On this episode of Fund Flow, McGuireWoods’ Jon Finger sits down with Chad Summe, founder and managing partner at eGateway Capital, to discuss the changes brought by digitization and artificial intelligence, as well as how to build solid relationships with investment partners. 

“We all come from a lot of different experiences and backgrounds that contribute to the impact that we can make on our companies,” says Chad of his team. “But the common DNA at eGateway is to be of service in an impactful way to our partners.” 

At eGateway Capital, the team has its own M&A advisory services, an offering Chad believes is needed to best serve their portfolio companies. He sees M&A as an opportunity for companies to accelerate growth through strategic acquisitions. 

Chad and Jon discuss the lasting impacts of the pandemic on e-commerce and how these trends will affect future investments. Chad sees companies being more intentional in looking at their entire organizational structures, making conscious changes to embrace digital, and reinforcing their supply chain to prepare for the future. 

💡 Featured Guest 💡

Name: Chad Summe

What he does: Chad is a Founding and Managing Partner at eGateway Capital. Before eGateway, he was Chief Operating Officer and Chief Strategy Officer for a fast-growing, publicly-held technology company. He also worked at Procter & Gamble, leading strategy and brand marketing in their Baby Care division. Chad began his career in the U.S. Navy’s Submarine Force. Chad graduated with Honors with a B.S. in Economics from the United States Naval Academy, and an MBA from Duke University’s Fuqua School of Business. Chad is eager to learn, loves to fly fish, and has a passion for volunteerism.

Organization: eGateway Capital

Connect: LinkedIn

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This podcast was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this podcast, you acknowledge that McGuireWoods makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in the podcast. The views, information, or opinions expressed during this podcast series are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This podcast should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action.

You are listening to Fund Flow, a podcast for emerging managers offering insights into the journey of new and aspiring fund managers seeking to have access in a crowded market. Tune in as McGuireWoods partner and host Jon Finger is joined by guests ranging from first time fund managers to proven emerging managers, experienced LPs poised to back emerging managers and other key participants in the emerging manager ecosystem. Hear their real world perspectives and gain actionable tips to help inform your strategy and position yourself for a successful fund closing.

Welcome to Fun Flow, a McGuireWoods podcast for emerging managers. I'm Jon Finger and today I have here with me Chad Summe, the co-founder and managing partner of eGateway Capital. eGateway was formed in 2021 with the purpose of investing in e-commerce technology companies that are paving the way for the digital future. Prior to forming eGateway, Chad was the chief operating officer and chief strategy officer for Quotient Technology and currently serves on the board for the Cincinnati Northern Kentucky International Airport, Cindy Tech USA and OneNKY Alliance. Chad, welcome and thanks so much for doing this.

Thanks Jon. I'm thrilled to be with you all.

Chad, you've had an interesting career path starting out as a submarine officer in the Navy, moving into brand strategy at Procter and Gamble and ultimately founding eGateway. Can you talk about your path and how it led to where you are today as a fund manager?

Sure, it's a great question I always jokingly say. And it's quite a dotted line to go from the back of an engine room to baby diapers to coupons, to now running a growth capital firm, but there is a line of connection between all of that and I'd be happy to share a little bit about it. My career started, as you suggested in the Navy. I went to the Naval Academy and spent time in the back of a submarine and really some of the most formative years of my life managing and leading people in the service. Obviously a purpose-filled background coming out of the surface to Proctor and Gamble and I jokingly say my jump into the civilian sector from the Navy was one where I stayed in uniform. Going to a big company like Proctor and Gamble who's known in the industry of having definitely a Proctor way of doing things in a formative way of understanding around the consumer was great.

It was a great segue and that's precisely what my time at Proctor left me with was understanding of the consumer. I spent my whole time there in the baby care division on their biggest brand Pampers. I got to work on their global business and then came into North America and worked on their tier three North American only brand Luvs diapers. It was during Luvs's that, Pampers I always joke, gave an incredible experience to see the world work on a brand that translates all languages. There's only a few like that in the world to really get to see the mass scale of how to build brands across the globe. And then in North America, my time on Luvs just left me with an entrepreneurial appetite that maybe I didn't know at the time. Coming from an engineer to a marketing background and really driving everything on a North American brand like Luvs, we reset it.

