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Andrew: Hey everyone it’s Andrew, owner and founder of mixerg.com, home of the ambitious upstart and today I’ve got David Cohen, co-founder of TextStars, it’s a seed-stage investment fund that offers start-ups a lot of mentorship and the reason that I wanted to meet David and this is the first time that I’m getting to talk to you, is, David, most people are dying to figure out how to launch one successful company – two, three, very tough. Here you guys are, launching ten companies at a time, you’ve done I think already thirty nine companies, am I right?
Interviewee: That’s right, yeah
Andrew: Incredible track record, it’s still early days but from what I saw on rewrite web according to the data you guys recently released, thirty nine of the – excuse me, twenty nine of the thirty nine companies are active, four were acquired for over two million dollars, one was acquired for less than two million dollars, and four companies failed, and one of those four companies was here, and I gotta tell you, that’s the way to fail event you did it right. Shows that even a failure from a program like this is better than a success in many other places in the world.
Interviewee: Yeah we’re really proud of how those guys turned it up this morning.
Andrew: So here’s my goal for this program, I wanna introduce people to TextStars absolutely, but mostly what I’m hungry for is information. I wanna know how you guys do it, how you help companies go from nothing, and companies can come up to you I think I read with nothing but an idea and a dog I don’t know what the dog means but it’s on the website.
Interviewee: The dog is optional
Andrew: The dog is optional. Has anyone ever come with an idea and a dog?
Interviewee: Absolutely, yeah we have dogs here in Bunker all the time. Totally walking, it is a boulder, after all.
Andrew: Gotcha. So, I wanna know how a company like that can come in, and how you guys guide them to build a better business with the vision that even if someone who’s listening to us today doesn’t want to go to Boulder or Boston or you guys are in Seattle now too, doesn’t want to be a part of TextStars, should still be able to use this information to build their business. And of course if they want to come in and meet you guys and work with you guys and perfect, good on them also. So thats the goal for this program? Before that I want to do two things. I wanna find out a little bit about you, and before that even still the first thing I wanna do is ask you to talk about maybe two of the companies that you guys have funded to give people an understanding of what you guys have been able to do.
Interviewee: Sure, so you want to start with a couple of companies now?
Andrew: Yeah absolutely. Please.
Interviewee: I’ll just pick a couple of random, I guess.
Andrew: I can pick them for you if you dont want to pick ’em on your babies.
Interviewee: Sure, up to you, I’ll try to talk about any of them as much as I can.
Andrew: Okay, how about Intense Debate. What did they come to you with and what happened to them in the end?
Interviewee: So Intense Debate applied to the program in their first year, it’s 2007, a summer program here in Boulder, and they were on a three month program, the company was actually made up of three founders, who actually had never met in person. They were building a online real time debating system hence the name Intense Debate, where you can engage someone online and have a formal structured debate with them. They got to the program, I think the , hopefully the major way we helped them was unsucking their idea a little bit, helping them figure out maybe something more bigger and more interesting. They had a lot of passion and communication online and, you know, heated discussion, and as you know, comments on sites such as yours are really interesting and valuable part of it so they refocused in about a month on building a system…
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Interviewee: …to enhance comments on blogs and the thing took off on ’em. They did a great job of getting early customers and iterating the feedback so it was a lot of just getting the product out there, helping them think through it. Getting them some early customers that they could point to and the company went on to be a, you know, interesting success.
Andrew: Interesting success meaning they sold to Automatic, right?
interviewee: Yeah, so the guys that do WordPress. Matt happens to be one of the mentors in the program. He actually was here during the second summer, met intense debate when they were about a year old, and sort of fell in love with what they were doing, and ultimately ended up buying the company. So, it’s an interesting outcome.
Andrew: I couldn’t find out how much he bought the company for… was there a public number there?
Interviewee: I don’t think so. We include that in our greater than two million. I mean, we tried to get some of that data, but it’s because they’re private companies, they don’t diclose those things typically, but it was a meaningful exit.
Andrew: Over two million? How much did you guys put in the business at first?
Interview: So techstars just invest a tiny amount of money, as you probably know. It’s about 6 thousand dollars per founder. So in their case, there were three founders that invested 18k. And I think they took on a little bit of angel investment. I was actually an angel on that deal as well on the order of 300-500k. Ran for year and a half, added a CEO as they began to grow and that was sort of those story and the evolution.
Andrew: I see. Guys, if you’re having any issues with the video stream, let me know, and I’ll do my best to try to fix it. But so far to me it’s looking okay. Let’s stick with just that one for now, and I’m going to come back and we’ll tell stories about some of the others, but I wanted to give people an idea of what a company can walk in with, and what you guys do, and then what they can walk out with. And I’m going to come back to some of the points that I wrote down as you talked. You talked about how you helped them unsuck their idea a little bit, I want to talk about that. Get them customers, and I also want to talk later on about what it means to be a mentor. What did Matt do as a mentor for them? But I want to introduce people to you before we get into what your business is. I looked at your bio and there are three companies that stand out to me: Zolt Data Systems, iContact, and EarFeeder Dot Com. And for people who have listened to past Mixergy interviews and heard about iContact, not the same one that we had here just the other day. It’s Ryan Ellis ended up buying the domain from you.
Interviewee: I sold him that domain name, ironically.
Andrew: Apparently, that was the biggest hit of that company to sell that domain.
Interviewee: It was the best revenue we ever had in that company, yeah.
Andrew: How much did he buy the domain name from you guys for?
Interviewee: Well… you know how domain names are. It was a seven letter domain name, so take a guess. I don’t remember.
