Chicago Private Equity Firms

In addition to our list of Chicago Venture Capital Firms and Chicago Family Investment Offices, here is a list of Chicago Private Equity Firms investing in later stage companies. I included a high-level summary of their investment criteria, as communicated on their websites.

Adams Street Partners (tech & healthcare, $27BN managed, $5-$25MM checks)

Aldine Capital Partners (generalist, $2-$15MM checks, $10MM+ revs, $2MM+ EBITDA)

Alpha Capital (mfg. & dist., $135MM managed, $500K-$5MM checks, $15-$100MM revs)

Anderson Pacific (telecom & infrastructure, $1-$50MM checks, $2-$10MM EBITDA)

Arbor Investments (food & beverage, $5-$50MM EBITDA, up to $300MM revs)

Baird Capital Partners (healthcare, industrial, tech & services, up to $150MM revs, $3-$10MM EBITDA, $25-$50MM checks, $300MM managed)

Beecken Petty O'Keefe & Company  (healthcare, $1.4BN managed, over $5MM EBITDA)

Benford Capital (CPG, industrial, services & dist., over $1MM EBITDA, over $3MM revs)

Beverly Capital (healthcare & biz services, $2-$8MM EBITDA)

Bounds Equity Partners (bldg mat., biz svs., CPG, dist. & mfg, $100MM mgd, over $1MM EBITDA)

Bridge Investments (biz svs., SaaS, cons., mfg,, health, up to $10MM checks, up to $5MM EBITDA)

Chicago Capital Partners (svs., CPG, dist., educ., & mfg., $2-$10MM checks, $1-$5MM EBITDA)

Chicago Venture Partners (tech/comm, media/ent, energy, CPG, biotech/pharma, up to $3MM check)

CIVC Partners (biz svs. & financial svs., $1.5BN managed, $5MM+ EBITDA, $15-$85MM checks)

CJM Ventures (small-to-middle market, mfg., dist. biz svs., fin svs.)

CM Acquisitions (industrial & transport infrastructure, up to $15MM EBITDA, up to $250MM revs)

Cressey & Company (healthcare, $1BN managed, up to $50MM checks)

Cognitive Capital Partners (mfg, biz svs, data, consumer, $3-$15MM EBITDA, $5-$50MM checks)

Dixon Midland (ecomm, health, energy/agric svs, CPG, biz svs, $4MM+ EBITDA, $25-$100MM valuation)

DN Partners (mfg, dist. & services, $20-$100MM revenues, $20-$100MM valuation)

D'Orazio Capital Partners (mfg., log., supply, svs., & oil, $10-$30MM revs, $1.5-$3MM EBITDA)

Driehaus Private Equity (energy, media, services & mfg., $5-$50MM revs, $1-$30MM checks, $3MM+ EBITDA)

Dunrath Capital (infrastructure)

Edgewater Funds ($2.4BN managed, $20-$500MM revs)

Flexpoint Ford (financial svs. & healthcare, up to $200MM checks)

Frontenac Company (food, services, & industrial, $3-$20MM EBITDA, to $250MM valuation)

Fulton Capital (dist., mfg., & biz svs., $10-$100M revs, $2-10MM EBITDA)

Geneva Glen Capital (biz svs., CPG, environment, educ., health, mfg., media, dist., $3-$20MM EBITDA, up to $50MM check, under $100MM valuation)

Glencoe Capital (generalists, $3-$15MM EBITDA, over $7MM checks, Michigan focus)

Grand Crossing Capital (CPG & retail, $5-$25MM checks, $2-$10MM EBITDA)

Granite Creek Partners (food/agric., med. devices, transport., $10-$50MM checks, $5MM+ EBITDA, $25-$150MM valuation)

Growth Catalyst Partners (information, marketing, tech-enabled services, $3-$7MM EBITDA)

GTCR (fin. svs., tech, media, telecom, health, biz svs., upper middle-market)

Hadley Capital (mfg., dist., & biz svs., $5-$30MM revs, $1-3MM EBITDA)

Hand Capital (financial services & manufacturing, small businesses)

HCP & Company (consumer, education  & healthcare, $10MM+ revs, $5-$30MM checks, profitable)

Heico Companies (mfg., dist., & services, $30MM+ revenues)

Hennessy Capital (ind., mfg., dist., services, $500MM-$1BN valuations)

