IVCA Feature: New Member Profile of 4490 Ventures

December 6, 2017 

As the year wraps up, the membership of the Illinois Venture Capital Association keeps on growing. This creates new opportunities for membership interaction, the sharing of ideas and the expression of issues that concern venture capital, private equity and their support industries. The latest member of the IVCA is 4490 Ventures, a firm that is committed to generating more venture capital into the Midwest.
 
The following is a Q&A profile with 4490 Ventures, which explores the firm’s background and their expectations for interacting with the IVCA.
 
New Member: 4490 Ventures
Representative: Dan Malven, Managing Director
 
IVCA: What is a brief history and background of 4490 Ventures?
 
4490 Ventures: Prior to my partner Greg Robinson and I becoming a team at 4490 Ventures, we had invested in 40 early-stage startups, and had started 4 companies. Even though Greg lived in the Bay Area, and I lived in New York and Chicago, we both had always invested in opportunities nationwide.
 
What we learned was that if you’re not at a firm that is considered to be ‘Silicon Valley Royalty,’ such as Sequoia, Benchmark, etc., your best returns will come from companies located outside of the over-served Silicon Valley and Northeast regions. Our own historical investment returns data clearly supported this for us. We then did a deep dive on the Midwest. Our analysis showed that about 25 percent of the inputs into the innovation economy existed in the Midwest, yet the region was only receiving approximately 5 percent of venture capital dollars. This supply/demand imbalance was compelling to us, so we decided to focus our efforts on the Midwest region. 

Since then, we’ve been fortunate to have a handful of very large and sophisticated institutional LPs believe in our vision and strategy – as well as our ability to execute on it. We’re entrepreneurs at heart, and we’re building 4490 Ventures as a business that satisfies an unmet need in the marketplace. Strategically, we decided to construct our platform in a way that has long-term sustainability that survives beyond our individual investing careers. The IVCA community will hear more about the components of that platform in the near future.

IVCA: Since you are an early stage investment firm, what is the philosophy behind finding the right entrepreneur for your investments?
 
4490 Ventures: First, we look more at the executive team than we do at the singular entrepreneur. Since we’ve been founding entrepreneurs ourselves, we know that every entrepreneur has intrinsic strengths and weaknesses. We then look at the existing team and what it could or should look like in the future, in order to capitalize on the entrepreneur’s strengths and overcome the weaknesses.

As for the origin-story of the opportunity, we look at the problem that the entrepreneur has chosen to solve. We then probe how well that entrepreneur knows this problem area – such as the overall economics that drive it, technology and other trends affecting it, plus competitive and substitute solutions –  and what resources that entrepreneur can bring to bear on solving it. This includes intrinsic knowledge, future team members, early clients and other factors.
 
Finally, we look at whether this entrepreneur has the passion to build a billion-dollar business and whether they can ‘infect’ the team with that passion and lead them in creating a long-term sustainable business with a 10-figure equity value.

IVCA: In your immediate area, where is the best potential entrepreneur base, and what is an example of a successful business out of the region that you nurtured, and why was it successful?
 
4490 Ventures: Repeat founders are always attractive — especially ones that have exited a prior business, but are still hungry to have a meaningful impact with something new. The best example of this was when I backed comScore founders Gian Fulgoni and Magid Abraham, prior to my career at 4490.
 
While comScore is headquartered in the Washington DC area, it’s always had a large presence in Chicago – especially in the product development area – due to this region’s expertise in comScore’s core intellectual property subject matter. Gian and Magid were introduced to me through an angel that had backed my first startup. At the time, it was just the two of them and their PowerPoint slides. They hadn’t even formed a corporate entity yet. But they had a history as market-leading innovators in the space that they were attempting to disrupt. They knew the problem set extremely well and were diving headfirst into how technology trends would enable new solutions, and how a new stand-alone company could be built around those solutions.
 
IVCA: So how did you nurture that new venture?
 
4490 Ventures: While at my firm prior to 4490, I co-led the Series A, then personally invested in the Series B, moved into their Chicago office space and joined the Advisory Board. Then I assisted in raising the Series C and D rounds, then left the Advisory Board so I could lead the Series E with backing from a large hedge fund. This was occurring during the years 2000 to 2004 – the ‘nuclear winter’ for tech startups – where every round of funding posed an existential threat. The company consumed approximately $100M of venture capital before it turned profitable. 
 
Today, it is a profitable, global market leader with a $2B market capitalization and nearly 2000 employees. It was successful because they built a team that was capable of solving a series of difficult problems with solutions that had long-term sustainable competitive differentiation. While this is easy to state, it took nearly a decade of blood, sweat and tears — combined with a lot of risk capital.
 
 IVCA: Your firm generally sits on the board of directors through the life of your investment. What is the key to maintaining influence on a BOD, without dominating it?
 
4490 Ventures: Much like respect, influence is earned and not granted. Board members need to earn the respect of the other board members by operating as extended members of the executive team. This includes participating in strategy formulation, refining priorities, recruiting team members and working to secure follow-on rounds of funding. The key to influence is to have earned the respect of the other board members as someone who is ‘manning an oar’ and rowing alongside others for the collective good... not just monitoring and critiquing the work of others.
 
IVCA: Investing in Midwest entrepreneurial ventures is a growing dynamic. What do you think separates the creativity output in the Midwest than any other region of entrepreneurship?
 
4490 Ventures: Midwest entrepreneurs are highly creative in the areas that they know. They also have close friends and family members that know these areas. Since many incumbent market leaders in this region are at risk of being disrupted by new technologies and business models, there is fertile ground for us to invest in companies that are disrupting what we refer to as ‘legacy industries.’ There are a number of creative entrepreneurs that are starting companies that use new technologies and business models to disrupt these legacy industries.
 
IVCA: What does 4490 Ventures hope to achieve in their interaction with the IVCA?
 
4490 Ventures: We believe that business and taxation policies – as well as agendas – absolutely influence the startup ecosystem. This is especially true in terms of creating the types of businesses that grow large enough to redefine cities and regions. We want to bring our collective experiences to our local, state and federal representatives and do our part to help shape those policies and agendas for the benefit of the general public.
 
For more information on the 4490 Ventures, go to www.4490ventures.com