IVCA Preview: IVCA/NVCA Luncheon on May 21st, ‘Let’s Hear it for the Midwest,’ with Sponsors Ropes & Gray, Baker Tilly and Speaker Mark Kvamme of Drive Capital
Every year, the Illinois Venture Capital Association (IVCA) teams up with the National Venture Capital Association (NVCA) for an event luncheon, designed to bring the two associations together and allow our Midwestern firms to hear about prospective changes in laws or regulations that may affect our industry.  In addition, we feature a local topic of interest. This year’s luncheon on May 21st is entitled “Let’s Hear it for the Midwest,” sponsored by Ropes & Gray and Baker Tilly, with a featured speech by Mark Kvamme, founder of Drive Capital in Columbus, Ohio.
The luncheon will combine Mark Kvamme’s topic – “The Case for Outsized Returns from Venture in the Midwest” –  and a discussion moderated by IVCA Chair Lee Mitchell of Thoma Bravo with experts Bobby Franklin of the NVCA, Brett Palmer of the Small Business Investor Alliance and Ken Spain, the Private Equity Growth Council entitled “Federal Issues Affecting Venture and Private Equity,”.
As a preview to this special gathering, the IVCA talked to representatives from the two sponsors, and got a quick overview from speaker Mark Kvamme.
The two sponsors for the IVCA/NVCA luncheon are Ropes & Gray, LLP and Baker Tilly.
Ropes & Gray is a legal firm with national and international offices, including Chicago. The Chicago office has grown since 2008 to a fully integrated team of more than 50 lawyers, and provides legal needs that cover a broad spectrum of practice areas, including capital markets, health care, investment funds, merger & acquisitions/Private Equity, business & securities litigation, global government investigations and intellectual property. Representing the firm for this preview is Gregory R. Metz, Partner.
Baker Tilly is a full service accounting and advisory firm with specialized professionals who connect with their clients through candor and clear industry insight. With national and international offices, including Chicago, Baker Tilly provides global services spanning industries and technical specialties, including international advisory, compliance, attest, tax, corporate finance, risk, expatriate, wealth preservation and go-to-market services. Representing the firm for this preview is Bill Chapman, Partner at Baker Tilly and Managing Partner at Baker Tilly Capital.
IVCA: The theme for this year's IVCA/NVCA luncheon is "Let's Hear it for the Midwest." Do you see signs that Midwest based venture firms and the companies they back should feel both pride and drive in the investment arena today?
Gregory Metz: Over the last several years – despite the challenges faced by our economy – there has been a steady and meaningful influx of investment funds into the Midwest, and the service providers that support them. Ropes & Gray is one example of this development, having first come to Chicago in 2008, after 140 years of being headquartered in Boston. Some of the investment funds recently opening up in Chicago – and the Midwest generally – are entirely new, and some are spinoffs, and others are outposts of funds that are well-established on either the East or West coasts; which are established funds that have identified the Midwest as an area of new growth and/or as an area where other competitors are perhaps not as focused. 
The general sentiment, I think, is that there has been – and currently is – an abundance of very exciting investment opportunities in the Midwest, and there are highly sophisticated and ambitious investment professionals, in addition to advisors who can identify and execute upon these investments at the local level. 
Bill Chapman: As co-office locations and incubator & programs – such as ‘1871’ and Impact Engine & TechStars in Chicago’s Merchandise Mart – take root in the Midwest, and the emphasis on the development of venture-backed businesses grows, we will continue to see unlimited opportunities in our own backyard. Not to mention the support from the incredible universities such as Northwestern, the University of Chicago, and the University of Illinois, which provide incredible talent pools.
IVCA: Ropes & Gray and Baker Tilly has been a huge proponent of support for both the IVCA and events such as the luncheon. How does a strong community collective help promote the Midwest investment brand?
Metz: In the Midwest, I’ve often witnessed a fairly amazing ‘we’re all in this together’ mentality when it comes to our investment community. The IVCA exemplifies this type of mentality, through the various advocacy and educational services that it provides to its diverse membership. 
