Grand Rapids Press: Venture firm Momentum offers Grand Rapids-area entrepreneurs help and two options: succeed or don’t
Posted on Tuesday, November 16, 2010
GRAND RAPIDS — Local Web-based company Downstream likely won’t turn a profit for at least another year. But a year after the data storage business went through an incubator program, it has picked up 100 customers nationwide and is close to scoring a local investment, said co-founder and owner Aaron Schaap.
The help came from Momentum, a West Michigan venture firm launched by Amway heir and ArtPrize founder Rick DeVos. His inaugural class of start-up businesses finished up earlier this year and his second wave is just beginning.
The $20,000 in “pre-seed” money from Momentum was nice, but Schaap, 29, said the peer pressure from fellow start-ups and lessons learned during the 12-week “boot camp” were especially valuable.
“(Momentum) gives you just enough money, and they give you way more in advice to get to the next level,” Schaap said.
Starting a business is notoriously dicey.
Downstream is the sole survivor among participants in Momentum’s first class.
Revetto, a social-networking aggregation service, and Public Collections, a website aiming to settle payment disputes, are defunct, DeVos said.
The odds also are against the next crop of start-ups from Momentum Year Two — JaiPlace, LearningInterfaces, TerraPerks and Varsity News Network — but the entrepreneurs hope they will be in Downstream’s position a year from now.
A .333 batting average ain’t bad in baseball or business.
“Any speculative venture or investment is going to fail more often than it works,” said DeVos, an entrepreneurial veteran who also founded two Internet businesses, Spout.com and TheCommon.org. “It’s fully anticipated.”
DeVos molded his idea for Momentum after a similar venture based in California, Y Combinator.
Momentum takes an 8 percent stake in the start-ups, and the pre-seed money is provided by holding company The Stow Company (formerly The Windquest Group), of which DeVos’ parents, Dick and Betsy, are principals.
A goal of Momentum is teaching entrepreneurs to learn from failure, which DeVos said Michigan should treat like a “a necessary stop on the road to ultimately creating something successful.”
“We treat failure like leprosy,” DeVos said. “It’s weighted down with more baggage than it needs to be.”
DeVos wouldn’t pin the folding of Revetto and Public Collections on a single element, but said Downstream “seemed to be getting the most response.”
The service backs up all data in a user’s Twitter account and allows the client to retrieve old posts. It also analyzes an account’s trends, such as who is talking the most about you.
Downstream’s team includes co-founder and employee Janson Hartliep and Momentum Mentor Director Dayna Beal, who helps with business and financing, Schaap said. Co-founder Zack Moazeni is no longer involved.
Schaap, a home-schooled high school graduate from Holland, said his business experience and connections gave him a leg up.
He established two companies before Downstream. Those ventures also provided a little financial flexibility to stick with the fledgling business post-Momentum.
“It’s all about your ‘unfair advantages’ to make companies successful,” Schaap said.
But he attributed the venture’s progress to “a lot of hustle” and effort.
“We’re working really hard to get to that level,” Schaap said. “This year’s Momentum companies are going to be working that hard as well.”
The next generation
This year’s finalists emerged from a group of 50 applicants — about 20 more than last year — after a three-stage interview process, said Momentum executive director Bill Holsinger-Robinson, who also is president of incubator Pomegranate Studios and chief operating officer of Spout.com.
The four start-ups were set apart by the “executability” of their ideas and the passion for creating something, DeVos said.
This year’s companies also have broader product offerings than the first group, he said.
Two-thirds of the companies last year focused on social networking sites, while this year’s start-ups deal in high school sports, health, energy conservation and education.
The start-ups went through 12 weeks of intense tutelage, planning and revising.
“In a roundabout way, the program is about educating people about the level of commitment” running a business takes, Holsinger-Robinson said.
Community experts conferred wisdom on topics such as protecting intellectual property, and veteran entrepreneurs coached the start-ups.
“The pre-seed money was great, but even more important was the network of connections,” said Jess Tomaz, co-founder of JaiPlace. “To have all these resources at our disposal was incredible.”
Company names and business models changed several times.
“We all knew the markets and had passion, but none of us really knew how that translated into a viable business entity,” said Ryan Vaughn, Varsity News Network co-founder. “That’s where the Momentum program excels.”
The next step after “boot camp” ended in late July: financing.
The four companies pitched their businesses to more than 200 potential investors and business people at “demo day” in the Loosemore Auditorium on Grand Valley State University’s Pew campus.
Although they are all still pursuing investments, each has made progress.
Varsity News Network is launching a five-school pilot program this fall.
JaiPlace has more than 70 local merchants on its website and is receiving product orders.
TerraPerks is in talks with Michigan utilities.
LearningInterfaces has a meeting with textbook publisher Cengage Learning in Boston.
But even if the four start-ups stall or fold, their presentations at the “demo day” got people thinking, said Seth Getz, a small business consultant in Saugatuck.
“Look at the buzz in this room,” Getz said as he indicated the swarm of people in the lobby of the DeVos Center after the presentations. “Everyone in the room is walking home with ideas in their heads for starting businesses, and that’s what we need.”
Learning Interfaces Profile:
Founders: Christian Spielvogel, 40, and Khusro Kidwai, 35
Background: Spielvogel, a native of State College, Pa., is an associate professor of communication at Hope College. Kidwai, a native of India, is a research associate and instructional designer at Penn State University.
Business model: Develops Web-based, role-playing simulations and social e-textbooks for high school and college.
Mission: “We put students at the center of their learning experience,” Spielvogel said.
Fun fact: Spielvogel’s brother, Kidwai’s co-worker at Penn State, connected the two budding entrepreneurs.