Southbox cuts waste from the VC space | Crain's Philadelphia

Southbox cuts waste from the VC space

After several years in the venture capital game, Jon Gosier saw a pattern that needed fixing.

“There’s a lot of waste in the way venture capitalists spend money,” he said. “And that’s because we invest in companies, but don’t allow them to share resources.”

So in February, he founded Southbox, a Philadelphia-based startup incubator and fund that launched with eight companies in its portfolio, many of which are in the medical and entertainment fields.

Through Southbox, startups have access to software developers, lawyers and networks for generating sales, among other resources. Local startups work out of its facility in South Philadelphia rent-free —and as for the fine print? There isn’t any, Gosier says.

“This type of model is usually referred to as a ‘venture builder’ or a ‘startup studio,’ though it usually involves charging the companies a lot of money for services or taking a large amount of equity. We don’t do either,” Gosier said. “We believe that we can fit in a way that’s fair for both us and the company.”

Gosier knows a little something about the tech industry; he’s the founder of audience measurement and monetization company AuDigent, which helps brands in the music and entertainment industries partner with influencers to better target consumers. He’s also led data projects as a consultant to Google, FEMA, The World Bank and the U.S. Department of State.

Crain’s Philadelphia chatted with Gosier to learn more about his background and plans for Southbox.

Q: What was the genesis of Southbox?

Southbox was born out of an experience I had at a previous business. When you are an investor in tech startups, to a degree, you operate in a particular way, which is what I had been doing over the past three years. I was putting money into companies that were all at the early stages, where they were trying to get their first customers, build their product and make it sure it worked, and all that other fun stuff that happens when you are trying to start something from nothing.

The observation that I made towards the end of last year happened when I was working with a much larger fund that had probably 300 companies in its portfolio. As I was looking at all the companies that didn’t make it, I noticed that they all seemed to fail for the same reasons. They didn’t have the ability to share resources beyond capital, and were sort of left on their own to find their first customers, hire their first software developers — all of those early stage problems.

If you’re a VC, and are effectively funding all of these companies to solve for all the same problems, it’s way cheaper for you to allow the companies to share resources and collaborate with one another. That inspired me to start Southbox with my own capital.

Q: How is Southbox different from other venture capital funds?

Our model is different from most funds in that we allow companies to work out of our space on South Street rent-free, share software developers and lead generation for sales, and collaborate on the same deals. Ultimately, we are trying to help them eliminate some of the costs of starting a new company. If we do a good job making sure the company is successful, it’s a win-win.

Q: How much does Southbox typically invest in a company?

The median is $25,000.

Q: Which of Southbox’s portfolio startups are you particularly excited about?

Red Queen Gaming is an interesting local video game company because they make tools that help people play video games better. It’s all legal and sanctioned, so it’s not designed to help you cheat. It helps more with calculations and automating the game. Another startup we’re working with, Wounds A.I., improves wound care by using computer vision and algorithms to detect the wound’s features, and factors in patient records. And Quantified Culture is exciting too; it’s a data company that supports talent managers and talent agencies. Let’s say, for example, you are a manager of a bunch of music artists, and you’re negotiating with brands or a concert venue about having this person appear. How do you determine the price? Quantified Culture uses data to take some of the guesswork out of that and provides for best practices. So they work with a lot of entertainers and athletes.

Q: What’s your background, and how did that lead to venture capitalism?

I didn’t originally plan on being in tech, and definitely not venture capital. I went to art school because I wanted to make film. While I was in school, I took a couple of courses in graphic design that really got me excited about what you could do with [the web programming language] HTML to build websites and design things. It was an exciting time for the tech space, and I was watching all these companies start to grow and get a lot of attention. In 2006, after a brief stint in the entertainment industry, I thought, “Instead of moonlighting as a tech person and doing it for my friends as a hobby, I should try to launch a company.” So I did, starting with a freelance web development shop. But as I learned more about how the tech world actually worked and why so many software companies just made one product that they sold over and over again to lots of different customers, I decided I wanted to try that.

So I created a products company, it started to get some traction, and then I just kept doing it. That’s the quickest way to summarize my path. There’s a lot of nuance in there, but the short of it is that I embraced the transition from the world that I knew into the tech world — not because I was particularly good at it at the time, but because I wanted to be. Over time, I got better and better at not only the tech part, but also at starting and scaling these companies

Q: Is there a particular area of tech you gravitate towards?

Definitely. I’m big on analytics — data science, data analytics and visualization — which is kind of what I’ve been focused on my entire career.

Q: What attracts you to that?

I’m not entirely sure, but I think the original attraction to data was through visualization. I’m a very visual person, and was never good at math. When I discovered data visualization in college, it was the first time I could actually understand mathematical concepts that I didn’t get in high school, where math wasn’t taught in a very visual way.

Q: On what do you base your investment decisions?

There are two factors I base my investment decisions on. Sometimes, I’ll meet someone who has all of the qualities of a good entrepreneur, and they’ll make me feel just as passionate about their project as they are. The other way that I look at it is from the market side; a lot of these companies are solving very niche problems for a very specific type of customer in a particular industry. Not everything needs to be a wild moon shot. Sometimes you can solve these really tiny problems and build really successful companies from that. They may not be $10 billion companies, but more like $100 million companies that solve these tiny little problems.

Q: Why did you choose to set up shop in South Philly?

At Southbox, we believe that technology has to become more self-aware. There’s a lot of talk about inclusion and diversity in the tech world; I think it starts by exposing people to what’s possible early on. I chose to open Southbox in South Philly because you don’t see a lot of tech firms here. If we open another location, we’ll probably go even further south to make sure that, at the very least, the companies we’re helping to build can serve as an example for people who wouldn’t otherwise see a tech company in their backyard.

I just think back to what it was like when I was a kid: I grew up in Atlanta, Ga., before moving to D.C., and was definitely a minority in the tech world, being a black male. It’s not common in the tech world, and even less common in the venture capital world. For me, it’s less about community outreach and more about showing people examples of what’s possible, and people who look like them who are in the space. Then, all of a sudden, they ask themselves whether they can do it too, and figure out how to get involved. I find that’s better than trying to force things on people.   

It helps particularly when you’re younger. I didn’t even know the tech industry existed until I was probably 20. And I would think, “What would I have done if I knew about this when I was ten?” I might have had a ten-year head start. That’s how you end up with someone like Mark Zuckerberg, who grew up in a culture of innovation, technology and business. Some of it is exposure; some of the best ideas come from people who just kind of accidentally find their way to a space or solve a problem, but what they have that inspires them to solve that problem is exposure to the problem.

Q: What’s a valuable piece of advice you would give to venture capitalists that are just starting out?

You don’t necessarily need to relocate to a market to make your company successful. I originally moved to Philadelphia for a different startup I was working on, at a time when I was much younger and not yet experienced in this whole tech world. But I ended up moving from Washington, D.C., where our customer base was, to set up shop in Philadelphia, which is where the investors were. I moved for the investors, when I should have stayed for the customers, because I ended up spending all of my time on the train so that I could work with our D.C.-based customers and close contracts. We would have spent so much less, had I stayed in D.C. It ended up working out for me, of course, because if I hadn’t come to Philly, I wouldn’t have gone on to do all these other things that I’m pretty happy with. But at the time, it was definitely challenging to be physically based here and mentally based somewhere else.

What I tell companies now is that you have to find the investors that are right for your company, but you shouldn’t feel like you are the only one auditioning. They are just as much auditioning for you as you are for them. If the investor doesn’t qualify, you need to move on. Don’t try to change your company to meet their standards.

May 9, 2017 - 7:16pm