Andrew: Ok. By the way, you listen to a lot of my interviews, how do you feel about my focus on dollars and cents here in the interviews – how much money did you make, how much did you sell for, what shares…
Interviewee: I think they’re always good questions and sometimes you’ll get an answer, but a lot of times you’re dealing with, you know, people who may not be in a position to disclose that. So, you know, I don’t feel that it’s my position to disclose the amount of money between a company like an Automatic and then it tends to be if they want to disclose it that’s their business, I’m ultimately a minor investor in the business, so I think you’ll get that answer a lot.
Andrew: And, surprisingly, I don’t get it as often as I expected. And there hasn’t been one person who hasn’t felt comfortable about saying – well, actually I wouldn’t know. It seems like most people, if they don’t want me to know the number, they say “Sorry, I don’t feel comfortable saying it out loud” the way you did. What about bigger picture? As someone who’s in this space, who’s a leader in this space, is my focus on numbers a little too small-thinking? Is it too much like Entrepreneur Magazine and not enough like… I can’t think of a higher brow – am I not thinking big picture enough here?
Interviewee: Well I think that often times, the numbers that you’re asking about only tell a part of the story, so one of the things we talk about a lot around Techstars is that it’s not just the number, it’s the terms around the number and the dynamics of the deal. So often people will say things like “The amount of equity that Techstars takes as six percent is high” or “it’s low” or whatever their opinion is, but their not understanding the other dynamics around the number. So, for example, what’s the value of that mentorship – or what’s the terms of that six percent common equity? Is it dilutable, is there control that comes with it? So, numbers don’t always tell the whole story anyway, and I think there is in general maybe too much of a focus on “what was the number”.
Andrew: Is it always six percent, regardless of the number of founders and the amount you guys put in, or is it six percent –
Interviewee: Yeah.
Andrew: – per founder. It always is six percent?
Interviewee: Yeah, we, by design, have a consistent flat deal, and we get asked about it a lot and – actually it’s never been really an issue for companies that have gone through the program. The way we like to think about it is, when you look back on all these businesses, that a program like this…
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Interviewee: … appeals to those businesses. Essentially they’re all in the same place. They may think that they’re in slightly different places, but generally speaking they’re pre-revenue. They might have a prototype or an early product out there. In terms of the value that we add, we think more or less they’re all in the same place so we just don’t negotiate those points. It either works for a company or it doesn’t, and it’s generally not been a problem. It keeps things simple and consistent, and as you know, that means that you save money on legal and things like that, so that’s handy.
Andrew: And you guys get founder’s shares, right? You were saying the structure is important. What about the lucen[sp?]? You were saying…
Interviewee: Yeah, so we literally pitch Techstars as we’re like a co-founder in the business. It’s six percent, it’s common equity, it literally is the same stuff that the founders get. And so when an answering round comes in, a company raises outside money, we’re diluted, just like they are. We are literally like a co-founder, and the pitch is “If you could find a co-founder with these sorts of connections, access to capital, experience, would it be worth bringing that person in for six percent?” We think it’s a good deal. Fred Wilson has called it the best deal in BC on his blog, for these types of programs. And…
Andrew: He said that specifically about TechStars?
Interviewee: No, he said it about… I think he mentioned Y Combinator and TechStars in his post if I remember right. But now there are multiple programs like this that are credible, doing well, and helping entrepreneurs. And I think it can be, for the right kind of company, the best deal in BC. Doesn’t mean it’s the right deal for everybody.
Andrew: And he said that in response, I think, to Sara Lacy, who criticized Y Combinator for taking too big a share, which was a surprising criticism. I kind of imagine that somebody’s coming off stage, you’re doing an interview, things just come out of your mouth. I can’t imagine that Sara Lacy thinks that six percent, considering what startups get from these seed companies is too much. What do you think?
Interviewee: There are people who think that. It’s polarizing on some level, and that means you’re on to something in my experience. I’m sure Bill Gates would say that six percent of his new company is too much. And we think that for most young, first time entrepreneurs, it’s a great deal. That’s, I think, been proven out by asking the people who’ve been through the program. I mean, part of our sort of open sourcing philosophy around the program is we want to get in contact with past founders. Ask them what their experiences were and try to make them available to everyone to answer their questions.
Andrew: OK. So, we talked about iContact. EarFeeder is a company that you founded within… Founded, and it seems sold within weeks, right?
Interviewee: Yeah, that was a really funny case. It really was a project that I was working on, based on something that I wanted. What EarFeeder did was, it would look at the music on your machine, and it would give you an RSS news feed, back before there were many RSS news feeds. It was just kind of getting rolling. It was specific to you, and the music you had, and it would deliver news and information about the artists that you already liked. I wanted it because, I had this music, and I wanted to know was a new song coming out by one of my favorite bands on iTunes? And I wanted to know that immediately. We started adding other things around it; put a pretty face on it and it just kind of took off on us. Sold it to a company called SonicSwap.
Andrew: Alright, now I’m talking specifically about your company, so maybe I can ask you: What size exit? Not exact numbers, but can you give us a range?
Interviewee: Yeah, that was a small one. Again, I mean the company was very young. It was on the order of half a million to three quarters of a million dollars, which was a great return for having worked on something for a couple months. And a lot of that was in stock, so it wasn’t a huge exit by any stretch. The first company was really where I made the money to start angel investing. And that data is out there in the public domain.
Andrew: We’re talking about Zolt Data Systems.
Interviewee: Yeah.
Andrew: Can you give the data on that that’s out in the public domain?