We launched a campaign that I'm really proud to say still runs today, first kid, second kid, which is a pride. Put my daughter on pack, which was probably my most notable thing of my career at Procter and Gamble on size three Luvs. And then I really found kind of like Moneyball to play the game a little bit differently and brand without the budget and we took the brand digital and had a lot of fun doing so. During that time I became exposed to a company that was transforming the way digital promotions work and for big brands, some folks may not know this, but a big portion of your budget goes to promotions naturally. And at the time, coupons were really distributed in a analog type of way through the Sunday newspaper. And coupons.com at the time when I entered in Quotient technology after we went public and changed our name to better capture the services we were providing, really was set out on a journey to transform the digital promotion space and really we did that and changed the company and continue to grow and be pioneers in what is today retail media.

And so I look back fondly on those years of being pioneer on a marketing digital media space that is the talk of the industry today and that is retail and helping these retailers monetize their most important asset of data with CPGs and with other brands and performance marketing. I always joke when I talk to John Wanamaker I think was the quote that said, "I know 50% of my marketing's working, but I just don't know what 50%." And we were on a journey to finally displace that and so it was fun. As a pioneer in the space transforming space, you take a lot of arrows. We launched Dollar General, Albertson, Safeway, and some of these big retail media platforms that today are thriving and if you read all their earnings calls, it was really charting the future of retail and then came COVID and I just felt called really and discerned a lot during that time as I'm sure many people did, that there was an opportunity to take my experience on the investment side.

I got some experience acquiring companies, integrating at Quotient and I thought that experience was very applicable to growth stage technology companies that had a proven business model had validated their product and their commercial market and really just had an opportunity to scale. And that was the genesis of eGateway with some partners really to build a firm of significance was always the desire. We shared that. I shared that with several partners, that vision and to be a strategic partner to our founders in a unique way where we could be impactful on the cap table and that we were happy to launch in early '21 and have been at it for two and a half years and it's been quite the journey. I'm excited to share a little bit about it with you.

That's great. Thanks Chad. In speaking more about e-commerce generally, we certainly hear sector specialists within the emerging manager community. That is something that drives a lot of managers and candidly LPs. Why as an emerging manager do you and your co-founders find e-commerce so attractive?

Well, Jon, we step back and just talk about the digitization of the economy. Digital has been around for a long time, 15, 20 years folks have been talking about how digital is changing their business, but our view is it's still really early in the process. The transformation of digital onto analog businesses is just beginning. We often talk about Netflix and we compare it to being a Netflix moment right now and across industries of where we're still at. The shipping DVDs to your doorstep, if you recall-

Absolutely.

... as streaming was being built and we believe that. So to answer your question is what excites us is just how early this opportunity is, how big it is. We often use early, big, and urgent as the words. Big in the sense that I don't think much industry is going to have the opportunity to not be impacted by this transformation.

And then urgent is just naturally with any big forces like that. Market forces, it forces companies to respond and we're seeing that across industries. As far as e-commerce, we have a lot of experience around the consumer and all the technology that's enabling this, what we call future of commerce to occur. And so we think of it very specifically along a value chain that's definable and understandable and quite linear. It follows the product of how things are sourced and produced, to how they're marketed, to how they're transacted in the world of changing online marketplaces and finally into the world of where they're distributed and delivered. And we look through those kind of sub-sectors and we try to find technology up and down that that's transforming the way of how commerce is being done and looking for those technology that's transforming the space.

Good segue to dive in a little bit more on the strategy. Talking about driving the future of digital. Could you maybe expand a little bit on what the future of digital means to you and eGateway and how does that guide the types of companies you look at and what you look for in those companies?

Yeah, I think those are two separate questions. Obviously as an investor we're looking for great opportunities, great businesses and then great investments and sometimes those are two different questions that have to be answered, vary with a lot of conviction on both metrics. With regards to what we look at and see as the future of digital and some of the things. Usually the companies we're investing in are solving problems with tech. They're solving big problems with total addressable markets that are sizable, service addressable markets that are sizable.

And we look at some themes. The movement of goods is changing dramatically. A lot of our companies like FlowSpace, our first investment was a great example of this. We kind of view it as the Airbnb of warehousing. It's a fragmented space. Technology has really enabled a company like FlowSpace to build a large network of warehouses across the country and then use technology to enable brands to have access to a vast network of warehouses to ship their products, to store inventory and then ship them out direct to this ever-growing demand of the consumer to have their product within two days and all without a tremendous amount and an asset light model of using technology to kind of enable the future asset light for brands to access.

So I think that's how we think of it is how does technology solve these problems and what markets are they serving? We also talk about trends of the pendulum shifts over to direct to consumer. What's all the stuff that's been in brick and mortar businesses like brick and mortar retail over the last 30 to 40 years to drive efficiencies and effectiveness in those businesses. And then as the environment shifts directly to consumer, what's similar type of efficiencies and effectiveness have to occur and we think that's going to occur through tech. And so we look at companies like for example, firework is another portfolio company of ours. It's we think of them as the B2B version of TikTok, a company that I'm sure everybody, all the watchers are familiar with, but all happens really enabling shareable, swipeable, shoppable video content. But it all happens on an app of TikTok and that data is really stored by them and owned by them.

