As we all know, the COVID-19 pandemic has changed so many things in our business community. Startups and small businesses have been some of the most vulnerable throughout the pandemic. We invited Bobby Zappala, Managing Partner at Localize Capital, to provide his perspective and insight on how the funding landscape has changed both short-term and potentially well into the future. He will explore where the opportunities and challenges reside for both companies and investors.
Transcription:
Good afternoon Welcome to business as usual, this is Audrey Russo. I'm thrilled to be here. And I'm joined by Jonathan Kersting. He's our Vice President of all things media. And he's just here to stir up trouble and ask some questions. So I'm pretty thrilled about our guests today. And I want to give some shout outs to our friends, which include Huntington bank and the web law firm. Both of them have been with us for a long time since we initiated this work. Huntington has been with us and web law firm is sponsored so many things for the tech Council. They've been around since 1845, doing all things IP, both here and globally. So a couple of things programming notes. Tomorrow, we're being joined by Kelly Weiland, from the innovation Partnership, which is a statewide organization that provides micro grants and free grant writing services together. Companies that are pursuing large federal r&d grants Friday, we're being joined by city councilwoman Erica Stross burger to be followed on Monday by county exec rich Fitzgerald. And then David Morehouse from the Pittsburgh Penguins. We have a lot of other people in the pipeline that we're thrilled. And we're pretty excited about having these regular conversations. So we are muted your mic, so we don't want to hear your background. We have made sure that you have an opportunity for chat, you can ask Bobby any question that you would like within reason and then we also are trying to make sure that this isn't a place for you to sell your wares. This is just an opportunity for us to focus focus focus on our guests. So Jonathan, before I introduce Bobby, do you have something that you want to shout out? We have a pretty cool announcement here. I do you know, it was it like three months ago, but March 20 was our first business as usual and since then, we have now marked our three Thousand guests are not guest participant to the show. And that's Elijah Carrington, our 3000 person to sign up to be part of this. And he is getting a free Pittsburgh Technology Council t shirt.
Awesome, thank you. So at what a ride, what a ride we've had, and we're going to continue to have a ride. So I'm going to jump in. I'm very thrilled to introduce Bobby Zappala. I've known him for a while, at least a decade. I think, Bobby, I've known you for a couple of iterations from him being a lawyer from him going to build a sender, from him being an active civic engagement person and a rebel riser for a lot of reasons. And all good reasons because he deeply cares about Pittsburgh, he could live anywhere, but he he lives here, and he's a trusted friend who many of us, myself included and I'm pretty excited about the work that he's now ventured on. He is an innovator and an entrepreneur in his own right. And he is now a managing partner of localized Capital Management. So he has been long supporter of entrepreneurs, and he's seen what the issues have been in capital. These seem like the issues have been in building futures for all kinds of people who have big ideas, no money, lots of ideas, lots of money. He's seen it from every dimension. And, you know, we're going to explore not just about his background, but we're really going to talk about this later venture, this latest venture, which really takes what I would say is a novel approach to leveraging capital. And we're going to and it really is based out of legacy, which I think Bobby really understands in terms of the tricks some of the tricks in terms of making sure that people have what they need, but by creating mutual wins, so plus, he's just an all around great guy has a great sense of humor. I love to make fun of him whenever I can. And try not to do that while we have this conversation today or be nice to Bobby today. Welcome, Bobby. Good afternoon. Thank you for being with us. Thank you for I guess you're in your home. You're in my green room.
Yes, you are. So thank you. Thank you for being here. And you know, like I said, we've known each other for many years. And before we talk about localized, talk about how you cut your teeth, how did you cut your teeth, so that you're in what you're doing right now?
