Cakestyle lands $1M in funding from Sandbox

By Steve Hendershot

Cakestyle, a Chicago startup that delivers stylist-selected fashions to professional women’s doorsteps, announced Monday it raised $1 million from Sandbox Industries Sandbox Advantage Fund.

Cakestyle launched last year, and while the ten-employee company would not disclose its revenue or number of customers, it says that it has added thousands of customers this year and is currently shipping six times as many packages as it was at the beginning of 2012. The average package costs $2,800 to $3,000. (The model is very similar to another Chicago business, Trunk Club — the subject of a story in this week’s Crain’s here and a Q&A in this week’s “Silicon City” column here — except that Trunk Club targets men and Cakestyle’s customers are women.)

Co-founders Cecelia Myers, Cakestyle’s CEO, and Millie Tadewaldt, its chairwoman and a Sandbox Industries managing director, tell Crain’s more about the raise, and about Cakestyle’s plans to expand.

Crain’s: How did your investors respond to your pitch and model?Millie Tadewaldt: They are excited to be getting into a space where it seems like there is so much opportunity. Some of the (limited partners in the Sandbox Advantage Fund) had had experience in retail. Some were wary of an inventory-based businesses, but were reassured that we have the technology in place to be really thoughtful about how we manage inventory and plan for buying. It’s nice to have smart people on board who are thinking about that with us.

Crain’s: That makes sense, considering lots of investors are drawn to tech because overhead is so low. How do you convince them that your hybrid business is a smart bet?

MT: One of the main advantages to a tech business is that the margins can be super high. But the disadvantage is that you have to invent a product that people willing to pay for. We’re selling women’s fashion via e-commerce, and we already know women want to buy clothes. We also have already established in the marketplace what these brands go for, so there’s no (pricing) argument. That makes an e-commerce business more of an execution play than an innovation play, and we’ve already proven we’re good at execution in the retail space, Then, we’ll use technology and innovation to optimize the process and minimize the risk.

Crain’s: What will you do with the money?Cecelia Myers: Our big focuses are going to be, first, making sure women know about Cakestyle in new cities — we’ll be hitting that hard in terms of marketing. Second, we’re also building out our technology platform. We’re really fortunate in that we have great relationships with our customers and know a lot about them, and we want to use that information to help stylists become even smarter abut the choices they make for women by tracking that data.

MT: We’ve tried to hit the Chicago customer base hard so far. We’ve hosted events with graduated schools and professional groups, and done local advertising. Now we’re expanding that focused approach to multiple cities. Our business seems to really thrive when customers tell their friends about us and get their friends involved, so we think that attacking on a city-by-city basis makes the most sense.

Crain’s: What cities are next? CM: Right now, in terms of the markets that look most interesting and salient for us, first is San Francisco. We’ve seen a lot of interest there and we could hit that harder. Then there are places like Washington, D.C., and Boston.

Potentially we could look at smaller markets as well, places where the shopping isn’t quite as good. We could look to find cities without a very good Nordstrom and hit those hard. (When scouting markets) we’ll also look at the number of educated women and the number women who make more than a certain amount of money, so we know where our customer is.

MT: It’s still an open question what kind of cities where this [model] is most attractive to our customer base. Some cities already have great access to the kinds of designers we carry, and there, our customer base is just trying to keep up. Then there are cities where our customers don’t have that same access, and we’re providing it for them.

Crain’s contributor Steve Hendershot writes “Silicon City,” a weekly post on local tech news and newsmakers. Follow him on Twitter: @stevehendershot.

Pinterest designer on making it big, Silicon Valley-style

By Steve Hendershot

Sahil Lavingia’s story is classic Silicon Valley. Two years ago he was preparing for his freshman year at the University of Southern California. Around the same time, a post he authored on Hacker News drew the attention of two Bay Area entrepreneurs, Ben Silbermann and Evan Sharp. By December 2010 — after one semester — the pair had convinced Mr. Lavingia to leave USC and join their fledgling startup, Pinterest, as a software engineer. He was the company’s second employee, not counting Messrs. Silbermann and Sharp, when he moved to Palo Alto in January 2011.

Pinterest exploded, and Mr. Lavingia, 19, figured the halo effect created by Pinterest’s success could help him start his own company. He left Pinterest last August after only eight months, and was quickly proved right: He was a hot commodity among investors. He’s already raised $8.1 million for his new startup, Gumroad, which aims to facilitate payments between content providers such as musicians, bloggers and videographers, and their fans.

Mr. Lavingia was in Chicago over the weekend for a Chicago Venture Media event at TechNexus. He tells Silicon City about Gumroad and the experience of making it big, Silicon Valley-style.

Crain’s: Describe the process of building Gumroad. How did you sell the company to investors? Were they wary that you had so little business experience?Sahil Lavingia: Investors are looking for huge hits, and those are the sorts of businesses that business people can’t make, because they don’t look like businesses until five years from now.

