Are Boston’s incubators a path to prosperity for tech startups?

Are Boston’s incubators a path to prosperity for tech startups?

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.

How is Massachusetts faring in producing cutting-edge biotech startups?

Last year witnessed the lowest amount of biotech seed investment activity in 15 years, according to Xconomy, even though investments surged towards the end of the year.

We analyzed information from OnBioVC to figure out how Massachusetts fared compared to other regions. The conclusion? It leads in biotech but lags in medical devices.

Of 83 Series A biotech and medical device financings worldwide in 2011, MA grabbed 33% (21) of the biotech deals, but only 10% (2) in medical devices.

There were 63 Series A biotech deals in 2011. Average size was $14.7 million. (One was Sample6 Technologies which was incubated at the Venture Development Center.)

MA’s 33% compares to 22% which occurred outside the US. CA had 10%. NY, NJ and PA together had 8%.

Turning to medical devices, there were only 20 Series A deals in 2011. Average size was $6.4 million.

CA nabbed 20%. International, Midwest and Southeast each accounted for 15%. MA had 10%. NY, NJ and PA combined for 5%.

Our advice to the world’s biotech entrepreneurs? Get on a plane to Boston. Medical device founders ought to check out M2D2, Massachusetts new medical device incubator, where nine promising companies have taken up residence.

Rate Your Mentor

Most startup accelerators feature an impressive roster of mentors “ready to help you take your company to the next level.” With the explosion of accelerators, there’s actually an “arm’s race” to sign them up.

But how do you know if they have the right qualifications, motivation and time commitment to help you? The only way is to try to get to know them beforehand. Be demanding.

We’ve come up with four simple questions to help you evaluate if your future mentor is likely to meet your needs. First, here’s what to expect of mentors.

What to Expect from Mentors

1. Plug a Skills Gap
It isn’t realistic that you’ll have assembled a team that covers all the skills you need for your startup. Bring in a mentor, however, and at least some of those skills gaps will be plugged.

2. Prioritize
With so much to do when you’re starting up, it is challenging to know what to prioritize. A mentor with decades of experience will guide you towards what you should be spending the most time on.

3. Make Connections
An experienced mentor will have a more extensive network than yours. They are able to introduce you to people who can really help make things happen for your venture.

4. Build Credibility
The presence of a mentor in your team can also help you gain the trust of investors, once they know that you’re taking advice from a voice of experience.

5. Avoid Mistakes
A major benefit of having a mentor on board is that they’ve been there, and done that. They’ve already made the mistakes you’re at risk of making and can give you guidance.

Rate Your Mentor

When evaluating a mentor, ask yourself these four questions, then attach a score, 1 being low, 4 being high:

Qualification 1-4
Does the mentor have successful operating experience – founding or running a company, raising venture capital, selling the company or taking the company public?

Motivation 1-4
Is the mentor’s interest aligned with yours? Does the mentor really care about helping you to build your business, or is the mentor more interested in joining or investing in your startup or doing business with it?

Attitude 1-4
Does the mentor spend a lot of time telling you the “right way” to run your company instead of listening to and asking you questions that get you thinking?

Accessibility 1-4
How available is the mentor when you have a burning issue? Does the mentor use regular one-to-ones with you as the means of mentorship, or does the mentor swoop in for one-to-manys?

What the Score Means
Total your score and divide by four. Here’s what the score means:

1.0 to 2.99 – Your mentor is just a contributor.
3.0 to 3.99 – Your mentor is, well, a mentor.
4.0 – Your mentor is a super mentor, the kind you want.

Its Really Up to You

While there is a lot of value in having a network of advisers with different skills, we think you still need a super mentor with decades of successful experience behind them who is a very shrewd business strategist and who regularly provides advice and feedback.

At the Venture Development Center, we have an Entrepreneur-in-Residence, Dan Phillips, a veteran of four venture-backed startups, dedicated exclusively to the small group of entrepreneurs. Unlike most of his contemporaries, he isn’t looking for his next gig or scouting for potential startup investments. He doesn’t have to.

At the end of the day, though, a mentor, no matter how qualified, committed and motivated, is never a substitute for independent thought. No one understands your business as well as you do. Take all their advice, stew on it for a bit and then draw your own conclusions. The best mentor will respect what you decide.

“my first post and celebrating a win”

Guest post by Tuan Pham, Silicon Valley Bank

Tuan_PhamI’ve dabbled in blogs here and there, but never consistent enough, to make my presence meaningful. The reason is on certain things, I tend to be a perfectionist – (I’ve always wanted to perfect my jump shot and the sky hook, random thought) and have always wanted to deliver the right things at the right time. I should’ve known better -> minimum viable product.

Well for my first post, I’d like to share with you a huge win I’m proud of in every single way. SVB recently extended a summer internship offer (thanks Pamela for pushing this!) to a graduating senior at University of Massachusetts Boston management school. That student has impeccable work ethic and credentials. In addition to having an internship with a top financial institution, he paid his own way through Uni by way of working almost full-time at a restaurant while simultaneously taking on a full course-load. I’m not in a position to make a direct hire, but given the choice, I’d choose this student any day. In our startup world, he hustles and executes with no excuses.

I’m proud because most students at UMB, by necessity, have to work to pay their own way for school. There’s a unique kind of toughness to that, that like other characteristics, deserves admiration and respect.

I’m proud because SVB found a great candidate from UMB (and also 5 other students) who deserved this opportunity; one that from personal experience will allow them to work with great people and make a positive impact on their growth.

Finally, this student took a bet on SVB. He is a graduating senior who would’ve received a full-time offer elsewhere. Working with startups and founders, I can relate to making bets on what you think is right (of course, failures are accepted). Thanks for making a bet on us. You won’t find a more supportive team at SVB. On top of that, its going to be our mission to make sure you succeed and make this an awesome learning opportunity – one I’m privileged to be a part of on a daily basis.

I should thank Dan (http://danallred.tumblr.com/) for pushing me to share my thoughts regardless of how imperfect I think it is, and Jeff (@jiffylu) for introducing me to Mark Suster’s post, “Whose Life are You Going to Change?” (@msuster) that have affected me in profound ways and helped articulate the human purpose to my work at SVB.

Here’s to more thoughts and your comments. -TP

Tuan Pham is with the Accelerator Group, Early Stage Technology at Silicon Valley Bank. He is a graduate of UMass Boston. You can find this post, as well as additional content on his blog “living, learning, and laughing.”

To Drop Out or Not: Tale of Two Founders

bizstone-reuters-1

Paul English and Biz Stone (pictured) have several things in common. These Massachusetts entrepreneurs are co-founders of prominent Internet technology companies – Kayak and Twitter, respectively. Each company has raised hundreds of millions in venture capital. Each is one of the most popular sites on the web in its class. Each is dancing with behemoths – Facebook and Google. And each founder was a student at the University of Massachusetts Boston. But that is where the similarities end. Both took very different paths to where they are today.

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 currently estimated to be $802,000,000. Twitter’s is $7,700,000,000. Both companies have a similiar amount of estimated revenue, about $150,000,000. While the story of these companies is far from over, which of these UMass Boston entrepreneurs 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.”

(Republished 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.