Um, I'll do my best. And also just want to say thanks for having me and really appreciate as you and I have talked about the leadership role you've taken over the last couple of months and trying to keep some sanity in the world, which continues to be a roller coaster ride and it's nice to have this steadying force. And it's really fun to be able to participate in this way. So I born and raised in Pittsburgh. I think that at a relatively young age, I made a decision that at some point in my life, I would you know, make Pittsburgh a permanent home. It was kind of brainwashed to love this place. And I think that's a good thing. My circuitous route to what I'm doing today involves some time in politics in DC, involved law school and practicing law involved building a startup incubator accelerator, co working space and also involved building one of Pittsburgh's largest music and tech conferences. So there's a lot of stuff there. And I think that the the common thread through all of those is, I've been interested in ways to bring people together to create meaningful impact and particularly to the benefit of Pittsburgh in places like Pittsburgh, meaning the cities where there's so much good happening. There is such an opportunity to be productive and add value in build new things and innovate. But there's also not a fundamental disconnect from the value of individual human beings and the value of neighborhoods and communities and otherwise. So it's a unique blend that all of us who are on this call from the areas certainly appreciate the sentiment. And that's why we love this place so much. So, you know, the ascender piece for me, was really about helping those entrepreneurs in this region who maybe didn't fit neatly inside of the box of kind of the software, startup tech startup that, you know, even 10 years ago was kind of like the laser focus of our market in terms of supporting entrepreneurs. Now, obviously, there's there there's healthcare technology and other aspects to that. So I don't mean to minimize that there weren't other avenues, but we weren't defining, in my opinion, entrepreneur broadly enough and supporting enough people. Those ideas. And as a consequence, we were seeing a lot of folks leave and go elsewhere to build things. And we wanted to kind of reverse that trend. We wanted to keep young, old, whatever. Keep people here and give them the opportunity to build something that they were passionate about. Many of you on this call probably also know, Luke Scarman, who is the founder and CEO of niche comm used to be called college Prowler, very good friend of mine and co founder of ascender. His company really fits this kind of model of what we were doing with the sender, which is to say, this company started basically as a book publishing company. And therefore he wasn't he applied to different accelerators and incubators, but no one would accept him because it wasn't theoretically this like high growth tech startup idea, right. It was about reviewing colleges and prospective students and they had written literal guidebooks and he was getting them in kiosks and borders books, if you remember those days and also That stuff, right? But it was a really unique and needed product and he was extremely passionate about delivering on that. Well, you know, fast forward to now Luke, as many of you know is now raised almost $50 million. In total, he's employing a couple hundred people and growing. He's a non he's not a Pittsburgh native. He's from San Francisco is, is from Puerto Rico. They make squirrel Hill their home and have two children and like this is this is home to them, right? It's just like the it is a perfect story of what you can do with an entrepreneur here in mind you that company did morph into something that is much more technology driven. So what do you know, right? You'd never end where you where you began or where you thought you were. And, and so the premise has always been if you're passionate, you've got a good idea and you're passionate, let's find help for you. Um, that's at its core, the purpose of what was then through a melon what became a center.
So you know, you were in the East End, in a center right? Not at its peak, where it is Right now, I mean, you were definitely immersed in a neighborhood that looks very different than it does today even even in like the last five years. What was it like for you to be in ascender at the onset? Um, well, I gotta say particularly in the context of everything that's going on in the world now and you know, Black Lives Matter movement and everything around that. I felt really guilty when I went over to look at the office space, the first time that I hit her, I live on shady Avenue and Kentucky. My wife's probably gonna get mad at me that's maybe an over overshare but point is we're really good. We're a short walk away. way right? And which means that, you know, targets right there. Trader Joe's is right there whenever and would go to those places but never really crossed over into the neighborhood, right? And it was kind of like oh, over there. And so I felt really, it was a wake up call to go over there. And see that there's so much potential and everybody was super nice in the neighborhood. And, and yet, I just never went there, right. And I knew that wasn't a unique experience for me. And for people like me and so I from the from Jump Street, it was very important to us that when we open what was then the thrill mill space that we made it accessible to those in the community. And stability is a nice buzzword, but the reality is we just tried to go kind of door to door and tell people what we were doing. And say, come on by we have this program or come on by if you're working on something. And so it was a really kind of you had to you know, just get on the street and go and talk to people and tell them what you were doing there put faces to names. It's a community that way and so I that was rewarding to you know, to try to build some bridges there.
And I think my hat's thinking back about a sender really quick and we're going to jump into localize. I think my hat's off. To you, because we had so many conversations in the early days, I don't know if you recall, but it was around what is the definition of entrepreneurship and tech in the next iteration. And I was like, it's got to be focused on a, you know, a product that can be scaled. It's got to be something that's, you know, material. And you would say, no, that's not all it is. And that's not the only people that need to be supported. So you were pretty adamant and clear about that. And really try to be consistent on some things in life.
Yeah, that that you were definitely consistent on? Yeah. I'll take one. And also, you're passionate about making sure that any of the opportunities at the statewide level would be available to those entrepreneurs as well. And where I would say they wouldn't fit into some of those categorical things he would push back so I'm just telling everyone that you know, working with Bobby isn't just all this. He is he is right now. He's got a lot of passion around the things that many of us just don't think about. I appreciate That. So that's why it's a nice shift to sort of talk about fast forward that you, you know, you and a partner have been pioneering what you think is a new form of investment. And that really closely tracks what people are talking about in terms of building you know, what would be a circular economy giving back reinvesting giving back, the things that we know get broken, like get broken here. So So break it down really simply because I think there are so many people who will really be fascinated and interested in participating in this new model.