I told investors, I don’t care about the business model. You’re not investing in the business model, you’re investing in me and you’re investing in the product. The great thing about Gumroad is that the revenue is dependent on how good the product is and how many people use the product. So it’s all product, product, product, and I’m spending 100 percent of my time on product-related things.

There are two types of people who build business. One sees a market need, some inefficiency to solve. That’s the less risky approach. Then there are the people who just want to see something new exist, thinking that the world would be better if everyone had this new thing available to them. Then they just go do it. The way I look at it, if you create X amount of value, then between zero and X, there’s at least some of it where you can make money. If you’re providing X, someone will probably at least pay X divided by two — or at least that’s the thesis. The market will decide.

(I’m in the latter camp), but Gumroad is also different because it’s a payments company, so the business model is that we make money when our users make money. We make 5 percent. That’s what I really wanted, because it means that the business model scales perfectly with the product.

Crain’s: What’s the idea behind Gumroad?

SL: I saw all these people who made things that people wanted, that were valuable, and they also had a follower base — an audience on Facebook or Twitter. They had the two parts of what makes a marketplace, all by themselves, without actually having a marketplace. The thing that was missing is that there was no way to actually sell. It’s weird because people share things back and forth constantly — links, videos, images, whatever. It seemed weird that selling stuff was 100,000 times harder.So (Gumroad is for people) who have something to sell and have a huge distribution base. Maybe you don’t even have a website, because now you don’t even need a website to have an audience — you have Soundcloud, YouTube, Twitter, Facebook, Tumblr, Pinterest. Until now, there’s been no way to sell just like we share. But hopefully Gumroad becomes a sort of social payments layer on top of everything.

Crain’s: One thing that stands out to me about your idea is that you’re not aiming to disrupt a traditional, bricks-and-mortar industry, which seems to be a popular strategy among Chicago tech companies. You’re seeking to disrupt the startups of a couple of years ago, companies like Etsy and Bandcamp.

SL: We’re disrupting people who are also in the process of disrupting. It’s crazy. It moves so fast now that before the disruptors have a chance to completely disrupt and become entrenched, someone is already disrupting them. Which is great. I think that’s great, and I think most founders love that, too, even though they may not say so with their founder hat on.

Crain’s: The process seems to be moving faster than ever. Why?

SL: It’s because you can build something now (so quickly and inexpensively). You can build an app and put it in (Apple’s) App Store and 10 million people can download it. And to get that big, you don’t even have to change any lines of code. You have to scale the servers, but you don’t need 30 people to do that. You don’t even need 10.

I joke about the first one-man, billion-dollar company. But I think it’s inevitable. Look at all the things you need to start a company: lawyers, servers, engineers, designers, money, office space. All of that is becoming commoditized. It used to be, you had to raise money to buy servers because it cost millions of dollars to serve up a page view. Now I can serve up a page view in 10 minutes for free. So if I don’t need servers anymore, what’s the first cost a startup has? That’s what I look at. And I think those first costs will gradually go away until you have one-man companies.

Crain’s: If everything is so cheap, why did you raise all that venture capital?

SL: Right now the first cost is engineering talent, and then, because you have engineers, you need office space and equipment. So I raised money to hire engineers, and to make sure we had money. That way, you have the buffer. You have the ability to say we have two and a half years to just work on this one problem. You don’t need to have revenue coming in immediately.

And the greatest thing about raising money is that I get a lot of advice and experience (from venture capitalists) on board. That’s way more valuable to me (than the money itself).

“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.

With big backers in tow, Tempo aims to help clients sort out reams of data

By Steve Hendershot

Chicago’s TempoDB Inc. aims to help companies that collect a lot of time-series data store and understand the information they gather. (Think digital networks or energy companies that monitor their performance through repeated readings from a network of sensors.) The premise may sound esoteric, but it’s also a big problem within the industries that Tempo hopes to serve. Tempo co-founders Andrew Cronk and Michael Yagley learned that firsthand while both worked at Evanston-based geothermal energy installer Indie Energy, as the company struggled to handle the volume of data its clients’ sensors collected.So Messrs. Cronk and Yagley teamed up with Justin DeLay, a user experience designer at GrubHub, to found Tempo in December 2011. The trio then headed for San Antonio to participate in the inaugural version of TechStars Cloud, a three-month tech accelerator focused specifically on cloud-based services.

If Tempo’s investor list is any indication, the company fared well in Texas. Its angel investors include Jason Seats, managing director of TechStars Cloud, in addition to two of the titans of San Antonio’s tech scene: Rackspace President Lew Moorman and CTO John Engates. (Tempo hasn’t disclosed the amount of its angel-investment round, but Mr. DeLay says the company has enough money to build its team and operate for 14 months without raising additional money.)

