Founder alignment
We’ve found that cultural alignment with founders is at the core of our best CreativeCo investments.
The long term path of most founders and entrepreneurs like me is asymmetrical. There are material ups and downs, and ideally the next leg forward is a step up from the last point on the path where we can leverage all our hard-earned, invaluable founder experience. This type and depth of experience is very much impossible to accrue unless you’ve done it. Moreover, this experience is impossible to fake and other founders know it when they see it. Therefore there is a natural empathy from one founder to another (as we can see from all the chatter about Paul Graham’s recent Founder Mode essay).
Our connection from one founder to another is one of CreativeCo’s top advantages. If I was a founder seeking to raise money today, I’d be more comfortable partnering with another founder. Founders understand what everything actually looks like under the numbers in a spreadsheet. Founders understand why strategies and operating approaches have taken hold over time to become patterns and playbooks. And founders can share all their learnings, which is particularly key at the early stage of a business.
Founder alignment requires an understanding of the journey
First, founders appreciate what it takes to get off the ground. We’ve convinced our initial team members to join our journey. We’ve hacked through the early days of a solution to sell. We’ve sold our first customers and worked relentlessly to make them happy. We’ve proudly brought in the first revenue. We’ve had huge wins where our teams overcame great odds. We’ve also had tough losses. We’ve competed against others new and old in our markets. We’ve been both proud and unhappy with our results at the same time, as we’re always trying to do better, trying to get to the next level.
Second, we’ve learned the top-to-bottom details of our business. If you’ve been in software since the .com days like me, then we’ve experienced the arrival of the Internet, the emergence of SaaS, the move from data centers and our own hardware to the cloud, the shift to mobile, the rise of big AI from niche neural network models. We’ve learned what good software is, what good code and UX is, what good developers and designers are like. We’ve learned how to effectively bring a software product to market, how to position it, how to market and sell it. We’ve learned about sales cycles, pricing, contracts, customer commitments, and customer success. We’ve learned how to measure our business, make payroll, manage cash flow, use quickbooks, raise money, get loans, and pay taxes. Most importantly, we’ve learned about people, what makes a good team, who we don’t want on our teams, about incentives and alignment. As an entrepreneur and founder, the learning is unmatched.
Third, we’ve dealt with the hard challenges we all inevitably face. We’ve navigated the .com crash, the great recession and covid. We’ve fired people and laid off our friends. We’ve hired the wrong people. We’ve entered into deals we regretted and we’ve been taken advantage of. We’ve either raised too much money or not enough. We’ve faced cash flow challenges and had trouble making payroll. We’ve pursued bad markets and bad customers. We’ve found ourselves in poor product-market fit. We’ve had to try to make unhappy customers happy. We’ve dropped balls and messed up relationships. But at the end of the day, we’ve found ways to find the best path forward from these missteps. Challenges and mistakes are what makes us stronger and wiser.
Collectively, these learnings through years of successes and failures build the judgment and risk assessment necessary to arrive at conviction when making an investment. From my POV, it would be challenging to invest in small software companies without founder experience.
Moreover, closing the investment is just the first part of producing results in our partnerships. It takes an operator mentality to actually get your hands dirty and help create value in tangible ways, and that’s why we’re so operationally active in our portfolio. We just know this is the right gritty approach for partnering with founders at our stage of growth.
Every founder’s journey is unique, including mine
We always get the full download of a founder’s story, so it’s only fair that I share my full story too.
As a college student at UNC, I decided I wanted to work in finance. After working as a summer intern on the fixed income trading desk at Lehman Brothers in New York, I set my sights on working in NYC with one of the big investment banks after graduating. But in a pivot, I instead accepted an offer to join a startup private equity investment group within NationsBank in Charlotte in 1994 (this group eventually became Ridgemont Equity Partners).
Leveraging what then became Bank of America’s strong corporate banking franchise, our startup PE group benefited from a target rich environment of proprietary deal flow. As a result, I was on the investment team of 15 growth equity and mezzanine investments totaling around $150M during my three years with the group. I loved this work, and after a brief stop helping my friends at Carousel Capital, I joined Key Equity Capital (now known as BluePoint Capital Partners) as an associate in their new Charlotte office. I was lucky that the partner there let me run much of a leveraged buyout of a middle market distribution business.
