March 24, 2021

The most active VC of Midwest - Founder of M25 gives advice to founders based in Midwest. By Victor Gutwein

The most active VC of Midwest - Founder of M25 gives advice to founders based in Midwest. By Victor Gutwein

Victor Gutwein, Founder and Managing Partner at M25 talks about startup ecosystem in the Midwest and how it changed recently due to the pandemic and where will it go once the pandemic is over. He gave a ton of valuable advice to founders located in Midwest and we've touched onto Victor's own experience of starting a scooter company before scooters were a thing.


Victor's email: victor@m25vc.com 

M25: https://m25vc.com/

Awesome, extremely detailed book on breaking into VC by Ayushi Sinha: https://docsend.com/view/dvufhb27r5bzrpym

Transcript

And today's, a guest speaker, we have Victor, good wine, founder, and managing partner at 25, which is heavily focused on investing in Midwest of the United States.

And since we never, really covered Midwest, investing in previous episodes, I figured it's going to be super fun. Super interesting to see what's going on there. Where's it going as a startup scene?

And where does Victor think is the future of the Midwest startup ecosystem. So, Victor, let's kick it off by giving us some background on yourself and on M25.

Of course, thanks for having me constants and this is.

Really great to be on here. Just a little bit of background on me is.

I'm from Indiana originally, and went to school at the University of Chicago.

Have stayed in Chicago ever since and had a really.

Interesting history early on with, with trying to launch some of my own startups, including a scooter startup before that was.

Uh, a good opportunity to be involved with, but that actually led me into venture capital and I was on the founding board of a student run venture fund.

Which I did a little bit of that it was it was pretty small scale, but it really got me hooked. And I really wanted to be in venture capital after that. And so.

I had a few corporate jobs out of school, but then eventually was able to start my own fund in 25.

In 2015, we had our 1st fund was just a tiny 1M dollar fund.

Kind of doing a beta or concept of what we we eventually, uh, hope to launch.

I met my partner, Mike, a SIM shortly after launching in 2005, and within a year he had joined us read before.

Our 1st, close on the 2nd fund in 2016 and since then we've gone on to raise some more funds, and we'll make over 100 investments across the Midwest region with kind of a hub in Chicago.

Uh, but now we also have an office in Indianapolis and invested in in about 24 different cities now, across kind of this 1112 state area that we've invested in. So.

Yeah, so that's our, that's kind of our story and where we've gotten to so far. Nice. That's really cool.

So 1st question is the standard for pretty much every single investor that comes up on fundraising radio would does 25 investing in terms of stage fields, average check size and where we know that you liked investment me West. So that's very covered.

Well, the 1st thing to understand is we're relatively general investors across tech and digital startups so this could be both B to B and B to C.

Sass E, commerce, digital marketplaces, those types of businesses that could be really, really big in a relatively short amount of time with a relatively small amount of capital.

The type the stage of company is what we now kind of call preceed or early seed. The companies are usually less than a 1M dollars in revenue. On occasion we have invested in a high quality founding team. That's true.

Revenue but most of the companies have maybe 5 to 50000 dollars a month in revenue.

And we are investing in around anywhere from 500 K to maybe 2 and a half 3M dollars usually,

with a valuation post money evaluation is is less than 10M usually,

in that,

you know,

2,

or 3 to 7M posts is probably where the vast majority of our investments take place,

so pretty early.

Maybe some of the institutional investor involved so.

Nice and that's really cool. I personally love early stage investor because I'm pretty much 1 of them myself. So heavily buys their but still, I think it's justified.

So, 1st question why Midwest why are you so focused on Midwest besides the fact that you grew up there?

Yeah, I mean, the Midwest is is a place that traditionally is not known as being a tech hub. We think of Silicon Valley I think of Boston, New York now L. A. even.

But the reality is, it's 10% of all US venture deals, and there's several cities that have that haven't had unicorn, exits, grown, tremendous companies that have not necessarily been able to try with the capital they have on the coast.

So, it's a little bit of an opportunity these 10% of all you had mentioned deals, receive less than 5% of all US venture funding to me that screamed opportunity screamed.

This is a place that just because there's not a hub of angel activity of early stage capital seeking on taking out these great founders and great opportunities doesn't mean that great companies can't be based here.

And there's, there are some natural advantages such as cost of living costs of talent, the proximity to core customers. And it's also kind of just a, the central hub for a lot of different industries in the US.

Whether it's some, some fintech sectors, consumer retail sectors.
Health care agriculture manufacturing there's a lot of different supply chain logistics that you go on.

There's a lot of different major, major, major industries here. So we're I was excited about that and I was excited that this is the place with.

