CHAPTER EIGHT

THE POWER OF ACCELERATORS

On one of my random days in 2006, David Cohen came in and sat down. He introduced himself and slid a single sheet of paper across the desk to me, which had the outline for TechStars on it. As I read the document, David explained to me that he was an entrepreneur who had recently left the company that had bought his business. He’d made a few angel investments but wasn’t happy with the dynamic of how the entrepreneurs engaged with him. He felt like his experience was wasted and there must be a better way for experienced entrepreneurs to help entrepreneurs who were getting their businesses up and running.

If these ideas, that of having entrepreneurs leading, having a long-term view, being inclusive, and engaging across the entire entrepreneurial stack, sound familiar, they should. TechStars uniquely hit on all four of the principles in the Boulder Thesis, and this is one of the reasons it is such a powerful construct.

I loved the idea and within 10 minutes told David I was in. He was raising $230,000 to run a single TechStars program, with $80,000 of the funding coming from him. I committed $50,000 on the spot and told him that I’d help him raise the rest. Following, in David’s words, is how TechStars works.

In 2006, I realized that I wanted to make a living by doing what I love—investing in early-stage Internet software companies. Most angel investors lose money and I didn’t want to be a statistic. By my calculations I was already at a disadvantage because I was based in Boulder, a small college town of only 100,000 people. In 2006, Boulder had some interesting things going on, but being a professional investor would almost by definition mean getting on airplanes regularly. I wanted to change that by importing talented founders, organizing and leveraging the community, and helping new startups here in very meaningful ways.
TechStars works by taking simple applications on the web; business plans are not accepted. We select and fund the best founders we can find who are working in interesting markets and put them together with the best mentors and investors for three months. The rest is pure magic. The model works only because we focus on the very best people, both as founders and as mentors. In our selection process, we have a very heavy focus on the team. In fact, we’re fond of saying that the five things we look for in order are “Team, Team, Team, Market, Idea.” Note that the idea is not the focus; it would be left off entirely if not for the dramatic effect of deliberately listing it last.
TechStars invests $118,000 in each of about 10 teams per year per location. Over 80 percent of our companies go on to raise venture capital or meaningful angel investment after TechStars. Most importantly, we’ve helped to create dozens of really fascinating and important companies, including SendGrid, Orbotix, and Occipital in Boulder.
I’m often asked why TechStars started in Boulder. My answer is always “because that’s where I live and I love it here.” Although TechStars started because I wanted to find a better way to make angel investments, the equally important reason was that I wanted to improve the startup community in Boulder.
—David Cohen, TechStars, @davidcohen

David’s vision for an accelerator had several unique components. First, it was mentor driven. His belief that entrepreneurs learned from other entrepreneurs, and that successful entrepreneurs like him wanted to give back by helping other entrepreneurs was at the core of TechStars from the very beginning. You should recognize the “give before you get” philosophy at work; mentors rarely knew what they were going to get out of TechStars but they engaged with the belief that it would be worth it.

Next, TechStars was both focused on and powered by the community and subsequently became a way to engage the entire entrepreneurial stack. The initial investors were local to Boulder as were most of the mentors. It was a 90-day program—long enough to be substantive, but not year round so no one got burned out. It was inclusive—while it was hard to get into TechStars as only a small percentage of applicants were admitted to the program, there were lots of community events, including the climax of the program (Demo Day).

Finally, David had a long-term view for TechStars. He knew he was going to stay in Boulder for the rest of his life, so he wanted to create something long-lasting that would have impact on the Boulder startup community for many years to come. Little did he realize when he started TechStars that he’d also have impact on a number of other startup communities.

THE SPREAD OF TECHSTARS TO BOSTON AND SEATTLE

After the first year of TechStars, a number of entrepreneurs around the country reached out and asked if we’d bring TechStars to their city. Our mantra from the beginning was “quality over quantity,” and although we had done a bunch of things right in year one, we decided to use exactly the same construct for year two. As a result, TechStars didn’t expand beyond Boulder in its second year, although we helped other entrepreneurs get accelerators up and running by open sourcing and sharing the TechStars playbook.

After the second year we continued to be focused on quality and resisted the pull of an increasing number of entrepreneurs who wanted TechStars to come to their city. However, at some point, Bill Warner, a Boston-based entrepreneur who in 2008 had dedicated himself to reenergizing the Boston startup community, literally dragged us kicking and screaming to Boston.

Bill, who had previously founded Avid and Wildfile, two successful Boston-based companies, became exposed to TechStars when he met the founders from EventVue, a company in the first TechStars program. In 2008, Bill was working on the first MassTLC Innovation Unconference (http://startuprev.com/j2) and he wanted software to help manage it. This is what EventVue did and Bill ended up becoming an angel investor in the company. Shortly after, he came out to Boulder to see what was going on and learn more about TechStars.

