Y Combinator’s latest class. It’s the tech world’s version of covering the presidential primaries: Plenty of these companies aren’t going to exist in a few years (or perhaps even in a few months), but some may go on to do great things.Twice a year, every tech website seems to devote lavish coverage to just what startups made it into
For those of us actually bent on founding our own startups, the coverage creates mixed feelings. It’s great to see people actually making it. But all the press also reinforces the feeling that every startup needs to go through an incubator in order to succeed. That can be incredibly frustrating for startup entrepreneurs. Not only do we need to come up with a great idea, we have to make sure that it’s something that works for an incubator.
There Is Value in Incubators
Without a doubt, an incubator can help a startup get up and off the ground quickly. Ella Dyer is an alumna of Springboard Enterprises, the Startup Chicks Accelerator and Venture Atlanta. “Winning the first annual pitch competition placed us in a four-month mentoring/coaching program where we learned, were reminded of and shared valuable insights into the making of a successful startup. Throughout the program we were able to network with proven leaders, several who have become close advisers and even investors in our company.”
Many startups point to the value of connections, just as Dyer does. Connections go beyond just getting venture capital, of course. Dyer notes, “The Atlanta chapter of Startup Chicks is ripe with support in every category. From the start we knew who to turn to should we need assistance with spreadsheets (something covered several times throughout our first year) or tax details.” Dyer’s experience with an accelerator had other benefits: “Sharing the launch of our first application, FashionAde, with the vast community of Startup Chicks was a bonus; we immediately had users, feedback and more assistance.” Overall, Dyer considers incubators very valuable and a key to her success.
But is an incubator actually necessary to a startup’s success?
When you’re outside looking in, an incubator seems to do certain things very well: connect you with investment capital and guide you through the process of setting up a business. For this service, most incubators take a percentage of the startup in question. There are some subtler benefits as well: When a new startup lands in one of the better-known incubators (like Y Combinator), it gets a huge amount of attention from the media, at least online. That attention may be enough to turn the tide for a new company.
But what if your startup doesn’t need the services that an incubator offers? What if you can bootstrap the startup you have in mind? For those companies, there may be little point in applying to an incubator. And, as an added bonus, you get to keep control of your entire company.
Considering that incubators tend to look for very specific business models – startups that can grow quickly and offer a major return on investment – a close look at the numbers can sometimes make it hard to justify applying. And if you’re doing something particularly new, you may not be able to get into an incubator even with a truly great idea. Incubators aren’t exactly conservative, but they do clearly prefer the types of startups that they’ve seen before.
Incubators: Nice to Have
We need to cultivate the mindset that incubators are a nice-to-have option, not a need-to-have. I’m saying that as someone who has started a business without needing (or being a good candidate for) an incubator, but who would love to go through an incubator at some point just to get the connections it offers. I see a lot of value in the process. But I also see that plenty of startups can establish themselves without that sort of assistance and go it alone.
Pro bono as in free. EvoNexus (which does sound kind of like a U2 album), is a project of San Diego tech industry association CommNexus, which launched the incubator in 2009 to stimulate the growth of new high-tech companies in the area.
Like most other high-tech incubators, EvoNexus provides entrepreneurs with office space, mentoring and VC networking. But unlike other incubators, those entrepreneurs pay no fees and give up no equity.
“We believe we’re the nation’s only pro-bono high-tech incubator, no strings attached,” says EvoNexus operations director Bailey Cunning. “Our sole goal is to grow the tech sector in San Diego. And we want to do it without making companies give something up.”
It’s an attractive proposition. And it’s drawing a lot of interest from entrepreneurs. EvoNexus has had more than 300 applicants since it started – a third of them in the past eight months. About one in 18 is accepted, and there are currently 23 entrepreneurs in residence at the program’s two office spaces in downtown and suburban San Diego. Startups stay for an average of a year and a half, a lot longer than the three-month tenure at a typical for-profit incubator.
EvoNexus participants get facilities, utilities, broadband and all the business services they need. They get help with their pitches and free lunches with VCs. They get to choose their own mentors based on industry fit. And they get San Diego beaches, sunshine and the Gaslamp Quarter to unwind after a hard week of development.
