We want to find out which Class has been most successful in accomplishing the one thing almost all startups want – follow-on funding.

We use data from Seed-DB which has been collecting information on 145 seed accelerators and their companies. After plugging gaps in funding reported, we sorted the database by success rate, average and median raised, to identify the top programs. Then we totaled  the incubator’s rank for each of these measures. The lower the amount of points, the higher the rank in each category, the better the result.

Here are the results:

A strong end of the year finish by the Class of 2011 at Tech Stars pulled Boston ahead of New York. For now, Boston has three of the top five startup classes in the nation. Who would have thought by just following the tech press, for example, that LaunchpadLA outperformed Y Combinator?

It will take many years for these startups to demonstrate quantitative results of any significance. But money raised by participating in the incubators is an early signal because most need funding during their early stages.

Stay tuned!

There are many ways these startups hoped the programs would add value – validating a business model, finding more investors, providing a physical location, creating a network, etc. But which incubators are most effective in helping their startups accomplish the one thing almost all want – follow-on funding?

We use data from Seed-DB which has been collecting information on 145 seed accelerators and their companies. Startup databases like this are notoriously incomplete. So we had to search individual companies and plug gaps in funding reported. We believe we captured the major financings.

Note that the Venture Development Center is not a seed accelerator, focusing instead on launching high tech businesses. These types of startups raise larger rounds of financing, but are harder to get financed, than the consumer web and e-commerce companies which comprise many of the accelerators.

We looked at total raised, success rate and average and median raised. Here are the results:

Considering all of these measures, which incubator had the top performing Class of 2011? We’ll give you a hint: It is in either New York, Massachusetts or California. Stay tuned for Part 4 to find out which one.

As Dan Phillips steps back to launch CloudPercept (team pictured above at the Venture Development Center), venture capitalists Jim Counihan and Michael Gaiss step up as the Venture Development Center’s entrepreneurs-in-residence, dedicated to advising our high tech companies. We’re thrilled they have joined us!

Jim is a General Partner at Prism VentureWorks which he joined in 2000 to run the firm’s software and services practice. Jim holds a B.A. magna cum laude from the UMass Amherst, and a J.D. cum laude from Suffolk University Law School. Jim was instrumental in driving the success of Softricity, acquired by Microsoft, GeoTrust, acquired by Verisign, Silverback Technologies, acquired by Dell.

Michael is the Founder at ThinkB1G which works with an elite group of startups and top universities outside the main entrepreneurial hubs to help make it easier for students to connect with exciting career opportunities at these companies. While at Highland Capital, as Senior Vice President, he advised portfolio companies on marketing strategy, launches, communications and programs. He graduated from the University of Michigan Business School, with a B.S. in Computer Engineering, and has an M.B.A. from the University of St. Thomas.

There is a lot of value to startups in having a network of advisers with different skills. But founders still need objective advice and feedback from a very shrewd business strategist with decades of successful experience behind them. Like Dan’s, Jim’s and Michael’s presence will help founders gain the trust of investors, because they know that they are taking advice from a voice of experience.

Dan has been entrepreneur-in-residence since 2010 at the Venture Development Center. CloudPercept is a rapidly growing cloud performance and business management software-as-a-service company which took shape during the last three months at the Venture Development Center. Dan also founded the Student Entrepreneurship Program, which continues to train and place software development, marketing and sales students into paid interns at an elite group of venture-backed startups in Massachusetts.

Is Dan taking advice from our new EIR’s? Yes.

In 2011, 198 tech startups around the nation were faced with this decision. We’ve been following this Class of 2011 to find out how they fared in accomplishing the one thing almost all want – follow-on funding.

The startups in Boston/Cambridge Class had an amazing 2012, nabbing $86,954,881. (See Part 1.) But would they have been more successful if they had launched at an incubator in another city?

We use data from Seed-DB which has been collecting information on 145 seed accelerators and their companies. Startup databases like this are notoriously incomplete. So we had to search individual companies to plug gaps in financings reported.

To identify the top performing programs, we sorted the data by success rate, average and median raised. Then we sorted the programs by the region in which they are located. Finally, we totaled  the city’s rank for each metric: success rate, average and median raised.

Here are the results:

#1 Boston/Cambridge (44 co.)
#1 New York City (23 co.)
#2 Los Angeles (10 co.)
#3 Seattle/Portland (20 co.)
#4 Chicago (10 co.)
#5 Silicon Valley (57 co.)
#6 London (20 co.)
#7 Philadelphia (14 co.)

Looks like the founders who chose the East Coast had greater success than the West Coast.

Next, in Part 3, we’ll compare the Classes of 2011 by incubator, not location.

