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Friday, January 7, 2011
TechStars Boston draws fewer investor dollars than other markets
By Galen Moore
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Backers of TechStars Boston are hoping 2011 will be better.
In its first two years in Boston, investors have shown markedly less interest in the program’s graduates than they have in Boulder, Colo., where Techstars was founded, four years ago.
Take 2009’s crop of startups, for example: according to data TechStars provided by request, Boulder’s graduates have since closed $10.5 million with outside investors; TechStar’s Boston 2009 companies have banked just $3.8 million. Overall, half of Boulder’s 40 graduates to date have closed funds, and six have been acquired; just six of Boston’s 19 graduates have raised a round, and none has been acquired.
Raising capital is one of the primary goals of the TechStars program. Boston may yet close the gap: three of the 2010 Boston companies have raised a portion of planned rounds; one more, Sparkcloud, has raised a small, undisclosed amount. Former Boston managing director Shawn Broderick pointed out the Boulder investment has grown over time since the program launched there in 2007.
However, TechStars investors, managers and executives acknowledge that Boston needs to do better at helping young companies attract investment.
“You’d like to see that pick up,” said TechStars founder and CEO David Cohen. “I feel like the Boston program was really our first expansion. We did two more after that, learned a lot from those other two. I think we can take some of those lessons and apply some of them - and hope to see it pick up.”
Cohen said one of those lessons is, appoint a managing director who is also an investor - rather than one who is also a founder. That’s one reason for choosing Katie Rae, a co-founder of seed investment fund Project 11 Ventures, to replace Shawn Broderick, a serial entrepreneur who left TechStars late last year to work on another startup, a text-based game developer called Play140.
“Shawn has his startup and doesn’t have time. But we also see a different pattern as far as what kind of person you want to have,” said angel investor Bill Warner, who is an investor in TechStars Boston, and helped lead the program here in spring, 2009. “You need somebody who by being an angel investor is already syndicating around. All the work you would do incorporating other people fits well with you being an investor.”
TechStars has also changed its thinking about what kind of person it wants to have in its pool of mentors, which are the active ingredient in the program’s mix of services and shared workspace. One person familiar with her plans said Rae hopes to shake up the TechStars mentor program, replacing some of the legacy advisers with a different kind of mentor: angel investors who are currently running a company, and are a few years ahead of the first-time entrepreneurs in the program.
Rae acknowledged that effort, but said it is not a reshuffle. She’s looking to add new people, she said. “When I think about core metrics of what I need to do better, or the changes I want to see, (one is) having more early-stage investors involved,” Rae said. “More angels; more early-stage investors: I think that’s been true in Boulder and one of their big successes.”
Asked for examples of her new recruits, Rae offered two: Gemvara Inc. CEO and founder Matt Lauzon, and Viximo Inc. co-founder and vice president of product marketing Brian Balfour. Neither has made angel investments, but both are founders of companies that have raised capital and shown traction.
Balfour said fundraising is important, but, “My focus is completely not on that.” A better measure of success is how startup teams perform over multiple years, he said. Focused incubator programs like TechStars are helpful, he said, but often place artificial expectations on startups.
“It’s actually very unusual for a team to go at it for 3 months and raise funding,” Balfour said. “Of course we hope to see the teams get funded. It is a stepping stone to the longer-term success. But who knows how these Boulder programs - the ones that have raised funds - are going to do in the long-term. And who knows, maybe the few in Boston that did get funded will out-produce.”
*currently fundraising
**raised an undisclosed amount
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