Throughout this series, we have often referenced startup accelerators and the important role they play in the commercialization ecosystem, as well as where government support fits into the equation. So we thought it was time to take a closer look at these entities by profiling three different ones from Canada, the U.S. and the U.K.
We continue this week with TechStars, a mentorship-driven seed-stage investment program that operates three-month sessions in Seattle, Boulder, Boston and New York. We caught up with Nicole Glaros, managing director of TechStars Boulder, to talk about what has made the program successful, how it works and why it chose the cities it did in which to operate.
How do you describe the role that TechStars plays in the commercialization ecosystem? What gaps is it intended to address?
While most startups fail within the first few years, TechStars companies enjoy a disproportionately high 80 percent success rate. Why? Because TechStars fills in a knowledge gap at that early, critical stage – by surrounding early stage companies with mentors and expertise to help them think through the unique challenges that company faces. Starting a company is incredibly difficult, and it’s impossible to anticipate all of the challenges you might be faced with, each of which might be responsible for the failure of your business. There’s no formula for success that works for every startup, so only by supporting each company through a diverse community of entrepreneurs, mentors, and investors that have the life experience to guide them, can TechStars achieve the success rates it has.
What was the inspiration for the TechStar’s model and range of services?
David Cohen, TechStars co-founder, is himself an entrepreneur and investor in other startups. As an angel investor, he realized that so many startups were suffering from common mistakes, and if only they could avoid learning lessons the hard way, they could really accelerate growth. Furthermore, he discovered that there were so many entrepreneurs who wanted to help others avoid the mistakes they had made themselves, and were willing to mentor new entrepreneurs to assist in their success. The mentorship that TechStars provides is its secret sauce. We really pioneered it and helped spread the word that mentor-supported startups have a drastically improved chance of success.
Is TechStars in the business of picking winners or losers? How does it decide where and how to apply its resources?
A successful TechStars applicant is passionate about their area, executes well, and understands the value of feedback. A TechStars team can get stuff done, loves what it’s doing, and isn’t afraid of tweaking and changing the business based on customer and mentor feedback. We screen for these attributes throughout the application process, but we also don’t hide that those are the qualities we look for. Over the years, many teams have learned how to embrace these qualities.
Describe some of TechStars successful graduates so far.
Six of 20 teams from our first two years have already exited, including SocialThing, which was bought by AOL, BrightKite, which was acquired by Limbo and more. Occipital was a 2008 company that recently sold its flagship product, RedLaser, to eBay. SendGrid is killing it. Sure we’ve had teams that haven’t worked out, however it’s less than five percent of the portfolio.
Please describe the specific role that government and public money plays in the development and delivery of TechStars’ programs and services.
TechStars doesn’t receive any sort of public or government money or assistance. However, both TechStars and the U.S. government understand the importance of entrepreneurship on the community, hence the partnership with Startup America. We’re helping to drive awareness of the economic impact that early stage companies can have on the economy.
Where do individuals from the private sector come into the picture?
We are exclusively private sector-driven. Mentors and investors are all from the private sector.
How does TechStars measure the results of its efforts and demonstrate a return on the investment of time and resources by its supporters and funders?
We measure success by looking at whether the company has 1) discontinued, 2) is still in business, or 3) has been acquired or had an IPO. Given that six of the first 20 companies have already exited, and less than five percent of the companies have discontinued, it’s a clear demonstration that the mentorship model really works.
Further to this, how does it measure its benefit to the local or regional economy? What have been the results on both counts?
Many of the companies that move to a city for TechStars end up staying. The relationships they build with mentors are strong, and much of their business network ends up being local. This translates directly to better jobs, more tax dollars in the system, and more.
Can we have some hard numbers – companies that entered the program, current enrolment, numbers of graduated companies, employment gains, investment gains, revenues.
TechStars is in its fifth year of operations. Boulder has had four programs (the fifth one is happening now), Boston is in its third program, Seattle has had one, and New York has had one. That’s a little over 80 companies that have graduated. We see thousands of applications a year for about 50 spots, and it’s only getting more competitive.
Where do we go from here? How must we repeat this model elsewhere and establish a supporting network?
This is the exact reason why TechStars created the TechStars Network – it’s a global consortium of accelerator programs modelled after TechStars. It was launched in collaboration with Startup America – and since February, we’ve had over 24 members (many international) enrol. The accelerators share best practices, they help each other sort through common challenges, they have access to contract documents and event a playbook on how to run a program. Once a year, the programs get together to interact and drive how to really strengthen the global entrepreneurial community. It’s an amazing network of people that are really changing how entrepreneurs launch and grow businesses, and it’s only having a positive impact on the global economy.
Lastly, what was it about the four cities in which TechStars runs its programs that were attractive? What are the common elements between them that define a strong eco-system for getting technology to market?
There are two attributes that all four of our cities have in common. One is that there were business leaders and experienced entrepreneurs who fundamentally understood the value of donating their time to startups. Once you have a small critical mass of experienced entrepreneurs able and willing to give of their time, many of the other business leaders will follow. Second, a strong investment culture that believes and invests in early-stage deals. Then it’s up to us to help activate the collective strength, knowledge, and capital between those two groups.
This is the 19th article in a continuing series that examines the state of the ecosystem necessary to successfully bring technology to market. Based on dozens of interviews with entrepreneurs, venture capitalists, angel investors, business leaders, academics, tech-transfer experts and policy makers, this series looks at what is working and what can be improved in the go-to-market ecosystem in the United States, Canada and Britain. We invite your feedback.