While many people in the tech world only make the trek to Austin, Texas once a year for SXSW, the city has a fairly sizable startup community. Now Austin is getting its own Y Combinator-esque program, dubbed Capital Factory.
As with other similar programs, Capital Factory offers entrepreneurs a modest amount of funding in exchange for equity (the program is offering ‘up to $20,000′ in exchange for 5% of each startup). Capital Factory is also advertising ‘$20,000 in free stuff‘, which includes server usage, PR support, and legal help. But the real value from these programs comes from their associated mentors, who work with the startups to help them get on their feet, and help tap into their established networks of VCs and other entrepreneurs.
The ten week long program culminates in a ‘Demo Day’ during which each startup will pitch their wares to VCs, press, and other entrepreneurs.
Capital Factory joins a growing number of programs vying for the attention of eager new entrepreneurs. Aside from Y Combinator, which pioneered the idea, other incubators include TechStars (Boulder and now Boston), Start@Spark (Boston), LaunchBox Digital (Washington, D.C.), DreamIT Ventures (Philadelphia), and Shotput Ventures (Atlanta)
Most of these are regional, but they still draw from the same pool of entrepreneurs (many of whom are willing to relocate temporarily if they get accepted to their preferred program). Recently we’ve heard of some shady tactics like exploding term sheets that are being employed as these programs compete for the same candidates.
To a degree its a numbers game: the more incubators, the more startups and eventually the more businesses that succeed which turns into more jobs and a wealthier society.
Therefore bravo Austin.
I believe the Y-Combinator concept is very powerful and we, here in Europe, are screaming for such a effort around here!
I know, I suffered in Germany for more than a decade without such opportunities. Took me a long time to create my own. You can say what you want about flaky financial systems and bust and boom culture but Americans know how to get things going – and then they do it instead of discussing the pros and cons for another 12 years.
Amazing.
Seed money, coding assistance, and introductions don’t mean anything. They aren’t a prerequisite to success and in my opinion, are equal to PayDay loans because they take more than they give.
There is no introduction these guys can give you that you can’t find on your own–if your product has value and can generate revenue.
There is no magic trick ChickenHawk VCs offer except the trick where they become owners of your company in exchange for petty cash.
“Mentoring” is the dumb tech word of the year, as though it equals anything of value. Occasionally, it is somewhat helpful. For the most part–as anyone with prior VC experience will confess–it isn’t.
Certainly, not for the small some the kid receives in exchange for the ownership position.
There is a REASON these fool deals are offered to kids.
Because adults would laugh these clowns out of town.
TC isn’t looking out for you kids. Hell, Arrington can’t stand to even look at you. His friends are the sleepy rich guys like Predator Graham and Ski Sweater McAdoo and the Sonsini Kid.
Stay Away, kiddies. And do it yourselves.
Urban know nothing and his babble is laughable.
Stay away, kiddies, and raise the money through friends and family. Better yet, develop a product that generates interest–and revenue–on its own.
That way, you don’t have to accept $5,000 in exchange for 10% ownership and bullshit mentoring.
“Mentoring” is, without question, the idiot Up with People Verbage.
Kiddies: Know the difference between the price of everything and the value of nothing.
Chickenhawk VCs, are lazy and offer nothing.
TC and Limbaugh fat faced Arrington are buddies with these guys. Not you pimply faced startup geeks.
STAY AWAY.
It seems there should be some kind of umbrella organization to connect each of these organizations. Perhaps exchange programs to put like startups in the same regional program or combine groups for better results.
We discussed this a bit with Brad Feld in Austin during SXSW. I would not be surprised to see a national level of cooperation between all the programs in the future. Additionally I would expect to see a tighter bond between each program and their respective regional angel networks.
That next level of coordination seems like the natural evolution of things.
I’m currently participating in the 2009 Winter/Spring session of AlphaLab, and I’m interested in seeing what kind of synergy could be created between the incubators.
As the number of “graduates” of each program grows, it will be interesting to see how each network builds and overlaps.
FYI – We’re still taking applications for the program through April 3 – so you have one week left to apply.
http://www.capi....com/apply.html
Hi Josh,
I am a Business Relationship Associate with Plug & Play Tech Center in Silicon Valley. We provide similar solutions to startups as well. I was not able to find an email address or telephone number for Capital Factory. What is the best way to contact you?
Sincerely,
Ruth
If MA thinks these YC clones suck why does TC continue to write about them?
