TechStars selects companies, will it work?
(Editor’s note: I did apply to TechStars and was not selected. I think the TechStars business model is sound… but maybe not their judgment.)
TechStars, the Y-Combinator-like startup incubator, selected its first round of ten companies, according to TechCrunch. I cannot find a list of all ten companies but the post lists two startups: (1) Intense Debate and (2) socialthing (by digitalsoap). Also absent is any notice on the TechStars blog.
The majority of comments focus on the amount of equity being given up but that’s a non-issue. If you sell your idea cheaply, it’s your own fault. And I would argue that the valuations reflect the very high risk of funding people without a track record. Entrepreneurs and investors are on the same page. It was the first comment that made me cringe though:
This is what I love about web 2.0..everybody who is smart has an equal chance…well almost equal chance..it would be exciting to see if these companies become the next “it” thing
I completely disagree. Not everyone has the same chance. There are hundreds of smart people out there. The majority are not good at entrepreneurship, just like the majority don’t play pro baseball. Web 2.0 has not changed the equation. Entrepreneurial success takes intelligence but it also takes passion, capacity to execute, timing, risk management, personal work/life balance, a great idea, sales skills, networking skills, a bit of luck and a thousand other things I’m not thinking of at the moment. Not everyone has those. It’s scary if people believe stuff like the above comment. A good idea isn’t a good business necessarily.
In my opinion, the funding TechStars offers is not the most important part–its the connections and networking opportunities. But with 70 percent of the companies being B2C, I am leery. Think about it: the key to consumer-facing social applications is achieving scale. There are thousands of networks out there, only a few have really hit it big–why? The MySpaces and Facebooks of the world did so by either: (1) being there first or (2) defining a niche. Timing and niche building aren’t easy. I wish all companies selected the best of luck. I’m sure they’ll be developing truly interesting ideas. But what I worry about is if those amazing ideas will make amazing businesses. Some ideas are too innovative–the world just isn’t ready for them yet. I am interested to follow the progress of these ventures in the coming months.
Here’s my prediction on Web 3.0… Veteran software execs leverage their own personal connections and a new generation of entrepreneurs (who grew up with the internet and truly know it). Some equity funding to start initial development. Mentoring and networking around follow-on funding. Connections to experienced developers, designers and project managers. Execs (now investors) sit on the Board of Directors (or an Advisory Board) and do a lot of the selling. Teach the founders how to pitch, how to sell, what clients look for in a presentation and then get their foot in the door. It’s a recipe for success for everyone involved. I would even go so far as to say the specific execs who sit on the Board of any given company should be given a direct financial interest in the company (as opposed to the incubator as a whole) to encourage active participation. Students do the legwork for very cheap, execs talk to their contacts, everyone cashes out, everyone wins.
Update: priceless comment via TechCrunch in a follow-up post.
Your comments on the number of consumer internet companies that we are funding are interesting (as is much of this debate).
You know you’re getting somewhere when you’re polarizing people. We’re of course very used to this debate, but the generally civil tone of this lastest round of discussion is a good sign. Thanks for everyone who has contributed with their honest opinions.
The simple fact is that most of the people who are attracted to a program like TechStars are in their twenties. Most of these people want to build consumer internet sites - it’s just what they’ve grown up dreaming about. About 70% of our 300+ applications were B2C.
I hope that TechStars can be much more than a web 2.0 fun factory - it’s certainly not our goal to try to help build a bunch of flash in the plan companies with no business models. A few are coming in “web 2.0″ strategies. And while it can obvoiusly work in some cases, we’ll coach them about the obvious dangers.
I can tell you that each of the 26 founders who will be participating in TechStars this summer are (so far) an impressive group. As investors, we’re going to try to do our best to mentor and support them in accomplishing their dreams. A key point and thesis of our investment strategy is that great people and great teams will find the right idea. Given this, we fund the people primarily, and the ideas secondarily.
The investors surrounding TechStars are very experienced, having been involved in the funding and operations of well over a hundred very real and successful companies. We’ve also made plenty of mistakes both as entrepreneurs and as investors. We are hopeful that all of this will help us and the companies that we fund to avoid the mistakes that so many people naturally assume that we will make.
Our motives always seem to be questioned. We’ve had our success in the past and are simply doing what we truly enjoy. We also believe that it’s a win-win situation for the right type of company and the right type of investor. Clearly, there is demand. But we believe that the supply of mentorship driven investment has been limited. Some people have simply said that TechStars is trying to professionalize angel investing. I don’t think that’s too far from the truth.
Best of luck with your own project!