunate and have benefited in a huge way from all the post-IPO talent on the market from Groupon and GrubHub. Our online marketing manager came from Groupon, our Dev Ops guy, came from GrubHub, our CTO was formerly the CTO of Grubhub, and Mike Evans, the founder of GrubHub is one of our board members. On top of that, two more of our engineers are graduates of Dev Boot Camp, a three month intensive engineering program started by two former Groupon guys, Dave Hoover and Elliott Garms. All in all, about 15% of our team came from either Groupon, GrubHub or some derivation thereof.

Silicon Valley is Silicon Valley not because of access to capital.  It’s because of access to talent. As, Jeff Carter, founder of Hyde Park Angels and West Loop Ventures and one of the pioneers in the Chicago angel investing community stated so perfectly on Twitter, ‘Talent plays the biggest role.  Without it, there is no investment capital.’

With this influx of talent coming into Chicago in 2011-2014, the Techstars, 1871’s and Starter Leagues of the world began to spring up.  The Mentorship, office-space and educational programs that these organizations provided were instrumental in helping the Chicago startup community take hold.

2015 and Beyond: The Final Piece of the Puzzle

The final piece of the puzzle is capital.

While it’s great to have coastal VC firms investing more and more in Chicago, it’s critical to have homegrown firms ready and able to invest into Chicago companies.

Though this last piece of the puzzle has been the slowest to progress, I think we’re close to a tipping point where we are soon going to see an influx of early-stage investors moving into the midwest.    Last week alone, I had conversations with three next generation investors who are raising seed funds right now. All three of them are under 40. One of them is under 30. And two of the three were in Chicago.

Earlier this week David Cohen wrote a wonderful blog post entitled, 150M New Reasons to be Thankful at Techstars where he announced a massive new $150M Techstars fund for early-stage ventures involved with the Techstars network. In the post, David gave thanks to the people who helped make Techstars what it is today.  Of course, with typical David humility, he failed to include one very important person: David Cohen is reason 150M+1 to be thankful for Techstars.

David invested in GiveForward as part of his original $5M fund back in 2010.  He has been one of our biggest advocates over the past four years and there is no way we’d be where we are today without him.  I can’t truly thank him for what he has created, but here are a few of the things I am grateful for.

Mentorship

I’ll never forget our first big conversation with David.  It was shortly after Excelerate Labs Demo Day in 2010 and we were sitting in the board room of a Chicago VC who had just offered us a term sheet with horrible terms.

We were scheduled to have a call with David right after our meeting with the VC.  But the meeting ended up going an hour long, so we awkwardly asked the VC firm if we could use their boardroom to make a call to another investor.  When we got David on the phone, we let him know of the situation.  We told him that we were excited to get our first term sheet.  But the term sheet kinda sucked.  Unfortunately, we didn’t have any other offers and we didn’t know what to do.  We were a little paranoid that the VCs were listening in on our conversation, so we whispered into the speakerphone: “David, they want to give us $1 million at a $2 million post money valuation.  Should we take it?”  Without any hesitation, David whispered back.  “Run.  Run away as fast as you can!”

This turned out to be great advice.  We declined the offer and instead managed to close a $500K seed round with a group of incredibly supportive angel investors, among them David Cohen.

Belief in Us

After we closed our seed round we didn’t have much interaction with David for awhile.  He told us that he was going to be a “passive” investor, and for the first few months, I don’t think we recieved an email from David longer than six or seven words.  But in the third month of our relationship, everything changed.

On April 14th, 2011, we sent out our monthly investor update.  The title of that month’s investor update was called:  The Power of Hugs.  Here was the actual intro paragraph.

This month, the theme of our newsletter is hugs. I know you’re probably thinking “Hugs?!?!!  What the hell is he talking about? I want to hear about numbers.”  But I think it’s important for you all to understand GiveForward beyond just our revenue and monthly traffic numbers [which are really good this month by the way].  I think it’s important for you all to understand our culture which is the foundation for everything we do.  So without further ado, let me tell you about the power of hugs.

I remember feeling really insecure and almost deleting the entire email before hitting send.  We had just closed our seed round with all these high-powered investors. We had a billionaire in the group, an entrepreneur who had taken his company public, a dude whose name was on the U. Chicago business school, and several other uber-successful tech founders. My partner Desiree and I, on the other hand had no idea what the hell we were doing and I was about to send an email telling them about the power of hugs.  Um, yeah, great idea, Ethan.

After mustering up all the courage I had in my entire body, I finally decided not to delete it.  Instead, I hit send, closed my eyes and hid under my desk, confident that I was going to get laughed out of the room and they were going to ask if they could take all their money back.

