Category: Incubator/Accelerator

There are two types of startup incubators in the world: YCombinator or TechStars
Note: This is a guest post by Jesse Rodgers who is a cofounder of TribeHR. Jesse specializes in product design, web application development and emerging web technologies in higher education. He has been a key member of the Waterloo startup community hosting StartupCampWaterloo and other events to bring together and engage local entrepreneurs. Follow him on Twitter @jrodgers or WhoYouCallingAJesse.com.

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Incubators and accelerators [Eds note: and cyclotrons] have but one purpose: move startups along in their life cycle at a faster pace than they would normally and increase the likelihood of a return by providing that service. If you are a startup looking at applying to an incubator you need to understand that the differences in how these programs differ go beyond the money they give you in exchange for equity.

An oversimplification of the incubator/accelerator space is to classify them as either a Y-Combinator (YC) or a TechStars (TS). If you really look at the booming world of incubators for high tech startups you see a model that either based on education and peers that is driven by a strong personality (YC) or a model that is more institutional, follows a script, and feels less personal but is more in line with how VC’s work (TS) (I would place 500 Startups right in the middle between YC & TS which is arguably representative of a third type). There is plenty to be found about the differences but here is a bit of a deeper exploration into the differences.

Startup lifecycle

Startups have a number of key phases in development that is best outlined in Fred Destin’s presentation on startup lifecycle.
1. Start
2. Launch
3. Build
4. Chasm
5. Scale
With the 12-14 week cohort models, like YCombinator and TechStars, the focus should be on moving through starting and on to launch phase. There may be some that get into a build phase. The incubator or accelerator hopes that once they are done a 12-14 week program the startup will be in a much better position to move quickly through the build stage and at least take on the chasm phase.

Where I see the key difference between YC and TS is that YC seems to be able to get companies to go through stage 1 to 3 and they accept companies mainly in the start phase. TS seems to not attract a cluster of companies in a particular phase or not care about what phase a company is in.

The basics of an incubator/accelerator (whatever you want to call it)

Within the execution of any incubator or accelerator program there are, in my mind, 4 core stages in a typical cycle:
- Recruitment
- Onboarding
- In the program
- After the program
Within each of these of these stages there are a number of specific activities that all incubators do but in general they aren’t all that different.

Recruitment

YC currently leads the thought leadership with Hacker News, Paul Graham’s (PG) blog, and it’s success. Applicants fill out a form and once told they have an interview, travel to YC in Mountain View for an interview. They get just 15 min with a small panel and the panel does a bunch of tricks to the founders like carrying on side conversations – there are a lot of blog posts about that.

TechStars has adopted a more consistent process over it’s many affiliated programs (it appears) but they lack YC’s Hacker News or thought leadership (although they would claim otherwise). With Techstars there appears to be an affiliation with the Kauffman Foundation and the role they are taking in promoting the incubator model in general they have made themselves an authority in the space. From people I know that have been in the program it is a fairly standard process similar to raising Angel capital.

Onboarding

I am not sure on TS on-boarding but YC has a very short interview to decision to start of program window. YC has a little book that is like a long Wikipedia article written by Paul Graham that offers insights and baseline knowledge. From what I have been told the YC machine is pretty much immediately available to you when they say “you are in” — startups decide when to tell others. What is really interesting is that YC doesn’t announce it. They generally let a company know they are YC funded on the interview day but they don’t make a big announcement or anything.
Not having a big incubator announcement is a key difference here though. I will assume that with TS it is just like YC in that they have decided to fund you, they are now available to you. However, TechStars (it appears) doesn’t approach announcing the cohort in the same way as YC — they announce them ahead of the program.

In the program: peer mentorship, startup culture

Each program runs for roughly 3 months, 12-14 weeks, where mentorship, various events, and a demo day to close it off normally occur. Each week is important given that each team only has 3 months. Over three months there are phases you can generally identify:
- Teams becoming familiar with each other, their mentors, and what they need to do (first 2 weeks).
- The heads down getting stuff done phase (8-10 weeks).
- Funding mode going into Demo Day (2 weeks).
Other incubator programs are fairly similar with any given week involving office hours (optional or required) and a speaker/dinner. The office hours are used to check in and place goals on the teams. Throughout the term there are demo nights, which are used by YC as a way to put peer pressure on other teams that might not be moving as fast as others.
Where they differ here is in the education of the founder(s). From everyone I have talked to that has gone through YC it seems to me it is a very challenging but rewarding relationship for a certain type of founder. That would make sense as a certain personality type will work best with Paul Graham’s way of doing things and will excel. I am not entirely sure it is simply a hacker/coder persona as most assume. I think it is a personality and learning style that goes a bit deeper.
TechStars has a co-working model with parts very similar to YC. The key difference is that TS doesn’t have the Paul Graham approach to educating founders so you will get very different details depending on who is running the program. TS also gives the startups a place to work where YC leaves them to find a house and work out of it.