High Street Capital (biz svs., mfg., dist., & health, up to $100MM revs, up to $15MM EBITDA)

Hughes & Company (healthcare, $2-$20MM checks, up to $10MM EBITDA)

Industrial Innovation Partners (industrial, oil, tech, & health, $1-20MM EBITDA, $5-$100MM valuation)

Industrial Opportunity Partners  (mfg. & dist., $30-$350MM revs, $5-$50MM check, $460MM mgd)

Inoca Capital Partners (biz svs., consumer & mfg., $1-$8MM EBITDA)

JZ Partners (mfg., dist., ind., health, educ., trans., biz svs., up to $200MM valuation, $1BN mgd).

JVA Partners (home decor, industrial storage, IoT technology, $25-$150MM revs, $5-$25MM check)

Keystone Capital (prof./biz svs., industrial tech/mfg. & consumer/food, $4MM+ EBITDA)

Lake Capital (biz svs., cons. svs., fin svs., & health, $50-$75MM checks)

Lake Pacific Partners (food/bev., CPG, cons. svs., dist., & biz svs., $25-$250MM revs)

LaSalle Capital (food/bev. & biz svs., $10-$100MM revs, $2MM+ EBITDA, $5-20MM checks)

Linden Capital Partners (healthcare, $1.3BN managed)

Madison Dearborn Partners (industrial, biz. svs., consumer, fin. svs., health, telecom, media, tech svs., $18BN mgd, new growth stage B2B tech fund cutting $75-$100MM checks)

Madison Industries (filtration, medical, & industrial, strong cash flow, global focus, up to $250MM)

Maranon Capital (biz svs., consumer, health, dist., & mfg., $2BN mgd, $5-$50MM EBITDA)

McNally Capital (food/bev, biz svs., logistics, mfg, & health, $5-$25MM EBITDA)

Merit Capital Partners (mfg.., dist, & biz svs., $25MM+ revs, $5MM+ EBITDA, $15MM+ checks, $1.7BN mgd.)

Mesirow Financial (generalist, $4.5BN mgd., co-invest with professional funds)

Mid Oaks Investments (mfg., biz svs., & dist., $25-$250MM revs)

Midwest Mezzanine Funds (generalist, $750MM mgd., $3MM+ EBITDA, $4-$15MM checks)

MVC Capital (CPG, food, dist., mfg. & fin. svs., $10-$150MM revs, $3-$25MM EBITDA, $3-$25MM checks)

New Harbor Capital (health, education & biz svs., $3-15MM EBITDA, $10-$30MM checks)

North American Funds (mfg., food/bev., medical, consumer, dist., biz svs., educ. & fin. svs., $5-$40MM revs, $500K-$5MM EBITDA)

One Eighty Capital (generalist, $5-$50MM valuation, $0-$10MM EBITDA)

One Equity Partners (health, fin. svs., mfg., tech, travel, energy, food, media & consumer, $11BN mgd, $150MM average check)

Parallel49 Equity (mfg., biz svs. & dist., $5-$25MM EBITDA, $1BN managed)

Parker Gale (technology, $2-$6MM EBITDA)

Periscope Equity (tech-enabled biz svs., $10-$40MM revs, $2-$5MM EBITDA, $10-$30MM valuation, $5-$15MM checks)

Pfingsten Partners (mfg., dist. & biz svs., $15-$100MM valuation, $20-$150MM revs, $3-12MM EBITDA)

Plenary Partners (health, tech, mfg. & life sciences, $1MM+ EBITDA)

Polestar Capital (technology, smaller companies)

PPM America (consumer, energy, dist., health, educ., tech, mfg. & biz svs., $6BN mgd, $5-$25MM checks, $30-$300MM valuation)

Prairie Capital (biz svs., industrial, CPG, educ., fin. svs. & health, $20-$100MM revs, $4-$12MM EBITDA)

Prism Capital (industrial up to $7MM checks; tech, health, mfg. & biz svs. up to $3MM co-invest checks)

Promus Equity Partners (CPG, food/bev., industrial, special materials, dist. & biz svs., EBITDA up to $15MM)

Prospect Partners (mfg., dist. & services, $10-$75MM revs)

Range Light (active lifestyle, natural foods & tech svs., $1-$20MM check, $1-$30MM revs)