And we just believe in the decentralization back to brands of really enabling brands to have access to that data. That's a big part of our thesis that underlines several of our companies in our portfolio. Firework is really enabling that through shareable shoppable and swipeable video, but really enabling it on brand.com. And what that does is allow brands to hold that data, which is, I don't know if you want to use oil or gold, it's the asset of a lot of companies as they seek to build out their direct relationship with consumers. And we see that as being a big trend that will follow the digitization of the economy.

You talked about driving efficiency and one of the questions that sure is on everyone's mind, as we think about AI and how it might among other things drive efficiency without giving out too much of the eGateway secret sauce, how are you viewing and assessing the AI opportunity in existing portfolio companies as well as potentially new investments and where you're looking to play?

It's a big part of our assessment and it has been, I just think like all transformative technology like AI or really infrastructure, you just have to be prepared and just going down in diligence of new investments to make sure how they're considering AI is a big part of our process, but even looking back at our existing investments and really understanding how AI is a core part of their strategy as they go forward. We view it as a long game. It's going to be transformative. We think it will start to be transformative in different ways that maybe few can transcribe directly, but it's a big part of everything we look at is just getting smarter about thinking about software and scalable software just completely different than 10 years ago. I do think there will be a labor impact and we see that with efficiencies right out of the gate.

I don't think that means directly to the negative connotation that so many folks take this to as lost jobs. I just think it'll be a shifting of resources to really think about how resources are utilized to enable growth in a faster, more unique way. So we view it as all positive from that sense, but preparation, we don't view it as an add-on. It really has to be core part of your operating model of how you're thinking about it. And that's probably where you'll find those earliest efficiencies that we see coming from AI in the marketplace.

That's great. A bit on the softer side here.

Sure.

What is the eGateway approach to creating durable relationships with your portfolio companies and really helping them grow and take advantage of different opportunities?

Well, it's very hands-on, Jon. A big part, it's probably worth going back when we all had the vision to start a firm, we really were okay going down a different path. And what that different path was for us is we have a viewpoint that a lot of capital, especially growth capital has gotten big, it's gotten larger and larger funds and we think the orientation of a lot of those large funds, not to pick on them, but just naturally comes to deployment of those large sums and continuing to look at deals. And I think we think that the beginning early days of private capital hearkening back to those early days started from value and the impact that you could provide to the companies that you were partnering with and we're energized by that. We all come from a lot of different experiences and backgrounds. We all feel that contribute to the impact that we can make on our companies, but the common DNA and eGateway is to be of service in an impactful way to our partners and who we partner with.

And we just believe that is a major differentiator in the market. One, we have to and are committed to live up to each and every day. It's much more powerful coming from our portfolio companies of saying that we did what we said we were going to do, which is we believe the true differentiator, but we're excited. We wake up every day committed to add unique value and generally our value and what we focus on is part of our diligence process. We're never going to make an investment that we don't think that our experience and industry knowledge can be helpful and impactful post-investment.

And so generally that is focused on go-to-market scaling. As I suggested earlier, we're generally investing in companies that have that proven business model. They validated their product, they have a commercial market fit, and now it's just going generally down the food chain to bigger and bigger clients and scaling. And so we spent a lot of time in our diligence process better understanding, walking with them and going deep on their go-to-market strategy to see where specifically we may be able to be impactful. And that's usually an areas of some go to market strategy, customer acquisition across industries and human capital insertion that's natural with any company at that scale we're investing into. So hopefully that's helpful.

That is, you said the word a couple of times differentiation and certainly a lot of private equity funds, emerging managers or otherwise M&A is a big part of the strategy and where GPS can be helpful. But I think you clearly at eGateway take things much further than that. You have your own M&A advisory services. Maybe talk a little bit about that offering and how you view that as a value add for all of your clients, portfolio, company or otherwise.

Yeah, sure. I mean when we launched this in early 21, we had a lot of conversation. It's definitely a differentiated route to have M&A services attached to capital. It's a route that several organizations, maybe a merchant bank model in the past and have tried and it was just important to us of being thesis driven investors, meeting CEOs and founders in our universe that overlay with our investment thesis, which is this whole space that I've described to you around the future of digital commerce. How can we be a best service to them no matter where they're at in their journey, whether it be raising capital or not. And we just found one of our partners at the time had great experience in this space for 20 plus years around enablement technology in the consumer. And we just felt that really an opportunity to serve our partners that we come across within our investing universe better because we thought M&A plays a role, a big role into their growth strategies.

