When should a startup start worrying about making money?

from this week’s Crain’s Chicago Business

By Lisa Leiter March 12, 2012

Chicago’s startup revolution is in full swing. And that is causing some concern about whether the city will see déjà vu all over again from the dot-com boom and bust at the end of the last century.

Last year, Chicago companies raised $654.1 million in venture capital, according to Dow Jones VentureSource, more than any year since the peak of the dot-com bubble in 2000, when nearly $1.8 billion was raised. The number of investments: 70, the most since 2001.

Whether history will repeat itself in another boom-and-bust cycle is anyone’s guess, but—Groupon Inc.’s famous profitability challenges aside—there are key differences between the dot-com glory days and now.

Chicago investors, already more conservative than their coastal counterparts, are asking about business plans, revenue and profits earlier and in more detail than ever before.

Some Chicago entrepreneurs are responding to those investor demands, as evidenced by a presentation at one of last summer’s key startup events, incubator Excelerate Labs’ Demo Day. Food Genius co-founder Justin Massa started his pitch to the audience with this: “All right, you’re saying to yourself, ‘Food Genius, this is kind of cool. I get it. Dishes. But how in the world is it going to make money?’ “

It’s a question Mr. Massa, 33, started answering during Excelerate’s summer program. Food Genius collects data on restaurant dishes, data he plans to repackage and sell to the grocery and restaurant industry. Mr. Massa, unlike some other early-stage entrepreneurs, says developing a revenue model before pitching investors was important to him. He initially started the process of raising $700,000 to $1 million at the end of the summer but says he pulled back last fall to refine his model.

“When I do go back out to raise money a few months from now, we will have the potential to be a company that generates money, and that gives us the opportunity to raise money from the right partners for us and give us a great valuation,” he says.

Read the full article: http://www.chicagobusiness.com/article/20120310/ISSUE02/303109994/when-should-a-startup-start-worrying-about-making-money#ixzz1ovZwPUm2

Filed under: Company Blog Post,Excelerate in the News — March 12, 2012