After the program: Alumni network

The key value any incubator or accelerator provides after the program is the alumni network of companies that are now a few steps ahead (depending on the age of the incubator there could be alumni with very large companies) of the current cohort in the program. Over time these alumni are your best mentors and connectors.

It is at this phase where the greatest value is for the startup, I believe. You now have access to what the old folks call a big rolodex (social graph) that will open many doors which essentially leaves it up to the entrepreneur whether their company will succeed or not. There are few to no barriers, generally speaking.

Any alumni of YC or Techstars still have contact with the folks in their cohort and all cohorts along with Hacker News. Techstars Network is so big they have a conference just for alumni while YC taps its alumni for all kinds of things. Also, founders seems to find going through the program a second time is different but just as valuable. These massive networks of successful alumni with a flock of high profile admirers is very similar to that of Higher Education alumni networks, so much so it convinces me that this entire process is a form of higher education.

Programs that work copy YCombinator, even TechStars did

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The current culture of education focused incubators started in my mind with YCombinator (started in 2005). I believe what we are seeing with the success of YC and TS is new take on graduate school. Both are different, both work, and people can have strong opinions either way. They feed a need that I don’t think people outside of incubators quite understand yet, learning to be a founder is really hard. Being a successful founder is even harder. The bet is that if you help young founders focus on what is important they will see success earlier or just simply see what success looks like.
If you are looking at an incubator anywhere (there are lots of great programs out there) you need to understand that the money is secondary. You need to find a program that will fit with the way you learn and has companies that you want to work with. It is just like how you picked your University or College except this time it can cost you a lot more (in equity) if you are successful.

Note: This is a guest post by Jesse Rodgers who is a cofounder of TribeHR. Jesse specializes in product design, web application development and emerging web technologies in higher education. He has been a key member of the Waterloo startup community hosting StartupCampWaterloo and other events to bring together and engage local entrepreneurs. Follow him on Twitter @jrodgers or WhoYouCallingAJesse.com.
February 13, 2012
Five-tool Players

I loved Moneyball (the movie). I also especially love sports analogies as they relate to technology and startups. While well-blogged about (Fred Wilson, Dave McClure, Dharmesh Shah), I believe these analogies are representative of what it takes to create and build a successful startup. While the premise of the book is to evaluate players based on data and metrics, I couldn’t help but tie back to the old school style of scouting in baseball to the current process we’re going through in selecting our cohort.

According to Wikipedia, in baseball, a five-tool player is one who excels at (1) hitting for average, (2) hitting for power, (3) baserunning skills and speed, (4) throwing ability, and (5) fielding abilities. I believe the same can be said for entrepreneurs.

Hitting for Average : Selling to Customers

In Moneyball, Billy Beane and his sidekick focus their team (the Oakland A’s) on one thing – getting on base – because getting on base equates to scoring runs, which equates to wins. In the startup world, scoring runs is the equivalent of getting cash, and this cash comes from customers.

Every entrepreneur needs to sell to customers. They need to generate revenue aka cash. It doesn’t matter if its enterprise customers, direct to consumer, professional services, white labeling, etc. Ultimately, if the startup is successful, they will sell to customers (which could also mean acquiring users). Effective hitters know where to hit the ball – pulling the ball, going opposite field, hitting gaps. Effective entrepreneurs know the gaps in the market amongst their competition and capitalize.

Hitting for Power : Selling to Investors

Chicks dig the longball. So how do you generate a huge amount of cash for your startup in one shot? You sell to investors. Entrepreneurs should also be able to successfully pitch VCs, angels, and other shareholders. This gives their companies cash in normally larger amounts than when selling to customers. It takes a special person to be able to raise from VCs. It takes a lot of time, energy, and follow-through.

A note on specialists here. In baseball, there are power hitters that specialize in hitting homeruns. Traditionally, these are the most popular and most sought after players because they have a halo effect around them. They fill seats, sell jerseys and advertising. They are the top billers and they usually can do no wrong (unless they cheat). In startups, this is also true because some franchises (VCs) want their own cleanup hitters at the top for the same halo effect.