With with a little bit of of a gap where where somebody like us can go in and start a fund relatively from scratch.

And, and actually, you know.
And, you know, start making the best investments that that can be found. So.
That was kind of our, my my reason why I'm still really excited about this geography.

Now, that we've covered the major benefit of investing in me West what do you think are the major downsides of investing in Midwest? So, what are the major problems that you are seeing pretty much on a daily basis, or that you face? Especially when you were lounging these phone.

I mean, historically, the biggest issues have been, it's been hard to attract capital for some of our companies that are scaling rapidly. Because once again, investors are generally looking more in their backyard. There's not as much capital here.

Additionally, it has been harder to find a highly experienced tech talent.
At least at the scale, sometimes that you need compared to some of the coastal hubs.

Thankfully living in a cove in remote environment, it has actually kind of flip the script on that overnight where people are both moving here.

Investors are seeking investments across the nation for the 1st, time and remote work enables us to hire.

And scale out nationwide, the talent pool. So that isn't quite as much of a problem as it has been. Of course, you know, I think there are still some residual effects.

But the thing that still may linger is, I do push on founders here.

To to just try to be to try to think bigger sometimes and they're naturally going to be inclined to.

Because they're not necessarily surrounded by.

Some of the hype and the grand list of founders, how they think about it in Silicon Valley or New York and some of the ways that that might push them. I think sometimes founders in the Midwest.

We'll say, hey, I think 10M or a 50M dollar exit.

Would be amazing, I think a company that's really large for my city.

Not for the U. S. or for the world.

Thinking on a little bit of a smaller scale, not everybody. Of course, I think we're trying to help push the mindsets there to bring a little bit more of a broader bigger mindset.

But that maybe has been holding some founders back. They're not necessarily thinking as big or pushing their companies to be as big. So, we're working that as a growth point for.

The founder's out here.

Got it nice so speaking of the problems on Midwest and sites on the Midwest, let's talk a little bit about the founder perspective, because most of our listeners are not investors but founders.

So, from the founder perspective, you know, there is a big tendency of especially big corporations moving out from the coastal seas to pretty much anywhere else.

So, from the founder perspective, where do you think you've found you should actually consider instead of go into 1 of those famous coastal SES.

Staying in Midwest, or even moving from outside of D, nicely into the United States, but not the coast.

But the Midwest, I mean, sometimes the easiest thing to do is to just show what a salary and, uh, expensive coastal.

Can, you know, 100 K.
What that would be the equivalent cost of of making.

Uh, of living in the, in the Midwest, and it's, it's usually very significant as far as the, the difference for how much, you know, how much 100000 dollars salary would get you. Additionally, you can start to look at it as hey for.

You know, for a 300000 dollar home, what could you buy in in L. A. or San Francisco or Miami? Versus what could you buy in Indianapolis or Ohio or.
And even Chicago has a has a better cost value there. So.
You know, that's that's 1 of the things, but I think, you know.

That that's that's a little bit, you know, that's the economics of why you might want to. To pick up and go here, but there's also like.
Yeah, I would say it's 1 of the best advantages for reaching customers.
The this region has the most Fortune 500.

Than any other region in the Midwest artists are in the US.
And it also is, is your highly, you know.
Like, the types of customers that you could be should be selling into are are probably not necessarily. Just to venture back startups that may be.
For, you know, dozens and hundreds of years. So I think that that's.
Component as well, the proximity to.
A comp, factories graduate from the Midwest every year.
City and in Kansas.
A pace of life of life, I mean, people talk about that, but.
You know, there's a reason why, if you're from Ohio, soon as you go, and you get your experience and.

New York or California, and then you come back and raise your family back in Ohio where you're from, or back in Minnesota where you're from. So I think that's that's kind of a part of the part of the, the story itself. So.

All right, so you described a lot of benefits of living in Midwest and I agree with.

All of them yeah. With all of them. Actually. But the major downside, especially that I see leaving leaving specifically in Los Angeles is that, you know, Midwest is not as densely populated. We start founders and investors.

So, I see a lot of networking issues there do think that's still an issue. Do thing is going to be an issue after. And how would you recommend founders from Midwest take care of that issue? How would you recommend them solving this problem for them?

I mean, that's a great point and something that we noticed early on.

Is that when we invest in a founder here, they don't necessarily have that network of other, like, minded founders that are chasing a really big startup dream in their city.

And it's really impressive when you look at the Midwest as a whole but it is sometimes.

Can be isolating from city to city. You're a little bit. You have a relatively limited pool of resources and connections.