Red Arts Capital (industrial, biz svs., CPG, dist., mfg., food/bev., health & medical devices, up to $75MM revs)

Right Lane Capital (generalist, $3-$20MM EBITDA)

RiverGlade Capital (healthcare, $3MM+ EBITDA)

Rock Gate Partners (biz svs., consumer, dist., food & industrial, $3-20MM checks, $10-$75MM valuation, $10-$100MM revs)

Rock Island Capital (mfg., dist., & svs., up to $100MM valuation, $10-$100MM revs)

RoundTable Healthcare Partners (med. devices, pharma & healthcare, $2.75BN managed)

SE Capital (biz svs. & gov. svs., $5-$50MM revenues)

Sheridan Capital Partners (healthcare & consumer, $20-$150MM valuation, $10-$30MM checks)

Shore Capital Partners (healthcare, $5-$50MM revs, $1-$5MM EBITDA)

Shorehill Capital (industrial & distribution, $25-$100MM valuations)

Silver Oak Services Partners (biz svs., cons. svs. & health, $10-$30MM checks, $15-$150MM revs, $3-$20MM EBITDA)

Skyline Global Partners (health, mfg., biz svs., software, CPG, food/bev/agric., & oil/gas, $10-$100M checks, $10-$100MM revs, $2-$15MM EBITDA)

Sterling Partners (biz svs., education & healthcare, $25-$125MM checks, $10-$30MM EBITDA)

Stockwell Capital (generalist, $3-$15MM co-invest checks, $50-$500MM valuation)

Svoboda Capital Partners (dist., biz svs., cons. svs. & CPG, $25-$100MM valuation, $10-$25MM checks, $10-$100MM revs, $3-$15MM EBITDA)

Synetro Group (B2B tech, biz svs. & mfg., $8-$50MM revs, $0-$3MM EBITDA, $1-$4MM checks, under $50MM valuation)

The Pritzker Group (mfg., services, health, food, cons., industrial, transport, medical and pharma, $100-$750MM valuation)

Thoma Bravo (enterprise, infrastructure tech, security tech and tech-enabled biz svs., $20MM+ EBITDA, $100-$750MM checks)

Thurston Group (healthcare/practice mgt., technology, services and telecom, $3BN managed)

Traverse Pointe Partners (biz svs., bldg. prods., fin. svs., mfg., industrial, media, telecom, packaging, retail, CPG, transport & dist., up to $6MM in EBITDA, $10MM+ revs)

Turnout Capital (biz svs., mfg., logistics, $1-$3MM in EBITDA)

Tyree and D'Angelo Partners (health, cons., agric., biz svs., $1-$5MM EBITDA, under $50MM revs)

Valor Equity Partners (cons., infrastructure, industrial & mfg., $10-30MM checks)

Water Street (healthcare, $50-$500MM checks)

Waterside Capital Partners (ind., CPG, food, mfg. & biz svs., $3-$25MM checks, $25-$150MM revs)

Waud Capital Partners (generalist, $50-$100MM checks)

Waveland Investments (mfg., dist. & services, $10MM+ revs, $1-$8MM EBITDA)

Willis Stein & Partners (infrastructure, mfg. & education, $30-$500MM valuation, $3BN mgd)

Wind Point Partners (industrial, CPG & biz svs., $30-$150MM check, $10MM+ EBITDA)

Winona Capital (CPG, retail & cons. svs., $10-$100MM revs, $1MM+ EBITDA, $10-$30MM check)

Woodlawn Partners (mfg., bldg. svs., tech, fin. svs., food/bev., transport & dist., $5MM+ revs, $1MM+ EBITDA)

Wynnchurch Capital (mfg., transport, biz svs., dist., energy, ind. & metals, $50MM-$1BN revs, $5-$100MM checks)


Be sure to dig deeper on their websites to make sure they invest in your specific industry, revenue stage, geography and desired minority/majority deal structure before reaching out to these investors. Red Rocket can help make introductions to many of these investors, so please leverage our relationships here.

For future posts, please follow us on Twitter at: @RedRocketVC

[NEWS] The Red Rocket Blog Passes 750,000 Reads!!

We just logged in to write our next blog post and were pleasantly surprised when we got an alert that the Red Rocket Blog just passed the 750,000 reads mark!!  We are so excited our reader base continues to grow and keeps coming back, month after month, for our growing list of lessons in enterpreneurship.  Thank you so much for your continued readership, and helping us spread the word to your entrepreneurial colleagues.