Yes. So there are two funds that are a part of this model. So I'm going to try to do this in as clean away describe this in as quick way as possible. And by the way, for those of you who are on this call, my partner Andy Ellis, Andrew Ellis is hiding behind his screen. Here, message him if you want to talk to him, I would never take the credit away from you. No discovery. Have this concept away from him. It's this is his, this is his thing. And I'm happy to be along for the ride because I believe in it too. But the there are a couple of core problems. I don't know if problems is the right way to put it. We look at them as problems that we're trying to address with localized one is a lot of wealth in this region and in similarly situated regions is moving elsewhere via public market investment or even private investment. Most of what you see with money kind of bits been made in Pittsburgh staying in Pittsburgh tends to happen in like real estate, right? You see people putting money in return or in individual projects or otherwise. But otherwise, you're seeing money move towards the coasts, and then you know, the natural consequence of that is that you end up seeing a lot of younger people go and chase that money towards the post, right? So a cycle that that in some ways is is logical that that's kind of the way that things have have gone in terms of us losing population in some places. It's like Where's everybody going? Well, they're chasing our parents and grandparents money that's being put to work somewhere else. So how can we kind of stem that tide? Another issue was that, you know, we would hear people talk about in particularly in the tech startup space, that money is on the sidelines in Pittsburgh, people need to put their money in action. And I can't speak personally to this, but I know people who have a lot of money and invested, their money is not on the sidelines, even today, with all this craziness, their money's not on the sidelines, it's doing something, but it's representing their preferences. They may not be interested in the type of risk taking that a venture deal is looking for necessarily, right. So it's not that the money isn't being put to work. It's that it's not aligned with their preferences in terms of what they're looking to do with that money, how long they want to hold it somewhere, what type of return they're looking for, and And so on. So could we build a model that works better for people who made their money here over long arcs of time, who want to reinvest and invest in things that can understand and are real and are sustainable and require some patience to see a return? That's the kind of underpinning of this. The way that we're making that happen is by bringing in a critical stakeholder that hasn't been involved in the in the type of investing that we'd like to do, in other words, in investing in companies that are a little bit younger and have an opportunity to grow. And that is going and bringing into this fold. Large legacy businesses of this region who cash flow make make good cash flow year over year. They're invested in their people, they're invested for the long run there, you know, even in these current times, you hear them talk about they're doing it anything they can to keep things intact, right? They're not trying to make themselves richer right now. They're trying to ensure that their business can continue to operate, they can continue to employ people who work for them, because they're critical. They know how important they are to the region and otherwise, right? These companies are healthy and generate cash and they know what they get by reinvesting in their own business right they know what that return looks like. We want them to have a way to invest in the next generation of companies that look like them right that are going to grow up to be like them that are going to be a Pitt Ohio they're going to be an Eaton Park Parkhurst, they're going to be a you know, there's there's an infinite number of these companies that are like hiding in plain sight. The ones I just named, you know, obvious. PJ Deke, companies like that. Did you see more often but they're all over the region, um, and they have a way of thinking about innovation. And entrepreneurship that is just as if not, in our opinion more valuable. In some cases, what gets the shot in the spotlight shined on most kind of high trajectory, high growth kind of fail fast power laws type event.
And so that's, that's the crux of this, bringing those those businesses into the middle, who understand what patients really looks like, and using their acumen in their patients to invest in the next generation of businesses who want to be around for the long run. So there's a real upside to this from our perspective, in terms of, you know, economic development value. We don't necessarily just want to invest in companies that will exit that could take everybody that worked for that company and move their jobs elsewhere or take those jobs away from them. We don't know where the money is actually going to be returned in those instances. We want to see a lot of more of that impact stay here. And so we feel like with localized we can promote a lot of growth in the region.
So you know, it's interesting. I don't know if you recall, but the Kauffman Foundation that's located, I think in Kansas City. Yeah, a lot of work on entrepreneurship. While they rated it, you know, they rate cities all the time and they rated Pittsburgh very low in entrepreneur. Night. Remember, I brought the researchers to Pittsburgh, to you know, to make I was there when you brought them here to make them defend why Pittsburgh was not, you know, top and it was a heated discussion, but then right after that, they released another survey that they did or research before it, and said that Pittsburgh was one of the top 10 cities I believe might have been rated, like, I can't remember exactly, but pretty high up for cities that have companies under 50 people that last that have an average age of 16 years, which means that it's a great place. This is COVID great place for those kinds of companies to create material wealth, maybe not, you know, unicorn level wealth, but great, great lives and across almost every sector, so it wasn't TAC Are those the kinds of companies that you're interested in.
