‘I always like to have an underdog on my side’

By Steve Hendershot

The entrepreneurs that hole up in 1871 each summer as participants in the tech accelerator Excelerate Labs tend to be, well, young. You have to be somewhat flexible to drop everything and devote three months to the program.

The elder statesman in this year’s class is Jose Li, 40, founder and CEO of 71 Lbs, which helps companies collect the money-back, on-time guarantees offered by shipping giants such as FedEx and UPS. Mr. Li, a former FedEx executive, knows well that small businesses seldom collect on those guarantees. Mr. Li founded 71 Lbs in 2011 in Fort Lauderdale, Fla. The decision to come to Chicago for the summer represented serious upheaval.

Tomorrow is graduation day, as Excelerate’s 10 startups make their pitches to investors at Demo Day, Excelerate’s capstone event at House of Blues. Mr. Li tells Crain’s about his experience in the program.

Crain’s: It seems like a serious decision to move across the country at 40 and put yourself and your company through this intense three-month program. How did you decide this was worthwhile?Jose Li: You have to do what you have to do. I’ve been working on this company for a year and a half. We’ve gone through some ups and downs, and when I came across Excelerate I thought it was an interesting opportunity for us, especially considering the nature of Chicago versus the West Coast or East Coast. Our business aligns more with the (business-to-business) side and I think Chicago is more aligned toward it as well (compared with business-to-consumer companies), and also a little more on the industrial side.

I like the fact that (Excelerate CEO Troy Henikoff) is an underdog compared to California. I always like to have an underdog on my side. I made those assumptions before joining Excelerate and I can’t complain. It’s overly surpassed my expectations.

The quantity and quality of mentors and entrepreneurs that we’ve been able to meet has been A-plus. In Florida I spent a lot of time knocking on doors, asking, ‘Can you give me five minutes?’ Here, people give me 30. The difference in people’s willingness to help is night and day. People are also offering to introduce us to other people or open up doors.

What’s an example of a beneficial connection you’ve made through Excelerate?

One of our channel partners is the Illinois Technology Association, and (ITA CEO Fred Hoch) is one of the mentors at Excelerate. (Mr. Hoch) was the No. 1 person I wanted to meet through Excelerate. That’s because of what I call the channel approach to building business. Partnering with organizations that have a large member base of small businesses would be an ideal avenue for us. So we proposed to (Mr. Hoch) to help us co-market 71 Lbs to his audience and member base, and in my opinion that is a win-win-win. The ITA members win because they’re not aware of these money-back guarantees, or don’t have the time and resources to collect. If we can provide our service on contingency, they’re going to get weekly refunds. The ITA wins because it adds another service to its portfolio, adding to the overall value proposition they offer members. And 71 Lbs gets access and distribution to a number of small businesses that we might not encounter one-on-one.

Excelerate has a reputation for tweaking companies’ business models. Your company came in more established than most; have there been any fundamental changes?

There are a lot of people here asking why we’re doing this or that. But as an entrepreneur, you have to have a level of stubbornness, and I do. I have a hunch where this could go. I want to start with the (service collecting shipping-related) money-back guarantees because it’s a good way to offer value to our customers, and then over time could add product two, three or four. But that’s a little more down the road.

This is a very lively discussion, especially with (Mr. Henikoff). He has one opinion and I have a little different opinion. But for the most part I’m pretty happy with the direction we’re taking.

Are you going to stay in Chicago after Excelerate is finished?

Good question, and one that my potential investors are also asking. My answer is, I’ll get back to you.

IN OTHER TECH NEWS:

Mobile-development school Mobile Makers Academy launches this fall with a 10-week course focused on iOS development Intensive. Applications are due Sept. 3; classes begin Oct. 1.

“Silicon City” is a weekly report on Chicago tech news and newsmakers written by Crain’s contributor Steve Hendershot.

