Wednesday, August 17, 2016

An Ecosystem Where Start-Ups Help Other Start-Ups

An Ecosystem Where Start-Ups Help Other Start-Ups

Shradha Agarwal and Rishi Shah are co-founders of ContextMedia, a health care media company in Chicago. They made a point of financing and mentoring other start-ups. Whitten Sabbatini for The New York Times

When start-ups begin their sojourn, it’s akin to Joseph Campbell’s mythical hero’s journey. Instead of battling hydras and gorgons alone, entrepreneurs often help each other face obstacles like entrenched markets, financing and abject fear of failure.

It is a symbiotic relationship that makes sense to Shradha Agarwal and Rishi Shah, both 31 and co-founders of ContextMedia, a health care media company in Chicago. The two entrepreneurs are expanding their 10-year-old company, which they started when they were students at Northwestern University. They have made a point of supporting other start-ups by financing an angel fund called Jumpstart Ventures. The fund has backed more than 45 businesses, giving $20 million since 2011.

Although there are no precise estimates on how many such ecosystems exist, the Kauffman Foundation, a research organization focusing on entrepreneurship, found that nearly every one of the more than 360 major metropolitan areas in the United States had such a network in place.

ContextMedia provides customized health care information on screens at doctors’ offices and other sites. Doctors can show patients digital 3-D anatomical diagrams of procedures using ContextMedia “wallboards” or tablets. Their material is now viewed by more than six million patients a month at 25,000 medical practices or health care locations.

The company is also working with the Mayo Clinic to bring their media content directly to hospitals and physician offices.

More than 400 people work at the company, whose revenue last year was $63.5 million. It hopes to add more than 200 workers by the end of the year.

Although ContextMedia has made inroads into a notoriously difficult market to crack — doctors’ waiting and examination rooms — it was done without venture capitalists, who weren’t willing to take a risk, Ms. Agarwal said. Support from the Chicago entrepreneurial community not only got her company started, but it also helped the company clear some high hurdles.

Professors at Northwestern first helped Mr. Shah and Ms. Agarwal. And the founders “bootstrapped,” or self-funded, their enterprise during the recession.

“In 2008-2009, we slowed down,” Ms. Agarwal said, “so we had to reconnect to our journey, which was our passion for changing health care.” With the Jumpstart fund, she says she now wants to “pay it forward” to other entrepreneurs.

These support systems need to be diverse to be effective, though. According to the World Economic Forum, which surveyed more than a thousand entrepreneurs around the world, what start-ups value most are accessible markets, funding, regulatory framework, an educated work force and major universities. That doesn’t mean, however, that the network always provides robust financial backing from big-money players like large venture capital firms.

An ecosystem also offers social and psychological support. What fuels entrepreneurial success, Ms. Agarwal noted, are passion and purpose. When she started her company, she wanted an enterprise that would have a positive social and personal impact. She started with diabetes education, a disease that affected both her and Mr. Shah’s relatives in India.

When Ms. Agarwal interviews candidates for the Jumpstart Ventures portfolio, she wants to find like-minded people who are “passionate about their mission.”

Mert Iseri, co-founder and chief executive of SwipeSense, a company focused on reducing hospital infections, was someone who fit the bill. Also a former Northwestern student, he met Ms. Agarwal in 2012.

Mr. Iseri, 28, was focused on providing a digital hand hygiene solution to combat the 100,000 annual deaths in the United States from hospital-acquired infections. Such infections cost $28 billion a year in related health care expenses.

“Shradha became our first investor and gave us our first check for $25,000 and employed ‘radical candor,’” in her mentoring, Mr. Iseri said. That included discussions about tough decisions that had to be made when building a business, such as hiring, firing and determining long-term goals.

“It is always difficult to fire someone,” Mr. Iseri said. He described one situation where a sales representative was a high performer but didn’t fit the culture at SwipeSense. “Shradha was very clear; her direct feedback was to part ways right then and there, and she highlighted that no amount of short-term results can justify holding on to folks who won’t be long-term members of the team.”

SwipeSense’s initial presentation at Healthbox, a Chicago-based incubator, raised $1 million in 2011 after one of its first demonstrations. Mr. Iseri credited Ms. Agarwal’s continuing support with helping his company secure more than $12 million through several rounds of financing.

Mr. Iseri would not disclose his company’s sales but said it had “annual revenues in the seven figures” and was “experiencing significant month-over-month growth” with its customers.

Ms. Agarwal, her employees, co-investors and angel investors have also bolstered entrepreneurs by simply being nearby and giving direct guidance.

For instance, ContextMedia provided office space to Packback, which offers online learning communities and digital textbooks for college students. Ms. Agarwal and ContextMedia employees often interacted with the firm’s workers to offer advice.

“We’ve been in seven office spaces since we were founded four years ago,” said Jessica Tenuta, a co-founder and head of design of Packback. “Shradha showed us how to hire and incorporate our values while mentoring us. We made great connections while being in their space.”

Packback now has 24 employees and a $250,000 investment from Mark Cuban, who took a 20 percent stake in the company after the co-founders presented on the reality show “Shark Tank” two years ago.

Ms. Tenuta and Packback’s co-founders — Kasey Gandham, Nick Currier and Mike Shannon — have also garnered support in other ways. The company works with 1871, a business incubator in Chicago that offers classes, co-working spaces and access to venture capitalists.

Ms. Tenuta did not disclose her company’s sales revenue but said the firm expects to have 30,000 students using Packback in the 2016-17 school year, up from 10,000 students in the previous year.
For their part, Mr. Iseri and Ms. Tenuta were inspired by their experiences to mentor other start-ups. These may be at university-based or private incubators and accelerators, in co-working environments or through other angel investors and venture capitalists.

Ms. Agarwal characterized the payoff as “the communal support through learning, wellness and volunteer opportunities.”

She added that her enterprise and those she backs have “a bias toward action and scaling to the market.” That means an entrepreneur’s vision must eventually translate into revenues, profit, growth and a commitment to giving back to the community and other entrepreneurs.

The network of support offered by start-up ecosystems, though, won’t get entrepreneurs entirely past the fear of failure and rejection. A plunge into the unknown is part of making it past those perilous first years.

“When I was a girl, my mother pushed me into the deep end of a pool to get me to swim,” recalled Ms. Agarwal, who grew up in India. “She said it was the only way to learn. She was one of four daughters in her family, all of whom were pushed to earn college degrees by my grandmother.”

If Ms. Agarwal and her peers succeed, their companies will also contribute to social good such as better medical education and improved health outcomes.

They will, in her words, be “solving problems worth solving.”

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