We Invest in the Midwest

Midwest.VC (MVC) provides venture capital funding to amazing early stage tech startups in the Midwest.

The following is how we think about startups, product, growth & markets.  This will be a growing list – expect it to change!

Returning the Fund

Our goal is threefold: Help entrepreneurs build amazing experiences for their users, win the market & provide a return to our investors. We’ve seen many, many situations where a company didn’t exit when they had the chance (Groupon, FourSquare, Path & startups we’ve helped in the past) because the belief was that they still could keep growing & gain more market share. In reality, the investors backing these companies wanted to ‘return the fund’. What this means is that major VC’s whom have a significant size fund (let’s say $100M) want that portfolio company to wait & exit @ $300M, not a $75M offer on the table.

There are plenty of situations where ‘waiting’ has paid off handsomely, but we’ve seen more where the company was never able to reach those lofty goals. We will advise on the best outcome of your business – NOT our fund. We believe that if we advise for the best outcome for each business, that it’ll work out in the end.

Midwest Advantages

There can be advantages to being focused in the Midwest.

    1. Cost of Living: The cost of living in the Midwest can be 1/3 to 1/2 of living in San Francisco, NYC, or Boston. If your startup does not HAVE to be there, then there’s definitely an argument to be based elsewhere. Here are two simple examples: 1) You have a startup that makes developer tools – Then you should be in San Francisco.2) You have a startup for homeowners – Then Chicago or the Midwest could make a ton more sense. There really aren’t too many homeowners in those markets & the ‘network’ of developers aren’t necessary for growth.
    1. Fewer opportunities = Better Team. There aren’t too many world-changing startups in the Midwest. You can be one of them! Therefore, you get to select from the cream of the crop in your area.
  1. Industry focuses: Similar to #1, not every single industry is focused on NYC or SF / SV. Are you in logistics? No better place in the world than Chicago.Agriculture? Why would you choose Boston over somewhere in the Midwest? CPG? Tools for Local Businesses? Chicago has the best sales force in the country, that knows how to call into local businesses. Be where you need to be.

Markets in Markets

By entering a market with massive amounts of competition, you’re hindering your ability to rapidly grow & dominate. Just think of all the biggest successes these past few years: Uber, Spotify, Airbnb, Pinterest, Stripe. While they entered massive, competitive markets – their offering was different. They carved out a particular niche in their respective market (niching down). When startups do this when first starting out, their only competition is themselves. After time & rapid growth, they then battle the incumbents of the industry.

An example would be for scheduling software & OpenTable. When OpenTable started, the only way to get a reservation at a restaurant was to either call or walk in. OpenTable decided to focus on just restaurants, whereas they could’ve tried to ‘own’ all appointment & scheduling for service-based businesses. This would’ve burned through all of their cash making a weaker product for everyone, vs. a strong product for their market.

tl;dr – We like investing in great teams that are building new, growth markets in big markets.

Business Model

We will most likely be able to rapidly understand your business & if we haven’t seen your model before, then it might not be a good fit.  We are more interested in your go-to-market strategy than your explicit model.  Model’s can change & adapt to the current environment – if the product is great.

Design Focused

We’ve spent a long time building products, not just as product managers.  We know how important a great looking product is for customer acquisition & sales.  If your product doesn’t work as well as the incumbent solution & also doesn’t look as good, it won’t sell.  Also, no one likes working for an ugly product – so it’ll even make recruiting more difficult.

Therefore, we believe we’re past the “Ugly Stage” of startups.  It’s simply too competitive to launch something with poor UX/UI.  There are plenty of options in most markets & if you can’t even ‘look better’ than your competition

Your product needs to look great, act great, and sell what you’re offering.  If it can’t do that – then you can’t win your market.

Product Roadmaps

Long-Term Product Roadmaps are incredibly easy to create.  All we need to see is the highlights of how you see your product growing. We actually hate detailed roadmaps, because they’re typically more unrealistic than financial statements because not too many people have spent time in product & can call BS on your roadmap.  In reality, there should be constant iterations & pivots with your product through new learnings.

