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Groupon’s money backers put faith, money in other startups

Rob Solompresident GroupGroupheadquarters 600 W. Chicago Ave. Wednesday January 12 2011. | John H. White~Sun-Times

Rob Solomon, president of Groupon, at Groupon headquarters, 600 W. Chicago Ave., Wednesday, January 12, 2011. | John H. White~Sun-Times

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Updated: March 8, 2011 12:15AM

The two Chicago investors who provided the startup money for Web sensation Groupon are still creating what they hope will be the newest online success story.

Serial entrepreneurs Brad Keywell and Eric Lefkofsky are backing at least 10 ventures through their investment group, Lightbank. Nine of the 10 are headquartered in the same building as Groupon — the former Montgomery Ward & Co. catalog house at 600 W. Chicago.

The duo started Lightbank in fall 2009 to invest $100 million over the next 10 years to help tech startups grow into successful companies. Lightbank seeks passionate entrepreneurs who are smart, aggressive, who cannot let go of their ideas and who understand social media and Web dynamics, Lefkofsky said.

So far, Lightbank has invested in or helped create these startups:

† Betterfly, a website headquartered in New York that matches people with tutors, coaches, trainers, stylists and other “betterists” to help them achieve their personal goals.

† BodyShopBids, which lets people obtain car-repair bids from body shops.

† LightSwitch, a next-generation business directory aimed at helping experts ranging from plumbers to doctors market themselves online.

† Obaz, a platform in which people organize and pay for activities as groups.

† Pawncho, a tech-based version of a pawn shop billed as a safe way for people to borrow money against their personal belongings.

† Poggled, a nightlife-oriented social network that lets people land drink deals.

† Sprout Social, which uses Web-based technology to help small- and medium-size businesses figure out what customers are saying online.

† “Where I’ve Been,” a social travel applications developer.

† Watermelon Express, a mobile educational applications company.

† 60mo, a financial-planning platform with live help for small- and mid-size businesses.

Others are in the works.

Keywell said Lightbank’s aim is to cultivate a stronger technology community in Chicago.

“In general, my hope is that Chicago becomes one of the centers of ideas, innovation and technology entrepreneurship and risk-taking in the world,” Keywell said.

Lefkofsky said: “We don’t need to be in the [Silicon] Valley or in New York. We’ve found Chicago to be a fantastic place, with great academic institutions, lots of talented young people and hardworking Midwest ethics.”

Lightbank isn’t the only tech-investment game in town.

It may be a well-kept secret, but Chicago is home to 13 incubators, a growing number of coalitions and other ventures that boost tech startups, including Chicago Tech Meetup, Excelerate Labs, Hyde Park Angels, the Illinois Accelerator Fund (I2A), iBIO, the Illinois Venture Capital Association, Lightbank, midVentures, New World Ventures, Sandbox Ventures, Syncubator, TechAmerica, TECH Cocktail and TiE Midwest.

Learning from serious mistakes

Keywell and Lefkofksy, both 41 — have known each other since age 8, when they played competitive tennis against one another at a tennis club in the Detroit suburb of Oakland County.

Their friendship blossomed when they attended college and law school at the University of Michigan.

“Eric and I were running many businesses, even during college,” said Keywell, who noted that their fathers — his dad, an attorney, and Lefkofsky’s father, an engineer — ran their own companies. Keywell’s college ventures included a school-spirit poster publishing company and an advertising-driven student handbook, “Home Away from Home,” featuring directories, coupons, discount cards and class listings.

Lefkofsky got his start in college selling scraps of leftover carpet to universities on student move-in days. He had signed five universities, including Notre Dame and four Big Ten schools, after his junior year of college but decided that the business couldn’t grow fast enough to satisfy his ambitions.

Keywell and Lefkofsky have started or invested in at least 18 businesses; all but two still operate. They have returned more than $7 billion in combined revenues in those companies on their investments of $150 million to $200 million. Their combined controlling stake in Groupon is worth more than $3 billion.

Despite their recent phenomenal success, Keywell and Lefkofksy have two notable failures: Brandon Apparel Group of Columbus, Wis., and Starbelly of Chicago. The pair started the apparel business in 1994 to sell licensed athletic clothing. They shut down the company five years later, leaving behind angry creditors and city officials to whom they had promised to create jobs, according to published reports.

Keywell and Lefkofsky were sued by Johnson Bank of Racine, Wis., for allegedly setting up trusts and other vehicles to protect from creditors their stock in Starbelly, a Chicago company that Ha-Lo acquired in early 2000. Ha-Lo’s $240 million acquisition of e-commerce startup was aimed at updating and expanding Ha-Lo’s once-powerhouse promotional-products business.

Ha-Lo filed for bankruptcy protection in July 2001, leaving behind questions about whether Ha-Lo made poor management decisions amid a dot-com frenzy. Starbelly had lifetime revenues totaling $400,000 and close to $10 million in losses.

Keywell said all of the litigation has been resolved.

“We learned what we are good at and not good at, and we learned the importance of pursuing opportunities in industries where the opportunities are bountiful,” said Keywell, who spends an evening each semester discussing failure in the class he teaches on entrepreneurship at the University of Chicago. Lefkofsky also teaches entrepreneurship at Chicago’s Booth School of Business.

“I believe that failure is a critical component of any entrepreneur’s war chest,” Keywell said. “Understanding what failure is, how to harness the power of failure and how to accept the inevitability of failure are necessary at some point if you are a true risk-taker.

“What becomes the mark of that entrepreneur is how he or she recovers and builds upon the failure,” Keywell said.

Other endeavors still flying high

In 2001, Lefkofsky and Rich Heise co-founded InnerWorkings, a print outsourcing company that aims to provide more efficient printing services by finding “open” capacity at commercial printers and using proprietary technology to choose the best printer and price for its clients’ jobs.

The company, which went public in 2006, is expanding internationally and expects fiscal 2010 revenues to reach as high as $476 million, a nearly three-fold increase from its 2006 revenues. InnerWorkings employs 700 worldwide, including about 200 in Chicago.

Keywell and Lefkofsky partnered again to create Echo Global Logistics in 2005 and MediaBank in 2006. Echo uses proprietary technology to manage clients’ transportation logistics needs, much like InnerWorkings works for print. Echo, which went public in 2009, is on track to do $400 million in revenues in fiscal 2010, a 54 percent increase from its 2009 revenues.

Echo employs 1,000, including about 700 in Chicago.

MediaBank, which is widely reported to be on the verge of going public, helps buyers of print, TV, digital and other media plan and manage their ad purchases.

MediaBank ranked No. 30 on the Business Insider/Silicon Alley Insider Digital 100 list of the most valuable startups in the world.

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