Share your ideas and news tips on the local tech startup scene with Steve via email: stevehendershot@gmail.com. Check out Steve’s blog here. And follow him on Twitter: @stevehendershot.

Join Crain’s LinkedIn group for Chicago entrepreneurs. And stay on top of Chicago business with Crain’s free daily e-newsletters.

‘I always like to have an underdog on my side’

By Steve Hendershot

The entrepreneurs that hole up in 1871 each summer as participants in the tech accelerator Excelerate Labs tend to be, well, young. You have to be somewhat flexible to drop everything and devote three months to the program.

The elder statesman in this year’s class is Jose Li, 40, founder and CEO of 71 Lbs, which helps companies collect the money-back, on-time guarantees offered by shipping giants such as FedEx and UPS. Mr. Li, a former FedEx executive, knows well that small businesses seldom collect on those guarantees. Mr. Li founded 71 Lbs in 2011 in Fort Lauderdale, Fla. The decision to come to Chicago for the summer represented serious upheaval.

Tomorrow is graduation day, as Excelerate’s 10 startups make their pitches to investors at Demo Day, Excelerate’s capstone event at House of Blues. Mr. Li tells Crain’s about his experience in the program.

Crain’s: It seems like a serious decision to move across the country at 40 and put yourself and your company through this intense three-month program. How did you decide this was worthwhile?Jose Li: You have to do what you have to do. I’ve been working on this company for a year and a half. We’ve gone through some ups and downs, and when I came across Excelerate I thought it was an interesting opportunity for us, especially considering the nature of Chicago versus the West Coast or East Coast. Our business aligns more with the (business-to-business) side and I think Chicago is more aligned toward it as well (compared with business-to-consumer companies), and also a little more on the industrial side.

I like the fact that (Excelerate CEO Troy Henikoff) is an underdog compared to California. I always like to have an underdog on my side. I made those assumptions before joining Excelerate and I can’t complain. It’s overly surpassed my expectations.

The quantity and quality of mentors and entrepreneurs that we’ve been able to meet has been A-plus. In Florida I spent a lot of time knocking on doors, asking, ‘Can you give me five minutes?’ Here, people give me 30. The difference in people’s willingness to help is night and day. People are also offering to introduce us to other people or open up doors.

What’s an example of a beneficial connection you’ve made through Excelerate?

One of our channel partners is the Illinois Technology Association, and (ITA CEO Fred Hoch) is one of the mentors at Excelerate. (Mr. Hoch) was the No. 1 person I wanted to meet through Excelerate. That’s because of what I call the channel approach to building business. Partnering with organizations that have a large member base of small businesses would be an ideal avenue for us. So we proposed to (Mr. Hoch) to help us co-market 71 Lbs to his audience and member base, and in my opinion that is a win-win-win. The ITA members win because they’re not aware of these money-back guarantees, or don’t have the time and resources to collect. If we can provide our service on contingency, they’re going to get weekly refunds. The ITA wins because it adds another service to its portfolio, adding to the overall value proposition they offer members. And 71 Lbs gets access and distribution to a number of small businesses that we might not encounter one-on-one.

Excelerate has a reputation for tweaking companies’ business models. Your company came in more established than most; have there been any fundamental changes?

There are a lot of people here asking why we’re doing this or that. But as an entrepreneur, you have to have a level of stubbornness, and I do. I have a hunch where this could go. I want to start with the (service collecting shipping-related) money-back guarantees because it’s a good way to offer value to our customers, and then over time could add product two, three or four. But that’s a little more down the road.

This is a very lively discussion, especially with (Mr. Henikoff). He has one opinion and I have a little different opinion. But for the most part I’m pretty happy with the direction we’re taking.

Are you going to stay in Chicago after Excelerate is finished?

Good question, and one that my potential investors are also asking. My answer is, I’ll get back to you.

IN OTHER TECH NEWS:

Mobile-development school Mobile Makers Academy launches this fall with a 10-week course focused on iOS development Intensive. Applications are due Sept. 3; classes begin Oct. 1.