After TechStars Cloud finished in April, the Tempo team began its return to Chicago; it’s based at River North tech co-op Catapult. This month, it will begin earning revenue as some of its initial customers complete their free trials and begin paying to use Tempo’s database and analytics tools. These initial customers are mostly small businesses that will pay Tempo between $5,000 and $10,000 per month. Individual developers pay less, and ultimately Tempo hopes to land enterprise clients that will pay more than $20,000 per month for the service.

Mr. DeLay tells Silicon City more.

Crain’s: Explain in more detail what Tempo does, and why your database addresses the storage and analytics challenge better than what’s out there.Justin DeLay: We solve the problem of storing and analyzing massive streams of measurement data generated by billions of sensors and devices all over world. We’ve been working on solving this problem for past five years (including time that Messrs. Yagley and Cronk devoted to the problem prior to Tempo), and we’ve worked with measurement data in applications ranging from Nascar engines and fighter jets to geothermal energy systems.

We are constantly iterating on what the database and analytics tools should look like in order to best deal with this massive amount of data. In the last six months we came up with a purpose-built design for a time series database. That’s important, because to do this right and to deal with this scale of data, you have to go all the way down to the hard disk in the computer and design software all the way back up. Since we had that breakthrough, we’ve been building Tempo — we founded the company, we’ve been working on it full time, and we took part in the TechStars program and were able to raise a round of investment that’s allowed us to start building out our team.

There are two value propositions we offer. One is that it’s incredibly hard just to store this data either at high resolution or over long periods of time, let alone both. The way companies solve that problem today is by throwing data away, which is unacceptable. So the fact that we offer our customers the ability to have all that data is huge. They don’t have to worry about constantly re-architecting their database or spinning up new servers, because Tempo is scalable.

The second reason is that general purpose databases are not designed to store time-series data. With a general purpose database, the more data you put in, the longer it takes to get data out. No matter how much data you want to get out, the length of time it takes for your query to return gets longer and longer until it times out. We offer a constant query speed, so that if you want to return a million data points, they always return at exactly the same speed whether you have just those 1 million data points in your database or 10 billion. Our database is purpose-built, so when we say we offer scalable storage, we mean you can put in any data you want, and you can get it out fast — and you can predict exactly how fast.

Then, when you spin it all up into a hosted service, not only do you have technology that allows you to store and access more data than before, you also don’t have to deal with a server infrastructure, which is a huge pain in the butt.

Crain’s: What do your customers do with all this data? Considering that signing on with Tempo isn’t a small investment, why is it worth it?

JDL: Why do you care about measuring any of this stuff? Companies usually have one of three reasons: They’re either measuring to save resources; looking for new opportunities, such as to spot and capture a trend emerging in the data; or they’re measuring something to improve quality. The first reason is essentially to cut costs, and the second is to find new revenue. The third is a non-monetary goal, where a company is willing to spend money measuring in order to improve a non-monetary quality metric.

We’re really focused on providing analytics tools that enable our customers to do that. Our business model is designed to do that, too. If you’re trying to cut costs, the net result of working with Tempo should still be that you are successfully cutting costs. If you’re goal is making more money, we should be tied to that, too — we should be powering that additional revenue generation.

Crain’s: Describe the competitive landscape. That includes rival companies as well as threats from within your potential customers. There are probably other engineers like the guys on your team, employees at these companies who figure they could build this themselves.

JDL: In terms of build versus buy, our biggest challenge is talented, experienced software engineers who already work for (would-be customers). These engineers are very experienced with general purpose databases like MySQL or Mongo, and they are very confident in their capability to bend that technology to their will. They’re probably smart enough to know that time-series data is not the right fit for those technologies, but they can make it fit. My co-founders did the same thing and spent their first year hacking MySQL and their second year Mongo before saying this isn’t going to work. But that’s our first challenge. There are also a couple of niche, open-source, time-series tools. Those tools aren’t designed to scale or provide our kind of flexible analysis, but I suppose a developer could try to hack them into something else.

Most companies have a hard time thinking this through. It costs money to have your engineers working on this stuff when they could be working on something else. It costs money to build that expertise. But that internal organizational cost never shows up in the build-versus-buy calculation even though it is easily your biggest cost.

On the high end, you run into Oracle and IBM. But just because they’re Oracle and IBM doesn’t mean their underlying technology isn’t general purpose in nature. It is, and so it runs into the same kinds of constraints. They just have more support and more engineers to throw at problem, so they can help their customers push off their inevitable database destruction longer. As we gain credibility and move up the markets, we will become robust enough to provide a credible, more focused competitor to Oracle and IBM. Hopefully we can scare them a little and give them a run for their money.

IN OTHER TECH NEWS

CareContent won last weekend’s Chicago Startup Weekend competition. The company provides content for hospital websites.

