Response to Ron May

Dear Ron:

Regarding your article about knockNOW! in the Thursday May Report; and much as I disdain your tactics, which I feel are: “write first and ask questions later”, I feel you deserve a response. Your normal modus operendi is to write something, usually negative, and then force that person to respond. If they don’t, you feel there must be a story there, and thus you keep digging. In many respects, people are too busy working to expand or in some cases just trying to save their businesses.

We as entrepreneurs are painfully aware of the impact of our actions in the marketplace. While those actions may not always have the result we desire, sometimes our efforts are better spent working, than responding to you. In that vein, yes, I am going to take time out of my day (which at this point consists of a continuous, daily 18-hour process of fund-raising) to respond to you.

Well, if you dig into anyone’s background, I am sure you will find some interesting items. Actually, I have some contacts to people that knew you back in college and high school. Quite funny stories they have shared with me. However, in line with what Mr. Sorensen says, “I am saving my bullets”.

This in turn leads me to knockNOW. Much of what I am going to present is “IMHO” or “in my humble opinion”.

The premise of the event is much like you laid out in your “editorial”. Rather than hearing it from you, edited to suit your purposes, I suggest all your readers visit the temporary location of www.sitevisions.com/knocknow, where they can see the entire knockNOW! document as well as the complete response to you, and perhaps understand where I am trying to go with this venue.

“While I support and enjoy the efforts of First Tuesday and Big Frontier, I and my colleague felt there was a need for a smaller, more focused group. Unfortunately, the events have gotten so big that in some respects they become counter productive. Are they great social events? Absolutely! Do they bring out the level and quality of companies needed to do business? Often, the sheer size prevents this from happening.

This is not the fault of the events as much as it is a product of the environment in Chicago. For as much as we want to think our city is ahead of the curve, it is not. It is drastically behind and very immature in terms of technology community’s activity. This is evidenced by what I call the “vision cycle”. (That was also covered in the document you have your hands on. Again I suggest your readers visit www.sitevisions.com/knocknow).

The vision cycle, in short, means we in the Midwest haven’t had enough of the turnover of successful technology based companies that has occurred in the East and West coasts. This leads to less seasoned Internet executives, managers, financiers, etc. If you think about it, we as a city have not had that many “big winners” or “home runs”. The result is that, unlike the coasts, we don’t have a couple of hundred new economy entrepreneurs running around with $200 million dollars to invest in high tech. That “vision capital”, as we call it, results from wealthy, knowledgeable, experienced entrepreneurs investing back into the economy in areas they understand.

This knowledgeable investing occurs much further down the chain that what Chicago has tried to and likes to fund. Going out on a limb here, Chicago DOES NOT like to fund concept and seed. Regardless of what many of the VC’s are spouting, they do not.

Our local VCs idea of a seed stage investment is a company that is up and running, with a client base and some proof of concept. That is not seed investing, that is bank investing. Let me go prove the model and diminish your risk. If venture capital is to truly be considered venture, it must contain some risk. Not all companies can get up and running with friends and family investing. The VC groups in this town sit around and lament that they haven’t been lucky enough to invest in a home run. Well, we submit, that betting on the favorites (that is, investing in later rounds and with the companies that have already proven their model and moved past much of the risk stage), produces results that are even at best. It is the long shots that create the big payoffs: the hotmails, the yahoos, the ebays, the tradeouts, exodus, all of which didn’t look like the best ideas at the time. If this city doesn’t start funding the ideas, all of the ideas will leave.

I submit to you the latest company: Paypal. This company is the number one financial destination on the web, has raised tons of money and is in a great niche, and oh yea, was started by a few guys from an Illinois college who used to live in Wicker Park. Where are they now? Well they aren’t in Chicago!

All too often the investing in this town is left to investment bankers or MBA’s, not angelistic entrepreneurs. Our attempt was to bring together individuals from 5 separate groups that have a reason, and hopefully they feel an obligation, to get together. These groups are as follows:

1- Entrepreneurs
2- Venture Capital; in particular “vision capital” people willing to provide seed and concept stage funding.
3- Executives from Fortune 500 companies
4- Consultants and Academics
5- Politicians and Press

Each of these groups has individual needs, each has their own myopic society of events and groups, and each has their own relevant knowledge, skill-set, and domain expertise.

