Presentation I gave at AUTM's Central Region 2018 Meeting

1. Ethics in Flyover Ecosystems

2. Founders are the most scarce resource
“If Chicago VC in the early days had a particular
investing style, it was a hybrid of “East Coast, private
equity mentality” applied to early-stage structures
common on the West Coast. “
“Startups’ capitalization tables would be so mangled
and confusing that, had the entrepreneur sought
funding outside Chicago, even investors more
accustomed to the financial needs of startup
companies would turn them away”
“It’s easy to forget that, just 130 miles outside
Chicago… Marc Andreessen was building Mosaic at
U of I, and Max Levchin, founder of PayPal, was
down there too. He probably left for the Valley
because we [Chicago investors] couldn’t structure a
deal”
History of VC In Chicago
(as told by Chicago’s VCs) Private Equity Mentality = Onerous Terms for Founders
 5% royalty in perpetuity from accelerators and universities
 $30K seed for 8% from well-known accelerator
Mangled Cap Tables = Bad Signal to Follow-On Capital
 Dilution thresholds with no pro-rata required
 Investors taking up to 50% in seed-round
Chicago Now = Texas’ Future
 Chicago Now
 Exits: Groupon ($1.9B market cap), BrainTree ($800M
exit to PayPal)
 5 private unicorns including Outcome ($5B valuation)
 Texas business / academic climate similar to Chicago, funding
climate needs to evolve

3. The Hard Truths and Questions
– Fred
Wilson, Partner Union Square Ventures
-Erin Griffith, New York Times
In addition to external pressures above, founders also must deal with countless temptations to lie,
cheat, and cut corners. Here are three common questions all founders should be prepared to answer:
• Are you fully prepared for the journey? – starting a company creates stress on all your relationships,
how will these change in success and failure?
• What situations will challenge your integrity? – Will you take capital investors with questionable
backgrounds but large check books? How far will you go to paint a rosy picture to customers and
investors? How will you handle great employees with bad behavior or ethics?
• How loyal are you to your customers? – How closely do you stick to your original values? How are you
protecting data? How will you react to losing customers or revenue in the toughest times?

4. Key Factors Driving Bad Actions
Many hear “move fast
and break things” as
“ignore the rules”
Hype-driven media and
private financials make it
easy to create FOMO
Results and hyper-growth are
rewarded by life-altering
financial events

5. Small Steps, Big Wins For Universities
Legal
Human
Resources
Mentor
Programs
 Provide required training for inclusive culture including hiring practices
and sexual harassment
 Create templates for HR policies and codes of conduct
 Engage local large or growing firms for best practices
 Set baseline standards for mentor programs like references /
background checks
 Process founder / mentor meetings through internal platform,
require feedback from both parties
 Engage alumni in the field as leaders of the mentorship
community
 Templates for common company formation documents, fundraising
devices, and engagements with outside firms and human capital
 Require startups to submit major agreements for review
 MOVE QUICKLY!

6. Questions
How many of you have a startup incubator / accelerator on
campus? How many have a formal process for vetting
mentors / investors?
How many of your universities or offices have implemented
classes or training for students on ethical leadership?