For future posts, please follow us on Twitter at: @RedRocketVC.

6 Key Tips to Taking Your Business Global

If your business has seen successful growth in the US, it most likely will see success in other countries as well.  And, you may want to lock up those markets, before some other company does.  I recently met a startup that had successfully tripled its revenues, largely from the results of a successful international expansion effort, and I wanted to share those learnings with all of you.

Read the rest of this post in The Next Web, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.

Chicago Family Investment Offices

One of the growing trends in the venture scene is the addition of family offices to the mix of prospective investors.  It used to be family offices would just invest in professionally managed venture funds, but many are now building in-house teams and starting to make direct investments.  Most family offices like to keep a low profile, and are hard to find, so I did my best here.  I also included some venture funds that have outside money, as well, if the lion's share of the fund is the personal investment vehicle for one family.

Here are some of the bigger family offices I am aware of here in Chicago, including the key family investor in parentheses:

Ashland Capital (a collection of families)

Breslow Forsythe Group (confidential)

Caretta (Eric Becker)

Certare Ventures (Art Wong)

Chaifetz Group (Richard Chaifetz)

Concentric Equity Partners (Harrison Steans)

Corazon Capital (Sam Yagan)

Crown Family Office (Lester Crown) -- no website

Diversified Capital (Larry Levy)

DRW Venture Capital (Don Wilson)

Duchossois Capital Management (Craig Duchossois)

Equity Group Investments (Sam Zell)

G2T3V (Howard Tullman)

Grand Crossing Capital (Clay Naccarato)

Harrison Street (Chris Galvin & Michael Galvin)

Huizenga Capital Management (Wayne Huizenga)

Incisent Labs (Pat Ryan)

Jump Capital (Paul Gurinas & Bill Disomma)

Jumpstart Ventures (Rishi Shah & Shradha Agarwal)

Lead Lap LLC (David Zucker)

LEO Capital (Randy Rissman)

Lightbank (Brad Keywell & Eric Lefkofsky)

Longview Asset Management (Lester Crown)

KB Partners (Keith Bank)

Kenex Holdings (a collection of families)

Keystone Capital (the partners of Keystone's personal money)

KGC Capital (Dick Kiphart)

Mansueto Ventures (Joe Mansueto)

Matthew Pritzker Company (Matthew Pritzker)

Merrick Ventures (Michael Ferro)

McNally Capital (a collection of families)

OCA Ventures (Jim Dugan, John Dugan & Peter Ianello)

Old Town Capital (Jamie Crouthamel)

Origin Ventures (Steve Miller)

OS Fund (Bryan Johnson)

PFG Group (a collection of families)

Pritzker Group Venture Capital (J.B. Pritzker & Tony Pritzker)

Promus Ventures (Andy Code)

PSP Capital Partners (Penny Pritzker)

Reyes Holdings (Christopher Reyes & Jude Reyes)

Romar Partners (Scott Wald & George Colis)

Sawdust Investment Management (Michael Krasny)

Skydeck LLC (Michael Polsky)

TCS Group (Ted Schwartz)

Be sure to research their website to ensure your industry and the stage of your business qualifies for their investment criteria, as many of these prefer private equity stage to venture capital stage businesses.  If you are aware of other big ones I am missing, please add them to the comments field.

For future posts, please follow us on Twitter at: @RedRocketVC

[NEWS] @georgedeeb Presents Recruiting Tips for Startups on the @StrongSuitHires Podcast

This week, Red Rocket's George Deeb had the pleasure of being interviewed by Jeff Hyman, the Chief Talent Officer at Strong Suit, a small business playbook for early-stage recruiting.  In this 20 minute podcast, George talks about the five things to look for when recruiting startup executives and how best to compensate and incentivize them.  Happy listening!!  Thanks, Jeff, for including us in your podcast series.

For future posts, please follow us on Twitter at: @RedRocketVC.

What Exactly is Venture Capital?

I have been writing about how to raise venture capital for years.  But, I got a very unexpected question the other day: what exactly is venture capital?  I just assumed everyone understood what venture capital actually was.  But, for those of you who are new to the startup or fund raising scene, this post is for you!!