For example, the entrepreneurs need better mentoring from successful executives, we need the Fortune 500 clients, we need more experienced management, and we need access to the very items the VC’s in Chicago say they are waiting on us to acquire or accomplish. Each group has their own unique set of issues.

It is the attempt of KnockNow’s to bridge the gap in these areas. You had made an interesting point, actually several of which I will address, about Michael Mensik almost never going to anything. I agree. Many of the top people in these groups have been overwhelmed, or in some cases under whelmed, and inundated with the events and information overload.

Ron, you and I have been around along time. I think you will agree, we have some great people in this town who are now in stealth mode. They never go out, nor does anyone from their company. Why? Many found the information or experience less than productive. Again, going to maturity of markets.

What does a Lante, Click Commerce, or March First gain from a First Tuesday? The client base of these companies are fortune 500 companies. These guys should be, or do go to events like The Executive Club of Chicago, or the Economic Club. The Archipelagos and Proofspace’s go to events like E-finance at Loyola, or e-payments at the Federal Reserve. Eventually, groups have to split to become stronger. Much like cells dividing, more focused groups are designed to be productive not destructive.

Which leads to being destructive. Yes Ron, you purposefully were not invited. It was a choice of mine and one I will stand by. Why? Because I feel much of what your report is negative and destructive.

While you attempt to hide behind the thin veil or “objective journalism” and the better good, you have actually turned into a rumormonger and perpetuator of negativity. I don’t want to read things like your latest headline:

Flash: No new layoffs that I know of!

You are so proud of yourself for promoting the negativity and misery of the current environment. Rather than focusing on positive constructive angles, you arrange your band of snitches to glean the information you think “we” want to hear.

Why do I want to waste my time reading that some company has reduced their workforce again! Your May Report has turned into the following aspect of articles, usually in this order: negative, negative, negative, negative, then buried down at the bottom of your selfless rambling is….maybe…something positive.

If you are going to report on companies failing, at least give us the readers something constructive to learn from it. Did they overstate the market? Did the market shift? Was the sales cycle too long? Was it harder to sell into Fortune 500 companies than they projected? Was that new office space with the pool table and the Herman Miller chairs the wrong thing to spend money on?

That is the information I want to learn. I have a saying, “experience is the best teacher, it is also the slowest!” How can we learn from the mistakes that are being made instead of reveling in their failure? What the coasts do is celebrate failure and learn from mistakes. That is what they have. More failure, yes. More successes, ABSOLUTELY!

The great positive from this current “market correction” is you now have some EXPERIENCED Internet professionals looking for a new opportunity. People that have seen mistakes and can hopefully learn from them so their next venture is more successful.

This aspect of accelerated knowledge is the premise of KnockNOW! An attempt to get together individuals that have different experiences and relevant knowledge – all that they want to share with a group of individuals all dedicated to making a difference.

Can you do that with 30-50 people? I argue yes! All great companies, movements, and initiatives are created with 7-10 key individuals all believing in one goal. We were very fortunate 35 people showed up. If we would have had 10, I would have been happy. Especially if it was 10 people who wanted to band together and help each other, and the City, be more productive and successful.

Which leads me back to the people who were there and those who were invited and couldn’t make it. (I figure at this point if anyone is still reading this, they are equally used to your rambling diatribe and can justly follow my leaping thoughts.)

Was Shaye invited? Yes. He however, did inform me, as did many others, that they would be unable to make it due to weather or other commitments. Would we have like everyone there? Yes. Did we need them? NO!

The individuals who did attend, I hope, found it productive. I was amazed that with such a small group of people, that the majority of the room did not know each other. I mean, come on… How can anyone not know who Rick Fumo is? Yet there were many who didn’t.

Were some of the “usual suspects” there as you surmised? Of course. However, there were many others who do not regularly attend tech events and who are extremely influential and important to tech success in Chicago.

