And Now a Word From Our Sponsors…
About two years ago I decided to start blogging. At first it was because I wanted to feel young and hip. But then, I began to like the idea of taking random topics that touched me in some way and writing about them. I don’t blog all of the time (in fact, I get yelled at for blogging too infrequently). When I do write something, I hope that it’s actually fairly intelligent and worth reading. There is so much content on the web as it is, the last thing I ever want to do is pile on without reason.
Todays blog post is a bit unusual in that it might feel like a commercial for LightBank. Brad and I, and the rest of the LightBank team, began going back and forth in an email about what we think makes LightBank unique in a effort to tighten up our external messaging. Below is the verbatim end product of that exchange, that at a minimum will give you some insight into how we view the world of early stage venture capital and internet investing.
So here, in no particular order are ten perspectives that we think define LightBank.
WE ARE BUSINESS BUILDERS: We have built five technology companies from scratch over the past 13 years. Three of them are now publicly traded on NASDAQ, and across our businesses we employ over 16,000 people in fifty countries. We used to build one company at a time, but in early 2010 we perceived an inflection point in the pervasiveness of the internet and its power to disrupt. We saw change coming at an incredible pace, and besides wanting to be a part of all the great things to come, we saw our own experiences as being particularly relevant to other entrepreneurs. So we launched LightBank in order to invest in other companies while we continue to build businesses. Our goal from the onset was to build a completely unique venture firm. Because most of the money we invest is ours and because we are entrepreneurs at heart, we think differently from other investors.
WE SEE PROJECTS, NOT INVESTMENTS. When we put money into a company, we consider it more like a project to which we are committed, rather than an “investment” in the typical sense. Venture capitalists deploy money for a living. They are professional investors, funding early stage companies as an asset class, as opposed to for example bonds or publicly traded stocks. As such, they look for companies to invest in that typically follow a thesis they have developed and they deploy capital against that thesis. Sometimes they are right, sometimes they are wrong. Their fee structure is typically “2 & 20”, meaning they collect a 2% fee on all the capital they collect regardless of how the fund performs, then they get 20% of the upside once the investors receive their capital back; hence “2 & 20”. Large venture capital funds these days manage $2+ billion, so the fund is going to pay the partners and staff $40 million annually, no matter what. Most funds have a 5-7 year investment life, so that’s ~$250 million in fees alone. It doesn’t take long to realize that the economic incentive for most fund owners is to deploy capital quickly and raise another fund. In our case, since the money going out is largely ours, we don’t have that perverse incentive of capital deployment. As a result, we only invest in the founders and companies that we believe in, and in businesses and business models that we are committed to spending time helping iterate and grow. Every active investment for us is like a special project that we are emotionally invested in and committed to help succeed.
WE UNDERSTAND THAT YOU’RE NOT ALWAYS RIGHT ON THE FIRST TRY. Most of the businesses that we have started have undergone substantial pivots, and we believe that iterating (and at times completely changing) the initial business model is somewhat inevitable and absolutely invaluable. We see ourselves as partners and collaborators with the companies that we invest in as they go through this process. By acting as a collaborator and partner, rather than just as an investor, and providing honest feedback and assistance based on our experience as business builders, we facilitate experimentation and reduce the turbulence of the learning curve.
WE HELP BUSINESSES GROW. Lightbank has developed a substantial reservoir of services, expertise, and relationships that help entrepreneurs grow their business. We have built a team of professionals with deep experience in the technology space, that exist to help our companies grow faster, better, and smarter. Our team includes talent scouts (i.e. recruiters), public relations and communications experts, digital marketing experts, a full time operations swat team that gets deployed inside businesses that need help, experienced business development professionals, and a group devoted to the plumbing of a new business (HR, payroll, basic legal, etc). These services are all centralized within our firm and can be deployed when one of our companies wants our help to augment their internal efforts. This is real world stuff. We don’t just show up to a board meeting and dispense advice. We actually roll up our sleeves and help.