He decided TechStars needed to be in Boston. He convinced us and we quickly recruited Shawn Broderick, another Boston entrepreneur to lead the program. Over a weekend we reached out to a number of Boston-based entrepreneurs, including Colin Angle (iRobot), Will Herman (Viewlogic), and Eran Egozy (Harmonix) to fund the first TechStars Boston program. Within a month, applications were open and we were up and running.

TechStars spread to Seattle the same way. Greg Gottesman and his partners at the Seattle VC firm Madrona were considering creating an accelerator modeled after TechStars. They talked to Andy Sack, a successful Seattle entrepreneur, about leading the effort. Andy knew me well and wanted to simply do TechStars instead. He convinced Greg and his partners that we should bring TechStars to Seattle, and then they convinced David to expand to Seattle.

As TechStars expanded geographically, we continued to learn new things from each startup community. For example, Seattle pioneered the investment structure that we now use for all TechStars programs. Andy decided to be completely inclusive of the Seattle investment community and asked every Seattle-based VC and active angel investor he knew of if they wanted to participate in funding TechStars Seattle. With this approach, he was completely inclusive of the financing segment of the startup community. We didn’t need the money for the program because we could have easily funded it with a small number of investors, but we wanted to be inclusive of anyone who wanted to engage.

TECHSTARS EXPANDS TO NEW YORK

TechStars now had a replicable model and accelerators were appearing around the world. We helped enable a lot of them by open sourcing the TechStars approach. However, we still knew there were other cities that we’d love to expand to. New York was one of these, and we were again fortunate to find someone to pull us to New York. This time it was David Tisch, a native New Yorker who was incredibly passionate about helping build the New York startup community. Following is David Tisch’s story of how TechStars New York came together.

It was on or about August 25, 2010, when we sent out the first e-mail asking someone to be a mentor for TechStars NYC. This is the moment we started, the moment I knew this was real and there was no turning back. Within 48 hours, we had 40 of the top entrepreneurs in NYC on board to mentor companies we hadn’t even found yet. We quickly raised four programs’ worth of funding from 25 of NYC’s best investors.
NYC’s startup community is thriving right now, as has been well documented, and TechStars finds itself at the heart of it. Looking back, the establishment of TechStars in NYC has helped coalesce the startup community and is one of many factors at work.
Early on, I noticed that many of the mentors didn’t know each other. This surprised me as I assumed that all the entrepreneurs in NYC working in and around the Internet would know each other. But that was wrong, and TechStars has become the place for mentors to meet each other and, more importantly, get a chance to work on something substantive—namely the creation of new companies—together.
The unique structure of our program brings together mentors (successful entrepreneurs, executives from big established companies, and top-tier investors), the TechStars companies (high-potential entrepreneurs working on big new visions), and top-tier investors from NYC. This trifecta creates a high-quality community with very little noise. The broader community rallies around the program on Demo Day, at the end, and the set of companies finishing the program that day.
In just under two years since we launched the program in NYC, TechStars has become a foundational component of the NYC startup community. The magic lies in building a community of deep engagement, where entrepreneurs can work shoulder to shoulder with other early-stage companies, building a support system that grows program to program.
—David Tisch, TechStars NY, @davetisch

Today, TechStars has geographically based programs in Boulder, Boston, Seattle, and New York. TechStars runs a vertically focused accelerator around cloud computing (TechStars Cloud) in San Antonio. It operates the Microsoft Accelerator (http://startuprev.com/n2), which currently has programs for startups building technology around Microsoft products, such as Kinect and Azure. It also co-founded the Global Accelerator Network (http://startuprev.com/f0), an organization for helping independently owned and operated accelerator programs. Although TechStars is six years old, it is still in its infancy, and its leaders continue to be committed to developing long-term startup communities in their cities.

ACCELERATORS ARE DIFFERENT THAN INCUBATORS

As the mentor-driven accelerator phenomenon has spread across the world, many organizations have started calling themselves accelerators even if they share few characteristics in common with TechStars. This is predictable, especially since we’ve been extremely open about everything related to TechStars, including our structure, how we operate, and our results.

However, one particular type of organization, the “business incubator,” has recently started to be relabeled as an accelerator. Incubators have been around for a long time, with the first known incubator, the Batavia Industrial Center, having been created in 1959. Although incubators share some characteristics with accelerators, they are significantly different, and they play a different role than accelerators in the long-term health of a startup community.

Incubators were originally created to foster economic development. They provided entrepreneurs space, infrastructure, and advice in exchange for a fee, which was occasionally partially paid in equity. Incubators are typically nonprofit entities or attached to a university. Although some for-profit incubators have emerged, most are an extension of an existing investor’s activity and are often linked to the Internet bubble.

