In our series on entrepreneurial Leaders & Influencers, we talk this week with Scott Button, Managing Director at Venture Investors, one of the leading venture capital firms in the Midwest, with over $200M under management. The firm focuses on making seed and early stage healthcare and technology investments.
Tell us a bit about your career before Venture Investors and the areas of expertise you bring to the company.
My path is non-traditional, but I’ve found that most people in our business don’t have a direct path to venture capital. I earned my BA in mechanical engineering from UW-Madison and worked for five years in sales and in the Detroit automotive industry. I decided to get my MBA, which I earned from the University of Chicago, then interned at McDonald’s Corporation. That was a good company, but it wasn’t the right place for me. My then-girlfriend/now-wife was doing her residency in Madison, so I decided I should pursue something here. A friend introduced me to (QTI Group CEO) Jay Loewi as business contact, and he put me in touch with the Venture Investors founders. I did an internship with them in 1996 and have been here ever since.
I think I bring a generalist background to the fund. Much of our business is about people skills and interpersonal relationships, and I also specialize in spinning companies out of universities—it’s something I’ve learned how to do over the years.
What are some recent developments you’ve noticed in venture capital in Madison and the Midwest? And what industries are of greatest interest to you personally?
It’s interesting because there hasn’t been a lot of obvious change, but actually things like the Act 255 tax credit have helped angel groups develop and funds form. And now, with the state’s Badger Fund, this will only help that initiative. Ventures like 4490, HealthX, and Bright Star are forming and are interested in investing in the state. In 2014 there was $228M under management and $86M invested from 28 companies, which indicates that Wisconsin is starting to get on the map. There’s momentum here with funds like Great Oaks and Google Investments, but more could be done in terms of the capital climate of our state. It’s the same for the region—Minnesota has been pretty strong, and Michigan has a strong policy in place with their fund-to-fund program.
As a firm, Venture Investors focuses on the Midwest and funding technology startups out of universities. We invest in academic-based startups, and we’ll continue to do that, but given the presence of Epic, there’s a tremendous eco-system around healthcare IT, and Dean Health and UW Health provide great places to test this new technology.
How do you evaluate a possible portfolio company and its business plan?
That’s a big question, but the short answer is that this is a people business, so first and foremost, it’s about getting to know the team. What are their ambitions? Do they have that “fire in the belly” that drives them to never take no for an answer? Do they have a strong sense of self-awareness and the areas where they do and do not have their greatest strengths? Does their product or service make sense from the perspective of a buyer?
Beyond that, we get into considering the details of market size, barrier to entry, financial strategy, and competitors. At the end of the day, my job is to make money for our investors—we look at several hundred opportunities a year and invest in just two or three.
What book do you think every aspiring entrepreneur should read and why? Any blogs or columns you might also recommend?
In general, any of the work by Steve Blank and his Lean Startup movement, which really speaks to the weaknesses universities had in being so protective of their ideas and their unwillingness to speak with customers. Now, thanks to people like Blank, the idea of getting out there and testing products with the customer is more prevalent.
Also, the work of Brad Feld and David Cohen on startup communities and TechStars, which I think has really impacted entrepreneurs and young entrepreneurs to create that culture and eco-system of the startup.
What’s the single most important change you’d like to see to encourage more innovation and entrepreneurship in Wisconsin?
Well, there’s no silver bullet, but I think there are a number of things we can do to build upon the infrastructure we have:
- The University of Wisconsin. The UW is a tremendous economic engine that has to potential to create world-class start-ups. We need to do more things to support that culture and infrastructure. Some things are already happening there, like the WARF Accelerator Program, but now it’s a matter of creating more activity here. We have this Midwestern value of fear of failure, but that’s a badge of honor in Silicon Valley.
- Industry. Companies like Cicso embrace the idea of someone walking in the door with an idea. Culturally, we need more corporate willingness to embrace entrepreneurship. And we have lots of great companies like Epic and GE right in our backyard to enable this.
