27th September 2012 · 0 Comments
Today I’m borrowing a term from Bob Metcalfe that was quoted in the Statesman Sunday in an article about the expansion of incubator and accelerator programs to boost both entrepreneurs and the Austin economy. The local granddaddy program Austin Technology Incubator remains strong and is now joined by Capital Factory, Dreamit, and TechRanch, along with several UT programs at graduate and undergraduate levels, and many other resources.
I would add to the Statesman’s list Texas Entrepreneur Networks (TEN), which provides a number of important services headlined by its Open Funding Forums that travel from city to city to introduce a variety of deals to a broad cross-section of investors. These investors may or may not be part of any organized angel network, and the deals range from high tech to no tech, but the success rate is actually pretty high. Director Hall Martin has done an excellent job identifying hundreds of prospective investors across the state, including many outside the major markets who otherwise have no deal flow beyond cousin Bob’s BBQ joint. Hall estimates that on average there is one angel per 10,000 people in any given city, and he’s created a large database of those who are qualified and interested but may reside in out-of-the-way towns. His metric is consistent with my own thinking, and it’s a good measure of whether a city or region is creating the proper pool of angel capital.
Angel investors with no experience at the game require some education, and TEN makes that available through its monthly Open Angel Network (OAN) meetings. Those sessions are seeded with a few pros and feature content-rich programs, but they are not pitch events. CTAN has fine educational offerings as well. For the process of angel investing to be profitable, both the providers of capital and the seekers can benefit from coaching and networking with one another. TEN augments its physical meetings with a variety of webinars and its blog aimed at providing broader geographic access to this education.
All these resources are improving the Texas ecosystem for entrepreneurs of all ages and with all types of ideas. There are appropriate venues for the teenagers up to the AARP crowd. At the moment there’s little direct competition among all the -ators for teams or deals; there seems to be some natural sorting based on places that are most comfortable, have the most relevant mentors, and just have the right chemistry. Ultimately all these programs have to define and claim a positioning that insures a high quality flow of deals and investors, and they have to determine their geographic aspirations. My own view is that most of these –ators will be subject ultimately to national rankings like MBA programs, where the top 20 have far too many applicants and the next 2000 have to scratch for students. Entrepreneurs who qualify are going to try first to get admitted into the top programs, and investors will likely follow.
There are money questions associated with all the options. On the intake side, firm promises of capital like Y Combinator makes are certainly powerful draws. That $150K on graduation can look very tempting to a young team. Absent that, a strong track record of having produced companies that went on to get significant funding and achieved some level of success is another form of attraction. But, there’s a cost associated with any such program as well. It may be time on scene for 2-3 months, something much easier for recent grads than for adults with families and responsibilities including children. At the very least it’s an opportunity cost at some level. There may also be equity slices, as mentioned in the Statesman article. Or, there may be cash costs associated with the services rendered. Even if you’re in one of the UT programs, somebody is writing a big tuition check for you each semester.
There are frequent debates about whether entrepreneurs should pay for services or for access to investors, but sometimes that’s a better option than giving up equity or time or trying to fit into a program that isn’t a good match for your team. Either way there’s a measurable cost, and there’s no inalienable right that entitles entrepreneurs to free help along the way. (We’re not in the 47%, at least not yet!) And, I haven’t seen anyone charging fees that that are beyond the bare minimums necessary to get the work done professionally.
What will be the ultimate impact of all these resources? I personally think all this activity is very positive. It’s easy to cite failure rates for new ventures, but we should be more concerned about ultimate success rates for entrepreneurs. I’m not sure there is a published statistic on that, but I’m guessing the positive outcomes are pretty high when you match investors with the correct expectations with entrepreneurs who keep themselves in the game through multiple iterations of ideas and businesses. A bet on a key person or team blessed with sheer perseverance and ingenuity is a bet with good odds. Even the best real estate developers don’t get them all right, and many got them all wrong in the Great Recession, but they seem to maintain the trust of their lenders and find a way to rebound time after time and create new winners.
So, on balance, I think all the current crop of –ators are a big positive, and I’ve personally seen the results they are delivering. Let’s be glad we have them.