We’ve been following this Class of 2011, tallying grant, debt and equity funding, the one thing most startups need in their early stages. How are they faring?

The Boston/Cambridge Class had an amazing 2012, nabbing $86,954,881. That is on top of the $38,226,909 raised in 2011.

The fundraising surge in the first half of 2012 was due to financings at the Venture Development Center and Dogpatch. The surge in the second half was mostly due to financings at Tech Stars. By the end of 2012, 78% of the Class of 2011 had raised $125,181,790, an average of $2,781,818.

On popular fundraising site AngelList, Massachusetts startups average $751,000, according to Startup Data Trends. In other words, a startup raised more than triple the amount of funds if they were accepted into one of the Boston incubators.

But there is just no getting around the reality that a startup takes hard and sustained work to get financed. As the data shows, it takes at least a year to raise significant investment. Ironically, the startups at Venture Development Center and Dogpatch, which are not accelerators, raised most of their financing earlier than Tech Stars, an accelerator.

How does the Boston/Cambridge Class of 2011 compare to the startups that launched in other cities around the nation and world? Stay tuned for Part 2.

English achieved a masters degree in computer science from the University of Massachusetts Boston. He worked during college, doing programming for a bunch of companies, and even some video game software and sound-effect development.

Prior to Kayak, he co-founded several startups, including Boston Light Software, a small business e-commerce platform that was sold to Intuit. At Intuit, Paul became Vice President of technology and led small business Internet and product strategy, company-wide innovation process, and tech recruiting.

Stone lasted only a year at the University of Massachusetts Boston, on a theater arts scholarship. While working during college as a stock boy at a publishing company, he secretly designed a book cover and stuck it into a pile of outgoing designs when everyone was at lunch. When the client chose his design, Stone was made a designer and dropped out of college.

A friend pitched Stone on an idea for a new company called Xanga, a blogging site which they launched together. After moving to Los Angeles and returning to Boston, he was invited back to Mountain View to work at Google on Blogger, then left to set up Odeo, Twitter’s precursor.

Neither English nor Stone was initially motivated to go to college, but English stuck with it. Kayak’s market value is $1,800,000,000, after yesterday’s acquisition by Priceline. Unlike Kayak, Twitter is not traded publicly, but shares are constantly being traded on the secondary market, and its value is about $8,700,000,000. Both companies have a similar amount of annual revenue, about $225,000,000.

Last year, Stone stepped back at the microblogging site and moved on to work on new projects at the Obvious Corporation to help people work together to improve the world. Some projects they are working are Lift, a social network for human potential, dialogue platform Branch, and Neighborland, a site that seeks to create meaningful connections between neighbors.

Unlike English, Stone never had an operational role at Twitter, instead serving as the company’s creative director. Stone was part evangelist, part storyteller and part futurist. His net worth is estimated at $200 million. He is now working with director Ron Howard on a short film for Project Imaginat10n, which will solicit photos from the crowd and use them as inspiration for a series of short films.

In contrast, English remains at the helm of Kayak, navigating it to an IPO and $1.8 billion acquisition by Priceline. But he too has a side project that expresses his passion, one that he might be devoting more time to in the future. Its called JoinAfrica, which intends to blanket all of Africa with free and low-cost Wi-Fi. At the core of JoinAfrica is the belief that providing basic Internet is as essential to society as clean water and clean power.

While the story of these UMass Boston entrepreneurs is far from over, which appears to have made the right decision?

Seth Priebatsch, a Princeton drop-out and founder of SCVNGR, says:

“The term “drop-out” has very negative connotations and, I suppose, with good reason. Most people probably shouldn’t drop out of school, but for that small percentage of us out there who have a great idea burning up inside, dropping out is not just a good idea, it’s the right choice.”

Statistically speaking, though, entrepreneurs are more likely to be successful if they graduate from college than if they don’t. A survey of chief executive officers and product development heads at more than 500 high-tech companies showed that “education provides an advantage in tech entrepreneurship.” Specifically, the companies founded by college graduates had twice the sales and employment of the companies founded by people who didn’t go to college. Moreover, better-educated entrepreneurs are more likely to receive external financing.

Jason Baptiste, the CEO/Co-Founder of Onswipe, cautions budding entrepreneurs to ignore the sensationalist stories like Biz’s and the success that seems like it came overnight.

“It’s all difficult whether you are in college or not. It takes a lot of hard work and there’s a chance you will fail.”

If for some reason, something takes off, then consider going full time with it, Baptiste says. You could “stop out,” the equivalent of taking a sabbatical to focus on the company to see it through to an exit or failure. After that point, you can go back to school and finish what you started.

