Xconomist of the Week: Joe Chung Says Redstar Ventures Is Creating Companies for “the TechCrunch Crowd’s Mothers”
“There’s sort of an infinite number of good ways to start a company,” says Xconomist Joe Chung. “One of the fundamental rules in startups is that there really aren’t any rules.”
But the serial entrepreneur has some pretty specific plans for how his new creation will pop out startups. That would be Cambridge, MA-based Redstar Ventures, which has been described by its other co-founder, Jeet Singh, as a “company that builds companies.” The pair would know a bit about putting together companies. Both were co-founders of the Cambridge, MA-based e-commerce software company Art Technology Group, which went public in 1999 and sold to Oracle last year for $1 billion. Chung went on to to start another shopping tech startup, Allurent, which didn’t see the success that ATG did, while Singh worked on his rock music career.
But back to Redstar, which was founded last year. There’s no shortage of entities that are specifically in the business of supporting other tech startups (read here for my colleague Wade’s thoughts about the incubator bubble), but Redstar doesn’t align itself with the heavily consumer Web-focused, three-month-long accelerator programs such as Y Combinator and TechStars, and their mentorship models. Instead, it’s using its team to research market opportunities for new companies, and then match them with the right entrepreneurs, using all its own internal funding.
Read below for some takeaways from my conversation with Chung on how they’re going about things at Redstar. (And check out Chung’s Xconomist posts on how to and how not to start companies.)
—Chung and his team take pride in their “maturity.”
“One good thing to do when you start any kind of venture is to start things that are biased in your favor, that play to your strengths,” Chung says. “Because we’re old, we’ve built a really strong network. Hopefully we’ll bring commercial relationships and partnerships to the table right from the beginning, and revenue and customers from the initial business proposition. We’re looking for companies in spaces where we already know or identify consumer needs or business needs.”
—We won’t be seeing any “solomo” companies being created at Redstar. No, that’s not a typo, but techie jargon for companies working in the social, local, and mobile sector, Chung says.
“We’re doing stuff that is targeted at the TechCrunch crowd’s mothers,” he says. “They have all the money and are deeply underserved by the Internet.”
Considering this and the Redstar team’s past experience, it might not come as a surprise that the first company it has put together is focusing on social e-commerce technology. (He didn’t reveal any further details about the company, like its name.) The team wanted to kick off with what it’s familiar with, but definitely plans to expand its reach for successive creations. “We don’t want to be typecast by the first company,” Chung says. “We want to create more of a breadth. One shouldn’t expect just a stream of companies like our first one.”
One commonality you can expect to see among all of them is focusing on making money from the beginning, rather than building up a user base and figuring out revenue models later, Chung says. “You can typically divide startups into two classes, ones that are more pie in the sky—that don’t burden themselves with the need to have customers, revenue from the beginning. Then there are the ones that choose to burden themselves [with all that]. We’re unlikely to build the next Facebook—well, you never know. We like to think that our companies have a little more going for them from the get-go and will scale more quickly and have distribution with the technology from the beginning.”
—-Redstar is putting together some serious infrastructure so entrepreneurs can focus strictly on developing ideas and technology. The firm offers finance and accounting services, as well as designers. “I’ve seen a lot of startups struggle with that piece at the beginning. They pay serious dollar they don’t have for top design,” Chung says. “Our design director was our first hire, to help all of the operating companies think through the prototyping. We see that as a big distinction.”
Since Chung touts his maturity and was at the frontlines during the first tech bubble, I couldn’t help but ask: Are we seeing another tech bubble? His answer is yes and no.
“If you’re talking about a valuation bubble, yeah, it’s pretty obvious. Valuations in certain areas have just gotten kind of screwy—which doesn’t mean that even highly valued companies may not end up justifying those values. It just seems likely that we’ll see some sort of significant valuation correction.”
“But a lot of times people look at the bubble only from a paper valuation perspective,” he adds. “Are we creating new technologies that will massively change people’s lives, change the way people work, and significantly shift productivity? The answer is absolutely yes, and the pace of that has only been accelerated by the economy.”
“I don’t think there’s a tech bubble when you look at the actual technology itself,” Chung concludes. “If you’re looking purely at, ‘Is it worth investing in new technology?’, I think the answer is absolutely yes.”