Giving up the ghost early

There is four times as much seed capital in the venture market this year as there was 1 year ago. Because of this, it’s easier to attract seed funding than it has been in the past.

I’ve noticed a disturbing new trend and I think it’s related. Startups are “quitting” when the first year doesn’t go as planned. The founders shut the business down, and either take a job or go out and start a new company with more of that plentiful seed funding. In some cases, they just exit with an acquihire and get themselves a nice compensation package without any material return of capital to their investors.

Startups are hard. Rarely does the first year or two go exactly as planned. The hockey stick doesn’t emerge quite like you thought it would. It takes persistence and determination in almost every case, if you hope to be successful.

The thing I worry about is that the Facebook movie and tons of seed funding have made it almost too attractive to get into entrepreneurship. Founders can live for a year or two on seed capital, have some fun, and punch their lottery ticket. If things don’t take off immediately, they can simply move on to something else.

I’m not saying this is the norm or even typical. Most founders are well intentioned and in it for the long haul, of course. This is just another of the myriad problems in figuring out what’s real given the oversupply of seed capital in the market today.

If you’re thinking of starting a business, think about it as a minimum of 5 years and likely 10+ years. That’s what it’s going to take to be successful. And that’s the commitment you should make before taking money from outside investors.

 

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Overhead

Yesterday, I didn’t leave my house.

I was supposed to be in San Francisco for a board meeting but I was forced to cancel the trip suddenly. It left me with a rare day with only that one meeting (which I had to attend remotely) on my calendar. Otherwise, my calendar was wide open. I can’t remember that last time my calendar looked that way. I ended up doing that meeting online, and putting it on my big screen TV in my basement. It was really as good as being there. I caught every nuance because of the big display. It felt great. Obviously I missed the personal interaction with the management team, but that was really the only drawback.

I then realized that the entire rest of the day would have been spent traveling.  I would have missed bedtime stories with my son, but because I didn’t have the overhead I got to do that too. Sure, I probably would have gotten a ton of email done on the plane. Maybe a call on the way to the airport. But really, the travel was pure overhead. Leaving my house would have been overhead too. I didn’t go out to lunch either, I just ate a quick sandwich at home.

Because of the lack of overhead, it was easily the most productive day I can remember. It was pure maker time, except for that one meeting. I crushed my task lists and caught up on several very important projects. I did a couple of urgent calls (this happens daily – something is always urgent when you have a large portfolio of companies). I went to bed feeling energized and great about what I had accomplished.

My only regret was that I bothered to shower or put regular clothes on. That cost me a couple of minutes. But my wife was OK it, especially the shower. And I’m pretty sure the other board members appreciated not having to witness my pajamas.

I highly recommend you have one day in your life with zero overhead. Doing this will help you think about which of the overhead items you want to add back in and which you want to try to reduce or eliminate. You may be amazed by what you find. I sure was, and it’s leading to a few changes.

 

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150M new reasons to be thankful at Techstars

Today, we launched our third venture fund at Techstars, now called Techstars Ventures. It’s $150M of fresh capital focused on Seed and Series A and we’re now managing $265M in total. You can read the basics of the announcement on the Techstars blog.

In the life of any business, there are moments. Moments that matter. The same has been true for Techstars, of course.

There was the moment Techstars was born, after I had a “random day” meeting with Brad Feld. Meeting him changed my life and career in profound ways, inspired me to be a better person and investor, and helped me achieve more happiness and balance in my life. Brad taught me the once mysterious ways of “giving first” that have become so ingrained in the Techstars culture today. After that random day meeting, Brad became a co-founder of Techstars along with me, Jared Polis, and David Brown.

Another moment was meeting Jason Mendelson, one of Brad’s partners at Foundry Group. I think it was a 15 minute meeting that turned into a few hours over beer. Jason became a close friend and has been hugely instrumental to the success of Techstars in innumerable ways. It’s truly humbling to stop and think about all of the things that Jason has done for me personally and for Techstars as an organization. My biggest regret is that he is not recognized enough for all he has done. I consider him a co-founder of Techstars, even if that’s not how the way back machine will necessarily tell the story. Techstars would be a shadow of what it is today, if it still existed at all, without Jason Mendelson. Ryan McIntyre and Seth Levine and really everyone at Foundry Group have been at times irrationally supportive of Techstars over the years and I cannot possibly thank them all enough. This latest fund would not exist without this tremendous support from Foundry Group, their generous introductions, and their belief that what we are doing at Techstars is important work.