Read the rest of this post in Forbes, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #240: Document Your Processes, Before They Walk Out the Door!!

Let’s face it, most entrepreneurs are really busy people. They are focused on launching their new products, raising capital or a multitude of other things.  And, with the limited number of hours in a day, who could fault them if they let documenting their business processes slip down their priority list.  That is, until one of their key employees quits with all that institutional knowledge undocumented in their head, and you are screwed, scrambling to pick up the pieces with no roadmap to help you.

This is a common problem that most entrepreneurs simply don’t think about until they have been burned by a departing key employee.  So, before you fall into this camp, be warned: documenting your business processes as you go is mission critical from day one.  You never know when someone is going to be hit by a bus, and all your systems’ login information and passwords are lost forever, as an example. 

WHAT NEEDS TO BE DOCUMENTED?

Take a pause and think about all the areas of your business that needs to be documented.  Where do all my customer contacts reside?  What was the last conversation my sales team had with my contacts?  What is our desired layout for all marketing pieces and brand messaging?  What techniques or phone scripts do we use to convert leads into sales?  What should we be upselling to clients?  What is our handoff procedure from sales to operations?  What is your policy for handling customer complaints?  Who has access to our bank accounts and accounting systems?  How should we be collecting unpaid accounts receivables?  What rules do we follow in building our technology code?  And, the list goes on and on.

THE TRAINING BENEFITS FROM DOCUMENTATION

Yes, it is a daunting task . . . the first time.  But, once it is done, it can be easily maintained and updated from there.  And, most importantly, it serves as a really good tool to train new employees with.  So, not only is it a way to protect yourself from losing institutional learnings locked away only in the heads of your employees, it is a great way to come across as professional to new employees, to help them better understand the processes needed for their jobs.  And, the faster a new employee is onboarded, the faster they are producing valuable results for your company.

HOW THE DOCUMENTATION SHOULD BE STORED

Make sure these processes are centrally stored on your internal drives and are accessible to all employees that need to have access to such files.  Perhaps segmenting your procedures by key department (e.g, sales vs. operations), and by level of role with your organization (e.g., Vice Presidents have access to more than Managers).  You don’t want 100% of employees having access to 100% of your sensitive files for security reasons.  So, make sure only the people that need to have access to those files, get access to those files.

EMPHASIZING THE IMPORTANCE WITH YOUR TEAM . . .

Make sure the importance of having these processes documented is ingrained into the DNA of your company.  Let them know it is part of their job, to make sure these processes are documented, learned and followed by their teams.  And, most importantly, updated as they may be changed over time.  Most processes are typically not set in stone, they are fluid with the needs of the business or its customers.  So, keeping the processes updated is critical to make sure new employees are learning the most current procedures.

. . . WITHOUT OVER-PROCESSING YOUR COMPANY

That said, you don’t want to suffocate the life out of your business by having too many procedures.  You want your organization to remain as flexible and nimble as the market demands require.  So, it is much less about have a “process tsar” enforcing all your processes and making a militant environment for your staff (where they will most likely quit), and much more about letting your employees know the importance here, and having them tackle it in digestible pieces as they have time.  But, they do have to make time.

So, I know it is a pain in the butt, but get your processes written down while you can, before you actually need it.  You certainly don’t want your chief engineer leaving for another company before he clearly has documented all the “patches” only he knows exist in the millions of lines of code in your technology.  And, for those of you that ignore this warning, prepare for a rude awakening when you need it most.

For future posts, please follow me on Twitter at: @georgedeeb

Customer Service Case Study: My Wacky Website Weekend!!

What a stressful weekend I had.  The Red Rocket website went down on Friday morning.  I didn't know if it was a temporary server outage from my hosting provider, or not.  I tried emailing and calling the emergency support team, with no response.  I said I would give it a day or two, before panicking.  But, with the site still down on Sunday morning, I assumed the worse, that my vendor Site2You may have gone out of business (which apparently they didn't), and I scrambled to get a new site up and running, which proved a daunting challenge on a last minute basis, to say the least.  I wanted to share some customer experience and customer service learnings with you, so you don't make the same mistakes with your business.

