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Very Early Stage Technology Investing

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Accelerator Envy

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Twenty years ago there were no accelerators, no place where good ideas got hands-on attention from mentors and investors. That was not ideal, but I think we are going to sail past the optimal number of accelerators pretty soon. Accelerators are as good as their networks of mentors and investors, feeding in early deal flow and providing the in-school and post-graduate support that every start-up needs. We are fortunate to have worked with The Brandery since they got started two years back.  The founders had great networks, brought a novel theme that matched our region and their expertise, and took the time to study and join the Tech Stars network.  By focusing on consumer digital companies they were able to bring real value to applicants selected for the program.

They have built a Top 10 accelerator that serves a distinct national audience in their sweet spot.  Much like Y-combinator and TechStars, geography is not the dominant driver for participants, but rather the quality of the network.  A lot of new accelerators are on this path as well, like Rock Health in San Francisco.  Again, another great network and focus.  I think these accelerators in the end will produce the most value for selected companies.  Other accelerators that have a geographic focus – these are sprouting up all over – are serving an important role in their communities, but I don’t know how many we need before the system is extracting deal flow for the sake of filling accelerators.

Let’s run some simple numbers.  A few years ago there were a handful accelerators producing fewer than 50 graduates per year.  Now there is at least one per state on average.  In Ohio we will have 4 or 5 of these by 2013, so we’ve got Wyoming and Alaska covered.  That means Ohio alone will produce as many graduates in 2013 as the system did a few years ago.  Our experience working hands-on with graduates is that there is some abandonment, some funding activity and some companies that enter “not funded/not giving up” stage.  I’m pretty sure the system will produce more than 500 total graduates in 2013. What do we do with all of these graduates? While seed stage funding efficiencies are improving, the system is not geared to absorb that many new entrants. Some accelerators are now building a funding path for graduates that is more secure, but I think they should be careful not fund everyone at selection. Some of the ideas won’t survive the program and remain worthy.  Some teams will break up or punch out. Not everything that comes in the front door is fundable.  Regardless, the benefits of high value accelerators – scrutiny strengthens ideas like nothing else – for seed stage investors are clear.  We benefit from aggregated deal flow, a growing pool of mentors and co-investors to help condition and steward companies, and graduating companies that are much smarter and better connected from the experience.  There might be some that don’t make the journey, but the ones that do are in far better shape for the experience.

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Written by Mike Venerable

February 23, 2012 at 9:27 am

Extra Extra…charges for the Pittsburgh Post-Gazette

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The Pittsburgh Post-Gazette proclaimed itself cool yesterday by launching PG+, not a new movie rating but a paid online supplemental content service for those who can’t get enough of their columnists.  A similar concept is rumored to be in the works at the NY Times.  My bold prediction: much hype at launch, little fanfare in a few months when they shut it down.

The Post-Gazette’s own article on the concept is self-congratulatory and far from objective, with no one quoted who thought this might be just another cry for attention from the free-falling world of print journalism.  The service, priced at 3.99/month, or $36/year if you pay up front, includes:

“…a new stream of exclusive blogs, videos, live chats and behind-the-scenes looks at the news of the day.”

The announcement makes their own “free” content sound pedestrian, while making the “paid” content seem uninteresting.  Oh, and they include social networking software!  I’m sure all the Gen X, Y, and Z’ers will be dumping Facebook and jumping right in for some “live chats”. 

If a newspaper has some good content, I’ve got a suggestion:  put it on your free Web site.

I just don’t see how any local print franchise can hope to pull off what the strongest brands in print journalism have failed to do:  generate decent revenue from paid content.  The NY Times failed, the Wall Street Journal barely makes money online, and no one else is even in the game.  People will not pay for online local print content at a volume and price that makes it remotely worth the embarrassment. 

Rather, local print needs to lose the pretense and focus on creating compelling content that is ad supported.  There are simply too many paths to content, too many alternatives for news, for a paid subscriber model to work anymore.

To that point, our local paper implemented an impenetrable new Web site last year that was driven by its parent, Gannett.  When the change was implemented, my wife speculated the new interface was  designed to preserve the local delivery business.  If they could make the online experience bad enough, maybe we would keep print delivery.

Today, for the first time in my life, no newspaper lands in my driveway each morning.  I can access everything I need, more than I ever imagined I could need actually, online.  I still like to grab the WSJ now and then and page through it over coffee.  Now that the local paper no longer comes to the house, I can’t remember the last time I read it in print.  That’s a shame, because I loved reading the newspaper, the tactile experience, until very recently. 

Since my habits are heading away from paying, I can’t see how PG+ could ever make a dent in the revenue problems facing local print organizations.  Sad but true.

Written by Mike Venerable

September 3, 2009 at 9:00 am

A Fool’s Errand, Happily Run

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When I was working and building a company in the Washington D.C. area in the ’90s, the region was caught up in becoming the next Silicon Valley. Around the country everyone wanted to be the next Silicon Valley. Silly, imitative names like Silicon Alley (NYC), Silicon Prairie (somewhere flat, I suppose), and Silicon Dominion (Virginia, aka the Old Dominion) were all the rage.

Initiatives were put in place, public money spent, economic development types rallied, and everyone started to think that what happens in the Valley was formulaic and imitable. The mood of that period, especially in the late ’90s, supported this kind of misguided thinking.

Today none of those areas has managed to take market share from the Valley in terms of invested venture capital. Many have moved on to claim the title of “biotech capital” with equally dubious credibility. Again, concentrations of expertise and capital will determine where biotech companies emerge, and states can do little in the near term to change that.

It’s understandable why others covet the Valley’s magic. But what happens there has taken decades to build out and represents a unique economic ecosystem. It is not unlike NYC’s past dominance of the domestic financial world or LA’s dominance of entertainment. Yet no one runs around saying, “Hey, why can’t we create our own version of Wall Street right here in Atlanta!” It’s just not credible. Regional self deception distracts from the need to exploit local strengths. Communities must focus resources and capital around companies that have a reason to germinate, grow, and prosper in the local economic soil. Nothing else, save random chance, will work.

Some companies can start anywhere. Wal-Mart, JB Hunt Trucking, and Tyson Chicken all grew up in northwest Arkansas long before a freeway or jet-service airport existed. But the blend of Stanford grad student energy and innovation, venture capital insight, and tech-savvy adult supervision that coalesced into Google is extraordinarily rare outside the Valley.

Away from the Valley it’s important to focus on ideas that can thrive on local energy, talent, and connections. In my first few months of looking at regional IT deal flow far away from the coast (Southwest Ohio) this has become abundantly clear. The most promising ideas are those brought forward by people involved with the region’s large number of world-class companies.

These prospective enterprises are grounded in some unique insight of the entrepreneur about how to apply technology to a business process. The entrepreneur has the experience to recognize the issue and propose an acceptable solution to a sophisticated buyer for feedback and adjustment, and the innate talent to drive the idea forward. With a judicious application of capital and assistance, the best ideas can be brought to scale.

So the cynic in me says that trying to build out technology companies in the MidWest is a fool’s errand. But by disposing of silly nicknames (Silicon Tri-State?), focusing on regional strengths, and holding entrepreneurs to the same standards applied in VC centers like the Valley and Boston, we hope to end up with the last laugh.

CincyTech executive-in-residence Mike Venerable has launched a blog that applies his insider insights and his characteristic irreverence to current tech and VC events.

Written by Mike Venerable

July 6, 2009 at 3:38 am