Bootup Labs is in the midst of raising it’s next fund. If you’re an Accredited angel investor, and would like to learn more, I’ll be presenting the Bootup Labs investment opportunity at the VANTEC Angel Forum this Tuesday March 2nd. Bootup Labs is managed by experienced entrepreneurs, and is exploiting an emerging asset class that is greatly underserved and highly lucrative.
Last Friday I found out just how small the world is. While at the TechCrunch offices in Palo Alto, I met Reshma Sohoni, CEO of Seedcamp for the first time. Similar to YCombinator, TechStars of the US and Bootup Labs in Canada, Seedcamp has to be one of the most powerful entrepreneurial drivers Europe has going for it. They run a startup competition where winners are given some seed capital and then exposed to an impressive list of over 400 mentors.
What was remarkable to me is that Reshma worked with SoftBank Venture Capital in Mountain View back in 1999/2000 to get their incubator started. My first startup, Spinway, was funded by SoftBank at the same time. I would often visit the incubator and work with some of the founders there. I dug around and found this picture of it. If you look closely, you can see a much younger version of me talking to the then DoDots founders, George and John Kembel, while Willie Quinn looks over Michael Perone’s shoulder as he shows him something on that huge CRT monitor.
Another twist is that TechStars co-founder Brad Feld was a Venture Partner at SoftBank at the same time as well. There must have been something in the water at the Softbank offices, or maybe it was the vodka ice louge… but that’s a different story (and different pictures)
Yes, we know things have been quiet here at Bootup HQ (besides Danny’s great posts and our always active Twitter account). This year has been a busy one, working with our portfolio companies that are part of our beta fund.
Now we’re ready to go into full operation. And that means we want YOU! (insert picture of Uncle Sam pointing at entrepreneurs in the audience).
Our January 2010 cohort application is now open »
What are we looking for? Well, our four “big bucket” categories are consumer Internet, mobile, gaming, and enterprise Internet. We want to work with digital media startup teams that want to hunker down and spend 8 months growing their business, either getting ready for further investment or growing their “cash engine” to a profitable state.
Yes, this is similar to Y Combinator or TechStars. The TechStars model is the one we’re most inspired by, although we’ve put our own unique twist on it. We believe, like they do, in a mentor model, and that being in the same physical space is important.
Oh, and in case I’m not being clear, you absolutely should apply to any other accelerator programs you can get your hands on. I actually think that for first time entrepreneurs, the question is no longer whether or not to take part in a startup accelerator, but rather, which one to join.
We’ve already gotten a handful of applications from across Canada and around the world. In the US, it’s a little bit harder to get into the country as an entrepreneur (see Startup Visa for what some people are trying to do to fix that), but we’d love to hear from teams wherever you’re based.
Head on over to the application page to get started. The relevant dates for the January intake are as follows:
Our about page has the extended remix version of our program details, we’ll keep updating the FAQ based on questions we get, and our contact page is open if you need anything else.
I often hear the statement: “I’m not going to invest because if [fill in the blank large company] wanted to do this, they would just wipe you out.” I usually respond: If that was true…
I had the pleasure of getting to know some of the management team at Amazon who was around long enough to remember when they had the option to buy eBay. They tell the story as if it was the largest missed opportunity that Amazon ever made, and they never want to make that mistake again. Still, they waited until Zappos had an $800M price tag before they bought them, but how come Amazon didn’t just do it themselves? I use Amazon as an example, specifically because they have to be the most innovative large-companies that I can think of, and they still can’t defend themselves against anyone coming along and making a superior product.
Exceptions to the rule will always have to do with some sort of manipulated market channel. Anyone who owns/rents a Motorola DVR knows what I’m talking about here. No reasonable consumer would ever buy this product if they had a choice. It’s the worst piece of garbage I’ve ever used. Especially if you’ve used a Tivo before. Motorola has the muscle to be able to negotiate big long term contracts with the cable companies and force them to restrict consumer choice. There are similar exceptions with AT&T and the iPhone, and Microsoft with Windows.
But, The Internet is unique. It’s the ultimate in disintermediation. It’s very difficult to lock up any particular channel. For example, If I don’t like Google, I’m headed over to Bing with one click.
On the Internet, the best product wins. It’s truly a case where the best defense is a strong offense. And winning has NOTHING to do with the size of the company you’re competing against. Large companies “get this.” 77% of acquisitions made by the top 10 acquirers in the entire technology industry are web companies. Large companies have really no choice but to succumb to using the start-up ecosystem as their outsourced R&D departments.
So, what can you conclude about competition risk for digital media startups?
All this boils down to another great reason to invest in digital media companies. I’d love to hear your thoughts on this.
I was a having coffee with a VC colleague last week. This is someone I respect, and hope will fund some companies graduating from Bootup Labs. I have probably explained Bootup Labs and why our investment model works to this individual on at least 7 different occasions. It turns out that it took 8 times to get the ‘ah-ha’ that I was so patiently waiting for. Up until then, I just didn’t think he liked the idea. I’m happy to say, he is now a believer. But, as any good entrepreneur would do, I immediately reviewed the other 7 pitches in my head — searching for the flaws that made it so difficult to inject the concept into this guy’s brain cells. Could it be that he isn’t staying up to date with the VC industry? Is he not reading the same blogs, following the same people on twitter that I am? Is he not talking to entrepreneurs at the seed stage, flying to meet the thought leaders in the space, or engaged in local startup community? And if not, why isn’t he, or more importantly, why was I? Perhaps I was the one missing something; Maybe there simply isn’t a return-on-time for those activities. Who am I to judge? Maybe the status quo is simply good enough?