“Applicants are usually pretty shocked that we offer all this pro bono,” Cunning says. “Usually they want to apply immediately.”
Twenty-nine startups have been incubated to date, and six have “graduated,” which means they’ve gotten a VC or strategic investment and left the nest. Graduates include EcoATM (recycling kiosks for consumer electronics), IO Semiconductor (fabless semiconductors), TretraVue (3D measurement and imaging), Pixon Imaging (advanced real-time video image processing), MicroPower Technologies (wireless surveillance) and Perminova (Web-based cardiology software).
EvoNexus is supported by local corporations including Qualcomm, LG, Nokia and Verizon. In return for their assistance, they get a more vibrant tech sector in their neighborhood – and they get a pipeline to new technology and talent.
A sponsorship costs $25,000 a year, which is a lot less than some companies pay to onboard a new app and a handful of programmers. (Hello, Facebook.)
As we heard in April, Kevin Rose and former Digg designer Daniel Burka have teamed up to start Milk, a mobile app development lab in San Francisco. The company also raised $1.5 million from a number of all-star investors, including our own Michael Arrington. Now, we’ve just found a little more information on the first app that will be debuting from the incubator, Oink.
Details are limited, but it appears from the site that Oink will be an iPhone app that lets you ‘rate the adventure’. From the tagline on the front page, ‘Life’s an adventure. Vote, rank, and share the world around you.’ The app is connected to Twitter, but not Facebook (yet).
That’s all we know for now.
As my colleague Sarah Lacy reported in April, Milk isn’t your typical incubator. The startup aims to ‘solve a handful of big old-industry problems using the mobile Internet’ and only expect to launch a few big ideas in the next year. And they will be radical, and so forward-thinking that some may fail.
It’s hard to figure out how Oink fits into this ‘big-idea’ strategy without knowing further details. But we’ve contacted Kevin Rose for more on Oink and will let you know what we hear.
In March we wrote about the launch of Imagine K12, a new startup incubator modeled on Y Combinator that is focused on the education space. It was founded by startup veterans Geoff Ralston, Tim Brady and Alan Louie.
The company sorted through some 200 applications, interviewed 36 startups and made offers to ten startups for the first class this summer. All accepted, took an average of $20,000 in funding for an average of 6% of their equity, and moved to Silicon Valley.
Those startups are now hard at work to launch by the first Imagine K12 demo day in September. They’re also getting lots of attention and mentoring via a weekly dinner and office hours.
The largest team is four people, say Ralston. There are a total of 24 founders among the ten startups.
WaterSmart Software, a green tech startup that’s frequently compared to the energy management startup OPower has closed a $900,000 round of seed financing led by Menlo Incubator and joined by Sand Hill Angels, Draper Fisher Jurvetson and Physic Ventures.
The company’s co-founder Peter Yolles explained the concept of the technology in an interview with TechCrunch ahead of the funding announcement:
“WaterSmart Software is really about creating a relationship between the water utility and the homeowner. Most residential consumers don’t understand how much water they use and where it goes in the home. We’re trying to create a way for them to ask and answer questions like: how do I compare to my neighbors, in terms of water use? What are the two or three best things I can do in or around my own home to save water? What costs me the most money?”
Another WaterSmart Software co-founder, Rob Steiner said:
“We white label our analytics, so they appear online and in print like a tool from the water utility that helps people monitor their water use, break down the meaning of their water bills, and take advantage of all the incentives, rebates and freebies a utility already offers.
We have hundreds of parameters and variables that we analyze, including: water consumption and water billing, census, demographic, real estate, climate and weather information. We even include some details that are about how much you can cut down on gas and electricity use, when you cut down on things like hot water.
We’re making it easier for consumers to save money, and making it easier for utilities to market water and energy efficiency better.”
WaterSmart’s executives found — through a combination of the company’s own research and outside market intelligence — that a typical household of 4 people including children in the U.S. will use between eight and ten thousand gallons of water per billing month, and that in most U.S. markets, the price of water is going up 1.5 times faster than any other utility bills each year. They believe they can help utilities and consumers reduce water consumption by 2 percent, this year.
Does that amount to significant savings on a dollar basis? In some markets more than others, perhaps.