Interviewee: Yeah. So at the time of that acquisition, it was somewhere in the range of… I can’t remember exactly… Of five to seven million. It was public stock. By the time we actually got the deal done, Zolt had grown substantially, so we got the benefit of a growth curve there, which is one of the reasons we exited to the company. The other component of that, which again, is not always about the number, at the exit was that I owned forty five percent of the company. We hadn’t taken on any kind of outside BC investment or anything like that. I always tell entrepreneurs, that’s the way to do it. If you can bootstrap, you absolutely should. I view TechStars as a form of bootstrapping. Right amount of money, right amount of help at the right time.
Andrew: OK. And what did Zolt Data do?
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Interviewee: so, we made software for emergency medical services, so folks that have ambulances that are private companies that are running around everywhere, we made all the logistics software to dispatch, where do we keep the vehicles, how do we electronically dispatch the call into the vehicle, the billing systems around it, essentially all the software that you need to run private ambulance service. it’s probably around 500 cities today. my standard joke is if you fall down and my software is responsible for coming and getting you, you have at least a 50% chance that it will be in the rigth place on the map. it’s much higher than that. it’s great stuff and it’s still going. it employs a couple hundred people here in colorado, that division.
andrew: guys i’m seeing questions here in the audience, let me come back to them, hold on to them, i have to so many of mine that i want to get to, and so many that were submitted earlier on the site. so, you cofounded techstars with brad fell and with jerry sholtz polis, the guy behind bluemountain and proflowers.
Interviewee: yes, he’s also a congressman now for colorado. he was on the real world recently, that was interesting. and another guy, david brown, who is a my cofounder of.. zoll company that i just mentioned.
andrew: so how did you guys decide to come up with the idea for the business?
Interviewee: in my background, in how i started these companies, and then after that having began angel investing, it really was just kinda dissatisfied with the way angel investing worked, which is meeting someone at a coffee shop on a referal, and listening to their idea, maybe meeting a couple more times, writing a $50000 check, and then doing this, and hoping it would work. started to see that the trend was less money spend more time with the enterpreneurs, right amount of money at the right time, try somet things. i was a big believer that had we had more mentorship in our first company it would have been a much bigger company much more quickly. so we saw things happening in the market, such as y-combinator, which was certainly an inspiration. charlesriver’s, quickstart program, where it was quick $100,000 checks. i just thought there was something special here in boulder. people want to help, people want to mentor. and it hadn’t been tapped into. put all these things together. came up with artson on this, which is really about the community and about the mentors and the program and it’s been a really fun ride.
andrew: we gotta talk a little bit about why combinator, because it’s an interesting part of the story but also because i want to get it out of the way so we can just focus on the tech stars. on founders who make our community site, a guy named andrew patriot, why is tech stocks copying y-combinator? and i had heard that from other people. are you guys copying y-combinator?
interviewee: i don’t think the idea of an incubator is a good idea. i think that what combinator did that was interesting was they ran companies at the same time, they made it short term, we certainly are using those aspects of the model. we are huge fans of y-combinator. i think it’s different in a couple of meaningful ways. when i mention community and mentorship, that’s really what techstars is about. it’s a whole city getting behind the companies, helping them any way they can. there is a really strong community aspect to what we do and you sort of experience that. and if you talk to the founders you experience that. mentorship component, we have about 50 or 60 mentors per city, our model is to connect 5 or 6 of those mentors with direct experience in the markets that the comopaneis are working with them as lead members, so techstars is really much about those connections to those mentors, much less so about me. i am not the guru in the middle trying to tell the companies what to do, my role is a superconnector, and i think that’s a fundamental difference, is the level of engagement that the mentors in techstars is very deep, very meaningful. comopanies come out of us, they have 5 or 6 core mentors that will really help them for life, and so that’s our twist on it. i think the models are a little different, we believe that in our case, it works really well for us, and certain judgement around it, they are slightly different in that way with it. . that’s really it to me: mentorship and community.
andrew: what are the advantages of being in colorado, boston or seattle vs. being in the valley.
interviewee: plenty of people have talked about that topic.
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Interviewee: I think that, you know, plenty of people have talked about, you know, that topic. And it’s been the debate that’s raging. Do you have to be in the Valley to build a meaningful, interesting internet company? Of course not. It’s an idiotic argument to say that you have to be there. Do you have a better chance if you’re there? Now you can argue that back and forth. I think it’s important to be in an eco-system that has the support for what you’re doing. So, you know, here in Boulder we have ignite, you know, the largest ignite that’s ever happened. And 800 people we have. I think the second biggest new tech, we got 600 people. We have more software engineers per capita than any other city in America. More advanced degrees. So I mean there’s lots of great reasons to be here. And I think, you know, different eco-systems have different advantages. We believe Boulder is a great place to build a startup. We believe Boston’s a great place to build a startup, and Seattle as well.
Andrew: Let’s talk about Boulder. What’s the advantage of being in Boulder? And not that it’s net better, but there must be some advantages that the Valley doesn’t have.
Interviewee: Sure, sure, sure. I think that Boulder has something that’s pretty unique specifically, which is this really, you know, cooperative nature. I mean there’s this, I think Nehar Baldwin calls it “coompetition”, or some term like that. But you literally could be competing with another company here in Boulder, and be best friends with that company. So you’ve got a very small town of 100,000 or so. You’ve got Denver, which is, you know, not far away. But here in our community, there are hundreds of internet startups, in such a dense area. You literally are walking down the street, and, you know, seeing the guys that are working on similar things. Really, the special thing to me is the open door nature of the community. People will help you here. If you ask, they’ll go out of their way to assist your company, too. You know, there’s a legitimate hope that, you know, from everyone in the community, that everyone else will be successful. And if they can help someone be successful, they will. And I don’t see that everywhere. I’m not saying it doesn’t exist in the Valley. But you know, I think it’s really special here, in terms of how that works.