What we’d like to see is “Stages”.  During each stage, we expect you to ‘win’ that market in your respective stage, and won’t leave until you do so.

Faking Traction

Some investors like to say “We believe companies that have an unfair advantage in customer acquisition will outperform.”  That’s great for them 🙂 – but since we’ve been in the trenches for so long, we know it’s 100% possible to fake traction at an early stage. (Trust us, we’ve tried it when we were attempting to raise for our 1st startup)

If you hustle enough, you’ll be able to find early adopters & users for your products  – but you can’t win a market with early adopters.  Not only is it not sustainable, but it distracts the business chasing vanity metrics.

Instead, we value retention, referrals, & love of your product more than sheer total #’s of users.

PMF

We’ve had the Product Market Fit discussion a ton of times w/ entrepreneurs and investors.  It seems that every time we talk w/ someone, their interpretation is different.  Here’s ours: Product Market Fit happens when the product you’ve created not only satisfies the need of the market – but if it was removed from the market – users would be extremely upset.  tl;dr It’s nuanced & hard to define & “We’ll see it when we see it” – feel free to reach out to us about this because we can’t cover it all in a paragraph.

Leading the Round

We won’t lead your round, but we might be your first investment.  Why?  We will provide more value helping you build your product than joining your board & doing VC work.

Team

Every VC & Seed fund talk about a great team.  This can also be faked @ an early stage.  Some questions that will go through our head:

1) Have the founders learned “How to Startup?” 2) Is the CTO an engineering manager, or does he ship code? (Same for other leaders!) 3) Will their prior experiences carry over to this new product? 4) Does their Industry experience help or hurt?  (A little is always good – but there are limits) 5) What’s their definition of Scrappy? 6) How active are they outside of ‘work’?  Do they advise 3 companies, coach little league, are on 2 boards, or party hard the majority of the week?

Team + Market

The team needs to fit the product & the team needs to fit the market.

    • If the product needs engineers – then the team should be engineer heavy.
    • If the product needs a sales force to grow, then they should have sales in their DNA.
    • If the market requires experience, then the team needs industry experience.
  • If the market requires scrappiness & hustle, then the team needs to be lean & scrappy.

Some good examples of this = Salesforce, Apple, Facebook & Google.

We Want Winners!

For Tech Startups, we believe there can only be 2 winners.  A great example is the ride-sharing industry. There is One dominant player (Uber for Instance) and the 2nd place (Lyft).  Then there is everyone else.  “Everyone else” is the taxi companies that will continue to band together (7 years too late), more ‘3rd best’ apps like SideCar, etc.  The ONLY way that new entrants will be able to compete in a space like this is through price & it seems that just through sheer economies of scale, that Uber+Lyft will win on that too

Investments

We have been active angel investors for years. Here are a few of the investments we’ve made outside of MVC – Unsplash, mParticle, Brandable, LawnLove, OttoRobotics, OneSignal, Ticket Scalpr* (acq), SharkWheel, Kin Insurance, Alto IRA, Station, Trusted* (acq),Ethereum, JioBit, American Ultimate Disc League, Shef, Gallant, TrueBill, American Ultimate Disc League (AUDL), Premier Lacrosse League, Chicago Wildfire, SuperTailgate, Lakeview Labs, and others.

About

This fund is led by Patrick O’Brien.  I’ve been a part of every single stage of a company – from countless ideas to 1.0’s, Seed, Series A-G + an IPO, as well as a turn around of a slow-moving public company.

I’ve seen more failure than success @ all of these & have noticed trends that happen at each stage.  I’ve also made & seen plenty of mistakes – in product, sales, customer acquisition, and especially the go-to-market strategy.

Hyper-Growth Startups, Destroying Competition, Industry Disruption & Innovation excite me.  Feel free to reach out!