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Published in Economic Development
VNN Inc. co-founder Ryan Vaughn departed the company in April, although he remains a shareholder. In his decade at the company, Vaughn raised about $21 million in investor capital from local and national sources. VNN Inc. co-founder Ryan Vaughn departed the company in April, although he remains a shareholder. In his decade at the company, Vaughn raised about $21 million in investor capital from local and national sources. COURTESY PHOTO

VNN Inc. co-founder steps down from VC-backed startup after ‘passions changed’

BY JAYSON BUSSA and JOE BOOMGAARD Sunday, June 21, 2020 05:44pm

Ryan Vaughn can count many accomplishments over the last decade after co-founding and scaling VNN Inc., originally known as Varsity News Network. 

That includes raising around $21 million in investor capital for the company, a Grand Rapids-based information technology startup that offers schools a platform to post content about sports programs. 

“I’m blown away when I think about that number,” Vaughn told MiBiz.

But even as VNN continued to add clients across the country, Vaughn’s 10-year run with the company ended in April, about two years after he says he started to lose the passion for the work, which would eventually become disruptive to his executive leadership role. 

“It’s kind of like you finally get enough gold stars and then you realize you don’t care about gold stars anymore,” Vaughn said. “Most of my VNN career — and frankly my working life — I was chasing gold stars. I was trying to be all I could be and make a big impact and all that stuff.”

Vaughn and Matt Anderson launched VNN in 2010, initially as a blog. The co-founders developed the idea for what eventually became a marketing and communications engine for high school sports programs via Momentum, an accelerator program and predecessor of Start Garden

As the duo continued to develop more complex and effective ways to help high school sports programs operate, Vaughn became the face of the company, successfully convincing groups such as Grand Angels, Start Garden (now Wakestream Ventures), Northern Michigan Angels, Muskegon Angels, Capital Community Angel Investors and the Michigan Angel Fund to invest in the model. 

“I was with Ryan from day one and one of his first investors,” Kevin McCurren, the commercialization program director at Gateway Grand Rapids for Michigan State University, said in an email to MiBiz. “I invested in VNN because of Ryan. He is a rare CEO who lasted through 10+ years of running a startup and raising over $15M of capital. I can think of only a few that have done it successfully.”

As Vaughn’s passion ebbed, it exacerbated internal struggles at VNN, culminating with the company deciding to bring on Rick Ehrman as the company’s new CEO in July 2019.

Ehrman had exited Minneapolis-based SportsEngine, which offers similar services and products as VNN, only for youth sports. SportsEngine had recently been purchased by NBC Sports Group.

The addition of Ehrman meant Vaughn would have to step back from the central role at the company. Vaughn said his position with VNN changed rapidly. 

“It was clear pretty quickly that it wasn’t going to be a fit long term,” he said. “My interests had changed and passions changed. At some point, Rick decided that he wanted to move on (without me). From my perspective, that was disappointing because it was sort of surreal to get let go from your own company.”

Ehrman stepped into the top executive role armed with a familiarity with VNN. His previous company, SportsEngine, at one point entered into due diligence for a possible acquisition of VNN, which later invited Ehrman to be on its board of directors. 

For his part, Ehrman acknowledged Vaughn’s charisma and ability to create ideas from the ground up and raise money, but he came to the company with a strong focus on using M&A to grow VNN.

“We miss him for sure,” Ehrman said of Vaughn, who remains a shareholder in VNN. “I still bounce ideas off him as advisory.”

Despite losing the high-profile face of the company, Ehrman believes he was able to win over early investors from the Vaughn era of VNN with plans that were heavy on metrics.

“I think that was a breath of fresh air to the institutional investors,” Ehrman said. “I laid out a really succinct plan on what we were going to do — a 30-, 60- and 90-day plan — and thankfully all those things happened, which is immediate credibility.”

Leadership needs evolve

Venture capital executives and other people involved in the startup community in West Michigan say it’s common for a founder to reach a point where he or she needs to make a transition, either within the company or to a new venture. 

In part, that’s because the company demands different skills from its leaders as it matures and evolves. 

“It is the rare individual that has the skills and knowledge to identify an idea or market need, to launch a business and convey a passion to early employees and investors (all good founder skills) and then also have the skills to manage a growing base of employees, investors, vendors, distribution partners, etc. once the business starts to grow to scale,” said John Kerschen, managing director of Charter Capital Partners, a Grand Rapids-based investment banking firm and manager of various venture capital funds. 

“The skills of a founder and visionary are often quite different from those of a CEO leader,” Kerschen said in an email to MiBiz. “Those changing requirements might also contribute to the loss of passion from a founder.”

Kerschen noted a founder transition is part of “a natural evolution of a growing, successful business” and not a negative reflection on either the company or the leader. As well, the change can be good for a company, which can often flourish under an executive with a different skill set that’s perhaps more tailored to what the business needs at that moment, he said. 

