Detroit Venture invests in online office supply startup

Posted on March 18, 2013

Detroit Venture Partners LLC is expected to announce today that it has led an investment round of $750,000 in Chalkfly, a Detroit-based startup that sells office supplies online.

The company, which is differentiating itself among other office supply sellers with a program to give 5 percent rebates to teachers and an easy-to-use website, says it is on track for $2 million in revenue this year.

The company launched its website in July. It has six employees now and plans to add at least 12 this year in sales, customer service and engineering.

Joining in the investment round were Bizdom, the Detroit-based business accelerator that Chalkfly went through last summer; Chicago-based Griffon Ventures; Start Garden, a Grand Rapids-based startup fund founded by Rick DeVos; and Detroit-based Ludlow Ventures LLC, which earlier had provided some seed funding.

Chalkfly was co-founded by two brothers, Andrew and Ryan Landau, and is the latest example of Michigan natives who’ve had success elsewhere in the business world but wanted to return home and be part of the growing entrepreneurial scene in downtown Detroit.

The brothers said they settled on office supplies for this venture because it was a big market dominated by what they described an unimaginative big players like Office Depot, OfficeMax and Staples with boring websites from which they thought they could take business through marketing based on social media.

“You can make money by being hyper-focused on one vertical if you understand your customers really well,” said Andrew Landau.

Chalkfly went through the Bizdom accelerator program in June, July and August. The website was launched in July. It offers 30,000 products and free next-day delivery to 90 percent of the country, with a one-year, no-questions-asked return policy.

A key marketing tool allows customers to choose a teacher to receive their 5 percent rebate on purchases. The teacher, in turn, can get free or discounted supplies for his or her classroom.

Vidhi Bamzai is a Teach for America fourth-grade teacher at Nolan Elementary and Middle School on Detroit’s northeast side. She met the Landaus at an event Teach for America co-sponsored last spring.

Bamzai said the website is easy to navigate and user friendly, but the main attraction is the rebates that accumulate to her when her friends and family buy things.

“My school provides the basics, but I’m a big fan of things that amp kids up,” she said. Those are, she said, such things as electric pencil sharpeners and white boards for each student that she has been able to buy.

Josh Linkner, Detroit Venture Partners’ managing partner, said when he first heard about Chalkfly, he wondered how they would make such a commodity business interesting. But he said several things convinced him, including the venture capital mantra that one bets on the jockey and not the horse, and that the Landau brothers were jockeys he ultimately wanted to bet on.

“These are two guys with the right mix of grit and scrappiness,” he said. “At the same time, they’re open-minded and coachable, which is a good combination.”

Linkner said the office supply market is so big — $30 billion annually in the U.S. — that an upstart without bricks-and-mortar overhead to worry about doesn’t need to capture much to make money.

Andrew Landau was a 2007 political science graduate of the University of Michigan who was working in Chicago as an account executive for Google Inc. Ryan Landau was a 2009 graduate in supply chain management from Michigan State University who was working for IBM Corp.’s federal customers in Washington.

Adrian Fortino, who vetted Chalkfly for a possible investment as principal of the $5 million Detroit-based First Step Fund, said he was impressed by the Landaus but had reservations about the market, both for the traditional low margins in office supplies and for the fierce competition from big national brands. As it turned out, Chalkfly didn’t need the First Step funding.

“They have been able to get some traction, and the social bent on giving something back to teachers is nice, but you have to worry about how much opportunity there will be to scale up,” Fortino said.

Tom Henderson, Crain’s Detroit Business.