These first moments in the Techstars story led to the launch of Techstars in 2007, an important moment to be sure. Soon after came the moments of meeting Nicole Glaros who would later run the Boulder Techstars program and who now works with me on this new fund. She is probably the single most important actor in the success of Techstars, although she likely today still has no clue that this is how we all feel. That is just Nicole – she’s the biggest team player I know and a humble inspiration to us all. And there was the moment I met Molly Nasky, our CFO. Both Nicole and Molly have worked tirelessly for completely unreasonable amounts of time and took enormous personal and professional risks to build Techstars from the ground up. Molly is and has always been the pulse of Techstars and I am constantly astonished at what she is able to pull off. Molly was really the first person I ever considered a partner at Techstars, long before this was ever formalized.

In 2009, there were two more moments that mattered. That was the moment when we created the first venture fund. Back then we called it Bullet Time Ventures (I was a big fan of the Matrix and that’s the only hint I’m giving you), which later evolved into Techstars Ventures. The first Limited Partners who invested in that first fund took a tremendous risk on me and on Techstars. I’m thankful that risk has been rewarded and that that opportunity has scaled to allow us to bring Techstars to the world. Another moment that year was when we started to scale Techstars by expanding it to Boston. For that I am most thankful to Bill Warner. Without Bill, Techstars would have never figured out our scalable growth model which allowed us to grow while keeping our focus on quality instead of quantity. Bill understood that Techstars was something different. Something necessary for the Boston community. I will never forget our dinners and his will to help us figure out how Techstars could impact more people. Bill helped me figure out the difference between the invention of Techstars and the intention of Techstars.

There were so many other moments early on. Andy Sack who forever became part of the very soul of Techstars. Jon Bradford who expanded our horizons internationally. Katie Rae and her incredible passion for startups in Boston. David Tisch and his tough love and push in NYC. Jason Seats and his incredible instincts as an investor. Ari Newman taking multiple career risking chances on Techstars. Walt Winshall and his endless wisdom. The list goes on forever.

A few years ago as I was contemplating the growth and potential of Techstars, Mark Solon and I were trying to figure out how to be partners. We knew we wanted to, but we hadn’t figured out exactly how it would work. We were struggling, not with the partnership but with how to define it. Then there was a moment neither of us will ever forgot. Mark’s wife, Pam, told Mark to just “get on the train”. Pam realized that the Techstars train was moving 1,000 MPH and wasn’t going to slow down to figure out exactly what seat Mark should sit in or exactly how much the ticket might cost, or frankly even where the destination might be. In that moment it was Pam’s encouragement for Mark to take that leap of faith, to work out the details later, to just jump on the train and start helping to keep it on the tracks, that triggered an amazing partnership between us that led to our ability to raise this capital and to make Techstars stronger overall.

Like Pam has for Mark, my wife has also supported me in incredible ways during a tough year of fundraising which required extra travel and additional stress. Nothing has changed me for he better like the moment I married her.

There are so many Managing Directors, Directors, Program Managers and staff at Techstars who helped us survive the growing pains so far. So many mentors and investors who have impacted so many others. So many great partners. So many great founders. I know that they are rarely looking back with pride because they are laser focused on today and the future ahead. But I urge them all to take just a moment and to reflect on their impact on so many entrepreneurs and on the very way that startups are now created around the world.

One of the biggest moments of all was recruiting my 20+ year business partner, David Brown, back to Techstars full time. While Mark and I raised this fund over the last year, David has absolutely transformed Techstars from the inside. Our culture is humming, we are a focused organization, we handle conflict much more effectively, and we communicate better. His impact has been astonishing and transformative.

Then there was that moment when our lead LP in our newest fund had the nerve to say “I’m in” with a huge check early on. That moment changed everything for this new $150M fund and gave us credibility and a head start in a crowded market. We had a secret weapon who helped us with investor relations. I could tell you who he is but he would have to kill you and me both if I did. The moment he came on board made all the difference.

There are hopefully many more moments ahead for Techstars and I know there are many I have not recounted here. Thanks to everyone who has been involved. Techstars is a community.

You know, they say building a business is about the people. When I think of the moments that matter – the moments that changed Techstars – I think of when and how I intersected with these people. It is, truly, the people. And I will never forget this as an investor.

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How to Choose an Accelerator

(This is second in a series of 10 blog posts from my interview with Scott Gerber for the Inc.com Founders Forum. We discussed a bunch of topics including choosing an accelerator, mentoring, acquisitions and the tech talent shortage. You can watch all of the videos on Inc.com.)

Here is the full video interview on this topic. Some text excerpts are below.

How do you determine if an accelerator is worth it?

Overall, I feel like accelerators are a positive thing. My view is, if they’re investing and providing mentorship to startups, they’re by definition helpful. They might not all be economically successful, but they can improve their communities and provide a network, which I think is the most valuable takeaway from a quality accelerator.

What should you watch out for?

I’ve seen programs started by people who aren’t entrepreneurs. You really need to have people with entrepreneurial background and operating experience in the middle of the activity. And then, some accelerators offer overreaching terms, like 10 to 20 percent equity stakes being taken for almost no money invested.