- Policy. Act 255 has had a tremendous impact in creating the angel industry we have. What can lawmakers do to help further entrepreneurial growth in our state?
- Capital. We need more capital under management in our state—we’re way below the national average. We could support three to five times the capital under management here, especially given the emphasis on healthcare technologies, which are more expensive to fund.
- Talent. We have a great core of leaders that have led the start-up companies here for awhile and that’s great, but we need five times as many of these people. We need to find ways of attracting people who went to school here and may have moved to the coast but want to move back. They could be real leaders in our community.
Visit Fine Point Consulting for more information about the tools and services we use to help businesses succeed.
Here at Fine Point Consulting, we like to pride ourselves on the fact that we have a wide range of clients. This variety of clients allows us to be experts in many areas and help a wide range of businesses succeed. One of our newest clients, MobCraft Beer, is one of the most innovative breweries in the Madison area. They are growing fast, and making a name for themselves based upon their unique and uncanny flavors that are voted upon online by fans and customers.
MobCraft Beer has a wide range of beers that are sure to attract any beer drinker. Their most recent brew is inspired from a popular drink found in Madison; the Old Fashioned Berliner Weisse is concocted using elements of an Old Fashioned (Cherries, Oranges and spices), and then aged in either Brandy or Whiskey barrels. In addition to this brew Mobcraft has recently launched a raspberry chocolate porter, Candy for Breakfast which is a chocolate peanut butter coffee porter, and BatShit Crazy which won the silver at the 2014 Great American Beer Festival in the coffee beer category.
MobCraft Beer got its start when Henry, Giotto and Andrew’s (the third founder) twin brother all went to college together in Whitewater and were home brewing in their spare time between business classes. In 2012 the dream came alive in a business incubator. The three founders then decided to start MobCraft and start out brewing batches of beer suggested by family and friends in 5 gallon increments. From there their business only grew. They are currently brewing their specially crafted beers at House of Brews in Madison, and are only anticipating growing more from here. MobCraft is the first completely crowd-sourced brewery and is getting a lot of attention, including a spot in the Rise of the Rest tour where they had a chance to pitch Steve Case last month.
We are super excited to be able to follow them on their journey! Visit their website here to join the mob and view all of their innovative brews. You can view recipes, vote for the next brew, or even pre order your own 4 pack!
For those of you have not heard of gener8tor before, this organization is a key part of our state’s entrepreneurial ecosystem. With offices in both Madison and Milwaukee, gener8tor invests its community, capital, expertise, mentorship and network in capable, early-stage entrepreneurs with innovative business models.
Fine Point works with several current and past graduates of the gener8tor program, including Stock Mfg Co., Docalytics, and Abodo, and we are thrilled to be a sponsor of the event.
Tomorrow night five young companies, two of which are out of Madison, will have a chance to showcase their product to an audience of about 400. Luella and Leah will be representing the Fine Point Consulting Team during this premier night celebration. The five companies – Modern Movement, Beekeeper Data, Project Foundry, HITLIST and our very own Stock Mfg Co – were chosen from over 450 applicants.
In addition to the 12 week mentoring sessions held all summer long, each of these companies will receive at least $70,000 in investment funds, and the three Madison startups (Modern Movement, Project Foundry, and Beekeeper Data) will each receive an additional $50,000 from the BrightStar Wisconsin Foundation. The gener8tor program also provides continued support in the use of their space, resources and mentors to help provide an opportunity to all companies to reach that next level.
For more information visit their website here!
SOLOMO, which stands for social, local, mobile, takes consumer information and provides it to businesses to give them better insight into what the customer’s interests are. As stated by Liz Eversoll, CEO, “Location Data is a brand new category that provides us amazing insight into consumers and what experiences they’d like to have”.
SOLOMO along with eight other Madison startups were selected out of hundreds to have an opportunity to pitch to Steve Case, the founder of AOL, at his Rise of the Rest Event. The event was held in downtown Madison at the Majestic last Monday. Rise of the Rest is a five city, 1,800-mile bus tour that will give startups across the mid-west a chance to pitch their company for a chance to win.