“Silicon City” is a weekly report on Chicago tech news and newsmakers written by Crain’s contributor Steve Hendershot.

Share your ideas and news tips on the local tech startup scene with Steve via email: stevehendershot@gmail.com. Check out Steve’s blog here. And follow him on Twitter: @stevehendershot.

Join Crain’s LinkedIn group for Chicago entrepreneurs. And stay on top of Chicago business with Crain’s free daily e-newsletters.

SpotHero, already parked at Excelerate, snares 500 Startups investment

By Steve Hendershot

The ten companies participating in Chicago-based tech accelerator Excelerate Labs get to make their formal pitches to investors next Wednesday. That hasn’t stopped one of the participating companies, parking-reservations startup SpotHero, from securing an initial round of funding beforehand from Silicon Valley venture-capital firm 500 Startups.SpotHero met with 500 Startups founder Dave McClure when Mr. McClure visited Excelerate last month, and finalized the deal shortly thereafter. SpotHero will receive an undisclosed sum between $50,000 and $100,000 and become a 500 Startups portfolio company — and not a participant in the 500 Startups accelerator, which would force SpotHero to relocate to California. SpotHero will remain based in Chicago.

Mr. McClure met with each Excelerate company, but SpotHero’s introduction was made easier because of some additional connections. SpotHero cofounder Mark Lawrence worked out of 500 Startups’ Bay Area offices while visiting an entrepreneur friend earlier this year, SafeShepherd’s Robert Leshner. Mr. Leshner, who moved his company (formerly called MelonCard) to California from Chicago in 2011 to participate in the 500 Startups accelerator, had also told Mr. McClure about SpotHero. “There was already kind of this warm feeling,” Mr. Lawrence says of his first meeting with Mr. McClure.

SpotHero is still figuring out how much money it will seek at Excelerate’s investor presentation “Demo Day” next week. But Mr. Lawrence figures the pitch will go down easier now that SpotHero carries a 500 Startups endorsement.

“Having their name on something is a pretty good mark,” Mr. Lawrence says. “That’s In addition to Excelerate. Together, I think it will definitely make it easier” (to raise money).

That’s in addition to the connections that come from befriending Mr. McClure and the entrepreneurs from, well, 500 startups. “We can bounce off both the (500 Startups and Excelerate Labs) networks for introductions, so it’s nice to have backing from both,” Mr. Lawrence says.

Steve Hendershot writes “Silicon City,” Crain’s weekly post on Chicago tech news and newsmakers. Check it out every Tuesday on Crain’s blog for Chicago entrepreneurs.

Follow Steve on Twitter: @stevehendershot.

Chicago’s Excelerate named one of top 15 tech incubators

By John Pletz

It’s no wonder Excelerate Labs attracts startups from around the globe, even though it’s just three years old.

The Chicago-based tech incubator ranked fifth among the top 15 accelerators in the country in a new study by researchers at Northwestern University’s Kellogg School of Management.

YCombinator, based in Silicon Valley, topped the list, published by Chicago-based tech organizer, TechCocktail. Boulder, Colo.-based TechStars was ranked second, followed by KickLabs and I/O Labs, both based in San Francisco, and Excelerate.

While it’s easy to think Excelerate might have benefited from a little hometown bias, this is second time founders Sam Yagan and Troy Henikoff have been singled out as a success. Forbes named Excelerate No. 6 on its top 10 list of incubators.

In both cases, the rankings are based largely on how many companies get funding and/or an exit, such as a sale. Eleven of 20 companies in the first two Excelerate classes got funding, and two have been acquired. The ranking was done by MBA student Kristen Kamath and Professor Yael Hochberg, both of Kellogg.

Incubator programs, which attempt to coach entrepreneurs from an idea to investment-worthy company in just 90 days, have taken off in the past few years. Entrepreneurs, who typically give up a small stake in their companies receive extensive input from mentors and the chance to pitch their ideas to a crowd of investors.

