The conference room where the Pritzker group hosts their meetings is breathtaking. A huge, mahogany table seemingly engulfs the room; a sturdy, classy setting for business, or any congregation of people in general. Large, paneled windows provided a view of the Chicago skyline extending all the way to Lake Michigan; its manner of overlooking the city could have symbolized the Pritzker group as a whole, caring for its home, helping the city of Broad Shoulders towards innovation.
The ETHS Investment Club, after riding elevators that had the propensity to pop eardrums, were at once in awe of the marvelous room. Members envisioned themselves as CEO’s, and a photoshoot was taken. Finally, as Lee Rosenberg, the chief of Mr. Pritzker’s staff and Chairman of AIPAC, affectionately known as, “Rosie”, entered the room, the Investment Club group settled down, and was ready to talk (and learn) business.
Rosie gave the group his interesting background, having worked in the digital music business and other tech sectors before finding his niche with Mr. Pritzker. Towards the end of Rosie’s talk, Pritzker entered the room. Mr. Pritzker began by detailing the role his father, Donald Pritzker, had on his life: his father had a business plan based on airport motels, because he had noticed that they seemed to always operate at 100% occupancy, which is unheard of for hotels. J.B.’s mother decorated the rooms; it was a family affair. He regaled the Investment Club by telling them how his dad would use his children as “props” during business pitches to buy hotels. This childhood, steeped in building a business, which eventually became Hyatt, convinced J.B. that he wanted to one day own and operate his own business.
Next, Pritzker illuminated the process of a venture capitalist. He stressed the importance of entering at the right time. One of his examples was the idea of an online university. In the early stages of the internet, an online education seemed like a strange proposition, geared towards mothers who worked, or people who couldn’t get to school. However, the market turned out to be an excellent one; nowadays, online courses are almost ubiquitous.
Pritzker laid out the decision-making process that his Pritzker group goes through, and how tend to turn out. Out of ten companies, he said, venture capitalism usually follows a similar pattern. Five of those ten companies are going to lose money. Two of those ten companies are going to make the money back, but not deliver profits. That’s seven companies out of ten that aren’t going to provide gains. Two of the ten companies will give a return of three to six times the investment; that’s a strong performance, but not necessary a lot when considering the five companies that lose you money. Therefore, one of the ten has to be a grand slam; Pritzker talked a little bit faster, more excitedly when he spoke of these companies. Active Network, eCollege; grand slams were the crème de la crème of venture capitalism, the diamonds in the rough which make the game fun.
How does one go about finding these grand slams? Mr. Pritzker answered this question, further elucidating his perspective as an investor. Firstly, he looks for a great entrepreneur. Someone who has a really hard drive, who basically isn’t going to sleep because they wanted their company to succeed with such a passion. It’s not necessarily about the idea; he’s seen a number of companies with an amazing idea, but they aren’t headed by a great entrepreneur. Secondly, an entrepreneur must have the humility to say, “I don’t know.” No one knows everything; entrepreneurs who don’t possess this humility aren’t willing to deal with their mistakes, can’t learn from them, and ultimately end up failing. Mr. Pritzker shared that he has likely seen 10,000 companies, but he’s only invested in around 140 of them. It’s about those two aforementioned things, and answering the question, “What pain is the company alleviating in the market, and how deep is the pain?”
10,000 companies is a mind-boggling figure, which prompted a group member to ask Mr. Pritzker about the process of selecting companies. Luckily, he has a team that sifts through all the prospective companies at a primary level, so the ones that reach Mr. Pritzker are considered the best of the bunch. Mr. Pritzker always does his homework; before encountering a pitch from an entrepreneur, he does research, to make sure he understands the size of the market and the potential importance of the product.
The conversation moved to 1871, where the Investment Club had been only an hour before. He knew the basics of what he wanted the space to achieve (a collaborative environment that would help foster the growth of the startup scene in Chicago), and he also wanted it to be a hotspot for venture capitalists: a “grocery store” so to speak, with investors able to roam the halls and select companies to invest in. Pritzker described the cool architecture of the incubator, saying that he found an architecture firm called Gensler who had done amazing work in similar type of spaces. The entire room laughed, as Pritzker admitted, “I don’t know what is cool. I’ve never been cool.”
Following the description of the architecture, the question was asked again: Could Chicago become the next Silicon Valley? What were its limitations and strengths? etc. Pritzker happily said that Chicago won’t be the next Silicon Valley, and that they shouldn’t want to be. Chicago is the fastest growing tech sector city in the country, and it is due to the collaborative and inclusive nature of its business environment. Businesspeople in other cities tend to not communicate with other people outside of their industry, while Chicago tends to be more welcoming of new ideas and companies.
Pritzker was asked to remark on some of the common pitfalls in becoming a great entrepreneur.He emphasized the importance of having great drive, learning from mistakes, and being able to admit when you are wrong or don’t know something. He warned against companies, who after raising a large sum of capital, suddenly thought themselves to be rich. Don’t go buy Bulls tickets or fancy office chairs. The best entrepreneurs spend every minute and every dollar trying to improve their companies: by hiring better people or retouching designs and products. If one wants to start a truly successful business (and have an easier time getting investors) they should be willing to work hard, be passionate about their company, spend money frugally, and be willing to make tremendous sacrifices for their business.
Thanks so much to J.B. Pritzker and Lee Rosenberg for speaking with us. This post was written by Ben Osterlund. Edits by Noah Silverman. Photos and video by Benjamin Silverman.