After waiting in anticipation after pitching in the afternoon, Liz Eversoll was announced the winner at the event later that evening. Case mentioned that many would be shocked that SOLOMO was out of Madison, WI as what they are developing ideas that typically come out of Silicon Valley. Case stated that they chose SOLOMO because they have “the potential to really be a break out company…to send a signal all around the country and all around the world that Madison is a hot startup hub”.
And what exactly was the prize you might ask? SOLOMO won $100,000 from Case’s investment firm and a trip to the 2015 South by Southwest Startup Village in March for an opportunity to win even more additional funding!
We are super excited to be a part of SOLOMO Technology and to be able to hear all about their journey in the future. Congratulations!
To see the SOLOMO team celebration click here.
Article by: Hunter Walk
Hey founders, want to hear something incredibly frustrating about seed financing? I don’t believe the forecast you show me. You know the one that inevitably has you at $100 million in revenue by Year Three? Yeah, that one. It’s a great discussion point to understand how you think of your business’ potential but as an operating plan? Throw it away post-funding. What??? Well, if you’re pre-product/market fit, over-optimizing for “hitting your numbers” can be a false positive if it creates an “up and to the right” graph that actually builds upon the wrong learnings, or masks leaky bucket of customer attrition.
Not everyone may agree – there’s a strong “growth solves all problems” camp – but in those formative days, you want to find the healthy, sustainable path forward. *Just* committing to grow customers or revenue or usage can still create a hollow company. Of course figuring out when you have product/market fit is an art as well, but here’s a great Marc Andreessen post.
Ok, so far I’ve told you the forecast I’m looking at during fundraising is a lie and the one you’re using during initial iteration is a trap. So when is the right time for a startup to build a forecast that actually starts measuring the health of the company?
The earliest a company should “manage by forecast” is post product/market fit and the absolute latest is at Series A fundraise.
Moving from managing via rearview mirror (“we’re up 10% over last week”) to prioritizing a roadmap and resources that will deliver against planned growth (“we’re up 11% week over week vs 10% forecast”) is a big maturation milestone. But how to set a forecast? A combination of Bottom Up and Top Down modeling.
Bottom Up Forecasting
Bottom Up Forecasting uses your trailing data and the “naive” assumption that tomorrow will be the same as today. So if you’ve been growing 25% month over month, just draw that out over the next year. Sanity check this by asking yourselves (and your team) what has to happen to maintain this pace. Do they believe it’s sustainable? What have been the main drivers of your growth to date and are they likely to continue into the future? If you’ve been spending to acquire customers (profitably hopefully!), what sort of budget will be required to support the ongoing acquisition? Are there areas of variable cost or support that need to be scaled alongside the growth? Important to make sure your forecast and your operating plan match up!
Top Down Forecasting
Top Down Forecasting sets a goal for a point in the future and works backwards to calculate what monthly growth is required to hit the target. What are some typical goals? Profitability. Revenue runrate that you believe is required to raise additional financing. A monthly manufacturing number that starts to see economies of scale take effect. Top down is interesting because it essentially ignores today’s reality and says “look, to be a viable company we need to get to X milestone by Y date. Let’s go!”
Since most of Homebrew’s investments are in early stage companies, we get to experience “first forecast” with almost all of them. In most cases we try to shift focus to a Top Down Forecasting model as it’s more milestone-based, which we think is appropriate for early stage start-ups. But even a Bottom Up Forecast is better than no forecast. Reviewing actual’s against plan is a great conversation starter for seed stage Board meetings as Series A investors increasingly expect to see mature, well-managed companies that will know how to productively spend the additional funding. Fear not the forecast for it will show the way!
Article Courtesy of: http://hunterwalk.com/2014/07/22/sunny-whether-two-types-of-forecasting-models-for-running-your-startup/