To my surprise, David wrote back the following email to us and cc’d all of the investors.

You are simply awesome. Your updates are awesome. Your outlook is awesome. You are inspiring.  I love companies that care. It’s how I try to build companies too – the rest usually “just works”. And I love the 85/15 thought. Spot on.  Congrats on the progress. I’m back in Boulder or I would have loved to hang in NYC. I’m coming to Chicago in early June, let’s be sure to get together then.

He signed it,

</hug>

For me, this singular email was a huge turning point in my career as an entrepreneur.  It gave me so much confidence that we could be ourselves without worrying about being second guessed by our investors because we were a little unorthodox in our approach.  The fact that three months into our relationship with our new investors, David was not only tolerant of our weirdness but that he embraced it, meant everything to us and gave us the courage to go out and build a great company and a culture we could be proud of.

Introductions

By far, one of the most important things an investor can do for you is intro you to other VCs and investors. In this regard, I cannot think of a better person in the universe than David Cohen. David literally intro’d us to all of our Series A VCs and several of our angels.  Founder Collective, First Round Capital, Jason Seats, Howard Lindzon, Tom Peterson – all of them are investors in GiveForward because of introductions that David made for us.  I often joke that what you say in your pitch meeting is less important than who introduces you.  But it’s not entirely untrue.

And it’s not only investors.  David has connected us to all sorts of people through his network.  One that stands out in particular to me was Rand Fishkin. A few years back I was struggling with how we could build a strong company culture.  I asked David who was the best person he knew who could help us build this strong culture.  A few hours later, David hooked me up with one of my business idols, Rand Fishkin, who was kind enough to jump on a call with me.  Rand gave me advice about values and culture that stuck with me ever since and had a profound impact on our company.

Friendship

In 2012, David invited us to present to the LPs of his Bullet Time Ventures Fund at their annual meeting in Boulder.  Only three or four of his portfolio companies presented and the other ones were bigger companies like Twilio and Mocavo. I remember it felt like a really big honor to be invited.  But more than anything what stood out to me about that trip was how David went out of his way to make me feel comfortable while visiting. He not only offered me a spot to crash on his couch and took me to my favorite Boulder eatery for lunch (Chipotle), he went out of his way to organize a meetup with a handful of local entrepreneurs so I would have people to hang out with at night.  That’s just the way David rolls.  He’s good people.  All the people in his universe are good people.  And that’s what makes him so awesome.   He cares about you as a person as much as he cares about you as a portfolio company. He’s not just an investor.  I consider him a friendvestor and someone I know I’ll be able to count on for the rest of my life.

Family 

The Whatsapp Message I sent to David when I heard the news about the $150M new fund.

Last but not least, when David invested in GiveForward, he brought us into his family.  Not his biological family, but his Techstars family.  And it truly does feel like a family – a crazy one, but one that I’m extremely proud to be a part of.  Thank you, David, for bringing us in.

PS – also thankful for the introduction to Whatsapp before it was an $18B company, for helping my friend land a job in Portland, for connections to guys like Brad Feld and Micah Baldwin and for always being there when we’ve needed it. Fistbump

As we near the 30-day mark from when Michael Brown was killed in Ferguson, MO, I’m glad that our country has taken the opportunity to bring issues of racial profiling and the militarization of our police force into the national spotlight. But as we begin to examine our country’s race issues under a microscope, I hope we don’t just look at the issues on the surface – the ones that are acute and obvious and make for good television ratings.  Examining these issues is a necessary start but it’s not the finish line.

What I mean by that is that we have a tendency in this country to distort our priorities based on the squeakiest wheel rather than focusing on the insidious problems that pose the greatest threat. Pink ribbons, for instance, drive sales and marketing budgets. As a result, we spend seven times as much on cancer research as we do on obesity even though obesity and it’s partner-in-crime, type 2 diabetes, is what will eventually bankrupt our healthcare system. Fear mongering is another example. Peddling fear leads to votes come election time. As a result, we’ve spent trillions of dollars over the past fourteen years fighting terrorism. Yet, we refuse to spend any money fighting climate change, when in fact, the slow but steady creep of climate change poses a far greater threat to our existing way of life.

My fear with the Michael Brown tragedy is that we’re heading down this same pathway on the issue of race. Racial profiling is certainly an important issue but it’s not THE issue we should all be focusing on. It’s a secondary issue that doesn’t go nearly deep enough. Rather, if we want to truly honor Michael Brown’s life we must start a deeper national dialogue, not on racial profiling, but about why racial profiling exists.