Andrew: OK. All right. So if somebody’s in my audience, and he’s building a business right now, in Denver, in any of the other cities that you guys are in today, or the ones that you’ll be in, in the future, and they need an office space, or they need to come in and ask for help, you guys will at least entertain the offer.
Interviewee: Absolutely. I mean there’s the thing that happens here at TechStars in the off-season, so nine months of the year we’re not running the program, these open office hours. And you’ll see, you know, the VCs and the angel investors. There’s a huge trend here to just plop down and say, “Hey, I’m an experienced CFO, right. Come in and launch me.” And I’m a lawyer. Right. I’m happy to help you with whatever you’re working on. And there’s a very sort of karmic nature to the community, where people really believe that if you help, it’ll come back to you. And you know, honestly, that’s why TechStars is here. We, you know, we think that this will help the entrepreneurial eco-system. That’s why we started it. You know, a lot of us around the program have funds. You know I run my own fund outside the program. A lot of the mentors do, too. And sure, we’re looking for investment opportunities. But TechStars itself is this special thing that’s really curated by the mentors in the community here. And it’s just a, it’s what grew out of what’s interesting and special about Boulder specifically. And we’re trying that in other communities that we think also have a bit of a chip on their shoulder, and want to be in a view that’s better. I think, you know, Boulder has no desire to be Silicon Valley. It’s a silly thought. Right? We’re going to be the best Boulder we can be. And hopefully, we’re contributing to that.
Andrew: All right. Adam and Viking Abroad, in the audience, are asking the same question. They want to know where are you guys going in the future, geographically speaking?
Interviewee: I don’t know. I can tell you that we have a, you know, quality over quantity sort of orientation in our approach in general. We want to keep our, you know, our batch sizes, if you will, or our class sizes small. Just ten companies, so that we can really meaningfully help them all. We’re in three cities now. Will we ever be in more? Possibly. No plans currently.
Andrew: Will you ever go outside the U.S.? I know Brad Feld is very passionate about the Founders’ Visa.
Interviewee: Yeah.
Andrew: If we don’t get it, can you see yourself creating a TechStars in Europe, or creating one in Canada, or somewhere else?
Interviewee: Sure. You know, I’d put it in the realm of possibility. It’s not anything, you know, we’re aggressively going after doing right now. We certainly have massive, massive inbound interest for having, you know, TechStars in whatever city. I’ve done consulting, actually, in many countries, Singapore, Denmark, England, Canada. I know these programs are popping up. I think that’s good, as long as they’re credible mentorship community-oriented programs. It’s a net positive for entrepreneurial systems. So we’re big fans of the model, you know. And I know it’s going to happen everywhere. Will we be a part of that? Possibly, but it’s not something we’ve been aggressive about.
Andrew: OK. All right. Let’s go through the process, to try to understand how you guys take somebody with an idea, and create a real business out of it.
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Speaker: Mostly me, for Boulder, and again, you know, whoever’s running the program at the different cities. So we have a managing director in each city and it’s up to them to get down to the, sort of the short list, if you will. But total diligence time is usually a couple hours.
Andrew: When you do meet with a company, how much time do you spend with them in person?
Speaker: So, as you get down to this final group of companies, fifty or so, I would say, you know, you’re spending at least an hour and a half to two hours. Right, and so that’s it for companies you’re picking, that’s about all the face time you get with them. And there’s really a gut feel there, right? Is this someone, is a team I want to work with? That we’re excited about, that we think our mentors can help? Just another piece of the puzzle. So, if you’re a company that’s doing something really interesting and an amazing team, but we don’t have anyone in the mentor pool that we think could meaningfully help you, we’re less likely to take your company. So it’s not just a judgment on your credibility as a company, it’s a fit with the firm.
Andrew: Alright, a DT in the audience. If I take your question, I need some backups, so you need to just go in. He’s asking why are companies that are emerging from Wicom and Ater and TechStar so similar? Show me a couple of examples and we’ll deal with that question, but otherwise I’m not sure…
Speaker: I can give you examples they’re talking about if you’d like. You mentioned an intense debate earlier, there was a company in Pennsylvania, similar, I’m trying to think of what the other ones…Foodsy is a company that had a similar competitor, called Fedora. I think it’s just market fit. It’s the timing. I don’t think there’s any sort of conspiracy deal going on, where people are copying ideas. I remember discussing an intense debate launched within a day or two of each other. The reality is that I think it was a good idea at a good time. And so somehow, we’re both picking companies that are ultimately working in the same markets. I don’t think it happens a lot, but good ideas are good ideas, and there are going to be multiple people funding them and chasing after them.
Andrew: OK, alright. So let’s talk about the people who you end up with. What do they have going for them? They have the talent, how do you know about the talent, how can you see it?
Speaker: Sure, mostly by the work that they’ve done. So, we like to look at the prototype or a past project that they’ve worked on.
Andrew: Do you have an example of somebody who did a past project but didn’t have one necessarily going into TechStars?
