EntrepreneursFounder flight: What can Milwaukee's fledgling startup scene learn...

Founder flight: What can Milwaukee's fledgling startup scene learn from entrepreneurs who have left? – Milwaukee Business Journal – Milwaukee Business Journal

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Kenneth Cheung/Jacqueline Prins
Ruben Flores-Martinez’s family has lived in Milwaukee since moving here from Mexico when he was 13. He was valedictorian at Riverside High School and studied computer science at the University of Wisconsin-Milwaukee (UWM). He launched his first tech startup in Milwaukee.
But when it came to growing that company, a data-driven restaurant discovery platform called Sugr, Flores-Martinez moved to Chicago in 2018 in search of more opportunities.
“I left because there was no support network for entrepreneurs (in Milwaukee) … particularly as a founder of color, being Latino,” Flores-Martinez said. “I tried really hard to stay in Milwaukee, I tried really hard to raise capital in Milwaukee to do the proof of concept. I just got denied left and right.”
There have been multiple efforts among local groups, corporations and organizations to boost and fund the city’s startup activity. Most recently, the Metropolitan Milwaukee Association of Commerce announced initiatives including a mentorship program that would be modeled after a successful Massachusetts Institute of Technology program. Other programs exist from gener8tor, Young Enterprising Society, the Milky Way Tech Hub and the MKE Tech Hub Coalition.
But Flores-Martinez is among at least a handful of local startup founders who have struggled to get a foothold in Milwaukee and who have subsequently left to build their businesses elsewhere. Other Milwaukee-based entrepreneurs have moved to Raleigh, N.C., Los Angeles and Atlanta. Some are still here, but are considering cities like Austin, Texas, New York City, Miami and Denver.
While many of these founders cited a lack of funding as one factor that was holding them back in Milwaukee — Wisconsin notoriously lags behind neighboring states in terms of venture capital deals — the root causes of their discontent are less tangible.
Founders said the city’s business culture is too traditional and risk-averse, and since there haven’t yet been many startup success stories, there isn’t a robust pool of mentors who can help the next generation of founders. They also said the local tech sector needs to build a stronger startup community and share startup-related opportunities more transparently.
In less than two years, Flores-Martinez has raised nearly $15 million for his second startup, a small business e-commerce platform called Cashdrop. But the only Milwaukee-based investor was Jesus Gonzalez, co-founder of the Zócalo Food Park, which was also Cashdrop’s first customer.
Flores-Martinez started Cashdrop in 2019, after moving to Chicago and sunsetting Sugr. But he continued reaching out to Milwaukee-based investors and applying to Milwaukee-area accelerator programs.
“It was like this bad ex you keep going back to,” he said.
Gonzalez was an early investor in Cashdrop, contributing $10,000 at a time when Flores-Martinez struggled to raise capital from other investors.
“That really funded the company from nothing to when we were doing hundreds of thousands of transactions a month,” Flores-Martinez said.
The tables started to turn when Flores-Martinez connected with a project manager from a Techstars accelerator program in Colorado who had heard about Cashdrop on LinkedIn. That individual introduced Flores-Martinez to other investors around the country, and Cashdrop raised a $2.7 million seed round in August 2020 led by New York City’s Harlem Capital.
“It was kind of this hyper-competitive round as soon as one guy that wasn’t from Chicago or Milwaukee connected me to the broader network because he was just appalled that nobody in my own city was supporting me,” Flores-Martinez said.
In January, Cashdrop raised another $12 million largely from coastal investors, Flores-Martinez said. He said Chicago-area investors haven’t been much more receptive than Milwaukee ones, although the Chicago early-stage venture firm M25, which has a Midwest focus, is a Cashdrop investor.
“I think the problem is not so much in the city base,” Flores-Martinez said. “I really do believe that it’s a byproduct of the culture of the Midwest as a whole.”
As frustrated as Flores-Martinez is with Milwaukee’s technology ecosystem, he said he wants it to succeed. His goal is to lead Cashdrop to a successful exit and then invest in other early-stage startups in the Midwest.
“I grew up there, my parents still live there, my siblings still live there, my friends and family are in Milwaukee,” Flores-Martinez said. “There’s still a part of me that wants to hope that Milwaukee … can be a better ecosystem for others.”
Last year, Daniel Cruz founded washbnb — a startup he described as an “automated linen closet” for short-term rental hosts — in Milwaukee. When his company got accepted into the selective Techstars accelerator program in Atlanta, he was excited to go, but said he’d return to Cream City.
Now, Cruz is staying in Atlanta for at least a few additional months to take advantage of office space provided by Techstars. He’s also contemplating a longer stay in Atlanta, in part to be near mentors and other founders he connected with through the program — many of whom are based in Atlanta.
“What’s been really helpful for me is learning and working with those founders and within an ecosystem that’s pretty mature and well developed,” Cruz said. “Having such a big mentor pool full of people that are (in Atlanta) that have been there, done that … is such a different experience than I had in Milwaukee.”
One of the biggest takeaways from his Techstars experience is that “running a startup is very, very different than running a business,” Cruz said. Through mentorship from people who understand startups well, he has made progress on plans to scale his business across the country quickly without sacrificing the quality of operations and customer service.
Cruz said he hasn’t yet made a decision about a long-term headquarters location and anticipates being “pretty back and forth” for the next few months. He owns properties in Milwaukee’s Walker’s Point neighborhood, and the company’s operations and customers are based in Milwaukee, which will continue.
