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

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.
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.