For example, Paul Davidovitch has over 20 years experience in the Academic field and was most recently Dean of Loyola Graduate School of Business. How often have you seen two top academics (Bill Zangwell of UIC) from competing schools at the same event? Hardly ever.

A few other notables, without mentioning names; LS, formerly a top e-commerce executive at GE, BS, a lead person at the Andersen Accelerator labs “Accenture”, BG, lead attorney for the Federal Reserve of Chicago, and others.

Was Tebbe invited? Yes. As were others like Tolme and Ferro from the Internet side. On the investment side, yes Pete G was invited.

However, the list included others from many different fields and backgrounds:

TS- Sun times
BW-Former Chief Economist for the Joint Economic Committee of Congress
LS-Former CIO at Motorola
SS-CIO division and Internet strategies at Motorola
NR-CEO of Nutrisweet
JN-Former CTO of McDonalds
RA and CH- McKinsey
CM- Global recruiter of investment banking for Ernst & Young
DT- Managing Director at Bear Sterns.
DS-Comdisco
ML-Executive at Cash Management Services
BW- Creator of the first credit card and former CEO of Sears Payment Systems
BB-Managing director at Houlihan Lokey
RS- Michigan and Oak
PR- AON ES- Director of Public Relations at ATT
CG- CEO at Capricorn Technology
SJ- conceptual engineer and creator of “the Star Tac” phone for Motorola
JK- Hull trading
RK-Former top 3 executive at Andersen Worldwide
SR and CD from WCIU TV.

This is a sampling of all the people that were invited, and is provided to give you and the readers a picture of the flavor of what we are trying to create. This list included may other individuals with the same levels of knowledge and experience. I am listing this not to impress you, however to impress upon you that many of these individuals would not attend a 1,200 person event. I would, they wouldn’t.

Were Brad (ePriarie) and Darcy (I-street) as well as others from the press invited? Yes. The reasoning was simple; I knew they would write objectively. They report positive news! They have protected confidentiality in the past and I value their integrity. Much as I would like to invite you, in good conscience I could not.

To get on my soapbox for a minute: Ron, you could do such a service to this City and this community if you chose to. The events you go to are filled with tremendous insights and knowledge. Someone needs to ask the tough questions, but not always the negative ones. I look at the writing of Chris Sorensen. That is good journalism; knowledgeable, insightful, with impact, and useful. That is the kind of information I, and most readers, want.

If you notice, Chris’s writing echoed many of the sentiments in this letter. This is more than a coincidence. Chris and I have had many conversations about the difference between the coasts and Chicago and what can be done to change that.

We are still here, trying to make a go of it. Unfortunately, Chris Sorensen has been relegated to the coast. Another bright talent has left the city and his company has followed. Do you realize that Chris Sorensen and Mark Bills created RocketCheck BEFORE PayPal! These guys had the idea, the talent and the business model – and after a year of trying to get funded in Chicago – have LEFT THE CITY!

How many more companies, ideas, talent, and business are going to leave before we get our act together? I can’t give you that number, however, I can tell you that ours may be next, as we continue to get pressure from both coasts to relocate closer to viable funding sources where they can impart value.

What value you may ask? How about again the quote from Chris Sorensen that he attributed to the Venture Law Group? “Building a great company is an art – the need for mentoring in these start ups is huge.” The problem, he explained; “is that young entrepreneurs don’t have any credibility or contacts- so you have to lend them your credibility and introduce them to your contacts!”

What do you get from investment groups in Chicago? “It’s too early”. “We are going to take a pass, come back when you have customers, good luck.” And then they pat you on the head and send you out the door.

You know what you get in NY, Boston, and especially SF? “Your company is not for us, however here are four other VCs that are in your space, are looking for a deal like yours and may be interested. Here is their name and number, give them a call and tell them I referred you.” In some cases, the VC will make the call FIRST to let the person you know you will be calling on them!

Are they concerned about their credibility? Maybe, however they also feel that their peers are grown ups and can make their own decisions through whatever filtering process they have. They also know that by sending a potential deal to their friend, they will get deal to flow back to them in return. And last, they KNOW what each VC group is funding, where the background is and what they are looking for.