Speaker: Sure, there’s a company that most people don’t know anything about but it’s a great company called J-Squared Media. Went to the programming the first year, they were the guys behind the sticky notes application on Facebook and now do Mini Planet. Profitable business, couple million dollars a year in revenue. Great guys. You know, when I met them, in New York in a Starbucks, it was, you know, one of the guys who was very technical had built an enterprise software application he showed me. Clearly talented guy, but had never done anything on the web, and the other guy was just a, you know, articulate, interesting business guy. And that was enough for us to say, you know, that coupled with what you’re working on is interesting. Like many companies, that particular company dropped their idea the first couple weeks of the program, ended up doing social stuff around Facebook at the time that that platform launched.
Andrew: I see, okay. So, if somebody wants to get involved in TechStars or with any other investor, the way to show that you’ve got talent is to just build something and it doesn’t have to be something with a business behind it necessarily, but build something that shows skills.
Speaker: Ideally what you’re working on, but anything is good. And we have the saying, “Entrepreneurs do stuff.” So you have lots of people who, you know, have great ideas, who talk about the model and RIQ business plans, but I think real entrepreneurs do stuff. They get it out there, they can’t wait to get it out of the brain and onto the web. And that’s really evident in successful entrepreneurs. I think it’s something we look for very directly.
Andrew: By the way, it looks like one of your applicants is here in the audience. Music Trainer, the guy behind musictrainer.com says “I submitted to TechStars and people are congratulating me in the audience.” Okay, so that how you end up with the fifty, how do you whittle that down to ten?
Speaker: So again, mentor fit, what companies can our mentors really help a lot, coupled with the market they’re in, so we don’t overfocus on the idea, we know half of them are going to change their idea. But what’s their passion, and what’s the market? That maps you. And gut feel. I mean, a lot of this is what we believe might be an interesting thing. Or what has the revenue potential or what has just general interest in the market. And we’re not always right, but it’s pretty hard to go from fifty to ten. You know, it’s just less hard to go from 600 to fifty.
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Andrew: And one of your founders, one of the co-founders of EventView is here on Mixergy, great interview, by the way. What was it about him and his product that you liked enough to invite into the program?
Interviewee: So Rob and Josh were from South Carolina, I believe, they had a small consulting business right out of college, they became entrepreneurs right away, they had no doubt that’s what they wanted to do; sort of a web design firm. And they had some experience in the event space and were super-passionate about the idea that social was gonna drive event attendance. And today we see that. It’s been a true statement. And they thought that they could build some interesting things around social networking at conferences, and they were very passionate about it. They had actually done some stuff, so they had an early prototype, they had customers who sort of expressed interest, and we believe that that would be a thing. And we see that today where, with things like Plan Cast, people are very excited about who else is attending an event. And they wanted to tap into that. We believed there was a shot, we really liked the people, we still love the people. As you can see they’re learning from their experience, and we know that they’re gonna be lifetime entrepreneurs. These guys are gonna do more things, I know that Josh is crusing around Australia, thinking about his next thing right now. And part of this for us is a long term view. They’re now here in our community, and we think they’ll be here for a while, and they’ll do other things and there will be other opportunities with them, so it’s still a win.
Andrew: Ok, we take one question from the audience. Lenny Ramirez is asking “What markets are you guys interested in?”
Interviewee: So, generally, we’re only interested in software and internet, so within that very opportunistic. Again, investing mostly in the people. We’re totally happy to do the plain old boring “software’s a service” to some businesses that need that, we’re happy to do things that are really innovative; human-computer interaction, gaming, we’re open to anything that looks and smells like software because that’s what we know. So that’s where our focus is.
Andrew: Alright, I’m getting a lot of questions for you from the audience here, more than I usually get. If, after this interview, I get interesting questions, can I forward them on to you?
Interviewee: Of course.
Andrew: Ok, so guys if I can’t get all your questions we’ll have other ways to reach out. Alright, now you’ve got the ten in the program, let’s talk about how you make them into real companies that get funded. So what’s the first thing you do when a startup comes into the program?
Interviewee: We tell them right away that they’re not here because of their idea. It’s usually quite shocking to them. They all think they have their Earth-shattering idea and we tell them that they’re welcome to change their idea any time, that we didn’t invest in their idea, we invested in them. The great story there from last year was Next Big Sound, it’s a company that is here in Boulder now, originally came in from Chicago. And the company got funded after the program, but they dropped their idea after day one of the program. They sort of looked themselves in the mirror and said “This thing we’re doing isn’t right, and now we have permission.” So we want to make sure people know that they’re not in the program for their ideas; that they’re there because we think they’re intellectually honest; they’re gonna look at the data, their gonna iterate quickly, and get to something interesting. So that’s the tee-up, and then the first month of the program they’re meeting all of the mentors, and they’re getting feedback from all of them on what they’re doing. You start to hear patterns, you start to get challenged on things, lots of people that have lots of experience that you might respect are giving you data, and we make sure to present it that way. That this is just data, it’s your company, it’s our feedback, we’re totally supportive of what you decide. And the companies go through a process often in the first month of redirecting their ideas slightly, and in some cases really completely changing their idea.
Andrew: Are they building at the same time?
Interviewee: We actually consciously try to get them not to build in the first month. They do anyway. They’re always sort of here until the middle of the night doing stuff, but the goal is let’s get this arrow of the company pointed in the right direction before we step on the gas. And sometimes they come in and they have a great idea and a great thing and it’s just helping them execute it, and introducing them to customers, and so on. And just iterating and helping them make their thoughts better. But often it’s not quite right. And our experience is most of the time that’s the case. You don’t actually know that until the company plays out…
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Interviewee: …the company plays out. But…
Andrew: I don’t know if building necessarily the first month. They might just be talking to mentors and thinking it through and designing…
Interviewee: We encourage them to get off their computer, talk to mentors, spend most of that first making sure what they’re doing is the right thing. And building their network, because that’s really where they attach to those lead mentors I was talking about earlier who will help them in month 2 and month 3. Month 2 tends to be more about cranking away on the prototype, getting your first customers up and running. Month 3 often tends to be about the investor pitch and the story about where the business is going to go. But it’s different for every company, because not every company is the same.