Having a strong Midwest-based investment community helps our participants achieve their professional goals. For example, this helps our investment professionals prevail in local and competitive investment processes that increasingly involve global participants. In addition, a strong Midwest brand draws human capital into our area that supports our investment professionals, and also goes on to envision the next generation of innovation and growth that our investment professionals can then take to the next level.    
Chapman: Baker Tilly believes that it is critical that the Private Equity and Venture Capital community have a central point to exchange ideas and address the issues confronting our industry with one voice. The IVCA has done an excellent job at providing that voice for our industry in the Midwest.
IVCA: What elements of the featured speakers and subjects do you look forward to the most at the IVCA/NVCA luncheon on May 21st?
Metz: I’m looking forward to hearing how Mark Kvamme of Drive Capital has been going about establishing his new fund in the Midwest. I’m curious to hear how the fund has been received within the investor and business prospects community, and how his early experiences have validated his own decision to invest here in the Midwest through the establishment of Drive Capital. 
I’m also eager to hear the latest on trends and developments within the industry from the leaders of the NVCA, Small Business Investor Alliance and the Private Equity Growth Capital Council, in particular what these leaders agree on – and perhaps disagree on – in terms of the overall direction of the industry.
Chapman: I am looking forward to hearing Mr. Kvamme’s viewpoints on the developments of the emergence of the Midwest as a technological center and a fertile environment for new ventures. In addition, I look forward to hearing the panel discuss how the regulatory and tax landscape for Venture Capital and Private Equity is continuing to evolve in such an incredibly fast-moving environment.
Mark Kvamme of Drive Capital was formerly a partner with Sequoia Capital, and founded Drive Capital with Sequoia colleague Chris Olsen. Their thesis in raising a $250 million dollar venture fund is that the Midwest has great growth companies with great management – examples of Midwest companies the firm has invested in include Channel IQ of Chicago, Roadtrippers in Cincinnati, Ohio FarmLogs of Ann Arbor, Michigan and CrossChx of Columbus, Ohio.
IVCA: The subject of your talk is 'The Case for Outsized Returns for Venture in the Midwest.' What makes this topic most relevant in 2014?
Mark Kvamme: Venture Capital firms have gone to the four corners of the world to invest – like China, India, Israel and Europe – and have forgotten the Midwest. Twenty-five percent of United States research is done in the Midwest and 22% of the GDP is rooted in the Midwest. The Midwest would be the fifth largest nation in the world if it stood alone, but generates only a small proportion of the world’s investment capital. We believe there are world-class entrepreneurs in the Midwest, and the only thing they lack is capital.
IVCA: Through Drive Capital, you have successfully created a venture fund based on the Midwest, investing in Midwestern companies. What advantages – in your experience of success – do Midwest based entrepreneurs have over anybody else in the country?
Kvamme: There are four basic advantages that Midwest entrepreneurs possess...
One, access to great universities and engineering talent there, including Northwestern University, Carnegie Mellon, the University of Michigan, Rose Holman and more.
Two, access to great customers. 150 of the Fortune 500 are in the Midwest. In comparison, Silicon Valley and other tech centers have a much smaller proportion of customers based in the Midwest.
Three, a low cost of living. When entrepreneurs raise capital, they dilute their share of ownership. Their dollars go a lot farther in the Midwest than, for example, Silicon Valley.
And four, there is far less poaching and competition for landing great engineering talent, again as compared to Silicon Valley, where poaching and recruiting from other companies is much more common.
IVCA: Finally, what is an essential trait – that are counter to successful results – does the Midwest venture community need to recognize in order to evolve, and why?
Kvamme: I think Midwest Venture Capital firms rely too much on ‘terms investing’ – they think they’re going to make money on the preferred terms that they force the entrepreneur to accept. We have seen crazy things like ‘3X participating liquidation preference with a compound dividend.’ Any excellent entrepreneur would never accept these types of terms. The Silicon Valley venture community have figured out that you don’t make money on terms – you make money on creating equality value as a partner to an entrepreneur.
Click here to register for the IVCA/NVCA luncheon on May 21st, 2014.

Thanks to our Sponsors:  Baker Tilly and Ropes & Gray LLP