All funds and VC’s are not created equal. This relates to effort, domain experience, relevant knowledge, or in other areas of funding interest. We as Chicago entrepreneurs are bumping around in the dark at times wasting the time of the VC groups who don’t fund the stage we are in or the sector. Well, Chicago VC’s, if you are listening, Why not throw us a bone every now and then? If we are too early, which VC’s bring you the deals that you are ready for? If you want biotech and we are e-commerce, who do you know that funds e-commerce? BlueStar? Kettle? KB? You guys would know better than us. If we don’t have the customer base yet, who do you play golf with that could get us that contact with Motorola? Tellabs? AON? Sears? Bank One? Come on, you have to know someone!

Which leads me to my last point for the formation of knockNOW!; the strengths of Chicago. My partner Bob Gerometta and myself want to stay in Chicago. If we get the company started, we feel this City has some great strengths: Fortune 500 companies, educational institutions, logistics, easy access to the business and government leaders. Unfortunately, many of the e-businesses will never get to the point where they can utilize the strengths of Chicago.

Without proper seed level funding the ideas will leave. This will mean that most of the investment opportunities, much as currently is in Chicago, will be later stage and follow on. This means less risk, however less reward.

Well, we submit, if good “seed level ideas” aren’t funded, these ideas will leave the City. What we will be left with is the bridesmaid syndrome where the city is following other lead investors. If all of the ideas are gone, the City will have less companies to be part of. They will be relegated to follow on investments with other cities getting all of the glory and benefit of the truly Killer application.

Again, less risk, but less reward. Look at the i-Street magazine from a few months ago. They did a special on who funded what deals. With the exception of Divine (which is another story in and of itself) there were very few VC’s that actually “led” an investment. Most of the VC’s were “part of” this deal or that one. They weren’t leaders, they were followers. I know this may put us in a bad light for saying so, however someone has to. The numbers tell the story. Divine, for all of its miscalculations, at least stepped up to the plate and funded true early-stage companies. While we do not agree with their motives or methods, we do at least applaud them for “leading” over 35 local investments.

Paul Doyle asked a question: “What kind of impact would $300 million invested into Chicago make?” Well, of course, the answer is: tremendous! However, our argument is that this money will make less of an impact and produce less of a return if invested in second rounds and later stage companies, than it would in early stage. The challenge facing the City now is; even if you had the money to invest, who do you trust to make good decisions to give it out?

It is a crime, again an opinion here, that the Skyscraper Fund only gave out 1$ million. If they had made better decisions and been more apt to invest in early-stage companies, they could have easily invested past the $4 million committed and been into the $10 million that divine was obligated for. If that money had already been spent, then divine would not have had the opportunity to pull out. Why wasn’t that money invested? Because there are no good companies here? I trust that is not the reason.

No, more likely, it was people being too cautious with money that was intended to be invested in seed and startup, and SHOULD HAVE been invested. What were they waiting for?

Mr. Gerometta is a former commissioner for the City of NY (actually the youngest ever). He understands what it takes to get disparate groups together and I was fortunate enough to know some great individuals from many different sectors as well.

Our intent was and is, to bridge the gap for the greater good of the City and its businesses. Ron, rather than biting the hand that feeds you, why not look for the positive and try to help us all get better. Write something about Click Commerce, the most underrated and currently most successful Internet company in the City. Write about Archipelago and the challenge of taking on the old-line financial companies.

Write about Rick Fumo and Nick Farina, both of whom left years of corporate America and ventured into the world of entrepreneurism, only to find out that it is much different and tougher than they anticipated. Write about where the Federal Reserve thinks money, e-commerce, and the Internet are going. That is what others and I want to read, that is what we want to learn, that is whom we want to be associated with.

knockNOW! is our humble attempt to do just that.

knockNOW! was designed to promote ACTION. It stands for Knowledge, Networking, Opportunity, Customers, Credibility and Contacts, Kismet, Notoriety Obligation and Winners – all vital to successful e-business in Chicago.

If anyone has comments or questions about this letter, and knockNOW!, please feel free to contact me at: Stephen.Meade@gbucs.com

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