When Startup Accelerators Hit the Brakes
It gets personal when a startup you championed falls off the rails.
The idea behind startup “accelerators” would seem to be a no-brainer: take a group of young entrepreneurs with brilliant ideas and early-stage un-funded companies, put a roof over their heads and provide a small investment and some basic business services, and take some equity in the venture in exchange. Then introduce them to a few venture capitalists and angel investors and watch the money roll in when they turn into the next Facebook. The problem, of course, is that it’s not that easy.
Danny Robinson is a veteran tech entrepreneur who founded Peerflix, a DVD-swapping enterprise that ran from 2005 to 2008, and co-founded Strutta.com Media Inc., an ongoing online promotion service. He started Bootup Labs in 2008 and before it stopped accepting new entrants in early 2010, brought in three cohorts of companies. Entrepreneurs accepted into the program were given access to a $100,000 line of credit, in return for which they gave up as much as 15 per cent of their companies, depending on how much of the line of credit they spent. Each company had eight months to try to get to the stage where it could go after a first round of venture-capital funding. A total of eight companies have been through Bootup; two have been acquired, two have already failed and four are still growing.
Robinson describes the program as a “technology assembly line designed to help founders build tech startups.” But in the spring of 2010, a few companies fell off the conveyor belt. After he failed to secure the financing needed to fund the line of credit for his 2010 cohort, Robinson was forced to immediately cut four companies that he had accepted into Bootup, but that hadn’t yet started the program. Blast Ramp, Statusly, Zedmo and AppSocial were all expelled from Bootup Labs. The event was traumatic, not only for the expelled entrepreneurs, but also for Robinson. Both he and Statusly co-founder Jamie Martin wrote emotional blog posts in April that year. Although Bootup had planned to continue business as usual following an injection of cash from local entrepreneur-turned-VC Boris Wertz, the Bootup assembly line has since ground to a halt; no new entrepreneurs have been accepted since the class of 2010 left Bootup in September that year.
The first lesson to be drawn from Bootup Labs is that there’s no such thing as an assembly line that produces successful companies. All successful startups share the same needs, whether they are raised in an accelerator or not: a good idea and access to capital. The second lesson is that business is personal, especially at the early stages, and the accelerator model makes it more so.
Silicon Valley's Y Combinator program
Bootup was modelled after Silicon Valley’s Y Combinator, a program that’s famous for its network of potential investors. Y Combinator makes very small investments, typically less than US$20,000, and takes an average of about six per cent of the equity in the companies it accepts. If that doesn’t sound like a great deal, consider that, according to co-founder Paul Graham, the average valuation of a Y Combinator-backed company as of June 2011 was US$20 million. A list of Y Combinator’s investments reads like a roundup of the Valley’s most talked-about startups, including Dropbox, Reddit and Airbnb, just to name a few. These successes didn’t happen because Y Combinator provided a few thousand dollars and someone to answer the phones; they happened because of Y Combinator’s network.
Y Combinator graduates are likely to receive venture capital funding when they finish the three-month term because by that time they’ll have met many of the venture capital industry’s heavy hitters, such as partners from Sequoia Capital Operations LLC and Kleiner Perkins Caulfield & Byers. Y Combinator is as much a networking program as it is a “mentoring” program. In fact, according to Danny Robinson, “mentoring” is code for networking.
“Really, at the end of the day, the value of mentorship is less than 50 per cent advice and more than 50 per cent the network,” says Robinson, adding that, for entrepreneurs, “it’s not as much mentorship as it is, ‘If you like me, then maybe you’ll introduce me to some of your friends.’” And Robinson has friends a young entrepreneur would certainly like to meet. Bootup’s program is, for many entrepreneurs, essentially a chance to be welcomed into Robinson’s broader community of entrepreneurs and VCs. That community in Vancouver is much smaller than in Silicon Valley, and Robinson is at the centre of it.
The value of networking for a startup
Mircea Pasoi, co-founder of one of Bootup’s success stories, Contact Media Technologies Inc., developer of a social media aggregator called Summify, readily admits that the connections he made through Robinson have been more important than the advice or the $100,000: “By far the most important part was the networking and connections they enabled. We met a lot of successful business people through Bootup and since we had the ‘Bootup badge’ it was easy for us to connect with them and get their attention.”
That’s why it can be so hard when it doesn’t work out. For Robinson, taking on new groups of founders was like making new friends – and kicking them out is a lot like losing those friends, as is evident in the tone of Martin’s blog post. The startup experience is stressful and emotionally taxing, especially for the rookie entrepreneurs that programs like Bootup take on.
