Does Lexington (or Louisville or other cities like it) need a Techstars program
March 20, 2009
Two years ago, a partner and I investigated the idea of starting a Techstars style program to Kentucky. For anyone who does not know, The “Techstars style model” is a mentor-ship-driven venture model for seed stage tech startups. The companies (really just teams of good people with a good idea) receive a small amount of cash, a high level mentor-ship experience and a dynamic collegial environment. This is a really novel way to help develop seed stage companies as it focused less on cash and more on mentorship and guidance. At the end of the program most of these startups have gone on to raise follow on funding and many have already been successfully acquired. At the time only two such operations had a national profile, the aforementioned Techstars in Boulder and yCombinator located in Boston at the time. The reason we thought it made sense was the model focused on what new entrepreneurs need most, guidance from those who have been there before and with only two “competitors” the possibility of attracting some of the brightest talent in the country to such a program seemed promising. While we made significant progress towards such a program, a single important issue developed. In both of the existing programs the founders of the program are the sole capital providers and by themselves are significant mentors for these seed stage startups. In addition they had the connections necessary to develop an impressive group of mentors and potential follow on investors to work with these companies. While we had capital and connections and some mentors it became obvious that without the nationally recognized founder as part of the group it was going to be hard to get that critical mass of each component. Simply, Kentucky does not yet have that critical mass and many places that could benefit from this innovation do not possess these critical components yet either.
Fast Forward to today and many people believe that if you build it, this type of “incubator” for lack of a better word, then they will come. However, the landscape had changed dramatically in these two years. Techstars is in Boston as well as Boulder now funding up to 20 ideas. yCombinator has relocated to Silicon Valley and raised some additional capital to allow them to fund around 40 ideas. In Washington D.C. there is Launch Box Digital, In Philadelphia, DreamIt Ventures, BootUp Labs in Vancouver, B.C., Capital Factory in Austin, Summer@highlands in Boston & Silicon Valley and soon to start is The Funded Founder Institute to be based in Silicon Valley as well and a group looking at starting one in RTP North Carolina. Also, Facebook offers its’ Developers Fund which applies the same model for those building on Facebooks’ platform and Google held the Android challenge for those developing mobile apps on that platform. What this means is that entrepreneurs no longer are forced to travel and probably relocate to Boulder or Boston to get this type of assistance. In addition, the pool of available talent with an idea worthy of receiving this help has been diluted. Originally, the best case scenario was that that the top 20 or so would have been funded meaning a group using this model to recruit nationwide would have had a shot at maybe 21-30 best teams & Ideas. With the proliferation of these models, at best you are competing for the 110th best team and idea. This is obviously an oversimplification but highlights the challenge for any group believing the power of the model will overcome a lack of track record and national connections.
The conclusion I come to is this model will only work in new locations where the founders have a natonal reputation and the money to underwrite the program themselves. Essentially, if the person’s reputation is significantly high profile and that will attract people in and of itself. The ability of the novelty of the program to be a draw is diluted when multiple options for this type of assistance exist. Those located in second tier cities would be well advised to look for a new model that is innovative and sets them apart.
UPDATE:
Two other similar programs just launched Start @ Spark funded by Spark Capital in Boston and Shotput Ventures in Atlanta. As I predicted evry large city will have one of these programs started by a group or group of individuals with the clout to bring in applications. It is likley that most entrepreneurs at that early a stage will just apply to multiple programs in hopes of landing in one.