But as washbnb prepares to scale to other U.S. cities, Cruz said he could envision having Milwaukee be an operations training center for new city managers, and the executive team could be in Atlanta.
“I love Milwaukee and it’s a great place to live, and I still think it’s a great place to build a business,” Cruz said. “There are things about Atlanta right now that are really exciting that make me consider, ‘Where is the energy going to be highest in the next five years?’ and ‘Where are there a lot of inflows of cash and a lot of success happening that can fuel our success?'”
Cruz also said that the diversity in Atlanta’s tech sector is another factor fueling his “temptation” toward Atlanta.
“I think that is such a huge missed opportunity for Milwaukee in general,” Cruz said. “Finding a way to connect communities and finding a way to make sure opportunities are shared across the whole population in Milwaukee is just such a glaring omission right now.”
At age 24, Erin Magennis is already a serial entrepreneur. The Milwaukee-area native has co-founded multiple companies, including the stress and anxiety management app CalmLet, community co-working app WorkAround, and the non-fungible token (NFT) company Spree Me Please Inc., her current focus.
Known as Spree, the social platform will leverage blockchain technology to let users create NFTs, buy and sell them, and share them. The Spree team, which also includes co-founders based in Chicago, has been focused on developing the technology and is seeking pre-seed investors.
“We reached out to a lot of Wisconsin investors and we’ve realized our time was probably better spent on investors from other regions, where during that meeting, I don’t have to spend two-thirds of my time explaining what an NFT is,” Magennis said. “We’ve had a lot more productive conversations with investors in Chicago, but my most productive conversations have been with coastal groups and overseas.”
NFTs are secured through blockchain technology and represent unique ownership of digital assets such as images, photos and videos. While NFTs and the underlying blockchain technology are on the leading edge of innovation, “it feels particularly not welcome in Milwaukee,” Magennis said.
At least some portion of Spree’s team plans to leave the Midwest to grow the startup in either a coastal city like Los Angeles, San Francisco, Miami or New York City, or a city such as Austin, Nashville, Tenn., Salt Lake City or Denver, Magennis said. Since Spree hinges on collaborations with artists, or NFT creators, the startup is seeking a community that’s particularly conducive to creative collaboration.
Magennis is personally interested in living and working in a house with other founders and creators, an arrangement that’s growing in popularity among Gen Z entrepreneurs and is enabled through venture-backed companies like Los Angeles-based Launch House and San Francisco-based Together Casa.
The community that Magennis is seeking could also help solve the funding challenges that local early-stage startups face, Magennis said. Many angel groups and venture firms require startups to hit certain revenue or customer benchmarks. Having a supportive community of local universities, corporations, funders and entrepreneurs could help startups get the early traction they need to prove in order to secure funding, Magennis said.
Still, Magennis envisions staying connected to Milwaukee.
“I have a fairly large network here in Milwaukee and I’m relatively young, so I need to leverage that credibility as much as I can,” Magennis said. “I’ll probably always maintain connections to Milwaukee in some capacity, and it might look more like a part-time focus in other locations as well… there are a lot of boxes that go unchecked in Milwaukee.
Christoper Perceptions was born and raised in Milwaukee. But this summer, he moved his family and business to the Raleigh, N.C. area for personal reasons and in search of more opportunities to build his blockchain startup PerceptForm Inc.
PerceptForm is aiming to create an ecosystem of cryptocurrency and blockchain products and services that introduce communities to those technologies. Its products and services focus on education, finance, art and real estate.
In just a few months, Perceptions said he’s found resources and opportunities in North Carolina that he didn’t have in Milwaukee. For instance, he said the local chamber of commerce was helpful with making introductions even before he became a member.
“I have a heart for (Milwaukee) so I’m not a person who’s going to bash Milwaukee and say, ‘I’m going to be successful and I want to plant my flag and act like I came from another place.'” Perceptions said. “But what I do see is that North Carolina provides an aspect to grow and they’re very helpful here. If people know of certain things, they’re not going to see who you know — no politics.”
Living in North Carolina has been particularly conducive to one of PerceptForm’s latest projects, a tokenized Bitcoin mining operation called PerceptMine, Perceptions said. He’s seeking land where he can build a facility to create bitcoins, which requires a complex computerized process. He aims to make the facility accessible and open to the public for educational purposes.
PerceptForm also intends to tokenize the mining operation, or create fractional shares that investors can purchase. Bitcoin mining can be incredibly lucrative, and Perceptions wants to leverage that to create and spread wealth, he said.
Perceptions is working with Milwaukee-based real estate developer Oby Nwabuzor on the project. But in general, he said he “hit a lot of brick walls” on the project in Milwaukee and there was less open land available. In North Carolina, he said developers have been open to the innovative concept and helpful with finding land for it.
“(North Carolina is) very incubating, just as a state,” Perceptions said. “I’m not trying to make this seem like paradise because every state has their issues, but by and large, coming from Wisconsin, it’s almost night and day. Milwaukee could be the city of opportunity if opportunity was provided in a more freeing manner without restrictions.
featuring Charlie Evans, CEO of the Federal Reserve Bank of Chicago
Nominations for our 2022 40 Under 40 awards are open. We know the Milwaukee area is filled with young talent — now it’s time to let everyone know who they are. Nominate your top candidate today.
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