So we're excited about that two and a half years in, I'm more convinced and convicted than ever that we can and M&A can be a big part of how we are of service to our companies, how we can be impactful. Just recently we were excited to do our first help one of our portfolio companies acquire a tuck-in to accelerate their growth strategy. And that was a great example of the vision we saw, but even if it's not naturally, we're not working with just our portfolio companies, but other companies that we can walk with to better understand their business and really ask them the question of how we can be of service to you.

And M&A plays as just a big role in that, whether it's organic growth and helping them with their strategy as I've walked you through, or non-organic growth of helping with the buy side or walking with founders thoughtfully from the sell side as they go along their journey. So we're excited to bring that. We fully recognize it's not your most traditional model. We have a separate team, so there's not working on that. So we don't get distracted. We're laser focused on the capital side of what our mission is, but we do think it's proven to be a big value add as we go along and we're excited,

No doubt. One other question around maybe a couple, but specifically as you think about changes and how e-commerce has benefited from that continues to evolve from that, but thinking back to the beginning of the pandemic, certainly for a period of time, I'm sure everyone was trying to figure out what this meant, but as you see the e-commerce industry today and hopefully we're through the pandemic, what are some of the lasting impacts that you saw throughout the pandemic and the shift towards e-commerce and where we are today and what are some of those impacts and how they drive, how you think about future investments?

Wow, that's a big question. I mean we could probably riff on that for a while, Jon. I think the things that come to mind though is the pandemic was such a catalyst. I think a lot of folks recognize that for their businesses. And really it was something I was working on with CPG executives and retail executives in my former role at Quotient Technology of helping them during the pandemic really think about the future of their business. I think it gave everybody a really healthy reflection period to think, okay, we've been talking about e-commerce for a decade. There wasn't a presentation at any major show that e-commerce wasn't a celebrated topic. But after the show, everybody went back and recognized their entire business. E-commerce probably made up four to 5% of their sales. And so I always used to say, really, the share of mine was really high, but in reality, most businesses were just not living it out.

And it's hard to live out when it's only making up four to 5% of your business at the time. So when that happens, you don't have organizational design aligned to the outcomes that are very different than traditional analog and brick and mortar businesses that was really responsible for the vast majority and still remains quite frankly responsible for the mass majority of distributed goods. And so the biggest thing I would share with you is it was a true... I think it really came to the surface as something we need to really think bigger, harder and make hard decisions around changing our company's focus all the way from, I would say changing complete organizational structure to align itself to build this business versus just being in a responsive state as the business organically kind of. So I think everybody stepped back. I think supply chain naturally was on the front of newspapers and was being felt by every company in the economy.

It was, I think something not written about a lot is how every company is really rethinking the algorithm that was operating their supply chains where they were getting materials up and down from early supply chain to late distribution at last mile. And stepping back and suggesting as container prices went up 25x, how does my algorithm and what variables have changed to really look at where I'm getting goods and how can resiliency in my supply chain change if this occurs again in whatever time period that I'm prepared?

And I think that's really early for a lot of companies. I think people are still evaluating what was the impact, not just of COVID. But really looking at here's a multi-variable algorithm that a lot of companies just treated as sacrosanct and now are going back variable by variable and looking at it to suggest is it as resilient as what I thought it once was? So those are just some kind of big major trends that I think COVID was a great catalyst too, but it's just beginning a journey that I mentioned early. We view this whole digitization. The economy is still in its early phases and we'll continue to watch it over the next decade as companies make more decisions across each variable.

So on that point, thinking about trends and changes, what are some of the ways that you stay up to date on those changes, how you're thinking about them and what it means to your investment decisions?

Well, I think it's really important. I think the best on the ground understanding of the economy is just being out there present with your founders and your CEOs within our investing universe. So we spend a lot of time on our pipeline of companies of just talking, walking with and just better understanding the problems, the everyday problems, and the barriers to scaling that our CEOs and founders are facing. I'm not sure there's a better way to learn and continue if you're not an operator yourself than staying really close, which you have a luxury of doing in a business like ours where you're talking to founders and operators every day. So I guess the short answer is I try to stay really close now that I'm out of the operator seat to remain just one seat away with all of our founders and operators of how they're living and growing in this changing dynamic economy.

