Business Incubator Series: An Interview With David Cohen, Founder And CEO, Startup Accelerator TechStars – Boulder, Colorado (Part 6)

By guest authors Irina Patterson and Candice Arnold

David: TechStars has a long-term view – a 20-year view. It’s not just about what these [entrepreneurs] do in their first companies. It’s about what the founders do after that.

Rob Johnson [of EventVue] is now in a high-level position at Gnip, a company in Boulder that’s doing quite well.

His co-founder, Josh Fraser, has partnered on a new company with one of the founders of IntenseDebate, which is the one that was sold to WordPress, and is doing a company called Torbit. They’re doing great. They’ll have some interesting stuff soon to announce.

You see the recombination of things. EventVue did a great job of blogging what they learned from the company and sharing it with the broader community. What they got were new opportunities back from that community. I think they’ll both be great entrepreneurs over the long term.

Irina: How many companies that are no longer operating went through the TechStars program?

David: I don’t know the exact number. If you look on the results page, you’ll see. I think there are two or three. The vast majority are still out there. From the last year, there might be another couple that folded that aren’t on that results page. My guess is it’s somewhere around five or six out of 80 that are gone and aren’t around anymore. You can see the specific ones on that results page.

Irina: Entrepreneurs who have graduated from the program never just leave, right?

David: Yes. The idea is that they’re TechStars for life. So, every year, we have a reunion. We get unbelievably great attendance for that. People travel from all over.

For the most recent reunion, there were 70 companies [invited]. I think 52 companies showed up. Fifty of those 52 had traveled by plane or train to get there. They feel a lot of value in that ongoing network.

They have each other, but they also, typically, have the lead mentors that they ended up with. [They] will really be almost friends for life because of the experience they shared together.

Each company ends up with a core set. I’m probably in that group for all of them. Apart from me, it’s different, depending on the program they went through or who their lead mentors were. They’ll continue to tap that network throughout their careers.

Irina: Let’s talk  about your TechStars business model.

David: Tech Stars is the world’s smallest venture fund. It’s pretty simple. We invest in companies, in common stock. It is our hope that those companies ultimately will go on to have some value and return value to the investors.

[It’s] just like any other fund, except that it’s very, very small. It’s proven to be more than sustainable on that front. Our expectation is that it’s a positive cycle to be involved in. The benefits are the network effects and long-term building of success in the communities we’re in, as well as the pipeline of entrepreneurs and mentors who are in the programs.

Irina: Are the investments your main source of support?

David: Yes. Each city has investors. Those people invest in TechStars in that city. We make that very broad. As I said, communities are important to TechStars. If you look at New York, there are about 25 investors. That’s about 15 venture funds and 10 angel investors. It’s not backed by any one fund.

We’re careful of that because it creates all kinds of signaling issues. Each of those firms chips in a bit of money to operate TechStars. We then select the companies and make the investments. Some of those companies go on to exit. That returns capital to those investors on a profitable basis. So, we know that that’s sustainable. That’s the whole model.

Irina: How much capital do you give to entrepreneurs in your program?

David: We give them cash depending on the number of founders. It’s $6,000 per founder, up to three. Typically, it’s $12,000 or $18,000. We view that as about five percent of the program. I think on exit from the program, we always interview them and say, “Would you have done it without the money?” We’re at a 100% who said, yes.

None of them are doing it for the money. They’re doing it for the other things. The six percent is what, in turn, at the company exit, probably has been diluted just like the founders’ would be. We’re just like them. We’ll end up owning a few percent of the company. That then generates cash, at exit, back to the investors.

This segment is part 6 in the series : Business Incubator Series: An Interview With David Cohen, Founder And CEO, Startup Accelerator TechStars – Boulder, Colorado
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