The current Excelerate class, which features teams from France, India and China, takes the stage for Demo Day on Wednesday at House of Blues.

$150M for Sears? Here’s a different idea

By Aksh Gupta

We’ve seen it over and over again: Policymakers are devising tools to spend tax dollars to “save” existing jobs. While some have merit, the hard reality is that unemployment rates will not fall significantly until new jobs are created. Many of the jobs eliminated during the recession are just not coming back.Sears Holdings Corp., with 6,100 employees, was a beneficiary of a $150 million tax relief deal designed to prevent it from leaving the state. Even so, Sears recently announced that it is closing 120 stores across the country and eliminating 100 positions at its Hoffman Estates headquarters. Until an old-line retailer like Sears finds a way to compete in the new environment, this tax deal, or any other, will not protect the company from shrinking.New jobs are hard to come by these days. A few policymakers are scrambling to come up with incentive packages to attract new companies to locate in their communities and create new jobs. A growing breed of business people are looking for a hospitable environment for their companies to grow. This led me to think about what Gov. Pat Quinn could have done with the $150 million to help the state instead of giving it to Sears. How could he have helped create new jobs rather than attempting to keep old jobs from disappearing? With Gov. Quinn scheduled to lay out his budget plans later today, it’s a tantalizing question.

Rather than dole out that $150 million to one big company, how about this: Give $30,000 to 5,000 small companies to encourage them to locate in Illinois. By comparison, a successful Chicago-based accelerator — Excelerate Labs — funds 10 companies per year to the tune of $25,000.

Chicago is a already a hub for innovation in e-commerce where companies in online coupons, referrals, quote-provisioning systems and marketplaces are based. Money on the scale of the Sears handout could recruit startups in high-growth verticals like e-commerce. An online retail site is relatively easy and cheap to start and scale. Therefore, a $30,000 injection into an e-commerce company could go toward more meaningful use and expansion.

The money could be given as a competitive grant, a payroll tax credit against a full-time job created, or as an equity investment. To further safeguard taxpayer interest, and for maximum return, tie the funds with a requirement that every selected company must go through one of the entrepreneurial clusters run by Excelerate Labs, 1871, Lightbank, Sandbox Industries, OCA Ventures, or Hyde Park Angels, among many others. Each of these clusters has a remarkable record in helping grow companies and creating new jobs.

There are alternatives available. With deals like the one Sears received, are we really investing in the jobs of the future?

Aksh Gupta founded playOccasion.com, a Chicago-based shopping website for activities, which launched on Jan. 1. He has a master’s degree in economics and policy analysis from DePaul University.

Follow Aksh on Twitter: @theAkshEffect.

TechNexus marks 5-year anniversary — and looks ahead to growth beyond Chicago

By Steve Hendershot

TechNexus turns five Thursday. The co-working space for tech companies at 200 S. Wacker Drive has housed about 130 companies since its founding, and those companies have raised about $75 million in investment capital and created 400 jobs, according to the company.

Terry Howerton and Fred Hoch co-founded TechNexus LLC in 2007 as a 25,000-square-foot “clubhouse” to complement the Illinois Technology Assn., a tech trade group that the pair also founded.

By housing tech companies such as online parking-reservations startup SpotHero and supply-chain management firm ArrowStream at TechNexus, and connecting those companies with investors and mentors, Messrs. Howerton and Hoch pioneered an all-in-one approach for startups in Chicago.Although Mr. Howerton says TechNexus was intended more “as a place for the tech community to coalesce and collaborate, and where we could all hang out and play” than as an incubator, he and Mr. Hoch quickly discovered its potential. Now, Mr. Howerton contends TechNexus “is the most successful incubator Chicago has seen.”