They could be companies that aspire to, you know, own up, employ 50 people, that's like kind of the thing that they're going to do right. To your point, you can do really well with that, and that immense amount of value to the region into a community. So that's cool, too. You could be a company that just as huge as you're talking about with that data. Just by necessity in our market where there isn't as much venture throwing flowing through it necessarily. has to be very tactical and strategic about when they attacked growth opportunities in real build good fundamental businesses. And maybe at some point down the road, those companies go in, they raise some venture. And that's considered a very sound venture investment because you know, you've got a business that did some good, solid, you know, underpinnings, just to be clear. I mean, I think that's great if the owners of the business wants to go down that path. That's, that's super cool, right? I'm, like, like, what niche for instance, you're talking about a company that was around for 2002, I think, found a niche. So 18 years later, and it's only been the last maybe two years that he brought in significant capital. His initial funding all came from a small group of angels who still wanted to return some point obviously on that money but we're willing to say let's build this the right way. We're be as patient as possible and not just try to force feed this right. In didn't take the kind of control away from Luke to say, well, let's build this over a long arc of time. So um, so that's a long winded answer. But but the direct answer to your question is, could be a company that's that's employing 25 people, it could be a company that's employing 500 people that's neither one is antithetical to our investment model. It's just a matter of their fundamentals of their business and their approach to growth. Are they looking to grow? Just to show year over year growth, right, so no matter what, we're just going to attack it? Or are they going to be patient and look for the right opportunities to strike? That's the kind of philosophy that we want to see an analogy that Andy and I use and probably me more than him is, you take a jogger and a bicyclist person on the bicycle is going to go faster than the jogger in most cases. For this, the purpose of this model, that's what's happening right. So you're I'm biking, you're going and you're beating the joggers, certainly, but when you stop on the bike, guess what happens? You fall over jogging and you feel like taking a break, you just take a break and you hang out Have a drink water, and then you keep going when you're ready, right? We want to invest in joggers, people who are saying like, I'm going to go I'm gonna go I'm gonna go because now's the time and then I got to take a break right now we need to stay where we are. There's no need for us to go attacking things right now things are things are good. It would be fundamentally bad for the business to try to grow. And then we'll start jogging again, when the time's right, you know that that's kind of philosophically what we're looking for.
So people on the call are probably thinking they would like to have a conversation with you what would be the profile? So if you would say to them, if you are x, you should definitely reach out to us.
Um, well, we're definitely not to use, you know, acceptable terminology. We're not pre revenue. Right. So where we want to talk to companies that are selling something, right, that's good. But yeah, it doesn't need to be even necessary. It can be lumpy revenue, though it doesn't have to be, oh, we've got this recurring revenue model, because for instance, like robotics companies are very interesting to us, because of the basket of IP. That may take a long time to actually commercialize. Right. And you don't want to put that on a on a on a clock on a shot clock. So in those instances, you see a lot of companies that maybe they've got do defunding or otherwise, right, so there's lumpy had a contract funding, it's in there, but it's non diluted, right? So they still own most of what they're having. So basically, some kind of baseline parameters is we're looking for younger businesses that haven't been diluted by outside capital, and that are generating revenue, in terms of the kind of operating companies as we call them, these big healthy legacy businesses in the middle They know who they are. They're the ones that are saying I don't want to talk to leveraged buyout private equity people, when they come knocking on our door, I say no thank you with it's not what we want to do with this. So anybody who fits that mold is is is interesting to us. And I think there's a lot in the localized model that those owners would like as well would be if we if I have a company and I have revenue, but I'm not yet profitable.
Would that meet the criteria in the interest of both of you?
That's fine. Yes, yes. certainly don't want to just be kind of again, hemorrhaging cash just to, you know, get users or whatever, there's got to be something there that actually demonstrates that people are willing to pay some fair value for your product or service who would want to see that? Again, it's because that if you're looking at it, if you're if somebody's coming to us and saying, well, we were generating some revenue, even though we're burning all this cash, well, I would say what What is your endgame? Are you trying to just kind of flip this thing kind of quickly show that you can get some traction and get over there? That's fine. Again, that's fine. I have no problem with that. That's just not necessarily what we're looking for.
I'm curious, when when you invest in companies, your network becomes open to these companies. And I know you've got some pretty deep networks, you tell us more about how you besides putting capital into a company that you're able to help those companies grow and continue to jog and then stop jogging and then jog again?