In your own in your own area so we actually we launched Midwest startups dot com.

And that's to pool talent to pull connections and resources in 1 hub. We also.

When we invest in a company, we call it a club and 25.

And we intentionally are trying to bring founders from St Louis and Columbus and Ann Arbor and the Twin cities.

We're trying to bring them together both in person, at least before and after coded in person, and then online as well through kind of just connections 1 on 1 through Slack channels through digital events that we've done.

And that is actually.

I think really helped our founders because now they have a pool of other.

Of other people that are venture back, they are high quality.

A high quality team high quality company.

But they just don't necessarily have all their entire frame group is is is a tech founder, right?

So that is something that we've been trying to solve for and I think people's, uh, you know, for the 1st time ever, they're, they are spending.

Most of their social interactions are all digital we like it or not. And I think some of that will still be the case even after we go back into our offices.

And such, so I am hopeful that that continues to tie.

The Midwest together and kind of create a larger community out of it. So that's some of what we're doing in some way we think about it. I think it is a struggle though.

True, true I'm definitely agreeing with you on the fact that even after cobit a lot of those habits that we acquired during the cobit are going to remain, for example, clubhouse I don't think it's going to go wait once the code is over.

So that's by the way, clubhouse is a great example of a place where you can make connections. Really easily to look 1 of our portfolio companies actually raised.

1015% of the round by, from the connections that they got on clubhouse so that places just insanely useful for founders, especially founders who don't have much of a network. So definitely if you are still not on clubhouse. Definitely. Check it out.

See, that's my advice while you're listening to the checkout, the clubhouse while listening so moving on to the next question, let's talk a little more about being unique in Midwest. So your portfolio.

Consists over over half of your portfolio consists of under present founders can tell us a little bit more about how this happened for you actually specifically targeting underrepresented founders or was it just, you know, some kind of accident.

Yeah, so I mean, I think a little bit what's even more interesting is that.
In the Midwest, I think we have probably relative relative to other startup hubs.

We probably have less diverse of an investor base and even then even those hubs and I think part of it is just kind of like.

Legacy just not having a lot of innovation in VC firms coming up here in this region historically. But what that means is that us being a very diverse team ourselves.

We have actually, I think, attracted.
Attracted the founders that are here that are diverse.

We've actually attracted, I think, more more than our fair share and and what has happened is from the very beginning we've tried to.

More objectively analyzed our startup investments and be more consistent with the investment decisions.

You know, instead of just investing, because we like that team, which has a lot of inherent biases and subjectivity. We've been trying to.

To bring a lot more what is actually good and kind of scoring and comparing deal by deal. And so that naturally led to where we, where we noticed hey, we have a higher.

Density of of women founded black, founded, Latin, next founded.

Um, companies, then then the market has as an average, and then that has been.

Had a flywheel effect when we've invested in some, a lot of our best sources of of.

Of opportunities come from founders and cells that we've backed.

And so they're referring their friends and Resourcing more deals and also we have a lot of intentionality on our team to make sure that we can be a conduit.

And sourcing more deals that are not just from.
Your white male founders and.
You know, and that's that's been huge for us and right now our current funds that set.

Over 50% is a black, flat next or female founded company.

So, that's that's really exciting. And that's been.

Something that's completely not it's not a mandate. It's not something that we're doing because.

We feel like we have to it's been an opportunity and it's I think it's been absolutely incredible. So.

Yeah, so I think that we're trying to we're just trying to be way more open and accepting and kind of.

Trying to source from the entire market.

Of founders and this is awesome. Big respect for you.

I mean to you for that this is just really impressive having over half over the portfolio, being, consisting off under present founder says just huge great work.

So, what about those underrepresented founders who are staying in Midwest? What could you recommend them to do in terms of raising capital? Should they tried to visit coastal cities for a few months?

Just raises their money or should they try to seeking Midwest? No bump around funds yourself because, I mean.

You have only this much capability you can process them. Unfortunately. So what would you recommend those of the underrepresented founders in Midwest who you could not invest in? What should they do?

Well, I mean, yeah, I mean, I think you have to go to a broader market. I think every founder, whatever they look like, I think they, I think they.

You need to go to the broader pool of capital and this is a time when people on the coast are going to be most willing to invest in a Midwest headquartered company and they never have before.

So, I think that needs to be a priority and I would, I mean, I would look to what is their portfolio look like, have a.

Shown a willingness to to back.

Founders of all different paths before just because.

You you, as a founder have a limited amount of time to pitch people to reach out to people.

And, you know, you don't necessarily want to.

If they're if they're maybe not not inclined, I would, I would say, hey, who's actually backing founders that look like me? I would I would do that because you're likely to be given a fair shot.