Baserunning Skills & Speed : Hustle, Agility, and Speed

Running the bases in baseball is critical. If you can’t run the bases effectively, you’ll hinder your ability to score runs.

In startups, it’s critical to have that hustle and agility. This is all about opportunity maximization once the ball is in play. This means stretching a single into a double (crosssell / upsell, bigger contracts), stealing when possible (customers from your competition), and generally reading your competition in real-time (intuition and nuances of selling to both customers and investors).

Throwing Ability : Teamwork

This relates to the internal aspects of a startup. Can you lead and work within a team? Can you hit the cutoff man e.g. delegate when is the right time to do so?. This is about being affective with players on your own team to maximize the position you play. The most effective early stage startups I’ve come across have a good team rapport and play to each others’ strengths. Especially early when there is generally chaos, playing the position you’re best at (product, sales, marketing, customer services, QA, IT, etc.) and knowing your limits is critical.

Fielding Abilities : GTD

Every entrepreneur can get things done, and similarly every baseball player can catch a flyball or field a grounder. But the gold glove entrepreneurs are the ones that excel at cranking things out and simply getting things done across a broad range of domains. JFDI (thanks @msuster)! To borrow an American football analogy, this is the blocking and tackling that is the unglamorous and often overlooked aspect of entrepreneurialism.

Intangibles

There are definitely other things that make a successful baseball player and entrepreneur – experience, drive, fire, luck, durability, clutch ability, personal circumstances. Most things have to align for someone to be in the big leagues in baseball and technology.

Scouting

Over the last year as a VC, I’ve seen a lot of entrepreneurs with different combinations of these tools. Some were very effective at selling to customers, but just could not raise a round from VCs. Their pitches were too technical, they got into the weeds too much. They needed more sizzle. They were great at selling to customers, hitting their singles and doubles. But when it came to closing a round, they only had warning track power and process became that much more drawn out and painful.

On the flipside, there were companies where the only thing the CEO could do effectively was raise VC money. This left their companies with a lot of cash in the bank and a high valuation. Now they need to execute and build a product that would attract and acquire customers. Stay off the roids and start bunting if you need.

We are currently scouting players for our franchise. Are you a five-tool entrepreneur? If so, APPLY and come see us at Sprouter today. We’d love to help you develop into an MVP.

February 10, 2012
GrowLab on tour
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Ok, it makes me laugh every time I read GrowLab. The only way it could be better is when someone describes the GrowLab companies as “GrowOps”. They really did a great job in creating a corporate name that has a set of nuanced meanings (well maybe it’s not so nuanced).

Our friends from GrowLab are heading out on tour to find their next cohort. They are coming to:
- Toronto – February 13, 2012 Register
- Waterloo – February 14, 2012 Register
- Montreal – February 15, 2012 Register
- Edmonton – February 22, 2012 Register
- Calgary – February 23, 2012 Register
Sounds like an interesting night with Daniel Debow (LinkedIn, @ddebow), Debbie Landa (LinkedIn, @deblanda) and Jason Bailey (LinkedIn, @YVRJason) talking about startups, entrepreneurship, building companies in Canada, getting connected in the Valley, GrowConf, incubators and other fun things. The panel conversation is:

Are you an Entrepreneur or a Wantrepreneur?

What makes you different from other entrepreneurs trying to build start-ups? You are competing with thousands of entrepreneurs for the same resources, talent, and capital. How are you going to make sure that you attract the best people and funding? Is it about who you know or is it about how great your product is or the reach you have in the community?

In Toronto that I get to host the above conversation, it means that I’m going to have to represent for the “Wantrepreneur” side. Because there is too much awesomeness with Daniel, Jason and Debbie representing the “Entrepreneur” side. It should be a fun event and a great time for entrepreneurs to get or stay connected with each other. This is a great group to provide deep insight into the experience of building companies in Canada and selling them to Silicon Valley powerhouses.

Given the tour includes stops in Bucharest and Budapest, I can guarantee that someone will mention Summify (congrats guys).Also excited that Debbie and Jason will be joining us on Feb 16 for Founders & Funders.
January 31, 2012
Extreme Startups
Rob Lewis and TechVibes is reporting that ExtremeU (you can read our past coverage 2009, 2010, 2011) has launched a new Toronto based incubator that leverages their experience over the past 3 years. Mark Evans provides additional details that includes “$7-million in funding from Extreme Venture Partners, OMERS Ventures, Rho Canada Ventures, BlackBerry Partners Fund and BDC.”