“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.

Crain’s small-business editor Ann Dwyer is on Google+.

SingleHop co-founder lays out plans for $27.5M VC infusion

By Steve Hendershot

Automation-heavy web-hosting company SingleHop was the nation’s 25th-fastest-growing company in 2011, according to the Inc. 500. The Chicago-based company earned $22 million in 2011 with only 85 employees.

So when the company announced a $27.5 infusion of capital last week from Waltham, Mass.-based Battery Ventures, it wasn’t because SingleHop was cash-strapped or needed help to spur a growth spurt. Nor was it necessary to pay for the company’s new digs, though SingleHop is moving to 215 W. Ohio St. in River North, where it have 17,000 square feet, compared to 6,000 in its current West Loop offices.

Below, co-founder Zak Boca explains the deal with Battery.

Crain’s: You were already running a very profitable, high-growth company without taking any outside money. What was the appeal of this deal, and why Battery?Zak Boca: We’ve already experienced a lot of growth, but we feel the market for cloud hosting and infrastructure is only accelerating. Something like 80% of all servers are still in back office data centers, but companies are starting to outsource hosting faster than ever, and we want to make sure we can scale so that we’re positioned to tap into that growth. That’s what led us to look into bringing on a partner.

We wanted to find a partner who really understood the industry and had a lot of experience in scaling up businesses. Battery has spent a lot of time in the infrastructure space as well as with data centers. Our business has increasingly become more of a software company because of the development we do. Battery had a previous investment where they incubated BladeLogic, which was a pioneer of data center software. Dave Tabors from Battery, who is joining our board, was also on BladeLogic’s board, and he saw them through their IPO in 2007 and eventually having a large exit. (Naperville-based BMC Software bought BladeLogic for $800 million in 2008.) So for us, Battery hit all the points.

Crain’s: Any significance to the amount of the raise? Why $27.5 million?

ZB: As far as the dollar amount, it was just an appropriate number given all of our goals. One goal for us in the transaction was for us to remain in control of the business. We wanted to remain in control and also wanted to continue to have a large amount of the risk at stake. But we weren’t interested in bringing on a partner who is not heavily invested in the company, so that our interests are really aligned.

As far as spending the money, post-transaction, there are a couple of things we’re focused on. We’re looking at expanding our geographies and opening data centers outside of Chicago and the U.S., which is a pretty expensive endeavor. We opened our Phoenix facility last Wednesday, and now we’re looking at expanding into Europe and other markets.

We’re also going to be expanding our research and development. Software always been a big differentiator for us, so we’ll focus there. Then lastly adding more depth to our management team, bringing on some traditional experience, starting with a chief financial officer. We’re actively hiring that position. Then we’ll also look at a position that has more to do with engineering, either a chief technology officer or a VP of engineering.

Crain’s: When we spoke last October, you were just launching a public cloud product similar to popular plans from Amazon and Rackspace. How successful has that product launch been?

ZB: We definitely had a nice, successful launch of the product. Right now, about 15% of the new deployments we’re adding each month are cloud orders, which we think is really pretty good.

We’re definitely confident that we’ll continue to grow that business. And a lot of the interest in that product is from companies that are looking to deploy hybrid solutions, where they’re not only coming in for one cloud instance, but also renting physical servers and combining them with virtual machines.

IN OTHER TECH NEWS

• Chicago software firm kCura announced 2,000-lawyer, New York-based law firm Skadden is licensing kCura’s Relativity legal-discovery software program throughout its firm. Skadden is the world’s third-largest firm by revenue, according to American Lawyer’s 2012 rankings.

• Northwestern University is hosting a workshop on “Electricity Markets and Climate Change” at 5:15 Friday at the James L. Allen Center on Northwestern’s Evanston campus. Panelists include Richard O’Neill, chief economist for the Federal Energy Regulatory Commission. Follow this link to RSVP.

“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.

Crain’s small-business editor Ann Dwyer is on Google+.

Northbrook’s MK Capital leads $7M investment in DataPop

By Steve Hendershot

MK Capital, a Northbrook-based venture firm that specializes in tech investments, announces today that it is leading a $7 million Series B investment in DataPop, a Hollywood, Calif.-based company that helps marketers reach consumers with relevant ads in response to search queries.

DataPop was founded in 2008, raised a $1.7 million Series A round in 2010 and launched its platform in 2011. It now directs more than $100 million in advertising spending from agencies such as RPA, IgnitionOne, and 360i. DataPop co-founder and CEO Jason Lehmbeck is a former Yahoo VP; he connected with MK Capital through the VC firm’s Santa Monica office.

Mr. Lehmbeck, along with MK’s managing general partner, Mark Koulogeorge, tell Silicon City more about the deal, and why they’re optimistic about their new partnership.

