Funding, Management, and VC Strategy: Lightbank Partner Paul Lee Shares His Thoughts

On Thursday, November 1st we got to hear from Paul Lee at Crain’s Tech Talk Live event, held at Fulton’s on the River in Chicago. Paul is a Partner at Lightbank, a Chicago-based VC Firm. The event was sponsored by Robert Half Technology and KPMG, and was moderated by the founder of Babbaco, Jessica Kim. Babbaco is a subscription-based offering that supplies products to engage with children ages 3-6 in monthly activities. Babbaco received seed funding from Lightbank, and is a member of Excelerate Labs.

Before we get into the highlights from the night, here’s some key background information from our keynote guest, Paul Lee:

  • Graduated from Northwestern University with degrees in Mathematics and Economics
  • Vice President @ GE Capital
  • Partner, Peacock Equity Fund @ NBC Universal
  • Managing Director – Digital @ Playboy Enterprises
  • Partner @ Lightbank (current)

Paul called himself an “accidental” entrepreneur. That’s an understatement, to say the least. Going through school he started up dog walking and landscaping services, which was a precedent for his eventual success across the country utilizing that entrepreneurial spirit to open doors and embrace exits.

After school he did what a lot of Big Ten graduates do: he joined a global consultancy firm. He was working at Accenture, and one night found himself entering data into excel spreadsheets at 2AM – not the ideal evening. He soon decided it was time to move on, and landed at a startup that essentially sold web services; the venture ended up doing really well. Like any good businessman, Paul had the foresight to get out of dodge at an opportune moment, earning millions just before the “.com bust.”

A short while later, he ended up at GE Capital for a few years, eventually moving on to join NBC Universal where he helped open up their Peacock Equity Fund division, which was worth over $200M at the time. He spent the better part of three years with NBC and timing played in his favor. The company had just merged with Comcast, and although Paul respected them as a company, it just wasn’t the ideal industry he wanted to be in. Within the same time frame, he got a call from a recruiter with Playboy – they wanted him to head up their digital department. To him, it seemed like an opportunity with a lot of potential, and it was a chance to move back to Chicago.

A little while after Playboy went private (Paul played a pivotal role in this), he got a call from Brad Keywell at Lightbank. No spoiler here: he ended up joining Lightbank in February 2011. However, it’s important to note why Paul was eager to join the team. The huge appeal was Brad’s enthusiasm, along with the overall structure of the operation.

Since joining the team, Paul has already made major contributions, leading investments for some prominent companies, including:

  • BabbaCo
  • Beachmint
  • Cleversense
  • Contently
  • DoubleDutch
  • EventUp
  • Needle
  • OnSwipe
  • SkyVu Entertainment
  • Udemy

Background aside, let’s takes a look at some of the insights Paul shared during the event:

Should VC’s have an entrepreneurial background to invest in startups?

“It doesn’t hurt to have a similar background to the people you are investing large amounts of cash in, but it isn’t necessary.” Paul referenced Fred Wilson, who he called one of the “best in the game right now.” Fred has historically been more of an operations guy, but that certainly hasn’t hindered his venture capital success.

What is the trait you respect most in entrepreneurs?

“Their incredible hustle.” Paul referenced Jessica – the event moderator and Founder of Babbaco – and how she runs on just 3-4 hours of sleep per night. He also mentioned Ujjawl – Founder of BenchPrep – and his unmatched ability to keep employee morale up by hustling around the office pouring shots.

When you’re deciding on what companies to invest in, what do you look for in an entrepreneur’s background?

Paul talked about how he obviously wants to invest in people who have demonstrated recent success. But, he also said, “It sounds counterintuitive, but I look for failure.” The logic is that you weren’t afraid to fail, and have likely learned so much from each of your failures. Paul believes that, given the right environment and support, an entrepreneur can use those failure experiences to leverage success.

What industries are impressive to you right now from a potential investments perspective?

“I think e-commerce, mobile payments, and even funeral service businesses are all interesting.” E-commerce is currently gaining a lot of steam. Paul gave the audience an example of the brick-and-mortar retail chain Michael’s. How much revenue do you think they generate online? 0%. Instead of being able to purchase products online, you can only pick things out on the web – you physically have to travel to the retail store to purchase. This is a missed opportunity, and e-commerce can bridge that gap.

Should all startups look for funding?

According to Paul, an entrepreneur’s first investment option should be seeking assistance from friends and family. He made a really good point: “When you get money from friends and family, you feel compelled and highly motivated to work smarter and more effectively with those resources. After all, you don’t want to disappoint and be embarrassed in front of the people closest to you.” The next move should be angel investment. Jumping straight into VC investment isn’t for everyone. VC’s typically look to invest in companies with revenue potential in excess of $100M, and the focus is always on potential for large returns.

What’s one of the most important factors associated with making the decision to invest in a company?

“The management team.” Paul noted how vital it is for a startup to have a great management team, and also how important it is to check the references of the people he’s potentially going to invest in. The Lightbank team utilizes LinkedIn to check references, and they almost always get responses from people they reach out to. In other words, don’t connect with a former boss or colleague on LinkedIn who wouldn’t give you a glowing recommendation!

Few more takeaways:

  • Lightbank has done a few deals through social media: “Times are different – we have closed three deals that started on Twitter.” Obviously, numerous people reach out to the VC firm through social media, so three deals through Twitter is not necessarily a lot given the demand. Nonetheless, it hints at the potential impact of entrepreneurs initiating a dialogue with VC’s through social media channels.
  • There is a big problem with both Angel and VC investments today. Most of the time, you have to either know investors directly or know someone who can provide you with a warm intro to one. At some level, Paul believes that needs to change.
  • Paul is definitely a foodie. His profile on Lightbank’s website says, “In his spare time, Paul aspires to become a national champion in competitive, natural lump charcoal BBQ.” It doesn’t end there: his Twitter feed reveals his quest for sandwich consumption supremacy.

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