Another startup exit; another boost to economy

discountrampslogoScore another healthy exit for the Milwaukee 7 region, the sale of Discount Ramps LLC, a West Bend-based web marketplace for more than 11,000 products.

If there were an M7 hall of fame for entrepreneurs (there should be one), Joel Lederhause, a former West Bend firefighter, should be there. He started selling ramps on the Internet in 1997, incorporated in 2000 and built from there. He bought or created more than 400 domains and the firm now runs more than 25 active web marketing sites.

His genius is creating web sites and related marketing campaigns that work. In addition, he differentiated his enterprise from thousands of Internet middlemen, who own no product and carry no receivables, by designing products, sourcing them, often in Taiwan and China, and then stocking for quick delivery from more than 300,000 square feet of space in the West Bend area.

As with most entrepreneurs, a major byproduct was job creation. His main firm has 45 employees, and a related manufacturer, Heavy Duty Ramps in West Bend, has another 50.

No numbers were disclosed in the sale to Rotunda Capital Partners of Washington D.C., but sales grew to the $24 million range. Lederhause won a premium multiple for exit price, so he will have funds for new investments. The price pales in comparison to exits like a recent one in Waunakee of Scientific Protein Labs for $337 million. But it’s still a hefty sum.

Importantly for the region, Rotunda will want to grow the business. The general game plan for private equity (PE) firms like Rotunda is to pay a fair price in an auction for the selling business, use a lot of debt for the financing, bring in new management and then resell the company in five to seven years when the debt has been paid down.

A new CEO, Larry Marmon, has already been married to the existing management team. He is seasoned veteran of the Internet marketing sector and has moved from San Diego to this area. Marmon, an investor in Discount Ramps, will seek growth as the foremost way to add shareholder value.

Discount Ramps was on an upward track, including niches like equipment for disabled people, and Rotunda will add capital to continue or accelerate that trajectory. The buyers intend to keep the business here, so that means more jobs for West Bend and Wisconsin.

Exits are not all bad. Indeed, they should be viewed as a healthy, normal course of events.

Entrepreneurs like Lederhause are gifted at conceiving a new business, launching and growing them. They are not always the optimum party to expand it to larger scale. Let’s hope Discount Ramps’ second stage of growth is as dynamic as the first.

Lederhause will keep 20% of Discount Ramp, where he will sit on the board; the related real estate business; and a minority percentage of the ramp manufacturing company. He is considering getting into the resort business in the Bahamas, his get-away location. And he will look at angel investing here after taking a break.
With his hard-won startup smarts, he could help a lot of entrepreneurs. The region needs dozens like him. He and other gutsy high-growth entrepreneurs are the real job creators. Think of all the indirect jobs in the Discount Ramps supply chain.

When Lederhause got his start more than a decade ago, there wasn’t a lot of help around. He largely boot-strapped his venture and grew with internally generated cash flow.
Once established, he did get some bank financing. (Banks seldom do and shouldn’t do high-growth startups; it’s not their role to provide high risk capital; they can help later, as Commerce Bank did in this case, when the ventures are more stable and need expansion money.)

Flash forward to 2014. It’s a much better picture for entrepreneurs. Support is there from organizations like BizStarts Milwaukee, which provides mentoring and connections; Gener8tor, which provides some initial seed capital and guidance; and a number of incubators. On the capital side, there are two angel groups in the region, three new angel funds and two venture capital funds.

The state has created a small fund of funds to match angel money, and it will swing into action this year. That will also help.

That combination of support for startup teams and new capital has prompted a growing sense of optimism about reinventing the M7 region through entrepreneurship. Many players have put their shoulders to the startup wheel, including colleges, educators, researchers, technology transfer shops, civic organizations, several foundations that have invested in angel funds, and, most importantly, a growing number of individual, savvy angel investors.

Of special note, some law, accounting and investment brokerage firms have stepped aggressively into the startup space. That is a huge accelerant for doing startup deals. The firms often take lower or deferred fees early on, betting on payoffs from exits and continuing business down the road. In this venture, Godfrey & Kahn, a Milwaukee law firm (disclosure: it’s my firm) guided Lederhause along the way to exit, and Emory & Co., a Milwaukee valuation and brokerage firm, ran the auction. “This deal is a big plus for the Internet economy of Southeastern Wisconsin,” said John Emory Jr.

The region is currently launching about one high growth company per month. The M7 goal is to double that.

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