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| Fred Coulson, Five Elms Capital |
I started Five Elms Capital with the goal of providing capital and strategic support to entrepreneurs whose businesses are experiencing exponential growth. Since 2006, we have made thirteen investments, six with a presence in Kansas City.
While most growth-oriented investors focus on coastal technology innovation, we believe a huge, yet more subtle, opportunity exists for us to partner with Midwestern service-based businesses that are users of both technology and the Internet to change the way services are sold and delivered, resulting in accelerated growth and often industry disruption.
Why Services?
Services are a huge part of the United States economy, representing 47% of GDP compared to technology which accounts for 6% of GDP. There is a tremendous opportunity for service-based businesses to use technology and the internet to improve their value proposition to consumers, lower infrastructure costs and accelerate sales. Investing in service-based businesses has lower risk given the pre-existence of the industries yet high growth given capital efficiency and scalability of their business models.
Why the Midwest?
Talent. 4 of Forbes’ 10 “smartest cities” in the U.S. are located in the Midwest. 4 of the top 8 strongest metro economies are located in the Midwest. Kansas City has more engineers per capita than Boston, New York, and San Francisco. Kansas City was recently cited by StartUpDigest.com as the third fastest growing startup community in the world.
Lower Cost. Services have a labor requirement. We believe the Midwest’s highly-educated labor pool, low cost of doing business, and “right to work” mentality positions us to take advantage of this shift in power and support industry experts in their use of technology to solve problems and even disrupt entire industries.
Shortage of Capital, Not Opportunity. The Midwest represents 25% of US GDP, yet receives only 7% of U.S. venture capital (compared to California which represents 13% of GDP and receives 50% of venture capital).
Why Now?
Technology Has Been Democratized. Starting a company is cheaper than ever, allowing those with an idea to start a company, bootstrap it to profitability, and proceed to disrupt antiquated industries. As recently as ten years ago, access to technology was limited to larger companies who had the capital to invest in racks of servers and fleets of programmers. In September, Fortune Magazine compared the cost to start a business today vs. ten years ago: given technology advances and the emergence of social media, it costs less than $40,000 to start the same company that cost more than $1 million to start 10 years ago:
Source: September 6, 2010 FORTUNE: “Building a Faster, Cheaper Startup”2000 | 2010 | |
Incorporation | $1,500 | $250 |
Branding | 20,000 | 7,000 |
Marketing | 75,000 | 1,000 |
Employee Costs | 792,000 | 19,800 |
Rent | 175,000 | 9,672 |
$1,063,500 | $37,722 | |
*Industry* Knowledge is Now More Important than *Technical* Knowledge. Given the democratization of technology, the balance of entrepreneurial power has shifted to include those with deep industry backgrounds as well as those with deep technical backgrounds.
Our six portfolio companies in Kansas City are great examples:
BuildMyMove is the first truly "asset light" residential moving company and the first to provide real-time, binding quotes online. BuildMyMove utilizes its network of prequalified, fully-licensed and insured movers to provide low cost, highly-secure moving services to consumers across the United States. The company’s technology manages its network of moving providers and gives consumers online access to photos of their goods throughout the move process.
Catapult International provides cloud-based rate management software and services to the international shipping industry. The company manages its clients’ ocean, air, and trucking contracts and assists with quoting and decision-making by using its decision-matrix in a similar manner to consumer travel sites.
Mission Peak Capital is an independent capital markets company dedicated to providing transparency, risk solutions, and investment guidance to holders of RMBS and CMBS securities. Mission Peak has an analytical infrastructure and is data-driven in its analysis of highly-structured securities.
SelectQuote is a pioneer in direct response marketing via TV, radio, and the Internet to sell term life insurance. The company’s technology ties directly into the underwriting systems of more than fourteen insurance carriers to provide real-time transparency and comparison shopping for consumers. SelectQuote sells more than 70,000 term life policies each year.
Smart Warehousing is a technology-enabled warehousing and logistics firm managing approximately 2 million square feet of warehouse space nationwide. Using internally developed, cloud-based software in conjunction with its warehouse management services, Smart Warehousing gives small and medium-sized businesses “Walmart-like” visibility into their inventory and replenishment needs.
The entire Five Elms team is excited to be part of Think Big Kansas City. Please look for us during the event.
Written by Fred Coulson. Fred Coulson is the founder of Five Elms Capital, a venture capital firm focused on providing growth capital to high-growth businesses. Prior to founding Kansas City-based Five Elms Capital, Fred was a senior investment professional with TH Lee Putnam Ventures, a $1.1 billion growth equity firm in New York, and an investment banker with Morgan Stanley, working in mergers & acquisitions, media banking, and firm management in Morgan Stanley’s New York offices. Fred began his career in asset management with Citibank in London. He holds a B.S. in Business Administration from the University of Kansas, where he currently serves on the Finance Board of Advisors for the School of Business.
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