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Why venture capitalists from both coasts bet on a Madison art dealer

Wisconsin companies thirsty for investment money from the coasts can stop making excuses. Even the lack of direct flights to Madison didn't stop firms on both coasts from investing $7 million in Guild, an art dealer and directory that reaches out to artists and buyers across the country from dead center of the fly-over zone.

One firm had no history of investing in the Midwest at all.

Neither offices nor cubicles.
At Guild's offices on the east side of Madison, the high ceiling is made for a manufacturing operation but perfect for an airy office environment. Located in a section of the former Greyhound bus terminal next door to industrial firms, Guild has carved out a lush space that is neither offices nor cubicles, sectioning off distinct parts of one large room with art-covered bookshelves.

"You can almost see when a company is losing that edge when people get too far apart and too quiet," said Mike Baum, president of Guild. He runs the business with founder and CEO Toni Sikes.

It's a company where all 35 employees, with about 10 more on the way, are close to one another and share in the feeling of success when a ringing bell signals an especially large sale through Guild's print catalog or Web site.
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Already a national company, Guild pursued expansion, not early-stage, capital. The company is running a successful operation, having survived what Baum called a "baptism of fire" during the mood swings of the dot-com era. Guild was, after all, running a dot-com company then, even though the roots of the business were in print catalogs. That part of the business could have followed the crowd – that is, tanked – if it had not learned certain lessons.

"It's got to be measureable, it's got to be provable before you spend much money on it," Baum said. "But the ideal of the dot-com era was right: the Internet is a great way to reach people."

Why Guild?

Some art pieces are warehoused locally.
Guild has been through its share of investment deals. Sikes, who ran Guild as a print-catalog company since 1985, started the Web operation Guild.com as the dot-com boom was coming to a head, raising $40 million from investors only to sell a couple years later for a third of that to Ashford.com. After the crash, Sikes bought Guild.com back.

Now a chain of connections has led Guild to San Francisco Equity Partners and the New York-based Dolphin Equity Partners. Through Silicon Valley Bank, which Sikes had used as a financial institution, she was passed along to various investors until the right match was made.

Scott Potter, managing director of San Francisco Equity Partners, will be chairman of Guild's board of directors, with another investor from each investment firm also taking seats. He's been to Madison several times in connection with the deal, flying in through Chicago. The next official board meeting was scheduled in New York, where Sikes spends a lot of time.

"I think most of the really savvy [investors] realize that most of the country is a fly-over zone," Baum said.

Potter said this was his firm's first deal in the Midwest, though he's invested in one company in Dallas.

"The Madison-based nature of this business is a real asset," Potter said. He said it's an affordable place to do business. And it's not like Guild needs to be right next door – as a direct marketer, it works with people all over the country by phone and the Internet.

Also attractive were Guild's established business model and management team. "There's no major strategic shift that needs to happen," Potter said.

Big catalog, small staff

As a company that sells only works made personally by artists, Guild may seem like it's a step behind when it comes to scaling up operations. "You can't just order another container load from China," Baum said. "But there are some flexibilities." Some pieces of Guild's game plan:

• Guild carefully selects artists with a jurying process, looking not only at their art but at their professionalism and ability to operate as a business. Guild accepts about 10 percent of artists who apply, and Sikes personally approves them.

• Glass is about 25 percent of Guild's sales. "Glass pieces by their nature are made to be produced again and again and again," Baum said.

• A private intranet complements Guild's public Web site, allowing artists to track open orders, print shipping labels and confirm shipments. As much as possible goes through the Web site – human intervention is needed only for special cases, and even then Guild's employees are trained to use the same Web interfaces that customers and artists use.

• Guild has been increasing the average amount of individual sales, in part by creatively presenting items in both the catalog and the Web site together in home settings, rather than individually.

Now that the worst of the dot-com era is fading into history, Guild stands as one of the companies who got it right. If anything, it proves that however ridiculous the extravagances of the time were, they were all attracted to something real:

"You could not have a business like this without the way the web site works," Baum said.

Comments

Michael Brandl responded 8 years ago: #1

This is an excellent example of the opportunities that exist to bring private equity funds to Wisconsin. Private equity firms have funds that they are looking to invest. But in the “traditional” markets (Silicon Valley, Boston, etc.) competition for good deals is extremely fierce and prices are being bid upward. So many PE firms are looking for investments in the “fly over” zones like Wisconsin. Timing (and connections) are everything in these markets however. A few good success stories like Guild will go a long way to attracting more capital to Wisconsin.

Clara Hurd Nydam responded 8 years ago: #2

Toni and Mike have put together an excellent team, not only at home, but also through their banking relationships. Thanks WTN for an excellent portrayal of their strategy. I hope that we can learn more from them.

Steve Dinehart responded 8 years ago: #3

The bi-coastal VC problem is very real. The Guild with its proven concept and management is a good fit for PE funds seeking growth capital opportunties. However for VC investment in early-stage Wisconsin companies (especially outside of the bio-tech and medical markets;) distance remains a major barrier. You would think in the age of the virtual office that this barrier would break. But in practice most VCs prefer to visit investments across town rather than across the country. Time is everyone's most scarce resource. The solution is that Wisconsin start-ups must present themselves as better opportunities that are worth the time.

Dave McGuire responded 8 years ago: #4

Having worked for Guild.com during the 'dot com' era, I am happy to see Guild alive, and doing well. Toni made alot of hard decisions because she believed in her vision, and had the stamina to stick with it, and it is finally paying off - well done!

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