Just kinda curious.
its either them or twitter
In illinois, we have http://www.iventures10.com/ from illinoisVenture.
the virus is spreading
There’s also AlphaLab in Pittsburgh which just opened up it’s latest application round.
I heard Josh Baer was involved in this new deal. That guy is so arrogant he acts like he doesnt remember meeting you. Ive seen him do it a couple of times. Im sure that will be a turnoff to the new entrepreneurs they meet when they run into him somewhere and he acts like he doesnt know you. Why do all these wannabe VCs claim they are ‘entrepreneur friendly’ and then treat them so disrespectfully?
I’m really sorry to hear that you feel that way and I’m sorry if I didn’t remember meeting you. I did not mean any disrespect.
Josh seems like a nice guy to me. Met him right after moving to Austin from the Bay Area. He remembered my name. When I met him, he positions himself as an Angel so I don’t think they are ‘wannabe VCs’.
Maybe he was having a bad day?
http://en.wikip...tribution_error
That’s odd. When I introduced myself to Josh out of the blue at Innotech, he offered to help me start a company. And we did.
I’ve known Josh for a while now and, to put it simply, you are dead wrong.
Since moving to Austin 2 years ago Josh has been a huge help to me getting settled in, and he is one of the linchpins of the entrepreneurial community here.
You know, sometimes even the nicest people forget your name. Your assumption that it was some kind of deliberate personal insult suggests that perhaps you are the one with the personality defect, not Josh.
I have to admit that I’m really bad at names. But once somebody reminds me of an email exchange we had, or where we met previously I usually do remember them. Considering that I have about 1500 contacts, it’s as good as I can do.
For all you anonymous commenters, it would be more helpful to hear about experiences you had that didn’t work (and why) rather than a blanket condemnation. When programs like TechStars are getting hundreds of applications, and 70% are making it to the next level — something is being done right.
to be honest. . . a lot of these guys are really no-bodies who failed at raising money from LP, so decided to morph their model so they only need to invest 20K for 5% instead of $1M for 20% . . .
I’m not sure where you got that information but it is not true. We never tried to raise any money from LPs.
Here is the list of no-bodies
http://www.capi...om/mentors.html
I interviewed Josh & Bryan from Capital Factory at SXSW; it’s posted at http://tinyurl.com/dxym4q. While I’ve heard other comments about Josh like the one above from Business Person in Austin, I think the fact is that he is a technologist first, and as such shares some personality traits of other hardcore technologists that I see all the time in my work with VCs & entrepreneurs. I probably wouldn’t call it arrogance, but I would add that it certainly helps to have a strong dose of self-confidence to play the startup game. Note also that Capital Factory has a broad array of great startup folks on board as mentors, so if someone doesn’t click with one person, there are many others, each of whom has some good insights & experience to offer.
Do people really give up 5% of their companies for $20K? Is that a misprint?
Lehman, GS, dead or getting hand-outs.
Spring is approaching.
Economy of shattered dreams and desperation.
Its not just about the $20,000 its about the 20 mentors who are going to spend time with the companies and help them to focus on the right priorities and with key introductions to customers, partners, employees and investors.
This model makes a lot of sense for some startups, but not for everyone. Everyone needs to decide for themselves.
“Mentoring” is the idiot word of the decade.
The implication is you can’t meet business leaders/directors of business development w/out these guys Repping you.
Simply untrue.
If it were, we would all be screwed.
That is what they WANT you to believe, as they take 10% of your company. It’s a freaking hand job of a deal.
ChickenHawk VCs: You will never get laid, but you will ALWAYS get f@@&*d!
5% for 20k and the chance for someone to bounce ideas off other mentors who have developed successful companies?
5% to tap into their networks?
5% to get that much needed press / buzz /hype going?
5% for a 1st time founder to be in a setting with other like minded individuals and get off to the right start?
Sounds like a steal to me. I would be willing to give up more than that to get into one of these programs. To be able to build a company in this setting and have VCs at the end of summer ready to listen to your pitch, who someone like me in Ohio, would have a hard time getting access to. Man, that is invaluable, and worth so much more than taking 20k and handing out 5% to someone. I’m there in a second if CF will have me.