Extreme Startups includes a who’s who of the Toronto startup scene as mentors:
- David Ossip
- Daniel Debow
- Anand Agarwala
- Michael McDermentt
- Ameet Shah
- Albert Lai
- Leila Boujnane
- Ali Asaria
- Noah Godfrey
- Ray Reddy
- Rick Segal
- Salim Teja
- Derek Seto
- Nick Koudas
Congrats to Andy Yang, Sunil Sharma and Amar Varma in getting this thing launched. Plus how can this not be awesome with Andy Yang as Harold and Sunil Sharma as Kumar in Extreme Startupping.
January 31, 2012
An incubator for grownups…

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David Crow and others (Huffington Post, TechCrunch) have suggested we’re experiencing an incubator bubble?

Incubators are built for the young. Students exiting school are already living the ramen lifestyle. That means they’re cheap, they have no kids, no meaningful obligations and there’s a good chance they’ll work close to 24/7. It sounds dreamy, if you’re an investor.

I’m old. I have kids. I’m not moving to Boulder or California for 12 weeks. I don’t play games in the office or do busy work. Why aren’t there incubators for me? I look at the incubators like 500Startups, YCombinator and TechStars and that is what I want. I just can’t participate. I can’t do the work and change my family life the way they’ve structured it.

What I need from a incubator is…

To Pay My Own Way

While new graduates come cheap, grownups are capable of paying their own way. I’d rather work with someone who has some skin in the game over so-called low-cost labour. I’m willing to make an investment in a startup as a career choice.

While most incubators offer low, bordering on zero, salaries that barely cover living expenses for someone living on the ramen diet. This doesn’t work for me. I need to be able plan for my family and my kids. What I need is something closer to an executive MBA program or a sabbatical. Continuing education programs are interesting because current employers and banks will let you borrow against your assets to get started. It requires larger savings or a working spouse to be able to fund my family during the initial startup experience. I’m willing to buy in to make this happen.

Hunger, Drive

Many new graduates will compare working in a startup with a plain old job. This startup thing is cool and all but it’s a ton of work and my buddy working at AcmeTech is already done work for the day and playing XBox online. Building a business offers you freedom. Freedom from what? Corporate politics, busy work, crappy work, basically the standard boredom of the 9 to 5. How can you value that if you’ve never had a shitty boss?

I work for more than myself. My family and their future is what drives me forward everyday. I work hard when I’m working. When I’m not, I’m with my family and friends, I’m taking my kids to hockey, piano etc. What I’m not doing is placating my boss with more busy work.

I want to build a successful business for me.

Access to Mentors

Tell me if you’ve seen this. You’re sitting around a table discussing your projects and companies. Someone leaves the table early. One of the people remaining at the table proceeds to lay out in detail why that guys venture is going to fail. Why didn’t you tell him that when he was here?

The solution is for the guy who left early to get a cheque from the remaining person. As soon as she writes that cheque, she’ll sit that guy down and tear him apart and he’ll be better for it. Startups can drown themselves in mentors and advisors. I want to be at the table everyday with people truly invested in my project. Failure for no reason is not an option.

Learning The Right Skills

If you have a job today in technology and aspire to be an entrepreneur, typically the first step is to quityour crappy day job. You don’t have a team and project for your new business so you start consulting to pay the bills. You’ll be a great consultant, you’ll learn how to sell your hours, how to find clients, how to deliver services well. Skills that have almost nothing to do with taking a product to market. Once you head down this path, the likely destination is lamenting over some pints how “I was going to do product back when I left my job”.

Startupify Me

Startupify certainly wasn’t conceived as an incubator for grown ups, however, it does fill a lot of these gaps. While it likely constitutes a pay cut, we pay you to work on startup projects learning new technologies and the startup game. We partner you with established businesses who have a proven track record of creating sustainable businesses that deliver value to their customers. Everyone at the table has skin in the game. We go into our client companies, find and develop opportunities to build differentiated software to grow the stand alone value of their business.

If you have work experience as software developer and are ready to join the entrepreneurial revolution, we should talk.

January 26, 2012
Incubators, Accelerators, and Cyclotrons
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They are lining up like storm troopers.

