Matt McCall Courtesy of Matt McCall

MidwestBusiness.com: As a managing director at Draper Fisher Jurvetson (DFJ) and a partner at Portage Venture Partners, you led the first institutional investment in Chicago-based FeedBurner. How did you get to know the company? What motivated your investment?
Matt McCall: We have known FeedBurner CEO Dick Costolo and his team for more than eight years. We were introduced to him on his first company (DKA) by a mutual friend.

We were evaluating investing in his second start-up (Spyonit) when it sold to 724 Solutions. Costolo also helped out one or two of our companies with introductions to strategic partners subsequent to the sale (so we owed him!).

When they approached us about FeedBurner, we liked what they were doing, saw they had a competitive lead and had accomplished a lot on very little capital. The pieces came together and we were fortunate enough be part of it.

MidwestBusiness.com: FeedBurner was sold to Google in June. While the founding team currently works for Google, they seem to have a knack for entrepreneurial activities. Down the road, can you see yourself again investing in a venture funded by that group?
MM: The company attracted a lot of star players who ranged from top programmers to great operations guys. I think there will be quite a few start-ups that come out of this team. They are innovative, capital efficient and strategically minded. We would look very seriously at any and all such opportunities. It would be a lot of fun to have another successful run or two with them.

MidwestBusiness.com: What have you focused on since that transaction?
MM: We have been working a lot on improving our capabilities as a firm. While we believe there is significant opportunity here in the Midwest, it requires a lot of resources and visibility to make deals work. We have been expanding our advisory board and investment area as well as working on a variety of projects to better tie our Midwest efforts into the other DFJ offices worldwide.

We need to become more efficient at finding the right domain resources at the right time for both identifying and doing due diligence on new deals as well as assisting portfolio companies. While we have made good progress, we have a long way to go.

There is no doubt we are going through another bubble and there are pockets of excess investment. The good news is it takes less money to see if you have something and the premium is placed on execution. This creates a fantastic Darwinian environment where a lot of approaches can be tried and the best will rise to the top. – Venture capitalist Matt McCall

MidwestBusiness.com: What was the last new deal funded by you and/or your firm?
MM: We invested in TicketsNow in 2006 and have spent a fair amount of time with the company. The secondary ticket market is on a tear these days and the field is wide open for them.

We have helped them raise an additional $34 million, recruit an array of senior managers and tighten the business model. There are some really talented people there and it has been another great run so far.

MidwestBusiness.com: In 2006, you began to author a blog. Please explain how writing VC Confidential has influenced (if at all) your investment process.
MM: Writing a blog is like writing an online diary. It forces you to codify many of the things you informally have in your head or are reflected in your day-to-day activities. It gives me a chance to reconsider the basic tenets I have taken as gospel over the years and to capture them in a much more structured manner.

It definitely makes you think more about how you can really add value to companies beyond just money as well as the appropriate behavior and level of involvement with companies. The hard part is listening to my own advice.

MidwestBusiness.com: In 2007, the health of early stage Internet and technology companies seems to be stronger than at any time since the dot-com boom of the late 1990s. How do you think today’s environment compares and contrasts to that time period?
MM: The first wave of the Internet was around infrastructure (“the laying of the tracks”). This led to overcapacity, expensive infrastructure and the eventual commoditization of most infrastructure segments. While the bloodbath was ugly, the resulting platforms created a terrific foundation upon which to launch this current phase around applications and services.

There is no doubt we are going through another bubble and there are pockets of excess investment (social networks, ad networks, etc). The good news is it takes less money to see if you have something and the premium is placed on execution.

This creates a fantastic Darwinian environment where a lot of approaches can be tried and the best will rise to the top (usually based on superior user experience). This is not enjoyable for any single company fighting in the trenches and is great for the end consumer who has a variety of choices and new applications.

Unfortunately, most of these new efforts are supported by ads. When the current business cycle ends, advertising budgets will be the first thing to get hit (even pay-for-performance ones) and you end up with a single point of failure for a broad array of firms.

While you will see a lot go under, you will also see some sizable winners emerge as the noise dies down with the reduced competition. Look how quickly Skype and YouTube scaled.

MidwestBusiness.com: What do you forecast heading into 2008?
MM: The public markets will determine a lot of how 2008 looks. Should the IPO market remain somewhat healthy as it has in 2007, you will continue to see angel, venture and strategic money flowing into early stage companies.

However, should recession hit and/or the markets correct, investors will pull in their horns and this sector will lose liquidity. Seed and early stage investing is the last to get liquidity in a business cycle and the first to lose it. There are a lot of business verticals burdened by legacy technology and old processes.

This ensures that entrepreneurs are going to have quite a long run while figuring out new ways to do old tasks. Transparency will improve and friction will continue to recede as the Internet and mobile technologies roll through sector after sector. It will be a win-win for both businesses and start-ups.

The key for most businesses is to clearly define their value to customers from a hard ROI perspective. I don’t mean “productivity gains” or “efficiency gains”. I mean hardcore cost savings or revenue growth.

MidwestBusiness.com: You are a founder and trustee of the McCall Family Foundation, which focuses on early childhood development in Chicago’s disadvantaged communities. What inspired you to start the foundation? What are some of its recent accomplishments?
MM: When we set up the foundation originally (which is quite modest), we had two goals. The first was to figure out ways with which to address the growing wealthy and quality-of-life disparity between Chicago’s inner city and the rest of community.

The second was to create a vehicle with which to engage our children and to illustrate to them that we live in rarified air. We all have a responsibility to help those less fortunate. Irving Harris was a key influencer in our thinking and was truly a visionary in the philanthropic world. He approached philanthropy like an investment.

Harris thought through new ways to effect old problems, established new programs, measured and assessed them and then promoted the winners. I like to refer to this as “venture philanthropy”. One of our most rewarding efforts was to fund a joint venture between the Erikson Institute and Ounce of Prevention to develop an early childhood center and model for the inner city.

This resulted in the Educare Center in Chicago’s south side, which has become a model for others around the U.S. Susie Buffett is working with them on rolling one out in Omaha, there’s one in Atlanta and the Gates Foundation has an interest in rolling them out across the U.S. A modest amount of capital was able to make a significant impact on the landscape.