Firms that look like they have done that, so absolutely. Good. Good advice. Great. Cool. And on this call, we're moving on to probably my favorite part of the episode. We just talking about falar.

So, Victor, you've started your own scooter company before scooters were even a thing. So, can you tell us a little more about how that happened? What happened there? And how did this company and.

Yeah, so I, I was the guy that went to college and was like, wait, we have to walk everywhere.

So I actually brought my scooter my you know, a lot of kids have when they're growing up they have their scooter.

I brought that and thought that that would be kind of a fun and faster way to get around and I quickly broke it being the adult writing that scoot around. And but I found out okay.

Could scooters could there be adult scooters? What does that, you know, can we start using those to get around campus? I found some online bought some. Some of my friends bought bought some.

People started using it. It was, it was a little bit though. The issue was.

You know, we, we had this idea, we saw the Boosted boards, you know, the boost support with 1 of the 1st, that really brought.

Like, lithium ion in the small motors at that are really highly high, powerful, high, capable.

2 small like, microbial ability that wasn't really a thing. Then I was like, that would be that would be the model that makes it more widely adaptable because.

Writing a kick scooter is not is not going to take off. It's just a little bit like a child and then at the same time.

We, you know, the capital needed to invest in us or to use it.

You had to carry this thing around so we actually had.

A rental model, but there was no, we did not have the capacity as a team.

Or the technical expertise to actually enable some of this. So we had we were kind of hacking together something for a couple of years.

Yeah, you know, it was it was a great learning experience. It never really got.

Further than our campus, and it never got to the, that, where we could iterate on.

Actually,

the model that came to be true and I look at some of the founders of bird and why am I was like,

okay,

those people coming from,

like,

Uber and Lyft and such and they had the both the experience,

and the track record the resources to be able to bring.

These types of scooters to market at scale to build and prototype and manufacture them. So it was a whole different game what eventually happen but.

You know, I was early on a good idea, or at least a compelling idea, which.

Which, and also that was kind of my 1st exposure to to, you know, what could could have been a venture back startup.

And I thought that was that that was incredible. It got me actually.

That was the 1st episode I had into looking at other people's businesses, because I started connecting with other.

Campus entrepreneurs and founders, people building apps, people working on 3 D printing startups at the time. It was really interesting. And that's what got me involved with the venture cofounding, the venture capital firm at the University.

So, yeah, so that was, that was kind of a journey there so I think, ultimately it's a success because it let me hear it was definitely a failure on. It's just like, pretty much 99% of failures.

It always leads to something better in 99%. It leads to something better and 1% is just is just failure. So what can we was to success, but let's talk a little bit more about how he could have changed that.

So, a lot of our listeners are actually young entrepreneurs starting their 1st companies right now. So what could you recommend to those people who are trying to raise their companies right now?

Maybe it's someone who is in college seeing a problem, trying to solve it for themselves. And hey, I think I can make it into business. What would you recommend? Would you recommend those people to do?

Yeah, I mean, that's there's a lot right? I think some of the.

Some of the stuff is to, like, you have to have to learn.

And absorb a lot of stuff quickly. You have to be like, constantly reading.

Books some, but, like, really blogs listening to podcasts like this hearing people risk but, and also trying to like.

You know, I think 1 of the most important things in businesses, networking with.

You know, it has to be relevant it has to be kind of mutually value, add networking but I think that's something I didn't necessarily value immediately. And I'm looking back at some of the connections I did make and how valuable those were and I kind of wish.

I had I had to kind of put myself out there more kind of.

Put it myself out there, helping or trying to be valuable and just seeing what kind of came out of it. That's been the what's most been most valuable? Starting a venture capital firm from scratch. Okay. That's.

That's been maybe what what I've been done, done best, but I think, like, I would kind of, you know, that's 1 thing I do. I mean.

There's a lot of like, basic blocking and tackling that. I think you need to get done, starting your own company. You could do a whole several podcasts on just like.

Making sure you get started up with legal and company formation, making sure you choose your founders and Co founder as well.

Um, how to kind of think about the market think about your initial customer's product market fit customer discovery. There's a whole bunch of that.

And I think kind of goes back to my advice, just reading, absorb, talk to people and learn from them.

That's kind of when I, when I look back, when I wish I did more. That's a lot of it's in that capacity. Right?

Person has been down on your own business, just trying to grind it out. So.
True, true so 1 more thing before we move on to oh, actually nevermind. So you mentioned, you know.

We'll listen to all their podcasts. I'll look at the blogs try to observe know others experiences. Do you have any resources that you specifically recommend to early stage? Founders?