According to Circle of Blue: “In the last year, the price of water in 30 U.S. metropolitan areas has increased an average of 9.4 percent for residential customers with medium consumption levels… Yet the median increase for medium consumption was 8.6 percent.”
Steiner said the startup will use its new-found capital to complete pilot projects already under way with major water utilities in California, and to get beyond the proof of concept phase with their technology. They also seek to hire ten people this year; they currently have six full-time employees and are based in San Francisco.
Not affiliated with the WaterSmart Innovations conference, or U.S. Department of Interior program to help states and water companies adhere with the SECURE Water Act — WaterSmart Software won the inaugural, ImagineH2O competition in May 2010. The competition rewards businesses with technology that can curb, and help people cope with a growing, global water crisis.
Scott Bryan, director of operations with ImagineH2O said:
“Natural resources are over drafted, and there’s an increasing risk affiliated with climate change that makes water supplies more variable around the world. Companies like WaterSmart will make it easier for anyone to understand their water footprint. Most importantly, they have hit upon a capital efficient way to make a difference and to raise awareness. Many other water and cleantech ideas require tens of millions of dollars to even try to get something up and running.”
Serial startup CFO, and angel investor Steve Bennet, with both Menlo Incubator and Sand Hill Angels, said the company locked the substantial seed round because:
“The co-founders are water geeks with a lot of domain expertise. They had already developed a great portal, and analytics. They also managed to sign up two, municipal water providers to homeowners in Northern and Southern California to use their software. Having these pilots lined up made us enthusiastic. Though there are a lot of unknowns, here, the investment will help the company get proof points about how well software, including some game dynamics, can drive efficiency.”
When Google Voice (previously GrandCentral) cofounder and CEO Craig Walker left Google last year, he didn’t go far. In fact, he just went across the street to set up a desk at Google Ventures as an entrepreneur in residence.
At the time he told me his goal was to start a new company. Now, he tells me, he wants to start lots of them.
He and his team (former Google Voice engineers Brian Peterson and John Rector, and Alex Cornell) are launching Firespotter Labs today, an incubator for new startups. The company has also taken an initial $3 million round of funding from Google Ventures (keepin it in the family!). Wesley Chan joins Firespotter’s board of directors.
Just another incubator? Maybe. But Walker has direct experience with the idea. Grand Central came out of a successful incubator, Minor Ventures. He says he wants to take the parts of Minor Ventures that worked, and then tweak a few things.
For example, he says, Minor Ventures tended to come up with ideas and then hire a team to build those ideas and carry the companies forward. Walker says that Firespotter Labs will build the initial products using its own permanent in house team. When and if an idea has legs, then they’ll hire a team and spin off the company to get outside funding.
So when will we see some actual operating startups coming out of Firespotter? Sometime soon, says Walker. That $3 million, he says, is enough to get 4-6 companies off the ground.
AngelPad selects startups twice a year and is looking for its third round of contenders today, putting out it’s application tonight in order to find the best and the brightest. In case you’re debating about whether to apply to YCombinator, 500 Startups or AngelPad, founder Thomas Korte tell me that what makes Angelpad different from other accelerator programs is its size (small) and its emphasis on product and market.
When I asked Korte what AngelPad was looking for specifically in a company, he said, “Well, anything that will get covered on TechCrunch. [Writer's/Editor's note: Ha.] Our founders are a little older than the typical incubator crowd, with some experience. And we need a technical co-founder, if you can’t code it, you can’t start a company in Silicon Valley.”
In addition to office space, mentorship and vetting, current and future AngelPad companies will receive $20K funding in exchange for 6% of the company in common shares (which means a valuation of about $333k, which isn’t the point).
Prospective applicants must supply their basic info, a LinkedIn profile and two minute video in stage one. In case you think this sounds like a piece of cake, 95% of applicants don’t get to stage two so try hard if you’re applying. If you are in the fortunate 5% that make it, you’ll need to provide a a long form application and real life interview after you pass.
Korke says that the actual value add of joining AngelPad extends beyond equity, “The 10 week program covers all aspects of a company launch – from idea to product, market fit, customer acquisition and fundraising. We also take care of the less glamorous things like incorporation, immigration visas or setting up books.”
Those interested can apply here.