Crain’s: First, explain a bit more about the market that DataPop addresses.Jason Lehmbeck: There are plenty of things that the Internet has changed about advertising, but one thing that hasn’t changed is the ad itself. Marketers have unprecedented opportunities through digital ads to reach highly targeted consumers—you can buy and trade consumers like pork bellies, and you can reach them anywhere, at work, their living rooms, even their bathrooms. But the challenge is that you’re getting more ads jammed in front of the consumer’s eyes, and consumers don’t want more ads. They want answers. They want information that is useful to them.

So we’ve had this situation in which marketers can get in front of consumers, but haven’t had the underlying data to figure out what they’re offering that ultimately deserves the attention of the consumer. The context for starting DataPop was helping marketers solve for that problem of, how do we build ads that are answers to what consumers are looking for, and then how do we build them to scale at the velocity of the Internet, millions of ads per day.

Crain’s: Why did MK Capital make sense to lead DataPop’s Series B round?

JL: We had two filters for our Series A round that worked well, so we used them again, and that led us to MK. The first is cultural fit and the other is partnership value. So it’s not about capital, it’s about the assets they bring to bear in terms of expertise and insights and connections.

Geography was a consideration, but already had a great investor from our Series A round on our board, Jim Andelman from Rincon Venture Partners, based here in Southern California. That freed us to go hard after those two traits, cultural fit and partnership value.

We jokingly say we’re a bunch of data nerds in Hollywood, but from a cultural perspective, we really are a data-driven, hardcore tech, science-oriented business. It became crystal clear at MK and with Mark specifically that they bring that same ethos. MK is a very data-driven VC firm that’s really focused so how building real, sustainable businesses over the long haul. We are not looking to build a quick, high-flying startup in a hot space; it’s about looking at the fundamentals of the problem and the market, then investing in building real, long term sustainable value.

MK also has a phenomenal track record in the marketing technology space. The DataPop team as great connections in digital advertising, from search all the way through display and email, but MK brings expertise and perspective from the broader marketing technology space because of their experience working with Aprimo and Cobalt.

Crain’s: What appeals to you about DataPop? Why does this deal make sense for MK?Mark Koulogeorge: Our philosophy is that we tend not to fund kids two years out of college who need a lot of hand-holding. We finance real, live adults in sectors where we can add lots of value. We’re a pretty conservative group, so we’re usually not the high bidder in deals like this, but the reality is we’ve already plugged DataPop into a number of situations with people who can be good partners and open up doors for them—that’s what we do all day.

That appeals to someone like Jason. A more mature executive realizes he doesn’t want to have board meetings where he spends all that time educating executives who just came from health care. You want to be dealing with someone as knowledgable about your sector as you are.

For us, DataPop was really exciting because we’d been looking for years for a disruptive, attractive search technology play. We didn’t like the companies we looked at historically in the bid management field, because we thought it would be harder to add value, and that it was an easily commoditized field. But with DataPop, we love that it’s basically a big data play aimed at search. As they continue to build scale, they will also continue to build a competitive advantage based on the volume of work they’ve done for clients, while will allow them to more finely tune their algorithms and taxonomies, which will then allow them to get better and better performance.

“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.

Crain’s small-business editor Ann Dwyer is on <a href="https://plus.google.

Northbrook’s MK Capital leads $7M investment in DataPop

By Steve Hendershot

MK Capital, a Northbrook-based venture firm that specializes in tech investments, announces today that it is leading a $7 million Series B investment in DataPop, a Hollywood, Calif.-based company that helps marketers reach consumers with relevant ads in response to search queries.

DataPop was founded in 2008, raised a $1.7 million Series A round in 2010 and launched its platform in 2011. It now directs more than $100 million in advertising spending from agencies such as RPA, IgnitionOne, and 360i. DataPop co-founder and CEO Jason Lehmbeck is a former Yahoo VP; he connected with MK Capital through the VC firm’s Santa Monica office.

Mr. Lehmbeck, along with MK’s managing general partner, Mark Koulogeorge, tell Silicon City more about the deal, and why they’re optimistic about their new partnership.

Crain’s: First, explain a bit more about the market that DataPop addresses.Jason Lehmbeck: There are plenty of things that the Internet has changed about advertising, but one thing that hasn’t changed is the ad itself. Marketers have unprecedented opportunities through digital ads to reach highly targeted consumers—you can buy and trade consumers like pork bellies, and you can reach them anywhere, at work, their living rooms, even their bathrooms. But the challenge is that you’re getting more ads jammed in front of the consumer’s eyes, and consumers don’t want more ads. They want answers. They want information that is useful to them.

So we’ve had this situation in which marketers can get in front of consumers, but haven’t had the underlying data to figure out what they’re offering that ultimately deserves the attention of the consumer. The context for starting DataPop was helping marketers solve for that problem of, how do we build ads that are answers to what consumers are looking for, and then how do we build them to scale at the velocity of the Internet, millions of ads per day.