The truth is that the status quo is good enough for bio-tech, clean-tech or any other capital intensive, high risk, high reward company, which is why you see many VCs move toward those sectors and away from investing in digital media companies. Internet companies quickly have become low capital, lower risk, investments, but can still have some pretty big exits. Basically, if the companies you invest in don’t need very much money, then you don’t need to raise large funds, so the 10-2-20 model is officially broken. (10 year fund, 2% fee on capital under management per year, plus 20% of proceeds paid to management) If you don’t have a large fund, the 2% management fee doesn’t add up to enough to pay for the fund’s expenses. Plain and simple.
I touched on the concept of a broken VC model over a year ago, and since the economic down turn, it’s been talked about by a plethora of notable industry insiders. But, since then, I’ve learned a lot about the inner workings of the venture capital world, and one thing is for sure: Investing in Digital Media companies (Consumer Internet, Enterprise Internet, Online Gaming, and Mobile Software) requires a new model.
It wasn’t until my 8th pitch to my VC friend, that I defined what “lower capital requirements” means in real life. It means that some of these companies will never need to raise a series A and most will not need a series B. On top of that, these companies are exiting within 2-5 years at a rate of 25 exits/month. This formula has changed so much and so fast, it caught most of the industry off guard, and if they’re not paying attention, they’re paying the price.
The Bootup Labs model is unique, even among our well established peers. There is TechStars, Seedcamp, Extreme University, Launchbox, YCombinator, etc who all invest around $20k in each group of founders and provide a great deal of support and connections for around 3 months. Then there is Union Square, CRV, FirstRound, SoftTechVC, etc who typically invest $250k-$1M. We feel the sweet spot is a TechStars-like, mentorship driven program for founders, but instead of focusing on getting them seed funded, we invest $150k and give them 8 months to get their company to at least “ramen profitable“. After that, they can choose to raise a larger round or continue to grow their business organically. Their success does not rely on upstream VC support, but many will probably choose to take it anyway as a way to accelerate their growth. If you happen to be a VC, don’t worry, there will still be plenty of deal flow coming your way.
View this Google Spreadsheet to see how the Bootup Labs Fund makes money, and if you’re an investor, please contact me.
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The truth is that the evolution of this space is still evolving at an enormous rate. More on my predictions in a subsequent post.
Danny and I are down in Boulder, CO, attending the investor demo days that TechStars is having for their 2009 cohort of companies. Danny went to the presentations in SF last year, and we figured it was time to head to Boulder directly to check out the organization, talk to the companies, and compare notes.
Bootup Labs is highly inspired by the structure and feel of the TechStars program, and it is *the* early stage accelerator program that we feel most “spiritually” aligned with. Everything we’ve heard on this trip — from founders taking part in the program, to investors, to the staff and mentors — convinces us that it’s a great starting point for the right model. As Brad Feld and others have said many times, rebuilding a Silicon Valley should not be the goal for any region or local community. Each place has its own strengths and weaknesses and will find its own path for “what works”.
The vibe here is definitely about building businesses. As we suspected, teams that come to Boulder aren’t just at the “idea” stage – the founders have come some distance on their own (in many cases a considerable distance with a medium sized team of 4 – 6 people+) ; they are taking part in the TechStars program because they are fully committed to building fundable *businesses*.
I took the time to meet with many of the teams after the presentations and dig for a little more info on how and why they came here, and what they think of other programs around the company. Some of them we have further connections for, and some might even swing through Vancouver at some point – the reaction to Vancouver was of general interest or saying that it’s on the list of places they’d like to visit. The tech community in Vancouver isn’t readily known here, and things like Flickr’s early genesis here are forgotten or not known. And that’s something we all need to work on, to carry the flag abroad that we’ve got great stuff going on. This is something that the Bootup Entrepreneurial Society is actively working on with other local organizations – a PR campaign to get Vancouver on people’s mental map when the subject of tech hubs comes up.
In any case, below are some short “Tweet-length” observations about the companies that presented today, that got eaten by the SMS gateway.
I also have a rough 4 axis point scale that I used to try and rate my feelings about each company, but I actually don’t think I’ll publish that since it’s very contextual and subjective based on my own experience and feelings. There were companies that were great and there were companies whose *presentations* weren’t perfect, but they all presented well and generated lots of discussions and follow ups.
Congrats to all the companies for getting to presentation day, and thanks to the TechStars team for welcoming us and putting on a great event. We’ve got lots of ideas to take back to Vancouver – look us up when you’re in town.
Yesterday I spoke with Amar Varma from Extreme Venture Partners. They have create a Bootup Labs/Techstars like startup program in Toronto called Extreme University! From all of us at Bootup Labs, we welcome them to the scene. Well, the reality is that they’re not that new. They’ve been working on a number of projects under the Extreme brand, including a venture fund, and a elite web services company called Xtreme Labs. AND, they’ve already had one exit: J2Play was recently acquired by EA.
We’re very excited to see this new era of Internet venture investing mature to the new permanent way of getting start ups going efficiently. Sure, entrepreneurs can still start their companies on their own, but not as quickly, and with more dilution. It’s quickly no longer becoming a question of if to start at Bootup Labs/Techstars/Extreme, rather than which one to start with.
See more of my thoughts in the comments of Boris Wertz’s blog post: The Sudio-ization of the application business
What are your thoughts? What will happen to traditional VC? How fast will this transformation take?
Another Bootup Labs like model that we’re watching closely is Betaworks out of New York. Bit.ly’s $2M on $7M financing continues to prove that Bootup Labs, YCombinator, TechStars, and LaunchBox, have now become the new standard for accelerating web startups.t
We’ve always struggled to find a name for what we do. What we do know is that “incubator” is not the right term. “Accelerator” — maybe. Lance suggested “Startup Factory.” I kinda like that one. I’ll try it out for a while and see how it takes. What do you guys think?
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