The co-working-plus-mentorship model is now in vogue, as startups work side by side in several clusters through the city including at Lightbank, the incubator launched by Groupon co-founders Eric Lefkofsky and Brad Keywell, as well as Excelerate Labs, a three-month accelerator program that offers year-round office space to participating companies. In addition, Chicago tech leaders including Viewpoints Network founder Matt Moog and the Chicagoland Entrepreneurial Center’s Kevin Willer announced Wednesday they will open a 50,000-square-foot co-working space for tech startups, dubbed 1871, in the Merchandise Mart this spring.

“All this other action coming is very much welcome,” says Mr. Howerton, who says that TechNexus stands apart from other area tech incubators in its breadth of focus beyond Internet companies (green-tech groups such as the Clean Energy Trust are based at TechNexus) as well expansion into additional cities.

“We’ve created this collaboration ecosystem,” Mr. Howerton says. “Now, let’s expand that ecosystem beyond Chicago, in a controlled way.”

Steve Hendershot writes Silicon City, a weekly column on Chicago tech news and newsmakers. Follow Steve on Twitter: @stevehendershot.

A promising outlook for Chicago small businesses in 2012

By Michael Alter

Chicago is often referred to as “the city that works.” In 2011, while the rest of the country clearly struggled economically, this phrase could be taken quite literally here. Not that we’re experiencing boom times in the city, but according to SurePayroll’s Small Business Scorecard, Chicago made use of its broad shoulders, putting more people on payroll with a year-to-date increase in hiring of 0.5%.

We’re making progress and perhaps this underscores the fact that the Chicago area is home to many exciting, unique entrepreneurs and startups.

The other day I turned on “Good Morning America” to find Chicago’s own BabbaCo, a unique small-business that bonds parents and young children through age-appropriate craft projects and activities. BabbaCo is a fortunate graduate of another Chicago entrepreneurial treasure, Excelerate Labs, an intensive program designed to help startups build their business, connections and access to capital.

Last month, I wrote about a variety of innovative tech companies that have benefited from Chicago’s supportive environment. I focused on Matt Moog’s BuiltInChicago.org, but it doesn’t end there. The Chicagoland Entrepreneurial Center, run by Kevin Willer, identifies promising entrepreneurs and helps them grow businesses that can be civic leaders in the area such as SchoolTown, a social-learning platform, and GiveForward, which helps friends and family raise funds for someone going through a medical crisis.

Lightbank, founded by Brad Keywell and Eric Lefkofsky, invests in and provides technology and expertise for new companies. Their portfolio includes Groupon and Echo Global Logistics. The organization has helped employ more than 10,000 people.

Groups like these give us reason to be optimistic about the future and make Chicago a great place to be for entrepreneurs and small businesses. As we head into 2012, there is more reason to feel optimistic. SurePayroll’s Small Business Scorecard optimism survey found 63% of small-business owners feeling optimistic in December, a significant bump from the previous two months, when it was 53%. It’s also the highest degree of optimism we’ve seen since June and a fairly dramatic rise from the all-time low of 33%.

Additionally, 50% of small-business owners plan to hire in 2012, and 56% plan to increase wages for some or all of their employees. These are leading indicators of where the small-business economy is going and it’s promising to see these kinds of numbers.

In regards to lending, 21% of small-business owners said they would seek extra capital in 2012 to improve in areas such as marketing, technology, new equipment and upgrades to their facilities. It will be essential that we have easy access to lending going forward, which has been a frustration for small-business owners in recent years.

If the economy’s engine — small business — is given the fuel it needs to thrive, we could see a significant turnaround in hiring and wages. With its many outlets for smart, growing entrepreneurs, Chicago is my kind of town.

Michael Alter is president and CEO of SurePayroll, a small-business payroll services company based in Glenview. The company collects information on small-business hiring based on its nationwide database of SurePayroll software users; Mr. Alter comments on trendlines in the data each month here on Crain’s blog for Chicago entrepreneurs.

Follow SurePayroll and Michael Alter on Twitter.

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