Andrew: Right, there’s some companies that come in with a product, there’s some companies that figure it out in that first month. OK, we keep talking about the mentors. What exactly is the responsibility of the mentor?
Interviewee: So we ask each mentor to meet as many or all of the companies as you can in the first month, to offer them meaningful feedback, and to pick one. What we don’t want is fly-by mentorship in the whole program where you’re coming in and you’re dropping nuggets of wisdom on these companies. That’s not actually very helpful. It’s more helpful to pick a company you are passionate about as a mentor, to engage with them deeply and meaningfully and really put your arm around them and help them. So that’s their responsibility, is to pick a company that gives them that excitement and that feeling, and if they don’t find one, that’s OK. Right, we’d rather have them not helping in a particular session than not being excited about the company they are helping.
Andrew: How many potential mentors do you have?
Interviewee: So in any city there is in the order of 50. So, I think in Boulder, there are 50-something, Boston has 62, I think. That’s about 5 or 6 mentors per company, if it works out. But we don’t assign them, we want that to be a very natural process, where a mentor falls in love with a company and vice versa. That’s very key, and if that happens, it’s like magic. It’s a beautiful thing, and it’s great if you pick interesting companies, it happens.
Andrew: So, the mentor picks one, their, each company could have an average of 5 mentors who are only picking that one company. And their attention throughout this program is on that one company.
Interviewee: That’s right.
Andrew: I see, and you got mentors like Armon Sha who was here on Mixergy, who’s an investor in his own right, and at the same time, he’s run a couple of successful companies. Ben Ha, the man behind Cheeseburger. Fred Wilson is one of your mentors. Does this mean that Fred Wilson will spend time with a new, I guess it can be a New York start up. How will Fred Wilson spend time with a start up?
Interviewee: Yeah, so again, coming in early on the program, ideally, meeting with all the companies, finding one or two that are interesting to him. And then helping them, in his case he might be in New York. But the hope is he would find a company that was really interesting and help them however he could. Some might be introductions, it might be pushing them on certain topics that he thinks are interesting. And different mentors engage at different levels. You know, some are here all day, every day, because they’re between things and they just love it. And others have a lot of other things going on with their, so, it’s not that everyone engages in the same way.
Andrew: So, if Fred Wilson picks a company, he might just interact with them by e-mail. He might just, depending on his style, might just do it by phone.
Interviewee: That’s right, yeah, possibly. Again, we really encourage them to meet the companies in the first month, and fall in love with one, as we like to say. So, then it can turn into a relationship. But in each city, the vast majority of the mentor pool are local.
Andrew: OK, and Jeng is telling me, I think I’m reading this right in the comments, that Josh from EventView will be at a Mixergy Meet-Up, so if you guys want to meet him in person and ask him questions about the program, he’ll be there in Los Angeles. OK, so that’s how you get them through the program. Let’s talk about how you made intense debate suck less, or unsuck their idea. No, obviously, we’re being, their idea didn’t suck that much, did it?
Interviewee: It sucked, yeah.
Andrew: Oh, it did? OK. I was trying not to hurt their feelings or not to miss…
Interviewee: …it required a real time debate between two people who were interested in the same thing at the same moment in time.
Andrew: OK.
Interviewee: So, it vastly cut down on their serve distribution model. They got to work on their passion with a better idea. So, you know, it was them hearing “gee, guys, that sounds pretty limiting” over and over again, from people that have done interesting things. And they heard it enough that they started to explore other things. And when they hit on the right thing, everybody got excited, and wanted to be around the company and help, and they started to prototype it and see how customers thought about it. And they loved it, right, so I mean, it was, it was really just being sort of the Socratic method…
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Interviewee: It was really just the Socratic method, right? Its’ like, what questions can we ask as mentors to help these guys think about different things. It took them a few weeks to make that pivot, it was not a drastic change, it was still around their passion, and around the idea of intelligent debate which was what they were interested in. Not all comments are intelligent debate as you know. They did things that were innovative that helped people really engage with the conversation more.
Andrew: So let me catch people up to here and let me see if I can make this relevant to someone even outside of TechStars. Want to be an entrepreneur? First thing you do especially in the tech space, go build something, go be an entrepreneur before you officially launch your company, go build something before you come up with the final product, first thing. Second thing, get a series of mentors around you, and anyone could go and do it, it would probably require a lot of hustle, a lot more hustle than if you were with the TechStars program, but you can do it today by going to meet ups and getting together with people and asking them for interaction. It doesn’t have a mentor-ship where Fred Wilson or whoever you pick ends up in your office every single day coddling you through the process, its enough if they say; “Yes, I’ll listen to your idea” at least once a week and hopefully they’ll be a little more engaged. Thats the second thing, the third thing is share your idea with a trusted group of people keep getting their feedback and look for that moment where they are so excited and all want to join up and partner with you.
Interviewee: Yeah, and sometimes, ya know, mentors will not get excited about something that should be exciting. Its not that they’re always right, and it is ultimately your company, but I think you want to surround yourself with that input and that data by people who are really engaged with you and are interested in you and your company. So, it does not mean that mentors are always right, but thats kind of the relationships are those where you learn as much from the entrepreneur you’re helping as the help that you give them.
