The technology startup world has seen its share of ups and downs over the last 10 years. During the last boom there were many companies that set up “incubators” which provided startups with office space, professional services and most importantly, funding to get them up and running. Back then it took a lot more money to get a startup to its launch but also back then there was a much faster time frame to go public. Once the market crashed and the IPO market dried up, most of these incubators disappeared.
Fast forward to 2007 with many lessons learned, money lost and newer technology to invest in, people still believed in this incubation model, but they were much smarted about it. Most startups can operate virtually without the need for space and technology was cheaper to develop products we couldn’t have even dreamed of eight years ago. Venture fairs like DEMO had been going for years but they were a place for companies to show their prototype or finished product in the hope of raising money.
Here on the east coast, specifically in the DC metro area, venture firms are very conservative usually investing in later rounds once a company is established but needs growth capital. This has left a huge gaping hole for seed/angel investment that the current angel groups have trouble serving properly.
Enter “Accelerator Programs” like LaunchBox Digital here in Washington, DC who launched in 2008 setting a model of competition, education and mentorship. Companies join the program and spend time getting mentored and refining their pitch, product and plan. This is so when they are ready to stand in front of investors ready to put money in their company, they are polished and ready to go.
I recently had an opportunity to chat with Matt Jacobson, Executive Director of LaunchBox and talk about they accelerator approach and the current venture landscape. Here is the transcript of that interview:
Steve: You have been working with the founders of LaunchBox for the last year on this new type of accelerator model. Where did the idea or inspiration come from?
Matt: The LaunchBox Digital founders were all surveying the early stage technology market and recognized that the cost of starting a new technology business was decreasing while venture capitalists were raising larger funds which necessitated putting larger sums of investment dollars to work in each company. They founded LaunchBox Digital to fill this capital gap and support the entrepreneurial community in the DC area.
Steve: You recently had your first summer accelerator program, LaunchBox08. Are there any successes from that first program?
Matt: All of the LaunchBox08 companies launched products by the end of the program. Most were beta releases, and the companies continue to listen to user feedback and enhance their products. Additionally, a number of our portfolio companies have raised subsequent rounds of funding from angel investors and VCs. The publicly announced transaction was Mpowerplayer, which received a $2.5 million Series A investment from New Atlantic Ventures and others.
Steve: As you all plan for LaunchBox09, what are some lessons learned that you will incorporate into the program next summer?
Matt: The LaunchBox08 companies all provided us with feedback on the program. As a result we will likely incorporate more organized social interaction amongst the company founders earlier in the 12 week program. Additionally, we will have more frequent internal demo sessions where the founders can get feedback from their peers. There have also been suggestions to blog about the experience from a founders perspective. We are trying to figure out how to do so while protecting confidentiality around the products/services being developed by the companies.
Steve: How do you think this period of startup investment differs from the tech bubble back in 2000?
Matt: It is significantly cheaper to start a company today. Open source software is mainstream, new development platforms incorporate many basic features and functions that previously had to be custom developed, developer hardware is more powerful and less expensive, and infrastructure (servers, networks, storage) is available for rent at low cost. Additionally, there is much more collaboration amongst entrepreneurs today. Company founders can test their products/services/concepts with their target markets as the product is being developed. As a result time to market is shorter as web products/services are launched in beta and then iterated on in regular short cycles.
Steve: Does your accelerator model include space for companies looking to incubate their company in a centralized space?
Matt: We have space available for any of our portfolio companies that want to use it. However, we didn’t mandate that they use the centralized space. We use it for meetings with the teams, events and guest speakers.
Steve: According to Gartner, “Web 2.0” is in the “Trough of Disillusionment” where is projects over the next 12-18 months that since the hype has worn off that these technologies will be folded into mainstream software development and adoption. Do you agree or disagree that this will help startups getting in game now?
Matt: I think that innovation is always done at the edge due to risk. Once innovation proves itself it can be mainstreamed. Often this is by start-ups being acquired and absorbed into larger entities. I think this will continue, however the proof tests of innovation in terms of audience acquisition, growth and monetization are likely to be applied more stringently.
Steve: Since we are facing some tough economic times ahead for possibly the next 12-18 months, what do think will be the impact on startups looking to raise money?
Matt: Investors will be more selective in deploying their funds and it will be more challenging for start-ups to raise capital. I expect that companies that receive funding will be further along in their product development, user bases and business models that what we’ve seen over the past few years. Additionally, I think financing terms will favor investors and that investors will negotiate larger equity stakes for their investment dollars.
Steve: To close our interview I would like to get a “Top 5” from you. The last question mentioned the tough economic times we might be facing over the next 12-18 months, what are the Top 5 things you would recommend new entrepreneurs running a business should do to weather the storm?
Matt: Be realistic in your expectations for length of time needed to raise funding. Do whatever is needed to try to stretch your current resources. One of your primary goals should be to survive through 2009. To do so:
1. Manage expenses – prioritize your absolute needs versus your wants
2. Launch and get customers/users – be creative and guerilla in growing your user base
3. To the extent possible, accelerate some of your revenue generating initiatives (lead generation, affiliate sales/marketing, subscriptions, licensing)
4. Be realistic in your market adoption expectations
5. Have the mental fortitude to persevere and not give up.
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