With 200 drop-off locations, partnerships with Nordstrom and Barneys, a branded shoe shine stand in River North and plans for a national expansion, on-demand shoe care startup Shoe Drop has had a busy year. But that hasn’t kept co-founders Brandon Labrum and Duncan Davis from running Breakout Capital, an early-stage startup investment firm, on the side.
Former colleagues at private equity firm Sterling Partners, the pair felt investors were missing out on great opportunities because startup funding didn’t fit into their wealth managers’ investment strategies.
“One of the things that united us was a passion for earlier-stage businesses, but the firm we were at only bought businesses at a certain size and scale that made it difficult for us as individuals to have an impact,” said Labrum. “We felt like there was this really fertile ground — a lot of really interesting businesses with compelling products and services that lived in this middle ground between traditional venture capital and private equity.”
To Labrum and Davis, this space is inhabited by companies that bring technology into an established niche, but put emphasis on business fundamentals like building steady revenue rather than astronomical user growth. This more conservative approach can sometimes be off-putting to VCs looking for the next Google or Uber, but such businesses also make for less risky bets for investors.
Entrepreneurship and investment are both notorious for being full-time jobs and then some. But Davis said running Shoe Drop while getting Breakout Capital off the ground has been a big help in understanding the startup landscape more quickly.
“Just by virtue of starting businesses and being out there and networking with folks, we had started to see a ton of really interesting investment opportunities,” he said.
Breakout Capital’s first outside investment went to custom furniture e-commerce startup Interior Define last fall. The firm is also invested in digital agency Breakout Studio and Shoe Drop.
Breakout Capital takes a slightly different approach to investing than traditional VCs. Instead of taking investor money up front and managing it for a set period of time, they identify opportunities and reach out to a network of investors that buy in on a deal-by-deal basis.
According to Labrum and Davis, the shop deployed $15 million in capital last year and is on track to reach $50 million deployed over the next few years.
They also place a great deal of emphasis on branding. From launching Shoe Drop, Labrum and Davis learned a lot about the particular challenges brand-centric startups face. As a result, the pair takes particular interest in companies that may have been overlooked because of poor branding or a web presence that leaves something to be desired.
“There are really smart people doing really great things — great products and great services — that are often untapped from a branding standpoint,” said Labrum. “They’ve focused all of their time on building out their products and services, but they haven’t thought about marketing, branding, lead generation and business development the right way.”
For one portfolio company, which is in stealth mode and currently preparing for launch, Breakout Studios built an entirely new brand identity and e-commerce platform from scratch. That startup is also incubated at Breakout's Chicago headquarters.
Now that Shoe Drop has gotten a running start, Labrum and Davis look forward to spending more time on their investment firm.
“We jumped into the entrepreneurial waters with these interesting businesses that we thought had potential, and we knew we eventually wanted to turn our sights to the investor side,” said Labrum. “And we’ve gone from being positively surprised at the number of opportunities we were introduced to to actively sourcing new opportunities.”
Correction: We originally reported that Breakout Capital is poised to deploy $50 million in capital in 2016. The firm is on track to deploy $50 million over the next few years, and the article has been updated to reflect this. We regret the error.
Image via Breakout Capital.