“As you might expect, the employees might actually welcome the change as they likely see the next level skills the business needs that the founder might not possess,” Kerschen said. 

As an investor in VNN, McCurren certainly views Vaughn “as a success, not as a failed CEO.” He knows from firsthand experience that a company has different demands on a founder. Over his career, McCurren launched and grew a $15 million startup, but learned his skill set was in starting companies, not operating them. 

“Eventually, we all know that we have the potential to be replaced,” McCurren said, adding that Vaughn made the right call in stepping down as CEO of VNN. “Though painful, he realized that he could not continue to serve VNN and its capital needs. The key decision is what is best for the company, not you as CEO.”

Forging ahead

As a company, VNN faces plenty of challenges in the months ahead, notwithstanding the question of whether or not high school sports in Michigan and throughout the rest of the country will return to action this fall in the middle of the COVID-19 pandemic. 

However, Ehrman said the company started to plan for this scenario back in March, when the pandemic was starting to take hold, even developing plans that assumed the situation might become worse.

Despite the uncertainty, Ehrman said that VNN is still holding strong with its two-pronged revenue stream of selling advertising in the local markets in which it operates and selling software to high schools.

“The advertising side has been a bit softer than we would like, but this time of year it is anyway,” Ehrman said. “I’ve been trying to evolve the business to get my sales team to (focus on selling) software to high schools. We have acquired more clients in the last 60 days than they had all last year.”

Part of that has to do with athletic directors that are limited in what they can do right now and therefore are readily accessible. Ehrman pointed to features like digital ticketing, online fundraising and seamless mass communication as key selling points during a time of chaos like this.

“Athletic directors are still working — they have more time now than they ever have,” Ehrman said. “They don’t have any events or student athletes right now. We’ve held webinars in the last 60 days that have had about 1,000 people show up where we used to get like 30.”

Ehrman also had his team change its approach to selling, which helped VNN pick up a quick 150 new customers.

“Our traditional model was sort of a bottom-up (model), where we had sales people driving around in their cars meeting with individual athletic directors and high schools,” he said. “We’re having much more success selling top-down. We’re selling at the conference level, the district level and in some cases the state level.”

As well, Ehrman looks to remain active on the M&A front, even after VNN completed two recent acquisitions, including a deal for Provo, Utah-based RallyAroundUs LLC, an online fundraising platform. A couple of additional deals are forthcoming, as VNN looks to add to its own business and rely less on partnerships.

“We’re looking at several acquisitions — we have two in the pipeline right now,” Ehrman said. “This is a very fragmented industry that is ripe for consolidation. (By my resume) I probably look less like an operator and more like an M&A guy. There will be some M&A transactions that are noteworthy in the coming weeks.”

‘Needs to be done’

Meanwhile, Vaughn is using his “sabbatical” to explore his next steps as he shifts his professional focus to pursuits that “make a difference” and are “useful.” 

He said he has no timeline or formal plan for his next professional pursuits, but did mention that he started a meditation group for business founders that quickly grew; he now runs about six of them.

“I don’t know if that’s a business — I don’t necessarily need it to be a business,” Vaughn said. “It’s just work that needs to be done.”

In some respects, he’s come full circle and is back to blogging, sometimes about leadership, entrepreneurism and meditation, and in other cases about current events like the struggle for the Black Lives Matter movement and confronting inherent racial bias. 

He’s also taking time to reflect on his experience with starting and leading VNN, realizing now that it was often an ego-driven endeavor for a 25-year-old entrepreneur. 

“I wanted to build something because it would help me have the career I wanted and it would be something cool and people would look at me and say, ‘Oh, that’s awesome,’” Vaughn said. “That was so important to me early in my career — that I was perceived a certain way.”

At VNN, Ehrman is understanding and respectful of Vaughn’s journey, while also pushing forward with a plan he feels is best for the company. 

“I do think it’s probably tough when it’s part of your identity and I really think it became that for him,” Ehrman said of Vaughn walking away from the company. “I do think he’s realized since then that people don’t think of him as Ryan Vaughn the founder of VNN — it’s Ryan Vaughn, the serial entrepreneur.”

As McCurren sees it, the transition for Vaughn and VNN came down to a matter of raising capital to continue to grow the company. 

“Once you start taking outside money and it gets beyond 50 percent, you relinquish full control of the company. Ryan tapped all of the capital resources that he could access,” McCurren said, noting that Ehrman “has the potential to bring in new money.”

Moreover, the company’s focus shifted considerably from its formative days, he added. 

“When VNN first started, we saw it as a technology company, but as it evolved we realized it is a media company,” McCurren said. “Media companies require much more capital to scale versus technology companies.”

For Vaughn, there remains a sense of pride in his accomplishment with VNN, yet a wonder for what would have happened if he had not had to seek out that nearly $21 million in investor capital. 

“It’s impressive but also not impressive because I certainly wish we could have raised less money and gone further,” he said.

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