Incubators operate year round and continuously. They focus on providing infrastructure and exist to fill up their space with paying customers. This often ends up creating a least common denominator effect rather than the highly competitive dynamic that occurs with accelerators.

Although incubators serve a useful purpose, and many have helped startups become successful, it’s important to differentiate between accelerators and incubators. Each will continue to evolve to meet the needs of entrepreneurs and startup communities; I encourage those running incubators to celebrate their difference and focus on improving what they do, rather than trying to tie them more closely to accelerators.

UNIVERSITY ACCELERATORS

The constraints and resources of a university are unique and can play a powerful role in the startup community, which we will discuss in more depth in the next chapter. For now, let’s explore how an accelerator could work in a university environment by taking a look at the program being created at MIT by Bill Aulet, the managing director of the Martin Trust Center for MIT Entrepreneurship.

For students interested in entrepreneurship, MIT functions as a ramp where students can build their entrepreneurial knowledge and skills so they reach escape velocity upon graduation. This approach ramp works well for many students, but some high-level students found it lacking, and eventually dropped out of MIT or openly considered dropping out to start a company instead of finish their college education. They pointed to Ellison, Jobs, Gates, and Zuckerberg. They heard the calls from Peter Thiel to drop out of college (http://startuprev.com/o2). They were fascinated with TechStars, Y Combinator, and similar programs.
As we tell entrepreneurs, when there is a crisis, there is great opportunity for innovation. So at MIT we took some of our own medicine and explored what we could do to meet this challenge of making the academic environment more conducive to successful entrepreneurial development.
We looked at Stanford, Berkeley, Harvard, the University of Michigan, and the University of Washington. We discussed the issue with students and saw their high level of interest in TechStars, Y Combinator, Dogpatch Labs, General Assembly, and Rock Health.
We recognized an opportunity to create a program unique to MIT’s mission, using our assets, which would fit well with existing university-based and outside programs. MIT’s mission is to educate our students and have a positive impact on the real world. We have a unique role in that we are an honest broker—a resource to all, beholden to no one. Our assets include an extensive value chain of innovative and entrepreneurial resources already in place, which we can easily leverage and expand to support a new program.
The program borrows heavily from the best practices of the outside organizations, but we did not simply copy their programs, because they already execute them well, and as a 501(c)(3) nonprofit we do not want to appear like a commercial entity, an accelerator of for-profit companies.
Our primary guiding principle behind the first summer MIT Founders’ Skills Accelerator (http://startuprev.com/e0) is to help our students time compress the process of learning critical venture creation skills. We organized the accelerator around space, funding, structure, and status for our students.
Our research found that having a common work environment was extremely important for students, giving them a sense of community that results in their learning faster because they learn from each other, get emotional support to experiment, and are motivated by their peers.
The funding allows students to work full-time on their projects without worrying about paying their rent. Each MIT student receives $1,000 per month, and the team is eligible for up to $20,000 in no-strings-attached milestone payments if they meet agreed-upon goals in the areas of customer development, product, team, and finance. The payments are the incentives for students to buckle down and focus on learning entrepreneurship skills.
The structure is enough to keep the teams moving without inhibiting their flexibility and taking away their proactive muscles, as we did not want to create domesticated animals that cannot live outside the MIT bubble. The students have access to MIT’s full mentoring network and we help them plug into that system based on their needs.
Twice a week the students get together and discuss what they’ve done, learned, plan to do, and need help with. We then provide a quick clinic on a topic relevant to their current state, ranging from how to build a persona to how to develop a founders’ agreement.
Each team is assigned a committee, which serves the purpose of a temporary board of directors. All the members of the committees have substantial board experience and meet monthly with the teams. The committees also determine whether the teams get their milestone payments and at what levels.
Finally, the program provides students with the status of being part of an approved MIT program that makes it clear entrepreneurship is supported and legitimate. We find it particularly useful to assuage parents that no, their students are not slacking off playing video games all summer, but are doing a lot of work. As one student said, “Being selected is like getting a Rhodes scholarship in entrepreneurship.”
—Bill Aulet, MIT, @BillAulet

In the six years since TechStars was founded, accelerators have quickly become a powerful part of a startup community. Although universities have had entrepreneurship programs for decades, many have grown stale over time and don’t suit the needs of many of their students while providing relatively little value to the extended startup community. Bill Aulet’s example of co-opting many of the concepts of an accelerator for the university environment is a powerful example of how a university can think differently about entrepreneurship. For more, let’s now spend some time exploring how several leaders at CU Boulder have created a dramatically different example of university involvement in a startup community.