Crain’s: Why did MK Capital make sense to lead DataPop’s Series B round?

JL: We had two filters for our Series A round that worked well, so we used them again, and that led us to MK. The first is cultural fit and the other is partnership value. So it’s not about capital, it’s about the assets they bring to bear in terms of expertise and insights and connections.

Geography was a consideration, but already had a great investor from our Series A round on our board, Jim Andelman from Rincon Venture Partners, based here in Southern California. That freed us to go hard after those two traits, cultural fit and partnership value.

We jokingly say we’re a bunch of data nerds in Hollywood, but from a cultural perspective, we really are a data-driven, hardcore tech, science-oriented business. It became crystal clear at MK and with Mark specifically that they bring that same ethos. MK is a very data-driven VC firm that’s really focused so how building real, sustainable businesses over the long haul. We are not looking to build a quick, high-flying startup in a hot space; it’s about looking at the fundamentals of the problem and the market, then investing in building real, long term sustainable value.

MK also has a phenomenal track record in the marketing technology space. The DataPop team as great connections in digital advertising, from search all the way through display and email, but MK brings expertise and perspective from the broader marketing technology space because of their experience working with Aprimo and Cobalt.

Crain’s: What appeals to you about DataPop? Why does this deal make sense for MK?Mark Koulogeorge: Our philosophy is that we tend not to fund kids two years out of college who need a lot of hand-holding. We finance real, live adults in sectors where we can add lots of value. We’re a pretty conservative group, so we’re usually not the high bidder in deals like this, but the reality is we’ve already plugged DataPop into a number of situations with people who can be good partners and open up doors for them—that’s what we do all day.

That appeals to someone like Jason. A more mature executive realizes he doesn’t want to have board meetings where he spends all that time educating executives who just came from health care. You want to be dealing with someone as knowledgable about your sector as you are.

For us, DataPop was really exciting because we’d been looking for years for a disruptive, attractive search technology play. We didn’t like the companies we looked at historically in the bid management field, because we thought it would be harder to add value, and that it was an easily commoditized field. But with DataPop, we love that it’s basically a big data play aimed at search. As they continue to build scale, they will also continue to build a competitive advantage based on the volume of work they’ve done for clients, while will allow them to more finely tune their algorithms and taxonomies, which will then allow them to get better and better performance.

“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.

Crain’s small-business editor Ann Dwyer is on <a href="https://plus.google.

Northbrook’s MK Capital leads $7M investment in DataPop

By Steve Hendershot

MK Capital, a Northbrook-based venture firm that specializes in tech investments, announces today that it is leading a $7 million Series B investment in DataPop, a Hollywood, Calif.-based company that helps marketers reach consumers with relevant ads in response to search queries.

DataPop was founded in 2008, raised a $1.7 million Series A round in 2010 and launched its platform in 2011. It now directs more than $100 million in advertising spending from agencies such as RPA, IgnitionOne, and 360i. DataPop co-founder and CEO Jason Lehmbeck is a former Yahoo VP; he connected with MK Capital through the VC firm’s Santa Monica office.

Mr. Lehmbeck, along with MK’s managing general partner, Mark Koulogeorge, tell Silicon City more about the deal, and why they’re optimistic about their new partnership.

Crain’s: First, explain a bit more about the market that DataPop addresses.Jason Lehmbeck: There are plenty of things that the Internet has changed about advertising, but one thing that hasn’t changed is the ad itself. Marketers have unprecedented opportunities through digital ads to reach highly targeted consumers—you can buy and trade consumers like pork bellies, and you can reach them anywhere, at work, their living rooms, even their bathrooms. But the challenge is that you’re getting more ads jammed in front of the consumer’s eyes, and consumers don’t want more ads. They want answers. They want information that is useful to them.

So we’ve had this situation in which marketers can get in front of consumers, but haven’t had the underlying data to figure out what they’re offering that ultimately deserves the attention of the consumer. The context for starting DataPop was helping marketers solve for that problem of, how do we build ads that are answers to what consumers are looking for, and then how do we build them to scale at the velocity of the Internet, millions of ads per day.

Crain’s: Why did MK Capital make sense to lead DataPop’s Series B round?

JL: We had two filters for our Series A round that worked well, so we used them again, and that led us to MK. The first is cultural fit and the other is partnership value. So it’s not about capital, it’s about the assets they bring to bear in terms of expertise and insights and connections.

Geography was a consideration, but already had a great investor from our Series A round on our board, Jim Andelman from Rincon Venture Partners, based here in Southern California. That freed us to go hard after those two traits, cultural fit and partnership value.