WE KNOW HOW TO AQUIRE CUSTOMERS. There is an overabundance of good ideas, yet very few become companies and even fewer become success stories. For anyone trying to build an internet or mobile business, the number one issue is the need for customers. There are hundreds of millions of websites and now over a million Apps — for a customer to find yours is like looking for a needle in a hay stack. Our companies have invested billions in new customer acquisition. We understand the art and science of online customer acquisition. But equally and often more importantly, we have a deep understanding the world of off-line customer acquisition (what is often referred to as “acquiring customers the old fashion way – by selling). Our companies employ over 7,500 people in inside and outside sales roles. We have built numerous world class outbound call centers. We live in the world of operations-centric technology businesses (operations focused on sales, customer service, data analytics, and BtoB and BtoC market making), and we are uniquely suited to help entrepreneurs find pockets of opportunity.
WE UNDERSTAND FAILURE. Because we, ourselves, have had numerous failures, and have learned from each of them, we understand that failure is at times inevitable and can also be the key to eventual success. As investors, we are partners with the entrepreneurs we back, and we support their efforts to quickly explore all aspects of their business model, knowing full well that many of those exploratory efforts will fail while others will succeed. When something isn’t working, we believe you need to quickly move on and try a different approach, and when it is working you need the courage to immediately pile on with resources (capital, energy, talent) to grow.
WE ARE OPERATORS FIRST, INVESTORS SECOND. We have built an investment firm that consists of business builders, of entrepreneurs, and of people who have been in key operational roles in fast-growth technology companies. We approach investing as operators first, and as a result we see opportunities where others only see headaches. If you study the businesses we’ve started in the last ten years, you will see companies that are technology-centric but also are reliant on humans to do things like sell to businesses, source products, manage logistics, and build innovative work flows. These are great businesses that have grown dramatically, and yet they all would have had a difficult time had they been started in Silicon Valley. We have deep experience in operations, and when that is layered on top of world-class technology, spectacular things often occur.
WE ARE SURVIVORS. Being in Chicago, we are not subject to the influence (and at times, madness) of the crowds. We follow our own intuition. We listen to our internal voice. We accept the fact that we will not always choose to follow the conventional path, and as a result we will at times be misunderstood or even ridiculed. But in the end, if we help build great businesses, the rewards will come. We also understand that you can build great technology companies anywhere. The East and West Coast do not have a monopoly on innovation. As a result, we tend to invest heavily in geographic areas that are often underappreciated.
WE DON’T HAVE A THESIS, BUT WE DO HAVE A FIELD OF STUDY. We are constantly asked by other investors the question – “what is your thesis?” Because we have managed to build so many successful companies in a row, people are trying to find the commonality in our investing approach. Unfortunately, there is none. We don’t sit around a table and pretend to be smart enough to fit the world into our own mental box. We don’t follow hard and fast rules in terms of which companies we will or will not invest in. But we do believe in thematic investing. We believe that local, social, and mobile are growing areas and will continue to disrupt the larger internet ecosystem. As a result, we spend lots of time looking at companies in those spaces, where many of our investments to date have been. And we believe that great technology, when combined with exceptional operational execution, is the secret sauce – internet companies tend to underestimate the importance of operations (sales, customer service, customer acquisition, etc), but we have built many businesses on these fundamentals, and we think there are a plethora of opportunities to combine disruptive technology with world-class operations to build great businesses.
WE ARE FACILITATORS. We are not an accelerator, or an incubator, or an angel fund, and we are not a traditional early stage VC fund. We are Facilitators. The single most important thing that an early stage technology company needs to do is grow, and we help them do it. Sometimes that means helping them expand their team and finding exceptional talent. Sometimes it means helping them find customers, or suppliers, or build processes, or start and grow a sales force, or meet a key potential partner, or raise capital. Or more. Whatever they need to grow, our goal and our role is to help them achieve it.
In a short period of time, we have become one of the most prolific early stage technology investors. In the past two years, we have invested in or started nearly 60 companies. We aggressively believe that the Internet, and the revolution that it is creating, is still in its infancy and has the potential to disrupt every industry, every consumer transaction, and every part of our lives. We actively invest in those businesses that we think will be at the forefront of that disruption.
We start businesses and we invest in businesses. Being both a starter and an investor at the same time is unique – most people do one or the other. We think our activity in both is a huge advantage to the companies that we invest in, and the entrepreneurs that we partner with. Our thoughts and our assistance is not theoretical, and it’s not passive. We pick up a shovel, just like the founders we partner with, and we dig right along-side them.