[Disclaimer: This blog post has nothing to do with startups nor delicious, delicious burritos. But I think the issues we’re facing right now as a nation are too important not to write about.  So, if you’ve never given a thought as to why racial profiling exists, I hope this blog post can serve as a starting point.]

Kobe Bryant, Stars and Bars, and the Black Guy on the El.

I guess I should start by giving you my background.  I grew up in a city in California with like three black people. Kobe Bryant was one of them. Dennis Rodman was another. And for a brief period, Karl Malone was the third. I didn’t see racism growing up. All I saw were white people. For most of my childhood, I never gave racism much thought.

This changed for the first time when I went to college. I went to school in Atlanta. While the city of Atlanta did not appear outwardly racist, I remember taking my first road trip outside the city and stopping at a gas station filled with confederate flags souvenirs. I thought to myself “what the fuck? They really must not like black people at this gas station.” Shockingly to me, the next gas station was exactly the same. And the next one after that was the same. Holy shitballs. They were all the same.

And that’s when I came to realize that gas stations in the south are not for black people.

The next year, I remember taking another road trip with some of my Phi Delt fraternity buddies. We went to Vanderbilt University in Nashville, which also had a Phi Delt chapter. We knocked on the door to see if we could come hang out for a bit. They were totally cool and told us to come in. That is until they realized that a few of our members were black. Then they told us we couldn’t come in.

And that’s when I came to realize that the South is not for black people.

After graduating college, I moved up to Washington, DC to start law school. During the 2004 presidential election, I volunteered with a bunch of other law students to go to West Philadelphia and serve as poll watchers to make sure that black voters were not being intimidated out of voting. I’d heard of these types of shenanigans happening in the south, but I had a hard time believing anything like this could happen in West Philadelphia. Sure enough, about two-thirds through an otherwise uneventful election day, we encountered a group of white dudes driving up to polling stations in a black suburban with out-of-state plates trying to intimidate black people out of voting.

And that’s when I came to realize that the North is not for black people either.

Fast forward to 2014, I was on the El in Chicago. The train was super crowded and this black dude with neck tattoos and a bunch of papers in his hand gets on next to me. He starts asking everyone for ten cents, twenty cents or fifty cents to make some copies of the fliers. No one responds. In fact most people in the vicinity put their head down to avoid eye contact with him. I started talking to him and asked him what was going on. It turns out his uncle was murdered the week before and he was putting up fliers with the picture of the suspect on every El train in the city. He had come in by bus from a neighboring state with no money and had been sleeping on the El train at the end of each night. He hadn’t showered in two or three days but was determined to catch his uncle’s killer even if he had to spend the next week sleeping on the train, away from his wife and four month-old-twins. Exasperated by peoples’ utter lack of compassion, he starts telling me how no one was helping him because he’s black. I thought about it for a second, and then sadly, I concurred and told him he was right.

And that’s when I came to realize that the Midwest is not for black people either.

So if the South is not for black people, and the North is not for black people, and the Midwest is not for black people, where is the place for black people?

The ghetto. The ghetto is for black people.

Over the last fifteen years, I’ve come to realize the same thing black people realize at a very young age – that America has a racism problem. It’s not a Southern problem. It’s not a Northern problem. It’s not a Midwestern problem. It’s an everywhere problem.

Now, as ugly as all these experiences were, none of them made me nearly as sad as what I would learn just a few months ago when I clicked a link on my Facebook feed.

Donald Sterling, Bomani Jones and America’s History of Housing Discrimination

In the midst of the seemingly buffoonish Donald Sterling-Clippers saga this past April, I stumbled upon a video of ESPN analyst Bomani Jones speaking out about how housing discrimination was the real evil in the whole Donald Sterling scandal. “Housing discrimination?” I thought to myself. “What is that?” What I would learn was eye-opening and disturbing.

Housing discrimination is the insidious evil that has plagued our country since the end of the civil war. Through housing discrimination we have systematically created an America for white people and a separate America for black people. Housing discrimination is the root cause of the ghettoization of black America.  It has robbed generations of African Americans from trillions of dollars of accumulated wealth and has placed an entire race in an endless cycle of violence and generational poverty.

If you’re not familiar with the issue, here are the spark notes.

(1) Housing discrimination started with bigotry: In the post-civil war era, white people saw whites as a superior race and blacks as an inferior race.  If you were black in post-civil war America, white people didn’t want you living in their neighborhoods for fear that you would rape their daughters and bring sin upon their race.