Site2You:  Grade F

I had been working with Site2You since I first launched our website in 2010.  Back then, they actually had a good selection of website templates, a good user experience with their content management system and a support team on call in case anything ever went wrong.  But, over time, it was clear they were not maintaining their systems (e.g., it only could be accessed through an outdated Firefox browser), and they even tried to get me to switch over to WordPress.  But, I was busy, the site was functioning fine for my needs, and I stuck with them.

But, when the site went down this weekend, with no warning or response from Site2You after three days of outage, that was the straw that broke the camel's back.  It didn't matter that I had been happily working with them for over six years.  What mattered was my site was down, despite their 99.9% uptime guarantee, and there was no way for inbound visitors to find my site, including the lost advertising spend with Google Adwords landing on a dead website.

So, the key lesson here: it is only the most recent experience that matters most with your customers, as you can lose them at any time with unexpected slip-ups.  And, it is important to keep your product improving over time, with open communications with your customers when stuff is going wrong. They actually got their service back up and running on Monday, but by then, the damage was already done.

Google:  Grade A

I never really felt the need to have to backup my website content, in case the site ever went down. That was Site2You's job, which they had been successfully backing up the site data every 24 hours, over time.  That was until Site2You itself goes down, and there is no way to track them down.  That's when the panic sets in.

The good news was, I knew Google indexes all websites.  And, even if the Red Rocket site is down, Google will have a cached copy of the indexed web pages on their servers.  So, I searched for Red Rocket in Google, found my links, and pulled up the cached copy from their search results.  Thank goodness, as it saved me a ton of time of having to rewrite all the website copy from scratch.  Thank you, Google!

GoDaddy:  Grade C

I use GoDaddy for my domain name registration service.  So, I figured I would go there to see what website development options they had.  They actually had two options: I could license WordPress through them, or they had their own competing system they wanted to sell you.  I was able to review sample templates of their system, which weren't all that great, but at least it was supported by a human support team in case I ran into any problems.  But, there was a reason 25% of the websites on the internet are powered by WordPress, which is where I was leaning.  And, GoDaddy couldn't show me any of the premium WordPress templates, and the GoDaddy support team wouldn't support the WordPress platform if I had any customization needs.

So, the key lesson here:  make sure your product is competitive with other perceived leaders in the market, and if you are going to sell a product, you should support it, even if it is a competitor's product.  I got scared aware by no technical support on the system I really wanted.

WordPress:  Grade C

Well, if GoDaddy can't meet my WordPress needs, surely WordPress can.  WRONG!  WordPress only supports their couple hundred website templates they have built, which weren't all that fresh for this generation of web design.  And, if I wanted to purchase a custom template elsewhere, they would not host it on their servers, they pointed me in the direction of a third party website hosting company they had partnered with.  And, worse yet, there was zero human support offered for their templates, if I had any minor customization needed.  Which means, I would have to engage expensive WordPress developers to make the customization changes for me.

I am sort of scratching my head to how WordPress has built up a dominant market share position with this type of strategy.  They must be biasing web development agencies as their primary customers, as their consumer direct solutions were not all that great.  To me, it doesn't feel like allowing third party templates to be hosted on the WordPress servers and providing access to a support team for minor changes needed would be that hard of a thing to offer, even if I had to pay more for that solution.

Word Press Developer Agency:  Grade C

I had a WordPress development agency do good work for one of my clients in the past.  So, I outreached to them, to see if they could help.  He said it would cost a minimum of $2,500 to do the work, assuming I could find an off-the-shelf template I liked.  My website is so basic and simple with a few pages, that I thought there was only a few hours of work needed, and the quoted price felt too expensive, so I moved on.  So, make sure your prices are in line with what is reasonably to be expected for the work being provided.

Wix:  Grade A

Which brings me to Wix, the vendor I chose to build the new website platform.  They "had me at hello".  Their website just lured you right into the template creation process, without having to charge my credit card ahead of time (as both GoDaddy and WordPress required).  And, once I started working with their system, it was so unbelievably simple and easy to use.  It was closer to working with Word or Powerpoint, than it was a complicated web development platform, like WordPress.  So, any non-technical person can easily make the changes needed, without the need of expensive developer time, including a fool-proof step-by-step tutorial to revise my DNS settings with GoDaddy.  Which explains why over 80MM customers have chosen Wix as their website solution.  And, to top it off, the new website looks materially fresher and better than the old website did, so my stressful weekend turned out to be a blessing in disguise.  All for the price of $12.99 a month, plus a few hours of my personal time setting up the site.

