Detroit Venture invests in online office supply startup
Read the original article on CrainsDetroit.com
By Tom Henderson
Detroit Venture Partners LLC is expected to announce today that it has led
an investment round of $750,000 in Chalkfly, a Detroit-based startup that
sells office supplies online.
The company, which is differentiating itself among other office supply
sellers with a program to give 5 percent rebates to teachers and an
easy-to-use website, says it is on track for $2 million in revenue this
year.
The company launched its website in July. It has six employees now and
plans to add at least 12 this year in sales, customer service and
engineering.
Joining in the investment round were Bizdom, the Detroit-based business
accelerator that Chalkfly went through last summer; Chicago-based Griffon
Ventures; Start Garden, a Grand Rapids-based startup fund founded by Rick
DeVos; and Detroit-based Ludlow Ventures LLC, which earlier had provided
some seed funding.
Chalkfly was co-founded by two brothers, Andrew and Ryan Landau, and is
the latest example of Michigan natives who’ve had success elsewhere in the
business world but wanted to return home and be part of the growing
entrepreneurial scene in downtown Detroit.
The brothers said they settled on office supplies for this venture because
it was a big market dominated by what they described an unimaginative big
players like Office Depot, OfficeMax and Staples with boring websites from
which they thought they could take business through marketing based on
social media.
“You can make money by being hyper-focused on one vertical if you
understand your customers really well,” said Andrew Landau.
Chalkfly went through the Bizdom accelerator program in June, July and
August. The website was launched in July. It offers 30,000 products and
free next-day delivery to 90 percent of the country, with a one-year,
no-questions-asked return policy.
A key marketing tool allows customers to choose a teacher to receive their
5 percent rebate on purchases. The teacher, in turn, can get free or
discounted supplies for his or her classroom.
Vidhi Bamzai is a Teach for America fourth-grade teacher at Nolan
Elementary and Middle School on Detroit’s northeast side. She met the
Landaus at an event Teach for America co-sponsored last spring.
Bamzai said the website is easy to navigate and user friendly, but the
main attraction is the rebates that accumulate to her when her friends and
family buy things.
“My school provides the basics, but I’m a big fan of things that amp kids
up,” she said. Those are, she said, such things as electric pencil
sharpeners and white boards for each student that she has been able to
buy.
Josh Linkner, Detroit Venture Partners’ managing partner, said when he
first heard about Chalkfly, he wondered how they would make such a
commodity business interesting. But he said several things convinced him,
including the venture capital mantra that one bets on the jockey and not
the horse, and that the Landau brothers were jockeys he ultimately wanted
to bet on.
“These are two guys with the right mix of grit and scrappiness,” he said.
“At the same time, they’re open-minded and coachable, which is a good
combination.”
Linkner said the office supply market is so big — $30 billion annually in
the U.S. — that an upstart without bricks-and-mortar overhead to worry
about doesn’t need to capture much to make money.
Andrew Landau was a 2007 political science graduate of the University of
Michigan who was working in Chicago as an account executive for Google
Inc. Ryan Landau was a 2009 graduate in supply chain management from
Michigan State University who was working for IBM Corp.’s federal
customers in Washington.
Adrian Fortino, who vetted Chalkfly for a possible investment as principal
of the $5 million Detroit-based First Step Fund, said he was impressed by
the Landaus but had reservations about the market, both for the
traditional low margins in office supplies and for the fierce competition
from big national brands. As it turned out, Chalkfly didn’t need the First
Step funding.
“They have been able to get some traction, and the social bent on giving
something back to teachers is nice, but you have to worry about how much
opportunity there will be to scale up,” Fortino said.