“This is what I did with my first real startup and I still think it was the right move. Sadly, things ended up failing, and I returned to school to finish what I started.”

(Update of story published on Wednesday, March 16, 2011 by Mass High Tech.)

The Venture Development Center is Boston’s leading startup incubator for technology and life science companies.

There is not enough capital to fund all of the good ideas from life science companies, which is a major challenge for life science CEOs today. To identify the next not-so-obvious investors, fundraising executives should look to the capital-raising practices of start-ups in other industries. If they do, they will learn that the basic premises include thinking outside the box and being flexible and more creative.

The economic turbulence of 2008 and 2011 has forced institutional investors to reevaluate how they fundamentally invest. The poor performance of some of VC and PE fund managers have concentrated fewer dollars in the hands of fewer managers, and the increased competition for those scarce dollars have slowed the life science market at a time when the number of potential technologies and products are surging. The banks, pensions, endowments, and insurance funds that made up a large portion of new VC and PE funds have become risk averse.

However, a new paradigm is emerging: family offices are becoming the new VCs. The void left by the institutional investors is, to a surprising extent, now being filled by family offices. They have brought Wall Street talent in-house and adopted and incorporated all the processes and procedures of alternative institutional investors. There is a lot of press being generated about this new opportunistic investor in the life science arena.

The big win for life science fundraising executives is that unlike traditional alternative institutional investors, family offices are not solely driven by a rate of return. They also want to see their investments benefit and impact the world. This opens yet another door for life science entrepreneurs: starting with the philanthropy arm of family offices.

The fact of the matter is that philanthropy and life science investment go hand in hand. Bill Gates, Warren Buffet, Michael J. Fox, and many other billionaires and celebrities have all contributed to making it politically correct to be globally aware and to put capital behind facilitating science and technology that can change the world.

Life science fundraising executives who are quick to take advantage of the shifting investor landscape have an opportunity to find investors who are interested in their company’s research and at its current stage.

Finding people with the right skills is a continuous battle for tech startup companies, which are producing most of the new jobs nationwide.

Tech job openings persist

My state, Massachusetts, ranks fifth in the nation on a list of states which are not producing enough graduates to fill tech job openings. Worse shortages are seen in California, New Jersey, Texas and New York.

On the job board Dice, there are 24,728 tech job openings in these states, up 17 percent over last year. Boston alone has 3,808 openings, up 24 percent over last year.

While the shortage might be a magnet for talent from outside the country, it is a governor on growth of companies inside.

Our government’s response? If Startup America is any indication, it is to encourage more people to start new companies, a sure recipe for intensifying demand for H-1Bb visas to hire foreign workers.

University entrepreneurship courses typically prepare students to create new companies, not to become early employees of startup companies. But every founder and co-founder of a new tech company needs three to five marketing, sales and product development employees to get the company off the ground.

The tech talent shortage has prompted state government in Massachusetts to launch a workforce development study, followed by a series of summits to discuss challenges and options.

The tech industry can’t wait. The situation is so pressing that one group of investors recently created the Boston Startup School, a non-credit six-week summer school program to prepare students for entry level positions in its portfolio companies.

But most students we know are anxious to get a job to start paying off their loans. Why should they have to take more classes to be qualified for a job?

Practical Challenges

The real solution is a partnership between the universities and companies to get our young people better prepared to contribute to startup companies. But there are practical challenges:

1. Not every student wants to jump into a risky, early stage company. How can we better help them understand the career pathways in startups?

2. Second, if a recent grad does have the interest and skills, such as familiarity with Ruby on Rails, or Salesforce, they taught themselves with extracurricular projects. Can we integrate some of this learning in the university curriculum?

3. And third, even with the required skills, students are not prepared to hit the ground running as part of a startup team. Can we offer a ramp-up period to socialize students to the startup environment?

What We Are Doing

Here is what we are doing to meet these challenges at the UMass Boston Venture Development Center, in collaboration with the tech industry, community colleges and state universities, and under Entrepreneur in Residence Dan Phillip’s leadership:

Hold weekly workshops where students learn about marketing, sales and product development career paths.

We guest lecture in engineering and management classes, and entice students to a workshop. At the workshop, we explain that if a student performs well, they are likely to be hired at another startup if the one they work at goes belly-up and they can advance all of the way to running marketing or development, or even be the CEO.

Align and revise university curriculum related to marketing, sales and product development to create a pipeline from two-year to four-year public universities to tech startups.

Why state universities and community colleges? They are filled with students who are purposeful, driven, unentitled, and know how to handle adversity. They are the type of people startups like to hire as entry-level employees.

Place students in company-paid internships in venture-backed startups throughout the year so students learn vital skills by working along side more experienced employees.