So, the key lesson here is:  don't create friction between your customers and the sale.  Give them free access to your tools, so they can play with it first, and then ask for the sale after they are hooked.  And, user experience is everything, so the easier and better you make it, the higher your sales will go.

Hope you found this post useful, both for your customer service and experience strategies, and for your website development needs.

For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #239: Manage Towards Valuation Step-Ups

Most entrepreneurs think in the present.  They know they need money now and they go out and raise whatever they can for their current stage of growth.  But, it is critical that entrepreneurs are constantly looking far enough into the future, to know what financial targets will be required to successfully raising their next round of capital, and managing the business towards those targets, to ensure the appropriate valuation step-ups are achieved with each subsequent financing.  It is typically not good for the entrepreneur or the investor, if valuations are not continuing to move up over time, as detailed herein.

The Normal Startup Funding Cycle

As a representative example, venture-backed tech startups typically raise monies as follows:  $250-$500K seed round, followed by $1-$3MM Series A round, followed by $10-$20MM Series B round. If they sell approximately 25% of the company in each round, at the midpoint of the ranges, that would value the company at $1.5MM at the seed stage, $8MM at Series A stage and $60MM at Series B stage, after such investments.

What This Means for the Business Targets

The above example funding cycle is just numbers on a page.  To actually get investors excited about making such investments, you need to be making material progress with your business along the way.  So, for example, let's say revenues is the key driver.  Most high margin tech companies are valued at 3x revenues.  So,at the midpoint of the ranges above, you will typically need to have $380K in revenues to attract seed stage investors, $2MM in revenues to attract Series A investors and $15MM in revenues to attract Series B investors.  Revenues can be the annual run rate of the business based on the most recent month times twelve, it doesn't need to be the last twelve months.

What This Means for Management

If you want to ensure your future fund raising process goes smoothly, you need to have the above example revenue targets in mind as you are managing the business.  Said another way, you better make sure the use of proceeds from each round is enough to afford all the sales and marketing activities that will be needed to propel the business to the next target revenue tier required to attract the next group of investors.

Sanity Check

To sanity check this, let's say you raise $2MM in your Series A and need to add $13MM in incremental revenues to attract your Series B investor.  Let's assume we are a B2B company acquiring leads at $250 per lead and converting 10% of them into sales at an average transaction size of $25,000.  If we use half of our Series A capital for sales and marketing, that should attract 4,000 leads, 400 transactions and $10MM in revenues, understanding revenues will have a six month delay behind the sales and marketing spend.  So, by 18 months after the round, we did okay at growing the business, but we didn't get to the full target of $13MM.  So, we would want to rethink our sales economics, marketing efficiency or deal terms of the Series A round to make sure we have a reasonable chance of hitting our Series B funding goals.

What Happens if You Miss Your Target?

I think most investors are expecting entrepreneurs to miss their targets, and most everyone does, at one point or the other.  But, you want to do everything you can to ensure that any misses are kept to a minimum.  So, be ultra conservative in your forecasting. For example, if you normally convert 20% of your leads, run a sensitivity analysis to see what happens if you only convert 15% and pivot accordingly, to give your plan enough cushion.

The reality is, if you materially miss your sales targets, the following situations could occur:  (1) it will make raising additional outside capital materially harder, at least at the valuation you were originally hoping for (given slower growth rate of the business); (2) it could result in flat valuation rounds or down rounds for the next monies in (which could trigger all kinds of anti dilution protections for your investors, materially cramming down your personal equity stake); or (3) it could irritate your current investors (as it most likely means they will materialy miss their ROI targets on their investment in your business).  Do your best to make sure that doesn't happen to you.

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Stop Selling the 'What', Start Selling the 'Why'

You gotta love entrepreneurs. All their passion and excitement around the innovative new products they are building. And, they love talking about their products with others, detailing every feature and functionality of their offering. They are laser-focused on getting others to love their products as much as they do. But, then they realize, sales are not coming in. They question how can that possibly be, given how great our product is? It’s about that time I usually need to tell them, their customers don’t really care about the product itself (e.g., the “what”), they care much more about how it can improve their business (e.g., the “why”). The sooner you learn to ditch focusing on the “what” and start focusing on the “why” to get their attention, the sooner your sales will start to accelerate.

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.