(2) State sponsored discrimination: In order to keep you out of their neighborhoods, federal, state and local governments worked in collusion with banks, mortgage lenders, appraisers and real estate agents to enact racist laws and business practices to prevent you and your family from living amongst white people.  For instance until 1917, fifteen states had laws on the books denying black people from living in white zoned neighborhoods.  From 1917-1948 nineteen states allowed real estate developers to place restrictive covenants into their deeds forbidding white property owners from selling to blacks.  It wasn’t until 1968 (103 years after the end of the Civil War) that the federal government finally made it illegal to outwardly discriminate against black people in the housing industry.

(3) Terrorism: During this period, if you somehow managed to navigate around the laws and restrictive covenants forbidding you from living in a white neighborhood, white supremacist neighborhood associations created for the sole purpose of keeping blacks out, would instigate a mob to swarm around your house and terrorize you and your family with violence until you agreed to sign away the deed to your house and move back to the neighborhood where you belonged.  That’s what happened in the northern states.  If you were a black family trying to exercise your constitutional rights in the South, there was a good chance you would just be lynched.

(4) Ghettoization:   Forbidden from living anywhere else, you were forced into segregated ghettos.  The creation of the ghetto was 100% intentional.  It was the result of state sponsored housing discrimination and outright terrorism.   The goal was to keep you where they belonged.

(5) Systematic theft:  To add insult to injury, even if you had the means to own a home in the ghetto, you were denied access by the federal government to mortgage loans offered to white people.  This practice was known as redlining.  Without access to capital your only option for owning a home was to buy an overpriced property through a predatory practice known as contract buying, where the title to a property would not be transferred to you, the buyer, until all contract payments had been made.  If you missed a single payment, you forfeited the house and all prior payments. The owner of the house would then kick you and your family to the street and sell it again to another unsuspecting black family

(6) Generational poverty:  Faced with nearly insurmountable hurdles to homeownership, you, along with most other black families ended up renting instead of owning, all the while paying exorbitant rents to slumlords who allowed their properties to become dilapidated because knew you had no other options. While white Americans began to accumulate wealth and pass this wealth on to their children through homes purchased using subsidized capital from the U.S. Government, you and other African Americans were intentionally impoverished and systematically denied the ability to pass on generational wealth.

The end results of housing discrimination have been disastrous for this country.  Think about this: where you live affects everything in your life.  It affects your safety, the schools you attend, the role models you see in your neighborhood, your chances of incarceration, and ultimately your opportunities for work.   All these factors compound on each other creating a feedback loop that is near impossible to escape. By choosing to institutionalize our racism through local, state and federal housing laws, we have chosen to create two different Americas — one where the American dream exists and one where it doesn’t. And what’s really fucked up, is that most of us are okay with that.

Michael Brown, Accountability and Changing the National Dialogue.

There’s no denying that we’re failing as a country when it comes to the issue of race. At the very least, it’s time to look in the mirror and start asking ourselves why.

In the case of Michael Brown, it’s easy to single out the police as the bad guys. It’s easy to call them racist and place all the blame on them. But singling out the police is a cop out (no pun intended). In doing so, we attempt to absolve ourselves of any blame. We try to limit the scope of our country’s race problems to a few rotten apple police officers, when the reality is it’s not just a few apples that are rotten – it’s the entire system. At the epicenter of this system is housing discrimination. And whether through commission or omission, we’ve all helped to create it.

When we don’t speak out about racism, we are the problem.   When we accept as normal and never think twice about the fact that white people and black people don’t live in the same neighborhoods, we are the problem. And when we see Frankenstein kill another black teen, and then blame Frankenstein but fail to acknowledge our very role in creating the monster, we are very much the problem.

Change starts with taking responsibility for the system we created. As long as we choose to continue segregating our cities, robbing our black youth of quality educations, and impoverishing 10% of our population — we’re going to continue fostering an environment for high urban murder rates, racial profiling and the killing of unarmed black teens.

If we really want to see change in this country, we must stop looking at the surface for answers and hoping one will magically appear. We’ve seen this narrative enough times to know that it doesn’t change. Scapegoating the police is not going to solve our problems. Eventually, we’re going to need to look a lot deeper both into our history and within ourselves and come to grips that we are all part of the problem. And until that day happens, we can safely conclude that America is not for black people.

Further Reading 

If you’re interested in further reading about the issue of housing discrimination, here are three pieces of various lengths that heavily influenced my thinking.

10 min – Bomani Jones Nails the Part of the Controversy Everyone Has Ignored  (Eye-opening.  At least it was for me)

1 hour –  The Case for Reparations by Ta-Nihisi Coates  (this essay is the single most powerful piece of writing I’ve read in years)

1 week – The Arc of Justice by Kevin Boyle  (Excellent book about housing discrimination in 1920s Detroit. Reads like a novel)