24 Feb 2014
A Capital Idea for Small Business
John Callaghan and Brad McGee founded iCrowd to help small firms and investors connect.Re: Andre Peroldby Robert S. BenchleyTopics:
(Editor's Note: Brad McGee passed away in November 2015.)
John Callaghan (MBA 1984) and Brad McGee (MBA 1987) became close friends while growing up in the small town of Carmel, NY. Their friendship has spanned more than four decades and active business careers. Now the two have joined together as founding partners in the launch of iCrowd LLC, an online crowd-funding website.
"iCrowd will assist small businesses by allowing them to capitalize on the securities reforms found in the JOBS Act of 2012," Callaghan explains. "We will bring entrepreneurs together in online communities to provide the financial and commercial resources necessary for business success, with networks of supportive peers, suppliers, investors, and customers. At the same time, iCrowd will provide investors with social networking tools to collaborate on investment analysis, query managements, and form groups around common interests."
"I like the idea of the crowd vetting ideas, and determining winners and losers by voting with their capital," says McGee.
"This project got its start back in 2011. I had been involved in several startups and knew how difficult it was for small businesses to get funding. A number of crowd-funding platforms had appeared, but none were really set up to serve small businesses. I wondered if there was an opportunity there, and I called John to discuss the idea. Our conclusion was that it would be very difficult to do without a change in regulation."
But timing is everything, and the collection of legislative bills that ultimately was assembled into the JOBS (Jumpstart Our Business Startups) Act, which was signed into law by President Barack Obama on April 5, 2012, began being introduced in Congress while Callaghan and McGee were doing their research. That encouraged them to move ahead and form the company.
"Small businesses are the engine of job growth in this country," says Callaghan. "The JOBS Act is an attempt to facilitate capital flows in a number of ways. Of particular interest to us were the establishment of investment crowd-funding and the end of the prohibition of solicitation for private placements."
What the iCrowd founders have learned, however, is that laws may be passed quickly, but their implementation can take time. In the case of the JOBS Act, the Securities and Exchange Commission is already a year late in enacting its provisions, partly due to concerns over perceived risks to unsophisticated investors. Moreover, not all of the provisions will be enacted at once. For now, Callaghan and McGee are focusing on building iCrowd's technological, regulatory, and operational foundations so they will be ready once the SEC makes its moves.
It's the first time the pair has worked together. After they graduated from high school, Callaghan pursued undergraduate studies in economics at Harvard College. Two years after graduating, he entered HBS. Callaghan says his interest in finance was honed by Professor Emeritus André Perold, who taught an investment management class and with whom Callaghan did research.
Callaghan's subsequent career included portfolio management at Equitable Capital and hedge fund Odyssey Partners; small capitalization equity management positions at Weiss Peck & Greer, Deutsche Asset Management, and Fiduciary Trust; and a senior advisor role at PeriCor Therapeutics, Inc.
Before leaving HBS, however, he paid a visit to McGee, who was an officer in the US Navy at the time. "He gave the program a strong push," recalls McGee, "so it was the only business school I applied to."
McGee had received an appointment to the US Naval Academy at Annapolis while in high school. He had more of a technological bent than did Callaghan, and he studied both systems engineering and nuclear engineering. He was in the Submarine Service when he and Callaghan had their buddy chat. Several months later, he had completed his active-duty service commitment and was out.
"I left the Navy on a Friday and started at HBS the next week," says McGee. "I didn't know what a balance sheet was. I didn't know what an income statement was. All I knew was that someone advised me to show up early to get a good seat. I arrived at 5:30 a.m. I guess that was a little too early, but I was used to military schedules. The next person arrived at 7:00. I still remember the first case: Suave shampoo. We started off at a fast pace, and in two years we never slowed down."
Like Callaghan, McGee went on to a lengthy business career. Given his personal inclinations, it was geared more toward strategy and operations, most of it at large companies such as CIT and Tyco International. The two believe, however, that their differences are as important as the strengths they share.
"What we have in common is that we have seen a lot of business situations over the years," says Callaghan. "We both have a pretty good sense of what works and what doesn't."
"It's a great match, given our complementary skills," agrees McGee. "John focuses on the regulatory side; I focus on iCrowd and getting the website up. After knowing each other for so long, we have an inherent level of trust."
They also have trust in their concept.
"Right now we're in business, but we don't generate revenue," says McGee. "That will change when we can begin matching businesses with investors."
Class of MBA 1984, Section B
Class of MBA 1987, Section D