Monday, March 7, 2011

The New Incubators Report

David Tisch, TechStars · Gabe Zichermann, Founder Institute · 
Brian Cohen, NY Angels · Moderated by Alan Brody
Sponsored by Herrick, Feinstein

Three styles of incubators were highlighted at The New Incubator iBreakfast last week - giving our audience of entrepreneurs and investors a view of options that may never have been available before.

Start Ups if You're Under 30 
The buzz has been with TechStars, a new kind of incubator that, like Y-Combinator and others is part of the so-called "agile start-up" movement. Unlike the old days of betting on an expensive build-up based on the Entrepreneur's theory of what the market wants, here the idea is to build cheaply - even living at the incubator - while allowing the market to tell you what they want. At that point, the start-up pivots to where the market is.

A good example of this is - a TechStars start-up for group dating - that found its true market in Southeast Asia and India where group rather than one-on-one dating is the norm. Despite knowing almost nothing about India, the founders were now in the Indian dating software business.

With TechStars, a vast number of applicants are viewed before a handful are selected to receive $6,000 per principal up to a total of $18,000 for around 6% of equity and a few months to produce. They are given space, business and technical resources and then access to additional investors. The house typically has options on an additional 20% or so of equity. This tends to favor young, lean start-ups that can dedicate themselves, move fast and adapt. Their success rate has been quite compelling.

According to David Tisch, who runs New York's TechStars chapter, of a crop of 70 companies, 70% have received additional funding or been acquired by companies like AOL and IAC. (The program was originated by David Cohen, a serial entrepreneur in Colorado.)

Start-Ups if You're Over 30 
The Founder Institute is almost the opposite of TechStars since it favors people that may already have a job, business or a career and are taking a part time approach to evolving their Start-Up. They may even be execs reinventing themselves by way of a their Start-Up. As New York manager, Gabe Zichermann says, the vast majority are "not out of college but are post business or retirement." After a sign-up fee, Founder Institute members, a group created by Adeo Adessi and now in over a dozen of cities and countries, give up about 3% of their equity and go through an entrepreneur's program that sharpens their plan and puts them on their road to seek funding and customers.

For All Ages: New York Angels
Brian Cohen is the Vice-Chairman of New York's venerable angel group that has made scores of investment over the years - over $60 million in over 40 deals. Their view is more traditional - good plans, good young management, straight angel deals. At one point, NY Angels, was involved in its own lean incubator, SparkSpace but exited it after a few years because they felt their operating model did not require it.

While the panel offered a cordial cross-view of start-ups, there was some controversy over the idea of a start-up as being the "new cool" - something akin to being a screenwriter in L.A. The work of Entrepreneurs, some of the panelists opined, is really quite mundane and that calling them "stars" is not such a great idea. "Success," said Cohen, "is the worst teacher."

After the presentations and discussion, we invited starts-ups of various levels to come up from the audience to make elevator pitches. This was instructive in a number of ways:

1. All starts-ups seem to need some type of interaction with peers, business experts and investors to find their new business path
2. People with experience often dwell on their past accomplishments rather than their business ideas
3. Investors can still find a good a good idea in an uncertain pitch

The pitches covered a lot of educational areas: financial, hiring etc. Investors are often leery of education but seem to give a second look to pitches that find a genuine pain point with actual dollars at stake. Likewise, businesses that reach kids are only of interest if parents with checkbooks are standing behind them....

New kinds of apps are always of interest. One testy moment occurred when a software entrepreneur asked the what value would be given to having patents. Due to the fast-changing nature of software tech, the group were not very enthusiastic about it. They appear to be valued in Biotech and medical and other devices where there is a long approval lag but when it comes to software the patent bloom seems to be off the rose.

The iBreakfast/iEvening will be return on April 5 with its famous Executive & Entrepreneur Workshop and Pitching Event.