Note: “Accelerating Hawaii” is a continuing series on the impact, importance, and structure of Hawaii’s startup accelerators and incubators. While some may be backed with private investment, at least two will be built using public funds. With startup accelerators being a relatively new concept, and totally new to Hawaii, I’ve started talking with local stakeholders and successful accelerators throughout the country to share ideas, set expectations, and elevate awareness for Hawaii’s entire startup ecosystem.
TechStars, one of the top tech accelerators in the country, offers a pretty transparent view into their success rates since their 2007 inception. It’s a good yardstick against which to measure the success of other accelerators, and to set expectations for any planned accelerators, but it’s success rate and top ranking will be tough to match.
The obvious caveats here are that they’ve been at this for five years, Boulder (where they began) is a hotspot for tech VCs (from ’07-’09, 275 local tech companies received $1.9 billion in funding), there’s a strong local tech industry with notable exits, and they have a large (and growing) population of tech workers. All of these elements, plus the fact that TechStars expanded to Boston and Seattle in 2010 and NYC in 2011, contribute to these success metrics.
Speaking of their expansion, TechStars accepts less than 20% of those accelerators who apply to be part of their network. You don’t see a TechStars accelerator in other tech hubs like Austin or San Diego or Chapel Hill, and that’s probably to maintain TechStar’s success rates. As with accelerators themselves, garbage in equals garbage out, and TechStars obviously wants to attach their name to only those accelerators who have a near-definite chance of success.
What Do the Numbers Say?
Well, they say that TechStars builds sustainable startups! Since 2007, they’ve accelerated 163 companies across their entire network, and 137 are still “active.” That’s quite a bit, although that includes 37 companies from 2012 sessions, which are very young. Without these newbies, their active companies are 100 out of 126, or 79%.
Out of all companies accelerated, 10 have exited, or 8%. There’s not much data on those exits, especially around acquisition value, so it’s hard to determine the total amount of return. Five of the ten are from their very first session in 2007, so let’s look at those:
- Britekite “merged” with another startup, so was probably an all-stock deal.
- Filtrbox was acquired by Jive in 2010 (now public) after raising $1.4 million, so they definitely had a cash exit of probably a few million. TechStars takes 6% at the beginning, and that was probably diluted down to a couple of percentage points. If Filtrbox was acquired for, say, $10M, then TechStars pocketed a couple hundred grand, max.
- IntenseDebate, which only raised $500,000, was acquired by Automaticc (the company behind WordPress) back in 2008. With such a low amount of funding and only four employees, the acquisition price was maybe a few million, and was most-likely all equity.
- madKast was acquired by ShareThis after ShareThis raised a $15M funding round, so there may have been a cash or cash+equity exit. madCast had five employees and only $300,000 in funding, so again, the acquisition price was probably a few million, at best.
- Socialthing was acquired by AOL by a rumored $5-10M, which makes that a very good exit for everyone involved. Socialthing had only $400,000 in funding and five employees, so a 15x acquisition price sounds pretty good. At the top end, and with some dilution, TechStars could have realized about $500,000.
So, of those five, even if only a couple resulted in liquid exits, TechStars could have pocketed a half-million or more dollars. Sounds great…but you still need to consider that that is based on two liquid exits and that 8 of the 10 still have not cashed out. With TechStars’ $18,000 per startup, they invested $180,000 into those 10. Add in operational costs for that first year, consisting of probably a few employees (say three @ $100k each), office space ($5k/mo), utilities, travel, etc. ($40k), and let’s make that a ballpark $400,000 for 2007. I’m probably missing some items, underestimating, and not considering costs applied to supporting those “active” startups over the five years since 2007, but it’s a guess so go with it…
From a pure financial perspective, TechStars probably lost money on that 2007 cohort. Four of the ten failed, and the last one, J Squared Media, is still active, although they appear to be pre-launch…even five years later and after a $15 million round in 2007. (Not to be cynical, but “active” appears to be a stretch.)
For Hawaii, It’s Not Just the Benjamins
OK, so maybe TechStars didn’t go into the green on their first accelerator session back in 2007, even with an all-star team and deep pockets. But, it was a startup itself, it was an experiment, and it takes a few sessions to figure out how to do it right. For Hawaii, we have the benefit of looking at all of these other, older accelerators and incubators for advice, feedback, ideas, and best practices. “Startup Accelerators” is now an industry, not just a few experiments.
“Success” usually means money, but for Hawaii, there’s more at stake: reversing the brain drain, broadening the talent pool and drivers of the economy, bringing in outside investment, creating sustainable jobs, etc.
TechStars startups created nearly 1,000 jobs over the past five years. Yes, 10% of those companies have failed, so maybe 100 jobs have disappeared as well. But, those 100 people have valuable startup experience that they may not have had without TechStars. Some probably went on to other startups or maybe even started their own. And, some probably took other jobs that leveraged their startup experience. Regardless of the outcome, their accelerator experience was valuable and it enhanced both the region and the individual.
Furthermore, those that tried, failed, and then went to work for someone else are providing that next employer with unmatched and hard-to-get experience. In Hawaii, we need to rally our larger businesses, corporations, and industries to show their support of local startups. These accelerators are essentially training and educating the future leaders (and customers) of Bank of Hawaii, Hawaiian Airlines, and every other business in the state. They have a vested interest in the success of these accelerators, and they should be involved.
It’s not about the “exit” or the return, at least not initially. As everyone seems to say, we need to take a 20-year view and commit to supporting local startups. The first few accelerator or incubator cohorts might not produce any successful businesses, and that would be OK, as long as our ecosystem is learning, growing, and advancing.
Success also shouldn’t be measured in cash-outs. Forget Instagram, Yammer, and the other billion-dollar exits. The accelerated startups should be shooting for the billions, but we, the ecosystem, need to understand that a billion-dollar (or even million-dollar) exit is akin to winning the lottery. If we get one, awesome. But, if we get a few acquisitions, a bunch of new jobs, a stream of new talent, a national awareness of what we’re doing, and maybe a few new economic and community leaders, that is still an amazing success.
The Governor just signed the accelerator bill into law yesterday, so let the acceleration begin!