It looks like a new crop of accelerators, incubators or, as I prefer, cyclotrons have started opening in Toronto. We’ve been talking on and off about Incubators, Accelerators and Ignition since early in 2009.

Here is my list of incubators/accelerators/cyclotrons:
- MaRS Commons
- Incubes
- Multiplicity
- BrightSpark
- Founder Fuel
- Extreme Ventures
- GrowLab
- Mantella Venture Partners
- UW Velocity
- Ryerson DMZ
- MEIC
- Next36
- Bolidea
- bNotions
- Infusion Angels
- Impact Infused
- Toronto Business Development Centre
- Added Bento Dojo
- Added Kinetic Cafe
And this is on top of the existing coworking, shared real estate, available to entrepreneurs in Toronto.
There are lots of opportunity for entrepreneurs to find a mix of real estate, services, and cash for equity in their businesses. My advice is make sure you aren getting more than real estate with benefits. Maybe next we need to provide entrepreneurs a framework for making critical decisions about startup things including incubators 😉

Who did I miss?
November 23, 2011
FounderFuel cohort explodes onto the scene
Disclosure: I am a mentor at FounderFuel, and I traveled to Montreal in August 2011 to see most of these companies during the mentor matching. I’ve also mentored Willet as part of my role as Entrepreneur-in-Residence (EiR) at Velocity (@UWVelocity) in Waterloo.

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I am/was impressed with the teams accepted into the 12 week FounderFuel program. Today is #FFDemoDay where after the past 12 weeks the companies get a chance to show the world what they’ve been working on. I love the art of the demo, it is so different than the pitch. I met all of the companies in August 2011 at the Mentor Matching Day, unfortunately I wasn’t able to travel to Montreal to see the demos today. It looks like the team at Founder Fuel is continuing Montreal Startup Up’s great track record of identifying and growing very early stage ventures.

I’m apparently having a bromance for the Real Ventures team. John Stokes (@iamjohnstokes), JS Cournoyer (@jscournoyer), Mark MacLeod (@startupcfo), Allan MacIntosh and Ian Jeffrey (@ianjeffrey) are putting together programs and the funding to support a strong early stage technology ecosystem in Montreal. Keep up the phenomenal work guys.

The 2011 FounderFuel Cohort includes:
- Playerize
  Playerize grows social and mobile games by providing player installs from diverse channels at huge scale.
- OOHLALA
  A mobile platform that helps students take control of their college life by powering the events, conversations and deals on campus.
- Willet
  Willet is the missing step from social browsing into shopping, and converts the mindsets of people without intent to buy into paying customers.
- Vuru
  Vuru takes complex financial statements and distills them down into clear, transparent reports that show investors the fundamentals that matter.
- Seevibes
  The TV Ratings For Social Media Audience – measures engaged audience to provide relevant data that media and advertising industry need.
- BlameStella
  Is your Internet contrivance up to snuff? Find out with BlameStella, the future of Web Monitoring .
- PlayerTakesAll
  A viral campaign & referral management platform that enables advertisers to extend the reach of their marketing efforts by 50%.
- Wavo
  wavo.me is the easiest way to collect, manage and play the music and videos being shared on your social networks.
- Editola
  Editola uses the community to build the most accurate view of every news story. The best articles, videos and opinions, all in one place.
Apply for FounderFuel 2012

The spring 2012 FounderFuel session is scheduled to start on February 20th 2012, and applicants may apply directly online at founderfuel.com until January 7th 2012. An early review of candidates will begin on December 12th 2011.

Photo by deniszgonjanin
November 8, 2011
Trying to understand incubator math
Editor’s note: This is a guest post by Jesse Rodgers who is currently the Director of Student Innovation at the University of Waterloo responsible for the VeloCity Residence & he is also the cofounder of TribeHR. Jesse specializes in product design, web application development and emerging web technologies in higher education. He has been a key member of the Waterloo startup community hosting StartupCampWaterloo and other events to bring together and engage local entrepreneurs. Follow him on Twitter @jrodgers or WhoYouCallingAJesse.com.

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Incubators are not a new addition to the financing and support for startups and entrepreneurs. On the surface, incubators and accelerators seem like a low cost way for VCs and government support organizations to cluster entrepreneurs and determine the top-notch talent out the accepted cohort. The opportunity to investing in real estate and services that enable companies where the winners are chosen by the merits of the businesses being built. It feels like a straight-forward, relatively safe bet to ensure a crop of companies that are set to require additional growth capital where part of the products and personalities have been derisked through process.