Seventy three percent of our 96 marketing, sales and product development placements have received full-time employment at the venture-backed startup with their internship being an influential factor. Internships are a great way for students and employers to try each other on for size.

What’s Next?

We’ve only been at this for a few years, have learned a lot and there is much we can do to improve the quality of training and preparation we provide as we scale up. But we’ve learned enough to start thinking about how to offer our program online nationwide.

According to Jeff McCarthy, Partner at North Bridge Venture Partners, and an advisor to our initiative: “The hope is that a program like this truly can fuel the workforce engine required to launch the next generation of startups.”

But they are likely to leave empty handed.

We’ve seen biotech companies in the Boston area move seeking cheaper land. But the Boston suburbs are about as far as they go. And they inevitably come back to the city.

Biogen Idec, the third largest biotechnology company in the world, just reversed its relocation two years ago from Cambridge to Weston.

And drug maker Vertex is moving its headquarters from Cambridge – but only across the river to Boston to two new office towers under construction.

Life science companies stay close to their roots

Why is it so hard to uproot a biotech company? Biogen Idec co-founder Phillip Sharp, an MIT professor, expressed the reason well: “Biogen Idec is a high-tech company and must be in touch with the cutting edge of biotech.”

While the proximity to scientists and universities is the top factor influencing the decision to be in Boston, it is closely followed by the ability to find appropriately trained talent in all aspects of the business, from product research to manufacturing and distribution.

Any hope economic development officials coming to the BIO International Convention have of establishing a biotech hub in their state will rest upon developing unique pockets of expertise.

Long-term nurturing bears fruit

Massachusetts’ biotech credentials did not develop overnight. But after decades of tactical and strategic nurturing, the cluster is bearing fruit. As the following chart* of Series A deals shows, Massachusetts now is producing more than twenty new venture-backed companies each year.

The blossoming comes at a time when large drug companies, with research budgets shrinking, are instead looking to startups in hopes of feeding their drug development pipelines.

A startup takes root

Like apples falling from a tree, startup firms tend to take root near their parents. Because these children tend themselves to spawn further spinouts, the cluster becomes stronger.

An example serves to illustrate the point:

A postdoctoral fellow at Novartis and a senior officer with Genzyme founded 4s3 Bioscience after discovering a mechanism to deliver large molecules to muscle tissue, key to tackling neuromuscular disorders for which there are no treatments.

Outsourcing the research supported by a grant from the Department of Health and Human Services, 4s3 obtained results that led to seed funding from Genzyme Ventures.

While applying for an accelerator loan from the Massachusetts Life Science Center, 4s3 began looking for its first laboratory space and contacted a former colleague at Genzyme now at the University of Massachusetts Venture Development Center, which had just opened new incubator space for emerging life science companies in Boston. After obtaining the loan from the Massachusetts Life Science Center, 4s3 moved into the incubator. Eighteen months later, after successfully completing key studies, 4s3 obtained a $20M Series A, and is making preparations to expand its operations in Massachusetts.

Grow your own

Massachusetts economic development officials attending the BIO International Convention no doubt will talk about how helpful it is to start a company in a place where there is infrastructure for biotech companies, accumulated knowledge about how to make them succeed and many others starting up companies.

Instead of wooing companies, economic development recruiters coming to the BIO International Convention ought to be listening to what the biotech industry needs, and building an ecosystem that nourishes them.

After all, it seems increasingly apparent that the secret to success in biotech is to have a successful parent.

* Data compiled and analyzed by Aijan Isakova, Venture Development Center, based on data from OnBioVC.

It is too soon to say, since the incubators are relatively new, and it takes years for startups to achieve a business model that generates growth.

But money raised is an interesting enough early signal because most startups need funding during their early stages.

As best we could, we tallied grant, debt and equity reported raised by companies after joining Dogpatch, TechStars and the Venture Development Center, three incubators showcased by the Angel Capital Association during their annual meeting in Boston. The following is a rough progress report, as of July 5, 2012, on the Class of 2011:

What the chart doesn’t show is the Class of 2011′s momentum: $41,677,091 of the total raised was added during the first three months of 2012, almost all by companies at Dogpatch Labs and the Venture Development Center. In other words, it took at least one year to raise significant investment.

Overall, Boston’s Class of 2011 has a 74% fundraising success rate. Average raised was $1,981,048.

By comparison, only 18% of all tech startup companies that submitted information to CrunchBase have received some sort of funding, and most raise $500,000 or less. On popular fundraising site AngelList, Massachusetts startups average $776,000.

Coming through incubator programs doesn’t guarantee success. But, it obviously helps, at least with investors, which may be harder to find than customers, because there are so few of them.