Chicago Ventures has its eye on Austin.
Since its launch in 2012, the Chicago-based venture capital firm has backed five Central Texas startups, and it’s looking for more deals.
The firm is currently investing a $66 million fund, and partner Stuart Larkins says Austin’s startup ecosystem has what Chicago Ventures looks for.
We asked Larkins about the firm’s investment strategy, among other things. This is an edited transcript of the conversation.
What’s your geographic focus?
When we started Chicago Ventures, our premise was to invest in the middle part of the country. We jokingly define the Midwest as the United States minus San Francisco and New York.
Most of our activity is in the central part of the country, from Minneapolis to Austin. We have done deals on the East and West coasts, but if we do, it’s because we have a connection. We’re not out in the Valley chasing deals. There are 200 funds out there doing what I’m doing. In the Midwest corridor, there are probably only 15. I’ve invested with almost every fund, or know almost every partner.
How much do you typically invest?
We invest in seed-stage tech startups. We’re usually the first institutional investor. We’ll take a high flier on a team if it’s a proven entrepreneur, and come in as the very first investor.
The initial check is usually $500,000 to $2 million depending on the stage, and with reserves to do follow-on.
How did Austin get on your radar?
I met Brett Hurt (founder of Austin-based Core Metrics and co-founder of Bazaarvoice and data.world) around 2002, and when I got into the investment world and started doing angel investments he sent me deals.
When you have a friendship with somebody like Brett, who has a real core connectivity in the Austin startup ecosystem, that’s very helpful. Investing in startups is hard, it’s all about people and connections you make. When you’re a startup company, you don’t just want to take blind capital, you want to take money from people you know and trust because they’re going to help you out at various stages.
There are a lot of people who look at deals in Austin but don’t invest. For us, it’s not just looking at deals, we’re investing.
If you look at our portfolio companies in Austin, you’ll see they’re all founded by entrepreneurs who have had prior businesses and have been successful. We like pattern recognition because those folks are usually better stewards of capital. They’ve done it before and made the mistakes and know not to make the same ones again.
We like individuals with domain expertise, who have really done deep dives in the area they’re trying to build companies in. They have a deep understanding of the business they’re trying to disrupt.
Why have you been so active in Austin?
I’m excited about what’s going on there. You have a huge infrastructure and a lot of prior success, and that makes it a lot easier to hire a great team.
You’re seeing these companies in Austin that are able to succeed with a lot less noise than you get in the Valley or in New York. It costs five times as much to start a company there, buy a home or anything -- it’s crazy expensive.
We’re seeing more people come away from those areas and look to join companies and startups in cities like Austin.
What’s the biggest challenge for companies when it comes to fundraising?
Getting the $10 million and $20 million checks are both hard, but I think the $10 million checks are harder. You haven’t quite gotten that hockey stick showing sales, and the product market still isn’t quite there.
But you work at it, you make connections, it takes time. I’ve only been at this for five years myself. We’re getting better and better at getting connectivity in those Valley funds that can come in when the time is right and write those bigger checks.
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