However, its not as simple as putting small amounts of investment into a high potential company. An incubator is a business and it’s sole purpose should be to make money.

What are the basics of an incubator?

The basic variables in setting up an incubator business are:
- Cost of the expertise, facilities, services and other overhead
- Amount of $ to be invested/deployed
- Number of startups
- Equity being given in exchange for cash
- Return on the total investment
There are cost of operations: real estate, connectivity, marketing, programs and services for the entrepreneurs, and the salaries of the individuals to find the startups, provide the services and build successes. These costs are often covered by governments, in exchange for the impact in job creation and taxation base. We’ve seen a rise in incubators that are funded on an investment thesis, where an individual or a set of “limited partners” provide the initial investment in exchange for an investment in the companies being incubated.

How much do incubators cost?

The goal is to efficiently deploy capital to produce successful investments. I’m going to explore how incubators make money by making a few assumptions based on the incubator/accelerator models we’ve seen in Toronto, Montreal, Palo Alto and New York.

Basic assumptions:
- Capital Investments: 10 startups x 20k = 200k invested with an assumed ‘post-money valuation’ of $2.2MM
  - This means you now own 9.1% in 10 startups each with a post-money valuation of $220k
- Support Costs: 10 startups x $10k = $100k
  - This is the cost of real estate, furniture, telecommunications, internet connectivity, etc.
Alright, we’re planning to deploy $200k and it need to provide approximately $100k in services just to provide the basics for the startups. We’ve spent $300k for the first cohort and and that is before you pay any salaries, host an event, etc.

Additional costs:
- People:
  - $100k per year salary for one person to rule them all. Call them executive director or dean or something.
  - Assuming you’re not doing this to deploy your own capital, the person or people in charge probably need to collect a salary to pay their mortgages, food, etc.
- Events – Following the model set forth by YCombinator or TechStars we have 2 main types of events. Mentoring events where the cohort is exposed to the mentors and other industry luminaries to help them make connections and learn from the experience of others. The other event is a Demo Day, designed to bring outside investors and press together to drive investment and attention in the current cohort, plus attract the next cohort of startups.
  - Mentoring event: $1k for food costs with 25 founders
  - Demo Day: approximately $5k
  - Assumption: 10 mentoring events plus a demo day per cohort adds $40k.
The estimated costs are approximately $340,000/cohort. Assuming 2 cohorts/year plus the staffing salary costs, an incubator is looking at $780,000 that includes 40 investments and a total of $4.4MM post-money valuation. If we assume that I’m a little off on the total capital outlay, and we build in a 30% margin of error this brings the annual budget to appromimately $1MM/year to operate.

How do incubators make money?

Incubators make money when the startups they take an equity stake in get big and successful. The best exits for an incubator come when one of their startups is acquired. Why acquired? Because the path to getting acquired path is shorter than the path to going public which would also allow the incubator to divest of their investment.

Let’s do the math. If your running an incubator hoping to get respectable returns on the $1,000,000 you’ve laid out above, let’s say it’s not the mythical 10 bagger but a more conservative 3x, the incubator needs one of the companies to exit at near $30,000,000. It can be one at $30MM or any combination smaller than that totalling $30MM. This needs to happen before any dilution and follow-on funding for your cadre of companies. You have to assuming that they can make it to acquisition on the $10,000 and services you’ve provided. For more on incubator math, check out there’s an incubator bubble and it will pop.

The bad news is that it isn’t as simple as that. Startups are not just something that exist in a vacum. There are a lot of unknown variables that can make or break an incubator.
- percentage of startups that fail (or turn into zombies) in the first two years after investment
- time frame return is expected
- how many startups currently produce that kind of return annually
- total number of startups that receive investment in any given year
- total number of acquisitions in any given year
- avg. number of years a startup takes to get to acquisition (because they aren’t going public)
- avg. price a startup sells for (I bet those talent acquisitions drag the average way down)
- what do VC’s currently spend on their deal pipeline?
It is the unknowns that are where the gamble exists. You can tweak the numbers all you would like but assume startups have a no better fail rate then any small business. The common thinking on that is 25% of businesses fail in the first year, 70% in the first five years? If just more than half of those companies are alive in one year you are doing well. If one out of those 20 is acquired in 5 years and you get 3x return do you succeed? Do you have to run the incubator for the 5 years at $1MM/year to be able to play the odds?