We jokingly say we’re a bunch of data nerds in Hollywood, but from a cultural perspective, we really are a data-driven, hardcore tech, science-oriented business. It became crystal clear at MK and with Mark specifically that they bring that same ethos. MK is a very data-driven VC firm that’s really focused so how building real, sustainable businesses over the long haul. We are not looking to build a quick, high-flying startup in a hot space; it’s about looking at the fundamentals of the problem and the market, then investing in building real, long term sustainable value.

MK also has a phenomenal track record in the marketing technology space. The DataPop team as great connections in digital advertising, from search all the way through display and email, but MK brings expertise and perspective from the broader marketing technology space because of their experience working with Aprimo and Cobalt.

Crain’s: What appeals to you about DataPop? Why does this deal make sense for MK?Mark Koulogeorge: Our philosophy is that we tend not to fund kids two years out of college who need a lot of hand-holding. We finance real, live adults in sectors where we can add lots of value. We’re a pretty conservative group, so we’re usually not the high bidder in deals like this, but the reality is we’ve already plugged DataPop into a number of situations with people who can be good partners and open up doors for them—that’s what we do all day.

That appeals to someone like Jason. A more mature executive realizes he doesn’t want to have board meetings where he spends all that time educating executives who just came from health care. You want to be dealing with someone as knowledgable about your sector as you are.

For us, DataPop was really exciting because we’d been looking for years for a disruptive, attractive search technology play. We didn’t like the companies we looked at historically in the bid management field, because we thought it would be harder to add value, and that it was an easily commoditized field. But with DataPop, we love that it’s basically a big data play aimed at search. As they continue to build scale, they will also continue to build a competitive advantage based on the volume of work they’ve done for clients, while will allow them to more finely tune their algorithms and taxonomies, which will then allow them to get better and better performance.

“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.

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Gtrot CEO on the social-travel site’s radical revamp

By Steve Hendershot

Gtrot is shifting its focus from globe-trotters to locals.

The Chicago-based, Lightbank-funded company relaunched today with a built-from-scratch site that encourages users to make lists of their favorite hometown hotspots, then allows others to compare lists. Functionally, that’s similar to the old Gtrot, a social-trip-planning site. But CEO Zach Smith is betting that with a local focus, the revamped Gtrot will become an everyday destination for users.

Last November, when Mr. Smith launched a second iteration of the site, he noticed some of Gtrot’s 16,000 users were making local lists on the site. Before long, a third version was in the works—a re-envisioning of the company that he describes below.

Crain’s: This relaunch was prompted in part because you noticed people using Gtrot to find things to do in their home cities. Does it also reflect on the social travel space in general, and the challenge that companies have faced in gaining traction there?Zach Smith: We were facing challenges in travel space that all our competitors were also facing. You can see that because almost every single one of them—Trippy, Wanderfly, Flymuch—has either relaunched or rebranded or been redesigned in the last month. A lot of them are going to a Pinterest type of approach.

Travel is just a hard space to get scale in. User travel is pretty infrequent, so you’re creating a service that can only be used a couple times a year. The social hooks are pretty weak, because it’s about asking friends to do you the favor of recommending things to do on your trip, and it’s really hard to convert users’ friends when it’s such a one-sided value proposition.Ultimately, we believe trip planning and local discovery will collapse into a single space. You already see that happening. When you go to New York for a night, you’re not using TripAdvisor or Frommer’s when you’re looking for restaurant recommendations; you’re on Yelp, probably, using the same tool you use in Chicago—you’re just changing the city. That’s what we’re doing with the new Gtrot.

You can still create a collection of things to do on a trip to Paris, and do all the things you could do on the old Gtrot. But now, it’s also a lot more powerful than that. And I have a tough time seeing how a travel-specific application could possible compete with that experience, because you have far fewer touchpoints with the user, and also a lot less data on their interests. Because we’re now in local, we’re understanding the types of restaurants, nightlife and deals our users like, and we’re following them around day to day, and that’s going to make us a much more powerful recommendation engine for when people are traveling, compared to a site you just visit once or twice a year.

Crain’s: The name Gtrot is derived from “globe-trot,” did you think about a name change?

ZS: Nobody can figure that out, anyway, and we’re really happy with the name. It sort of has this connotation of getting out and exploring, which is still very much what we’re about. We did a little tweak to the logo, but that’s not a big part of the overhaul.

Crain’s: This means you’re now squaring off against a new set of competitors, including some big ones such as Yelp and FourSquare. How will you stand out?

ZS: We’re doing what we can to create a differentiated user experience. We have an interface that allows you both to curate your city with collections, and also, the flip side, to use the site for discovery by letting you follow people and the things they’re collecting. That’s a really powerful model that no one has really done well in local.