It’s really important for an accelerator to be open and transparent with their results. They should be open about who has been through the program and what kind of outcomes those companies had. If they’re not transparent, then that’s a major red flag.

Defining a set of standards

Techstars decided to start the Global Accelerator Network (GAN) in 2011 to help bring standards to the industry. We wanted to define a set of standards that seemed reasonable and beneficial to entrepreneurs, which is what we’re all about. GAN is an independent organization designed to deliver best practices and build network among accelerators. We don’t own or control any of it today, it was just a gift to the global startup community because it needed to exist. Today we are simply members like many other accelerators.

What are the definitive pillars of a successful accelerator?

I can tell you the right mix for a program that has a basis to be successful:

  • Founded by people with a strong operating background
  • A great set of mentors who are digging in and engaging
  • Upfront funding for a reasonable amount of equity

But ultimately, the only true measure of an accelerator’s success is the success of the companies that go through the program. Important to check out their stats, if they are willing to publish them. Here’s ours.

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Is an Accelerator Right for You?

(This is first in a series of 10 blog posts from my interview with Scott Gerber for the Inc.com Founders Forum. We discussed a bunch of topics including choosing an accelerator, mentoring, acquisitions and the tech talent shortage. You can watch all of the videos on Inc.com.)

Not every founding entrepreneur at the early stages should look for an accelerator. Only you can really make that determination. Here are a few guidelines for deciding if an accelerator is a good idea for you, and if so, how to select the right one.

Should you apply to an accelerator?

Here’s the video in full, and below are some of the highlights.

The biggest reason to apply to an accelerator is for the network. Most people aren’t doing Techstars for the $100K, they’re doing it for the people they get to surround themselves with and the deep connections they build. They’re doing it more for the $1B in follow on capital that has been aimed at Techstars companies. And for the amazing people in the network already.  If you believe that a network can be additive not just for the company you’re working on, but for your entire career, then an accelerator can be an excellent choice.

If you’re truly open to honest feedback, and looking for new ideas, an accelerator is a great place to find that. You can get rapid fire feedback on what you’re doing from a community that wants you to win. You’re surrounded by 100 smart people who have done it before, and they have an opinion about what you’re doing. It doesn’t mean you’re wrong and they’re right, but you have to be open to other points of view. You get a lot of data points to help you figure out what you’re doing that makes sense and what doesn’t. If, on the other hand, you have tunnel vision and are positive that what you’re doing is right and nobody could possibly change your mind, an accelerator is probably not a good idea for you.

How do you choose an accelerator?

There are a lot of accelerators now, with new ones being created every day. Not every accelerator is right for every entrepreneur, and some may not be reputable. If you’re searching for a good fit, here are some things to consider:

  • Look for something that is established and has funded some companies.
  • Talk to founders who have been through it and get their honest opinions about the positives and negatives.
  • Take a look at what’s provided by the accelerator.
  • Look at the track record. What were the outcomes of the companies that have been through the program?
  • Most importantly, look at the network around it.

Watch out for these red flags.

  • Lack of transparency: If you try to research the above items and you can’t get any information, that indicates they have something to hide.
  • Unreasonable terms: The accelerator takes 15 percent equity for a 25K investment.
  • Wrong people at the helm: If the people running the program aren’t entrepreneurs with operational experience, they probably won’t provide much value.

For more thoughts on this topic, check out the next segment: How to Choose an Accelerator (coming soon).

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My Semi-Random Walk

It’s always interesting looking back at the random events that affect your life. When you allow yourself to be open to randomness, things tend to happen that you would never expect and couldn’t possibly predict.

Derek Scruggs interviews all kinds of interesting people with intriguing stories of randomness for his Semi-Random Walks Podcast, where he also features little-known but excellent music from around the world.

Since we’re both part of the entrepreneurial community in Boulder, I’ve known Derek for a while and our paths have crossed several times. He’s currently CTO of Avenir International, a provider of telecom software for hospitals.

I interviewed Derek back in 2007 when he was kind enough to share his thoughts on failure.

Now he has interviewed me.  You can listen to the podcast to learn all about:

  • The only job interview I ever had in my life
  • How that job led to the first business I started
  • How I met David Brown
  • The way the timing of the Windows 95 release impacted my life
  • How a watermelon and a broken down car helped me decide to live in Boulder
  • How David and I built a successful company without knowing what a venture capitalist or an angel investor was
  • My “graceful failure,” which was a great learning experience
  • My random intersection with Sam Altman long before we were both running accelerators
  • How I became an angel investor by acting like an angel investor
  • The time Brad Feld and I went to the White House and told the government not to fund accelerators
  • The origins, development and future of Techstars

…and much, much more.

You can listen to the full interview on Derek’s site. He really does an awesome job with all of his podcasts, so be sure to check out some other stories of randomness while you’re at it.

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