Maybe this is why so many incubators focus on office space, it’s easy to show LPs what they are getting for their $5MM for 5 year investment, plus an impressive number of “new” startups that have been touched by the program (often without an exit, you know the way incubators make money).

What am I missing?

Editor’s note: This is a guest post by Jesse Rodgers who is currently the Director of Student Innovation at the University of Waterloo responsible for the VeloCity Residence & he is also the cofounder of TribeHR. Jesse specializes in product design, web application development and emerging web technologies in higher education. He has been a key member of the Waterloo startup community hosting StartupCampWaterloo and other events to bring together and engage local entrepreneurs. Follow him on Twitter @jrodgers or WhoYouCallingAJesse.com.
August 21, 2011
Hacker House in Waterloo

Looks like Waterloo is about to get an addition to the already existing hacker houses and VeloCity residence that are happening around campus.

Does anyone remember Plurk? Plurk was the site that MSN China copied over 80% of the user experience and code for Juku (see the official Microsoft statement). Plurk is a place where people lurk. It has been compared to Twitter. It generates most of its traffic from Taiwan.

And now it looks like they are opening a more “mercenary/hustler driven” approach to a student dorm. Hopefully, this is the compensation they received from a Microsoft settlement, maybe it is a recruiting tactic – hiring developer talent is a challenge and finding entrepreneurial hackers for the cost of a mortgage payment + utilities is actually a really cheap acquisition tactic. With none of the overhead of the coop program and you’ve already skirted any labour laws by making them work for their own companies. Nice.

The program aims to bring in 3-5 students and run them through the gauntlet. Here is one of the welcome letters:

I’m Kan [looks like Kan Kan (LinkedIn)], and I’m one of the founders of Plurk. We’re a Twitter type service and the largest microblogging service in many parts of Asia and one of Canada’s most innovative startups (heck, even Microsoft copied us in China!).  Me and two other very successful under-30Southern Ontario area entrepreneurs just recently (earlier this month) announced the launch of our Hacker House (www.hackerhouse.ca) program, inspired by the very cool Grotto (www.sfgrotto.org) and Y Combinator programs in San Francisco.

Basically, we plan to find 3-5 of the best and brightest entrepreneurially minded, technology focused students from the Universities of Laurier and Waterloo, bring them together in a collaborative environment, and then let the magic with the support of a team of guys (us) who have fostered and executed on some of the most successful startups on the web.

While we’re not affiliated with the university in any way, we offer a couple of BIG benefits over Velocity:

1. If you’re accepted, we provide your living accommodations  absolutely free in a sweet pad just steps from the university for the term/year.

2. We take more of a cooperative mercenary/hustler driven approach, providing access to server space, mentorship, capital (in exchange for the option to buy equity into your venture) and other resources necessary to launch either (a) your own venture, (b) collaborate and percolate on ideas with other participants in the program during the term or (c) get hands on experience working on cutting edge projects (particularly in the social, mobile, geo-local, gaming, data mining & search spaces) in various stages of development.

3. While we may not have the visibility of Velocity, I can unequivocally say that the upside and quality of the experience would be far superior for those who want to execute and iterate on ideas at breakneck speed in a constantly changing market and shoot for the moon.

Our first cycle commences at the start of the Fall ’11 school term (September 2011) and we plan to take in 3-5 students and finalize our selection process by the middle of August.  If you haven’t already finalized your living accommodations for the Fall term and like what you hear so far, I’d encourage you to check us out on www.hackerhouse.ca for more details or get in touch with me directly.

It is a very different approach to residence during the school year. Their focus seems to be very much competitive to UW VeloCity (full disclosure: I am the EiR at UW VeloCity and will be helping the students at UW get access, build products, etc.), but it is a very different approach. The UW VeloCity program houses 70 students, provides access to University and community resources, and for all intensive purposes is opt-in. Many students get into the residence looking for a place to live and learn about entrepreneurship and high tech startups as a career path. The goal is to provide a familiarization to hands-on entrepreneurship.

It is great to see others dedicated to continuing to build the community in Waterloo.

July 26, 2011
Baby Steps

Baby Steps By San Diego Shooter

Once upon a time @jevon wrote a vision on how to rebuild the startup scene in Canada (below). Its relatively amazing how spot-on Jevon proved to be in hindsight, and how much the Canadian eco-system moved in that direction – more smaller funds with a incubator/accelerator look and feel, and lots more community.