It was during this five year run in PE that I learned two things. First, the inbound deal flow we had at Bank of America was not normal. After visiting TA Associates and discovering their associate sourcing model, I came back inspired by this approach and sourced a cell tower investment via cold calling management teams. I loved the idea of proactive sourcing back then and I was proud to prove it could be done. The second learning was that the entrepreneurs running the businesses were the true drivers of value in all that we did. I came to the conclusion that I wanted to start a business.
In 1999, the Internet was new and .com companies were front and center. I wrote a business plan for a solution that connected logistics trading partners, since the Internet seemed to be a perfect solution for a giant market that was managing shared transactions by phone, fax and spreadsheets. I raised a $1.2M angel round from friends and family, and Elogex was in business. I was 28 years old at this time.
From the very beginning, I was fortunate to bring domain expertise onto our team. Charles Schmidly, a logistics entrepreneur and operator, joined me as my co-founder. Then, as luck would have it, there happened to be a legacy (client server) logistics software company based in Charlotte, and we were able to hire people who knew the specific requirements of this market. We recruited software engineers from a local Internet tech services firm (iXL), which provided the experience we needed to build out what was really one of the first SaaS companies in the logistics market.
The spark that got us moving beyond product was Mark Nix, who joined us as VP of Sales. I consider Mark to be one of the very best logistics software sales people in history, and he was a critical addition to our team. With Mark and his hires on board, we went on an epic run of selling our platform to Kroger, then Safeway, Publix, Hannaford and other grocers before moving beyond grocery into Home Depot and others. Our technology and customer base were very strong.
All of this progress came at a high price, as everything was expensive and labor intensive at the time and our burn was between $500k and $1M a month. Our capital partner was Fenway Partners out of New York, a buyout firm that had decided to diversify into VC. We raised $32M from Fenway through a few rounds at increasingly unfavorable terms during the post .com market crash. In hindsight, my burn rate and acceptance of their terms was a major mistake. I was in the right business with the team and the right progress at the right time, but my inexperience in navigating this dilution and our cap table prohibited “what could have been.”
In 2003, I met Greg Brady who had just started a new company called Transcend Systems with Ranjit Notani and a small group from i2 Technologies. Greg was CEO of i2, which went public in 1996 and grew from $100M that year to over $1B in revenue by 2000, and at one point reached a market cap of $28 billion. Greg shared our vision for an Internet connected trading partner network, had a clear track record of selling big deals in the space, and had the personal capital to move our business beyond Fenway, who was then done with VC. We merged Elogex with Greg’s business in an all stock deal to take Elogex’s “One Network” platform to the next level — and renamed the company One Network Enterprises.
Greg was incredibly supportive of me in the three years I worked at One Network post merger. In addition to the changes of getting married, moving to San Francisco and having our first child, my role in the business also changed from a top-to-bottom founder to sales-focused exec, which was really not the best role for me. In late 2006, I came to the conclusion that the only way for me to get back to work that I loved was to leave One Network and try to start something new.
Our vision for a networked supply chain and a many-to-many multi-tenant architecture was absolutely correct. While it took 20 years after our merger, Greg, Ranjit and the One Network team executed on this initial direction to build out a multi-industry, global trading partner network and to sell One Network to Blue Yonder in 2024 for $840M. Greg’s investment in the business yielded a huge return, and we were able to generate a return for all our original investors despite the material dilution through this journey.
In 2007 I started working on an idea to create a new type of web browser. The idea was to create an Internet browsing experience that was augmented with real-time, web-based, and social features such as being able to explore the web with others — we named it Browzmi. We had just moved back to Charlotte, and I was pleased to get a term sheet from Peter Rip at Crosslink Ventures, but it required us to move back to San Francisco. We didn’t want to move back, and as we moved into the financial crisis of 2008, it became really difficult to push Browzmi forward. Moreover, we were having a hard time growing users, as the product was an incredible technical feat, but it was more of a solution looking for a problem to solve. At the end of the day, Pinterest solved this discovery problem in the best way.