Well, first, Jonathan, I'm super excited about the day when I can tell you that we have invested in these companies. So we're still building up the fund at this point. But it's still your question is still great. I personally, I feel worked pretty hard over the years to build good relationships with people and not to be opportunistic about them, but to build relationships with people who I think have great skill sets have great passion and are looking for exciting ways to put those skills and that passion to work. And so yeah, I think we've got a great stable and that's just from my corner. One of the reasons why I love working with Andy is he comes from an entirely different circle of people. And the more time we spent together, the more I realized how much respect he garnered from the people he knows, and how extensive his networks are, as well. And so I think combined, we have a lot to offer. And for us, this isn't about kind of like individual accolades, or going to any of these companies and telling them that we know better than they do about how to run their business. We literally wanted to create a mechanism that allowed them to unleash their capability not for us to come in and say, oh, we're gonna do a little of this and a little of that. So much better. If we of course wants you to add value. Both through our own skills and experience and through our networks of people, but we're really looking to talk to business owners and entrepreneurs who you know, know more about what they're doing than we do. We would never pretend otherwise for the for the reality.
So on a on a final note, are you looking for investors right now? Yes. Okay, so what's so what's the profile woody in terms of the characteristics?
Well, it really honestly, we are talking to folks who are looking to cut five figure checks all the way up to folks who may be up to seven, eight figure checks. There is a place for everybody to participate in this fun. And so I would encourage anybody who likes what they're hearing, or maybe anybody who has also lost their hair and therefore we can relate in a way wants to talk about it. Sorry, Brian, give me a call. So, what's the website? What's the website?
It's localized dot capital, CA p ita L.
Okay. And then they can reach you or Andy there.
Yes. Bobby at localized capital or Andy at localized capital. Those are our emails.
And that's easy. That's great. So is there anything else that you want to make sure that we know about this endeavor and in terms of where you're going? I mean, I think the recap is that you are trying to create this complete circular loop. That is for people who are patient and understanding that this is revenue companies that have revenue, and they're not necessarily companies that are going to have a quick exit their long term relationships and you're trying to open up doors for people so that they can get stronger through commercial relationships.
I'm hired. I can tell. Okay, I just took a 10% commission of whatever that was.
That was I don't know, but whatever it is, I'll give it back to the tech Council. Okay.
So but just to I guess what I'll I'll add is just that, you know, this is not This isn't like a project that Andy and I are working on. This is a culmination of, of our kind of experiences, our combined experiences and what we have a passion to do. And the climate is tough out there. For anybody who's investing or looking to raise money, and those are conference. I'm happy to have with anybody who's on this call as well. Um, but fundamentally, what we're trying to do with localize we were talking about this before the world went haywire, right? That is to say that when you look around the world, the beginning of 2025, it can't. Everything can't just grow, grow, grow, grow, grow forever, that's not the way anything works, right. So now everyone's steps. back and looking at the world and saying, holy cow, how do we exist? For in the future? How do we how do we support the things that we need? And how do we support business owners and otherwise? And honestly, it just so happens that the model we've built speaks to that kind of new reality. And so I would much rather than none of what has happened in the world has happened, right? Well, exception of the Black Lives Matter movement that that that needs to happen, but from the pandemic side of things, um, that's that's obviously horrible, right? But but it is set in motion, a lot of conversations that we are, I think, central to finding solutions for So
listen, we're gonna wrap up. I'm thrilled to see this this iteration of Bobby's apalla and Andy Ellis who is somewhere on the call, and thank you both for you know, taking a chance and being entrepreneurs yourself. If you don't know Bobby's apalla he is restless, he is not going to sit still for long. He is going to be openly critical with the intent of only building pittsburgher. That's really his only intention. And that's the that's the bobby that I've actually had the pleasure of getting to know over time and appreciate this. So I thank you for taking risks on so many things and for being supportive, in a way that's material. And that really matters. And I and I think that, you know, we will see good things, just because we're in the middle of this pandemic, and we're seeing a lot of businesses atrophy, if not close, these are these kinds of activities that you're talking about are helpful and helpful and really material ways. And not everyone is going to be a unicorn and that's okay. That's okay. And that's what makes it all great. So thanks to you for your leadership on this. And we'll stay tuned, we'll stay connected to you and stay safe. So thanks, everyone. We will see you tomorrow. Same time, stay safe another sunny day in Pittsburgh.
Yes. keep piling up, everyone.
Take care. Thanks, Bobby. Thank you.
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