How Startups will save Canadian Venture Capital

View more presentations from jevon

For instance, check out David’s post on the explosion of incubators in Incubators, Incubators Everywhere. 18 new ones!

But, anecdotaly, despite some great new sources of funding, we aren’t quite there yet. When I get asked about the latest, greatest startups in Toronto (here or abroad) I end up pointing at a lot of companies that are yesterday’s news, 1-2 year old companies now. Partly my fault as I need to get out and network a bit more, but regardless – we need more. More companies being founded. I know some great folks who are still sitting on their asses getting underpaid at their shit job full of bad office politics. Well the time is NOW. You gots to do what the late Michael Ignatieff told you to do – RISE UP:

Great – you are motivated. Watching Michael Ignatieff will do that to you. So now what? How do you approach the super early days of starting a company?

I’d like to pass on a framework that I picked up from founders I’ve worked with over the years. Its not quite as thorough as anything Steve Blank has written on the topic. But it also doesn’t need a 2 hour lecture and/or a $50 purchase of his (very good) book – Four Steps To the Epiphany.

Basically divide your idea into 4 big areas – product, people, market, financing. Each of these has a burden of proof for you to iteratively solve as the founder. You keep iterating, from baby steps, through to giant steps. Ta da – that is it, the whole framework in two sentences! Taking that framework, the below is how I’d start to tackle the first 90 days of my brand new idea.

The Baby Steps – Day 1 through 90

Things will feel messy, you won’t even have realized that you took the heroic step to do a startup. If you’re a coder, you’ll start hacking away at something new at night. If you are not, you’re probably talking to folks and sussing out how to get it done. The biggest goal here is taking the big emotional leap of “doing a startup”. You have to start telling people you are doing a startup, even if you haven’t quite left your current job. And you need to get yourself personally ready for the leap.

In the four areas I mentioned above, here is what you need to get done:

1. (Finance/Product/Market) Start putting a pitch deck together – principally put together three things:
-The Problem Statement: what is the problem you are trying to solve?
-The Customer: who has this problem and needs it solved?
-The Market Size: try and take an approximate guess at the size of the market you are chasing.

2. (Product) Start on a very raw prototype. For a web app I’d usually get the single core feature done + some lightweight graphic design. For hardware, I’d buy a MakerBot and get a 3D printing done. NOTE – if you are a not a technical co-founder, pay somebody to build the prototype. You don’t need to have a full engineering team in place to get a prototype built.

3. (Finance) Figure out if you need financing, how much financing you need to get to a certain stage ($50k to build a prototype, $400k to launch for instance), and then list who can finance this idea. Light manufacturing & SaaS web businesses are going to have very different funders. Figure out that list, do some deep digging and find out who the angels are for a given category.

4. (Finance) Get your personal financial situation under wraps. Most of your initial costs are going to be the cost of your own time, so make that time cheap. Also, make sure you have ample time. If you are getting married, renovating a house, planning to climb Everest… you probably shouldn’t do a startup.

5. (Market) Think about who your customer will be and talk to some of them. Email them a survey and get some quantative feedback. Hang out with them and ask them to use your newly awesome prototype (which probably sucks, but don’t worry, get them to use it anyways). Ask them how they solve “problem x” and get some qualitative feedback/notes.

6. (Market) Do some really quick tests of the idea in the market. This is called Minimum Viable Product. Setup a Google Adwords and a landing page website. See how much click through you get for a given idea/wording and see how many get to some sort of “commitment form”. You could go as far as letting folks sign up for beta access for your product.

7. (PEOPLE) THIS IS THE MOST IMPORTANT ONE – network, network, network. Email anybody at startupnorth, we have good networks, especially David Crow, (@davidcrow). Go to every startup event possible in your area. If you live in Moose Jaw and there is no Startup Drinks event, create one. You may have to drink alone for a few weeks, but drinking alone is GREAT PRACTICE for your upcoming startup.

8. (People) From the above, you need to build a solid list of mentors, advisors and folks you can talk to about building your own business. Meet with them as often as you need.

This is the list. I’m not even telling you “go get a co-founder, go get $20k in funding, hire a great engineering team, etc”. No, start with baby steps. Get yourself motivated, get networked, prove to yourself that you can build something and meet influential people… these are the baby steps to get over the emotional hurdle.

Let us know what your first steps were and how you got your business going.

PS This note is doubly intended for all the RIM employees who just got laid off. Please go start something new, don’t join Manulife.

July 25, 2011