We love Foursquare, and they’re starting to do some of that with Foursquare Lists and their Explore feature, but Foursquare is still fundamentally about the check-in experience, which is a pretty weak signal. So I think there’s a huge opportunity in the local space to be a platform that’s the one place that has all the restaurants you love, all the parks you want to go visit, all the concerts you want to see. We can’t think of a single resource out there that lets you do all that and bring your identity and voice to it in the way that Gtrot does.

Steve Hendershot writes “Silicon City,” Crain’s weekly column on Chicago tech news and newsmakers. Follow him on Twitter: @stevehendershot.

Trep Life video series inks deal with Inc.

By Steve Hendershot

Trep Life, an Internet video series about entrepreneurs, will announce this week an exclusive partnership with Inc.com. The New York-based publication will promote and house Trep Life’s content, splitting profits 50-50 with the show’s two Chicago-based creators, Scotty Cadenhead, 22, and Malachi Leopold, 32. Mr. Leopold also runs a Chicago video-production company, Left Brain/Right Brain Productions.

Trep Life’s first season (which has been featured here on Crain’s small-business blog) spotlights Chicago entrepreneurs such as GrubHub’s Matt Maloney and Mike Evans, and Flashpoint Academy’s Howard Tullman. In subsequent seasons (there are five planned in all), Messrs. Cadenhead and Leopold will hit the road: The second season will feature East Coast entrepreneurs, the third will take place in Silicon Valley, and the Trep Life team plans to film overseas in seasons four and five.

Messrs. Cadenhead and Leopold, as well as Inc.com Editor Eric Schurenberg, tell Silicon City more about the partnership, and about Trep Life’s plans.Crain’s: How will this deal help you develop Trep Life?

Scotty Cadenhead: We always thought that if we could create a great product, then we would be able to secure the right partnership for distribution in the long run. That was always our vision.

As far as I can tell, this sort of partnership hasn’t been done before, where everything is split 50-50 between our company and Inc. They will be using their properties to get this thing going, doing a huge media push for us in print, online and even going after broadcast shows.

The exciting part is that we already have season one filmed, so there’s a great foundation in place. When we do the rollout in early April, we’ll have 12 episodes, and there are 12 special features per episode, each broken down into individual segments (enabling a broadcast television show to incorporate a two- or three-minute Trep Life segment). We’re rolling out a ton of content. We’ve also already started pre-production for season two. We expect to have cameras rolling on the East Coast on June 1, and we expect to have season two wrapped and live by August.

Crain’s: Other than the location change, how will future Trep Life episodes differ from your first season?

Malachi Leopold: What we continue to get that’s consistent is that very real depiction of the human beings behind each of these ventures. You find some people who struggle, who have vulnerabilities, who take things personally, but who are also some of the hardest-working people on planet. These are ambitious and motivated people who frankly inspire others through this realistic depiction of what it takes for them to succeed. That’s our hope for the series, is that it inspires others to take risks.

There will be innovation in season two. You’ll see 10 percent changes here or there. But as far as the structure of it, showing the grind, the hustle and the payoff, and the approach we take in terms of getting people a 360-degree view into what it takes to succeed as an entrepreneur, that’s not going to change. We think of sort of like the iPhone. The iPhone 4s is going to have 10 percent improvements over the iPhone 4, but either way, it’s still essentially the same really sweet phone that does a lot more than make calls for people.

Crain’s: Why did Trep Life appeal to Inc.?

Eric Schurenberg: The Trep Life guys have captured the rocky road that entrepreneurs have to travel, and they’ve done it with high production-quality videos that look at the lives of Chicago entrepreneurs without sugarcoating the stories. They talk about the real important payoffs for the entrepreneurs — not just financial, but the spiritual and emotional factors that drive these people. The videos have a combination of great storytelling and wonderful comic timing, and these are really gripping stories about the ups and downs entrepreneurs face.

“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.

Crain’s small-business editor Ann Dwyer is on Google+.

Kids jump into a ‘Shark Tank’ of sorts

Over on the ChicagoBusiness.com home page, Crain’s contributor Steve Hendershot sums up the action from Tuesday night’s business-pitch competition sponsored by the Illinois Math and Science Academy. Here’s a snippet:

‘Shark Tank’ for the high school set

(Crain’s)—The all-star judges had just heard business pitches from a half-dozen promising entrepreneurs. Now comes the tough part: picking a winner, as well as two runner-ups. Anyone who’s watched ABC’s “Shark Tank” knows the drill.

Here’s the twist: the contestants are all high school or middle school students.

The competition is sponsored by the Illinois Mathematics and Science Academy, an Aurora-based boarding school whose alumni include founders of Yelp, YouTube and PayPal. This final round is taking place at the IBM Innovation Center in the Loop. The five judges include Kevin Willer, CEO of the Chicagoland Entrepreneurial Center and a former Google Inc. marketing executive, and veteran investor Bob Geras.

Read the entire story — including a list of the winners — at ChicagoBusiness.com.