Andrew: Alright, heres a question that we got from the community site before the interview; Whats a good job for a future entrepreneur? Somebody who wants to be an entrepreneur in the future, that is not ready to go into it yet, that may not have the idea now, they want to get a job for a little bit. What jobs do you recommend?
Interviewee: Well, if you have to get a job I mean you always aim for the hole in golf and be an entrepreneur if that is what you want to do, but if you can’t do that, obviously being in an entrepreneurial company will help you understand what its all about, surrounding yourself with the energy of that. My thought is, you know, go do it. I started my first company with the wrong idea, we just started doing that wrong thing and we listened to customers, and we thought it was going to be a little thing that would support us, and it turned into a big thing. Because we just kept listening and trying to make it better, so, I question the sort of base statement of “You can’t do it now”, people can do it, its always better to do it now. Now is the best time time to start a startup.
Andrew: I see, its kind of like if you want to be a musician and you ask what job can I get for the next forty years so when I have a retirement package it would support my musical interests and I can be a musician.
Interviewee: That’s right. The hardest part about starting is starting, so start.
Andrew: Alright, so, changing the idea. How do you change the idea, in three months and still have a finished product?
Interviewee: Well, they’re not going to have a finished product, anybody who knows anything about software knows that software is never done, right? So, they have enough of a product to attract investors or early customers. These programs have been dubbed “Seed accelerators”. What does that mean? It means it accelerates a company towards being ready for a seed route, or being ready to be profitable and stable business. So, they’re not going to emerge from the program with a finished thing, they’re gonna emerge from the program with the right thing thats out there early getting customer feedback, thats hopefully interesting enough to attract investment if thats the goal.
Andrew: What is that minimum thing that would hopefully get people interested? Its obviously not an idea on a piece of paper, its a creative first version. How do you get that creative first version that you can show to somebody and get them excited?
Interviewee: Well, get the theory out of your head, and in front of people so you can test the theory. Turns out that when you’re creating something that customers are excited about they’ll use it even when its pretty crappy, and they’ll give you feedback because they really want it, and they’ll see you going in the right direction. So, too many people are out there just building and building and building, and then they put it out there and and there is a sort of yawn, right, the companies that are generally successful are the ones that get it out there, listen to what people are saying, their customers, and make it better every day.
Andrew: Can you give me an example of somebody who had a crappy first version that either investors and or customers were excited about?
Interviewee: Ahhh…
Andrew: With apologies to the people we pick.
Interviewee: Crappy is a strong word, I mean, I think most investors its sort of….
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Interviewee: I mean, you know, I think most investors at sort of the angel scale or later, you know, want to see something that, you know, gets the vision out of their head. There are plenty of prototypes that have been funded. Yeah, I think, intense debate, you know, to keep going back to that company, but it’s just in my head. You know, they had 20 or 30 blogs using their service. Some of the investors that had net investing were using it personally. Right? And they were seeing the progress. So oftentimes investors are just drawn to progress. They can extrapolate that. But if they don’t see that progress on a regular basis, it’s harder for them to imagine, you know, how quickly this could evolve.
Andrew: That’s what Laura Fitton told me, that every time she talked to you guys, or to any investor, there was always something new to show them. Something that had advanced since the last time that she talked to them.
Interviewee: Right. I mean there’s a certain, you know, momentum that you want to build. And that’s why I think it’s true with customers who are passionate as well, not just investors, that you know, the happiest customers you’ll ever have are the ones that you totally screwed over, but then fixed their problem right, quickly. Because now they know that you’re there for them. And startups have that as an advantage over big companies. They can quickly fix customer problems and make them happy. So, you know, I have lots of stories about, you know, customers who were incredibly pissed off that are now, you know, just love what I’ve done.
Andrew: You want to share one of those? I’d love hearing that.
Interviewee: Yeah, sure. In my first startup, my own company, which was this public safety software company, it turns out, that when you put out public safety software, early on, you have this danger called killing people. And we didn’t want to do that, of course, so we were a little bit careful. But you know, we had customers who thought the system was really slow early on, just because it took a minute to save a, you know, call or something, in the system. And of course, that was way too slow, but they wanted it so badly at the time. They wanted the graphic interface. And they wanted, you know, the better functionality. They would sit there and wait a minute, but then they would scream about it. Well, you know, they eventually would, you know, threaten to send the system back. And then get their money back, or whatever. And you know, you work with them to figure out how to make it faster. And when it is fast enough, suddenly, you know, they know that you care about them. And they’re your customer for life. Right? Not everyone takes care of their customers like a startup can, that it’s capable of doing. So you have to take advantage of that as a startup.
Andrew: OK. Let’s see. Where do we go next? Getting customers. How do you help a new company get customers?
Interviewee: Well, I mean the mentor network is very well connected. So, you know, chances are, if you need to get to someone that’s going to potentially use your products, someone in the mentor network is going to have the ability to do that. So, you’re talking about East Coast Network, from Boston, Seattle Network, Colorado Network, many mentors from the Valley, New York, elsewhere. So, high likelihood of there being intersection of being able to find interesting early customers. So, that’s often where they come from early on, as well as many times, investors around the program or even the past companies that have been through the program.
Andrew: OK, speaking of investors, how do you train a start-up to present, to convince an investor to put some more money into the business?
Interviewee: Well, again, we spend a fair amount of time on what the story is, and it’s different for every company. But fundamentally, we’re interested in helping companies tell a story. See funding is less about financial slides and profitability projections and hockey stick curves, and more about emotional stories that angel investors are going to connect with. So, we try to make sure it’s personal story, about where the company is coming from, some cases we try to make it funny and entertaining. Heavily demo-oriented, so look, we really have this, we have these real customers, and just tell a compelling story about the business.