I mean, except radio, of course, which is quite obvious. Well, yeah, that's why we're on. No, I, I think.

I mean, yeah, there's, there's just there's so much out there. I do think that if you are going to go down a venture funding path, I do recommend venture deals the book.

I know I learned a lot and referenced that quite a bit to people, but it's there's a lot of great content out there. So I don't want us. I think everybody kind of has to find their own. I do a lot of newsletters.

I did a lot of blogs and some people are like, party people, or you watch YouTube series. There's a lot of there's a lot of stuff. So I'll leave it at that.

Sure, and by the end of the episode, I'll probably mention a few more links or resources that I personally find helpful and I'll make sure to leave them in the description of this episode. So, if you're curious now, check out, the description is going to be already there. So moving on to the next question.

That's the part of your LinkedIn that I personally was, like, wait, why is that? So, that question is your part of Calvin fellows, what are you doing this?

I thought Calvin fellows is for beginning who are trying to figure out where to move on how to get into these fields. But it seems like you're not the beginning VC. So, why are you there.

Yeah, I mean, I think when Cochran fellow started over 2025, years ago, now, I think it was to get people into venture capital and so that's why the conception there but.

And it's in the past 2 decades, it's really transformed and matured. And I think what it has become now is I was actually the youngest VC.

In my fellow's class, most of the most people had somewhere between 5 to 12 years of venture experience.

And we're going through this for the 1st time and they.

Uh, and you were, you know, I kind of describe probably a 3rd of them were.

Um, managing their own funds that they had started, or been 1 of the founding partners on.

Or they were rising star, uh, maybe senior associate principal at a well known top firm.

And I think what allowed for me to do as somebody with my own firm.

I learned so much from my peers. I mean, there's a lot of there's a lot of content. You meet every quarter for a 2 year period.

There's a lot of great content, lot of great speakers, but I probably learn most from my peers and my peer groups and some of the relationships I formed some of the ways that we would discuss and ask questions to each other that we're still doing today on a group to connect with giant group chat

basically and.

Those are some also some of the way that I was able to probably expand my network so rapidly and venture capital to help my portfolio companies to help myself when I'm trying to raise money when I'm trying to learn about.

You know, some of the dynamics of running a venture capital firm, and so kind of going back to my advice related to founders too. It's like.

That's a huge networking piece for me, that's a huge way that I was trying to lean in and just add value. And then, who knows where it comes, from me, this is another huge network and, like, really some close friendships that I've gotten out of out of the program.

So, I recommended my, my, my actually, the other department, 25, Mike, I mentioned earlier, he's going through the coughing files right now. I think it's.

Or anybody that knows, they want to be that they want to stay in.

I would recommend that they can, you know, that they, that they've considered often falls at some point, because.

It's been really instrumental in my career and kind of taking me in the next level. Nice.

Yeah, I know this program is great, but I always, I kept recommended to founders who are like, oh, yeah, once once I'm done with this company, I'm definitely going to switch over to VC just to get a taste of it are just 2 people who are in the University, and trying to figure out how to get into the sea.

I was, like, always go to counseling fellows. Here's a link, check it out. It's going to be helpful for sure. But apparently, it's for all levels, which is awesome. And.

Yeah, oh, nevermind, I'm not going to leave a link to it. It's super easy to find it on the Internet so just search Calvin fellow see, if you want to get into VC and the 1st result is going to be there. I'm pretty sure. It's the right result. So now this.

Note, let's move on to the last question of today's episode, which is a call to action. So, Victor, would you want to learn to do? Right? After that episode is over.

Yeah, I mean, if you are venture back startup in the Midwest, I want you to check us out and see if we might be on our websites in 2005. com, we talk about kind of the stage and types of companies. That's most appropriate. You can reach out to us there.

You can also email me victor in 2005, VC dot com. If you're more of an investor, and you want to kind of consider working together on a deal Co, investing, sharing, deal flow, same thing and feel free to reach out. To me.

We were we've Co, invested with.

Hundreds of firms at this point across our our vast portfolio and I think it makes if it makes sense to connect please reach out. So that's kind of my call to action is just I'm trying to source sales and Co invested.

People are difficult. Actually, I'll make sure to leave those links in the description of this episode. I'll also leave a link to make sure is linked in.

M25, and also to a book that recently I got from a friend of mine and previous speaker off 1 reason radio is the book on getting into ABC fields. It's like Super detailed and it's also super free.

So yes anyone who's interested in that. Who is interested in gain to see definitely check out the description of his episodes all this stuff is going to be there and as usually have a good day.