So in order to survive and generate some income, me and my Browzmi engineers, led by Artem Orlov, who is my partner and still runs our studio team to this day, decided to start consulting in 2009. We were fortunate to meet startups and companies in Charlotte that needed help with software, so we changed the name of the Browzmi entity to Cloud Castle and leveraged our product experience and talent to build software for others. Our second child was born that same year, and I was able to grow this consulting from a single project into a business that served as a thankful recovery to stability after many years of grinding it out.
Castle became a business that balanced stability and risk. On one side, we grew revenue from consulting. On the other, we traded services fees for equity and helped start new companies. In a way, we were a bootstrapped incubator and we were able to earn ownership in about 20 startups during our run from 2009–2018. At our peak, we had a product team of over 100 people and local product offices in Charlotte, New York, Los Angeles and London generating $8.5M in annual fees and equity. We had ownership in a number of solid businesses such as Spotio, PetScreening, ClubUp, RealResponse, LearnPlatform and proSapient.
However, Castle’s business model was flawed because this balance of stability and risk needed to run perfectly in order to carry the large organization and invest at the same time. At the end of the day, we were a consulting business, and like many consulting businesses we had some key people in Charlotte decide to leave to start a competitor. For me, this was a big lesson in the importance of aligned interests and incentives, as we then had to restructure all of what Castle was doing to rebalance the business into a smaller footprint in 2018. Despite its imperfections and iterations, our studio business has been resiliently profitable since 2009 and has generated around $70M in cumulative revenue thanks to a very loyal and very talented core leadership team.
In parallel to Castle, I teamed up with Mark Nix to take another shot at the transportation software market. With Mark as CEO and our team taking the lead on product, we co-founded Cloud Logistics in 2011. Mark grew this business to about $5M in ARR and sold it to e2Open in 2018.
With Castle refocused on pure services and Cloud Logistics selling, it was the perfect time to think about what I really wanted to do going forward. I love investing in early stage companies, but the approach I was taking at Castle was challenging for three reasons: 1) we were taking big risk at the inception stage; 2) we didn’t have a fund for investing capital and were reliant on a sub-optimal business model; and 3) our sweat equity deals were very difficult to find with great founders. It was like a needle in a haystack to find founders like Jordan Shlosberg (proSapient) and Trey Gibson (Spotio). In our outbound activities, we were finding far more high quality founders interested in us investing capital than us providing product help.
Moreover, in traveling around the US, it was increasingly clear that two big trends were at play. First, domain operators were starting interesting niche software companies in places like Charlotte, Tampa, Dallas and Phoenix — basically off the radar and away from VC zones. Second, private equity had become very interested in B2B SaaS, as the business model had become proven and the technology de-risked over the last decade. But despite this interest, there was a gap in the market for funding these niche software companies at a small size. We believed that if we could go outbound to find these attractive, capital efficient businesses (proactively like TA Associates) at an early stage, we could likely build a relationship with the founders and invest if we had a fund.
I met Christian Czentye around 2015 when he was at DecisionPoint, and he then went to work with my friends at BriteVerify. Christian joined Castle in 2018 after BriteVerify sold, and we started shaping the idea for CreativeCo. Ashley Gautreaux joined us that same year, and together we started moving forward on our goal of launching CreativeCo Capital (and changing the name of our Castle entity once again to CreativeCo Studio). We sourced our very first capital investment at the end of 2018, which closed in April 2019 — SingleOps, a vertical SaaS plus payments operating system for landscaping businesses (our blog post at the time). We officially launched CreativeCo with our first small fund in 2020, and I felt like I was now climbing the right hill and moving in a direction that is very true to what I love and what I’m actually best at doing — investing.
The long term path of a founder and entrepreneur is asymmetrical.
In writing this story, it’s clear to me that my path has been an incremental journey with improvement at each step based on all the prior learnings. It’s tough to distill thirty years of a career into a summary blog post, and more so in a few minute meeting intro. But when speaking about founder alignment in our investments, it’s important to understand the long term asymmetrical journey I’ve experienced that allows me to relate and understand other early stage founders and their small, messy, but incredibly promising businesses. I believe it’s a unique perspective, investing through the lens of a founder.
