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Start-up Investing: Head Versus Heart

Over the years, we've had lots of chances to invest in other businesses. But it never felt right. Until now.
Jason Fried is the co-founder and president of 37signals. Basecamp, Highrise, Ba

Jason Fried is the co-founder and president of 37signals.

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Last month, we did something we had never done. We invested in another company. We purchased a small, noncontrolling stake in the Starter League, a Chicago-based business that teaches people with no experience how to program.

Over the years, we've been offered opportunities to invest in other companies or individuals. In some cases, the financial or strategic rationale was easy to see, and we probably could have made good money if we'd pulled the trigger. But we always balked, and I don't regret it.

Because even if those deals were potentially lucrative, the opportunities simply--for lack of a better phrase--didn't feel right. You have to live with your decisions every day. Why live with one you're uneasy with? "Because it'll make you money" is a common reply. But I don't think that's good enough.

What makes the Starter League different? For one thing, we love businesses that have been built to scratch a personal itch. Mike McGee and Neal Sales-Griffin, the company's co-founders, wanted to learn how to program. They bought a ton of books and tried a bunch of online tutorials. Neal and Mike are smart guys, but they couldn't figure it out.

As it happened, one evening the two of them were in the classroom-style theater in our Chicago offices; we'd loaned the space to an instructor for a three-hour course about the programming language Ruby. There was another neophyte student in that class: me. I'm a business guy, not a programmer--though I'd like to learn.

Neal was sitting behind me. After the class, we chatted a bit. Neal told me about how difficult it had been to learn to program. He also told me that he and Mike were thinking of starting the kind of school they wished existed.

Unlike most education start-ups, this would not be an online venture but an old-fashioned classroom setting. And it turned out to be a lot easier than they'd expected. They put up a simple website, posted a class description, and found a teacher, Jeff Cohen, who happens to be one of the best Ruby on Rails programmers around. They set tuition for a three-month class at $6,000, tweeted the news out to the world, and waited to see what would happen.

Soon they had more applications than they had spots. They added another class. With a shade over $200,000 in tuition revenue, they'd managed to bootstrap their school to profitability before the first class had even graduated. A year later, the Starter League has graduated nearly 300 students from 25 states and 12 countries, generated more than $1 million in revenue, and maintained healthy profit margins.

37signals has always had an interest in education. We write books, teach courses, and share what we learn on our company blog, Signal vs. Noise. We consider teaching to be a big part of what we do. So, a few months ago, Neal and I began talking about how we might be able to work together. It seemed like a no-brainer. We were both in Chicago. They were teaching Ruby on Rails, a language developed by my partner, David Heinemeier Hansson. And they were bootstrapped, just like us.

It just felt right.

A few lunches later, we decided to invest in the Starter League. But we're providing more than just cash. Classes will be held in our office two days a week. We've agreed to offer internships to students. We'll help them design a curriculum.

Will we make a fortune? Who knows? This is about investing in a company we love. We're not looking to get out--we're looking to stay in.

 




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