FindIt and the appetite for risk among Chicago investors (or lack thereof)
FindIt is in an interesting place as a company. The two-year-old startup is four weeks away from graduating from the TechStars Chicago accelerator and seeing meaningful traction a month after launching its cloud-based intelligent email and file search platform into the iOS App Store. So why, in a startup ecosystem that is looking to establish itself as a place to build great technology companies, are investors from two of the most prominent local firms advising the company to leave town and head to Silicon Valley?
Like other startup ecosystems not located in and around San Francisco, Chicago is still evolving and finding its identity. While it’s easy to paint with a broad brush (and we have been as guilty of that as anyone in the past), it’s difficult to encapsulate the Chicago scene in a single tidy soundbite. But if there’s one thing that nearly every one of the local investors and entrepreneurs I’ve talked to this week would agree, it’s that Chicago investors have a different risk tolerance and emphasize different attributes in companies that they back.
Most have been quick to add that this isn’t necessarily a bad thing. Investors here tend to focus on transactional businesses that have the ability to generate revenue early, even if not profitably. They also like to see early traction and tend to write smaller checks than investors elsewhere. The thesis has led to plenty of Chicago success stories, including Groupon, Orbitz, Braintree, Sprout Social, GrubHub, Mu Sigma, and Belly, among others.
FindIt is a search tool for files and email.
Unfortunately, this works against FindIt. Like many classic Silicon Valley success stories -- and even more failures -- the startup’s playbook involves aiming for scale before turning on monetization. It’s a strategy that both TechStars Chicago managing director Troy Henikoff and Lightbank partner Paul Lee endorse wholeheartedly.
The problem is, FindIt will likely need to raise upwards of $10 million over multiple rounds to reach profitability, based on its founders estimations. And most times, founders estimates are optimistic -- they may need much more. Lightbank may be willing to fund a portion of this, Lee says, but not if it doesn’t see a path toward raising the remainder of the necessary capital. And if FindIt remains in Chicago, that type of money is just not available, those close to the company tell me. Raising from the Valley remotely is an option, but is a difficult proposition for first time founders in an unproven category.
There are a number of other variables involved in company building, including finding talent and getting access to partners. But there are arguments to be both in favor of and against Chicago in each of these cases. For FindIt, which was founded in 2011 by two graduates of Harvard business school and a CTO from Utah, it all comes down to fundraising. And because it does, Levi Belnap, Alex Pak, and Benjamin Morrise are bound for the Valley shortly after their August 28 demo day.
“None of us are from Chicago, and we had a feeling from the beginning that this would be the plan,” Belnap says. “Techstars just really confirmed it for us. We took a pre-fundraising trip out to the Valley a few weeks ago and we were just like, ‘This is absolutely where we need to be.’ We could just feel the difference in the air.”
FindIt has built a compelling offering that solves a number of the problems inherent in search on mobile devices. Between small screens, stifling keyboards, and limited access to advanced search interfaces, search within most mobile applications is frustrating on the best of days. Add in the fact that most consumers have files and data stored in multiple locations, including email, cloud storage platforms, and elsewhere, it can be maddening to find the right file at the right time.
By using a visual interface, users can search according to person, time, and file type within multiple platforms simultaneously -- the service currently integrates with Gmail, Google Drive, and Dropbox (allowing multiple instances of each). FindIt indexes all of a user’s files across these platforms and uses intelligent filtering to both narrow and rank the search results based on the input variables. Think of it like Gmail’s advanced search, but powered by touch, not by the keyboard.
There are a number of applications for this technology, many of which individuals and corporations will be willing to pay for. But first the company needs to build awareness and establish credibility in the market, then hopefully achieve meaningful adoption. Long term, the monetization will likely revolve around an enterprise offering that will integrate with platforms like Salesforce, Zendesk, or Plex Systems. The company could also introduce a pro-sumer offering that includes premium features.
But that’s all for a time further down the road. And that “build it and they will come” philosophy makes it tough to raise meaningful capital in Chicago. The company has raised $118,000 to date, through TechStars and an affiliated convertible note from local investors. But more substantial checks will have to come from one of the coasts.
It’s hard to reconcile what this philosophy will mean for Chicago. FindIt is just one example of a company that is a “victim” of this investment thesis, if that’s even the right word to describe it. It’s a real phenomenon that few on the ground will deny. But it’s also one that most people here seem to be comfortable with.
Chicago is well situated with 32 of the Fortune 500 companies headquartered in the state of Illinois. The city also has a strong agency and brand advertising ecosystem, houses the National Association of Realtors, and is surrounded by more than its fair share of engineering schools, business schools, and medical research universities.
So maybe it’s okay that Chicago is unlikely to be the home of the next Instagram or Twitter, a company that rapidly grows to tens of millions of users and raises mounds of venture capital at stratospheric valuations before generating any meaningful revenue. Instead it’s looking to build sustainable, possibly less-sexy companies that make real money and employ hundreds of people.
From what I can tell, Chicago isn’t terribly interested in changing its ideology to make anyone else happy. And given the number of examples to the contrary, it’s refreshing to be in a place that is looking to establish itself as a center of innovation, but that is not “trying to become the next Silicon Valley."
[Image courtesy Bust it Away Photography]