And as someone who hails from the great state of Ohio, a little bit north of you, but be that as it may headquartered in Cincinnati, what you and others at eGateway have referred to as the quarter of commerce in the Midwest. I'd love to hear your perspective on opportunities you see for growth within the Midwest and then beyond within the digital industry.

Yeah, I have a huge smile on my face on this question, Jon. So thanks for serving it up in the sense of everything we're doing at eGateway is geographically unbound. Naturally, we're focused on being the best at what we do, trying to find enablement technology that's impacting that future of commerce generally at the growth stage to participate with their growth. But when it comes to where we're located, we're excited about it. We think the middle of the country remains just a very underserved market. It's where a huge swath of industry calls home, but so little of capital. Especially sophisticated capital across the capital continuum from early stage to growth to late stage private equity calls home. And so we think there's what we call a regional arbitrage that will play out and over the coming decades as access to capital grows, to have a front row seat of what's happening in the middle of the country with a lot of great companies.

I'll give you one example. We do call this the corridor of commerce. I've been on, as you mentioned, at the opening our Cincinnati/Northern Kentucky International Airport Board for the last pretty much decade. We've had the opportunity to transform our airport after the de-hubbing of Delta into really the fastest growing cargo airport in the country over the last several years. And that's come from a great partnership with DHL. We're their second-largest super hub in North America. And then more recently with Amazon who announced the mega hub, their mega hub presence at CBG, our airport for Prime Air. And so we're the only North American airport that has two major cargo hubs located at one location, and then when you go a hundred miles south, you have UPS headquarters, world headquarters for their air in Louisville.

And then you have the second-largest FedEx Air operation up in Indianapolis, just 100 miles northwest of Cincinnati. So we think it's a really interesting spot around the movement of goods as the economy changes, where the movement of goods comes from more of a bottom line exercise to a frontline exercise for most companies. And we think it's going to be a great attraction to this entire commerce. And you can take the corridor down through the middle, all the way down through Nashville and through Atlanta of just along that same corridor that we think is really interesting as we invest behind it.

We also see a nexus of here in Cincinnati, specifically a nexus of CPG with the world's largest CPG being headquartered here, my former employer, Proctor and Gamble, and then naturally with Kroger, the biggest standalone grocer in the country being headquartered, that there's a really interesting nexus of CPG of retail, of supply chain that exists here that we're bullish about, and we're excited that we have an investment thesis that lines really well with that as time goes on. So we're big supporters, we're big proponents. The Midwest continues to be a great place to scale. I had a unique opportunity of building a Midwestern office for my former employer, and it turned out to be a huge success. And I'm a big believer that the Midwest continues to be a great place to scale companies and even more so to have access to a lot of big players in the space.

So Chad, shifting gears a little bit here, what are the biggest challenges facing emerging managers today?

Well, I don't know, Jon, if I have something that's going to surprise any of your viewers. I don't know what else to say except track record, right? I think a lot of investors love to bet on the known, and I think with any emerging manager, you're naturally betting on other non-traditional known factors of past performance and other different variety of industry or even as a player at another fund. But that track record is always what you're working against as an emerging manager to build a level of trust with investors, with LPs that can give them that satisfaction of comfort that they're so accustomed to by going with known commodities.

One last question here, Chad. What advice would you give emerging managers looking to make investments in growth stage technology companies?

Yeah, and I think I'd give them to any emerging manager. I think it's just continue to keep your head down. With any success, I think perseverance and fortitude is always ingredients. And I think emerging managers demonstrating that same amount of perseverance that's led them to success in other arenas that they've had success in is the answer to your question. I think continuing to keep your head down despite challenging fundraising environments or any barriers that you come across and keep doing what you said you're going to do, which is accessing, sourcing great opportunities. And it's something that our team focuses on as we continue to commit ourselves to building that track record of someday not being an emerging manager and just finding and interacting and being able to offer investors unique access to proprietary sourcing opportunities and great investments. And I think that's what we're focused on every day as a team, and it's the advice that I would give to any emerging managers is just continue to demonstrate what you're saying on paper you are.

Chad, thank you so much for joining me today on Fund Flow, sharing your wonderful insights with the emerging manager community, and thank you to our listeners for joining us on this latest episode of Fund Flow. We hope you join us again next time.

Thanks, Jon.

Thank you for joining us on this episode of Fun Flow. To learn more about today's discussion, please email host Jon Finger at jfinger@mcguirewoods.com. We look forward to hearing from you. This series was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this series, you acknowledge that McGuireWoods makes no warranty guarantee or representation as to the accuracy or sufficiency of the information featured in this installment. The views, information, or opinions expressed are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This series should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action.