Andrew: What do you mean by a compelling story? I understand demo, people want to see the product, not just hear about it. But, why story, and how do you tell a story?
Interviewee: In trying to personalize it. So here’s our direct experience, here’s what our customers are saying, here’s social proof…
Andrew: If I give you one of the companies you guys backed, can you help me understand how you might have told the story in the early days? So, SocialThing, what is SocialThing, and what would this story have been?
Interviewee: SocialThing’s story was pretty much about the fact that there were all these proliferation of places where people online could create social content, consume social content. So, what I remember vividly from helping SocialThing present this was that they actually started the pitch with a long diatribe, probably a minute or two, of just naming services that are out there that people have heard of, right? And I remember the slides coming in, and it was like, everyone announces, “you know, you’re right”…
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Interviewee: … “you know, you’re right. I use all this stuff, and it’s, my social presence is everywhere.” Such a thing, pitch that, “hey, this is going to be a real problem. You want to create and consume your content in consistent ways, and if we can just give you visibility, it’s all the things you’re already using and make them better. Wouldn’t that be neat?” Right, so people understood it because it was personal to them, they got to see all these companies that they were forced to sort of think about. And so, Matt said, “I hate this, I am going to fix this problem. It’s personal to me.” And that’s what really, I think, I mean by story.
Andrew: I see, and they ended up selling to AOL.
Interviewee: Yep.
Andrew: Couldn’t find an exact number on that either, but according to CrunchBase, 5 to 10 million dollars, for people who love numbers.
Interviewee: Yeah, it’s in there somewhere.
Andrew: By the way, I’m looking through all the companies you guys backed, and I see this one that stands out, highwaygirl.com. Highwaygirl.com is basically an online show about a musician who’s traveling the country and doing interviews, I think, with people who are going to teach other musicians, I don’t know, how to do something.
Interviewee: Yep.
Andrew: How does that fit in with the portfolio?
Interviewee: Well, you know, sometimes you just try things. You think that there’s an interesting opportunity. We really like Samantha, the starter of the company. We had sort of visions of where it might go and it ended up not going in that direction. The company’s still out there and doing well, and she’s, I believe, in Atlanta now. And they’re growing and doing some new things, but we knew we had some [interns] who were interested in music. We knew that, for example, folks like Howard Lindzen had built this thing called WallStrip and sold it to CBS. And he was one of the mentors we thought, there might be a show there. So it was just, you know, trying something, and the computer didn’t ultimately raise money, but it’s out there, it’s an interesting company that’s still going, and Samantha hopefully got a lot of the experience. So, sometimes you try things.
Andrew: All right, let’s see if I got anything else on my list. I see we’re getting close to the end. Someone in the audience, let’s see, Pat Chung, is saying “Joel Spolski has an good article about telling stories during a pitch.” Hopefully somebody can link to it either here in the live comments or after the interview is over, on the comments on Mixergy. DreamIt. DreamIt, we haven’t brought them up. We’re going to be doing an interview with one of their co-founders in a little bit. What do make of them? What do they fit in here?
Interviewee: Totally credible program. We actually talked to those guys when they were starting up and tried to be helpful. They’ll probably tell you a bit about that if you ask them. We generally try to be helpful to other programs that we think can help other entrepreneurs. And I don’t know a whole lot about the program. I’ve never actually attended. I know Brad has gone out and attended the program, I think, as a mentor a little bit, maybe went to their investor event. So, I don’t have direct experience, but I like the guys a lot, and glad to see them doing interesting things here in Philly.
Andrew: Oh, we’ll get the last ques-, actually, two questions. One, from Jang in the audience, she’s asking “can you ask David about compensation for mentors? What’s their compensation? What’s in it for these guys?”
Interviewee: There’s no compensation. They do it because they want to help entrepreneurs and they want to make their communities better. Many of them happen to also be angel investors or potential angel investors or venture capitalists, but not all. So, they’re doing it because they love it. They’re doing it because it’s a focused, organized way to help interesting companies versus the random inbound that many of them get. They want to make the entrepreneurial ecosystem better, and we’ve seen that as a result.
Andrew: And by the way, if anyone has any more questions, I don’t want to keep going to the audience. Put them up on our site, foundersmix.com. Jang, I’m deputizing you to make sure that we pick just the ones that are most appropriate for David. So, just tag them “David Cohen”, tag them “funding”. Jang, we’ll go through and pick out just the most important ones, so we don’t kill his time. What else do we have here? Also from the audience, Raveesh, this is before the interview on foundersmix. Raveesh wants to know “how can a start-up from the Third World get into a seed fund?” Are these guys left out in the Third World if they have good ideas?
Interviewee: No, we’re sort of open to anyone from anywhere. We’ve had lots of founders from outside the US participate in the program. I think you’ll see these programs proliferate, and there will be more opportunities internationally. But I think it is ultimately an investment model, so we’re going to invest in what we think is most interesting stuff.
Andrew: Will you guys fly somebody in if they’re from outside of the country and maybe in the Third World, want to be a part of it?
Interviewee: If they get to that sort of finalist list, yeah, we’re going to meet them.
Andrew: OK. Finally, any advice for entrepreneurs, any general advice you want to leave people with?
Interviewee: No, I think you leave them with lots. But I would just would echo your, if you want to do it, get out there and start doing it.
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[I met David as a result of my interview with Josh Fraser. Thanks Josh!]