Robinson loves the excitement of these early stages of a new tech company, but acknowledges that it can get intense: “There’s lots of risk, lots of fear, and all those emotions are there and it does get personal. I’ve had founders sit in my office and literally weep because they’re so afraid of what might happen if they fail.”
A few Bootup participants did fail, while others succeeded, just proving that the laws of entrepreneurship still apply, no matter who your friends are.
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Money talks
Submitted by Andrew Rothwell on Wed, 2011-12-28 16:45.In a materialistic and glitter culture like Vancouver, all that matters is money in the bank. Sure, people will talk about community and goodwill to save face, but in the well hidden lairs of the affluent, one can be assured that the people behind the chameleon mask of capital will scoff at the "startup scene". After all, goofy little companies do not pay for the outrageous yacht and docking fees in the Yaletown palaces nor the mountainous south facing multi-million dollar mansions overlooking the desperate sprawl that is Vancouver.
This article provides little catharsis for the undaunted local tinkerers and dreamers who face unyielding odds in the game of business. Here, the game is rigged and the dice are loaded. We take our ideas south to the valley where the true crucible is and where ambition, not ambivalence is the driver of dreams.
For all the ideological defense that the local wealth can muster, we remain a solipsistic culture at best; A Gormenghast where aspirations echo through the voluminous and empty halls.
When I see 100-200 million dollars given to Growlab with few strings attached save for return on investment and challenging the obscure notion that web start ups are all that is out there, then I think, we will have something (and someone) to cheer for besides Hootsuite.
I get it but...
Submitted by debL on Mon, 2011-12-05 22:30.Ian, i get what you're trying to say but that was a bit harsh..I wouldn't call bootup a flop at all, i think when you have successful companies come out of a program (ie: happy customers) i think it's successful, there were many factors that led to the demise and I believe a big chunk was the downturn in the market. Just like many startups, he might have needed to pivot but timing didn't work out.
I actually believe that Danny paved the way for groups like us (GrowLab) to come in. I think we owe a lot to Danny and Maura both for what they built in Vancouver over the years. In fact, Vancouver wouldn't have the great community with out them. Bootup still does events ie: Launch party and still has their pulse on what's happening in the community. I say celebrate what they've done and let's help this cause by getting involved and doing more to continue it.
Why are we still talking about Bootup?
Submitted by ianb on Fri, 2011-12-02 17:13.Bootup teetered and failed nearly two years ago. Why are we still talking about it? The entire arc of Bootup has materially damaged Vancouver's startup community -- an ironic outcome given its aim. Continued focus on it detracts from the better-executed incubation program run in Vancouver by GrowLab today.
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There were a couple of flaws in the design of Bootup that led to its demise:
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1) Bootup was created in part to provide personal income to its two founders and a burn rate was established that meant that Bootup needed to have a constant and significantly-sized cohort of companies, regardless of whether those companies were meritorious or not. This lowered standards.
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2) Bootup solicited proposals, issued term sheets, and lured companies to Vancouver from other cities and countries without previously securing the funds to support their agreements with these companies. They were a VC with no C.
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Where I take umbrage is at the suggestion that my company, AppSocial, was 'cut' from the program. In fact, AppSocial withdrew from Bootup when we were asked to start paying significant rent for the use of three tables in their shared office, and not long after I briefly tried to help Danny raise funds for the cohort from Vancouver angel investors. The feedback I received from those investors after they looked at members of the cohort was damning.
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Bootup was successful in creating opportunities for some of its participants but let's be cautious about overstating their success. The very talented team at Summify forges ahead but has yet to generate profitable income or a business model. Layerboom was 'acquihired' by Joyent -- a deal which by all accounts has yet to produce a financial return for Bootup's investors, and may not. CompassEngine were acquihired a few months ago but will never generate a return for Bootup's Limited Partners.
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Danny Robinson is a very kind and well-intended individual but his misadventure with Bootup set the Vancouver technology scene back by years. I have grown exhausted revisiting continued revisions of this history. Let's call it a well-intended flop and move on. Instead of looking back let's heap the kudos on programs like GrowLab -- but only when they're successful in strengthening the community, returning dividends to their investors, and building strong and lasting businesses.
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The incident of Bootup's demise made Vancouver's tech scene a laughing stock and demonstrably advanced the cause of similar programs in Montreal and Toronto. It was also more than 18 months ago. Let's put it in the can, take the lessons learned, and move forward.
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And for all our sakes let's stop shooting ourselves in the foot and holding press conferences to show off the wounds.