Here’s a listing of other incubators terms for comparison:
http://www.read..._incubators.php
I was talking to a founder of a Techstars company who, before being selected for Techstars, had raised F&F money, and he said the valuation wasn’t an issue– his investors were comfortable with the value of the intangibles and gave the go-ahead.
http://axees.ea....clickbank.net/
Old school Angels and Angel groups have morphed into the current crop of Vanity/Visibility crop Angel Funds which are wonderfully in tune with the times – they are both dispenser of lunch money and Reality Show.
The first sign that something is wrong is when the Fund and its Founders/Partners are a lot more visible and noteworthy than any of their portfolio companies.
The second sign is when media shills talk about the abundant “value” of these Angel Funds because they can introduce you to folks. From a March 16th article by Michael Arrington in TechCruch about Y Combinator – “Y Combinator startups get a big head start in the competitive tech world. The founders, often just out of school (or still in school), get enough money to pay the bills for a few months as they work on their projects. They also get mentoring and polish from the Y Combinator team and a chance to present to prominent angel investors and venture capitalists at twice-yearly demo days”.
I have a problem with Arrington’s use of : “big head start”; mentoring and polish from the Y Combinator team”; and “chance to present to prominent Angels” I don’t see the truth in “big head start” and I don’t see the value in the following two comments.
The third sign is when the 2 or 3 or 4 guys in the Angel Fund say that they will provide true mentoring to the 50 – 60 – 70 lunch money investments they have in their portfolio.
The fourth sign is the level of fixed % of the company taken for this lunch money. The fact that there is a fixed percentage assigned during this lunch money stage is wrong to begin with. The lunch money investment should somehow be tied to the value of the Series A (with a snappy discount & accrued interest).
The fifth sign is when old line VC firms throw some money at these Angel Funds (Sequoia / Y Combinator and Spark / TechStars) and then have the Angel Funds scour a geographic region (Silicon Valley, Boston, New York) for portfolio companies.
Elliott Dahan
Excellent point above by Elliott.
Do the math. Will $25,000 (I’m being generous here) get you to the point where your product is up and running in two months?
Because that’s all the time this petty cash is going to give a small startup. Burn rates for startup companies with little overhead and 3 people can be $25,000 a month.
So you get a wine and cheese party, some beer and a lot of hot air from “mentors” telling you how they all funded Google.
Total bullshit. Don’t fall for it. You will hear more about their own experiences, but will get little advice.
Chickenhawk VCs: If you can’t figure out who the sucker in the room is…
…You’re the sucker.
A “straw man” is when you invent an argument and then knock it down, rather than arguing against the argument at hand.
Elliott and Tom, you guys have a great straw man going. If you bother to read the website you’ll discover you’ve got your facts wrong.
“There’s no value in introductions.” Agreed! You’ll notice that “getting introductions” is not a benefit listed anywhere on the CF website.
The benefit of mentors is NOT in “introductions,” but in helping you focus on what’s important, helping you ask the right questions, coming up with great marketing and positioning, getting beta testers in the door, and even things like accounting and legal work.
“2-4 investors cannot advise 50-70 companies.” Agreed! That’s why we have 20 mentors for 3 companies.
“Burn rates for three people is $25k/month.” I suppose you haven’t bootstrapped a company before, because that’s crazy-high. You must be thinking of big-VC-style companies.
All 20 of the mentors have created successful companies on more like $500-$1000/month. If you can’t understand how that can be, I can see why you’re confused.
“You get a party, some beer, and stories about how they all funded Google.” Actually none of us are VCs. We all created successful companies from scratch. Agreed that stories are bullshit, but if you bothered to attend one of our meet-and-greets you would discover that all did was talk to prospective folks about THEIR ideas, and even helped them with useful questions right there on the spot.
Sorry guys, the persona you’ve invented just isn’t true.
Jason:
No confusion here. Quite the opposite. I simply warn inexperienced–yet talented–kids (that’s what they are) from getting into bed with people who ask for more than what they give in return.
Hardly a straw man argument.
First: the fact that you and others created successful companies means very little to the startups you court. Unless YOU are the guy on the other end of a deal that will result in revenue for said startup, your connections mean very, very little.
How do I know this? I’ve seen it after the fact. Typically, when the startup attempts to litigate its way out of a very bad deal.
Mentoring is tech babble. It seems to take on several meanings–depending on the carnival barker using it. In this case, you refer to mentoring as possible “legal advice.”
Really? Because that type of legal advice is something I would advise AGAINST given that the mentor and the startup have different agendas.
Now, does the startup kid know this? No. Is he protected from this sort of mentoring that might result in signing away the company, or placing more people on his “advisory board” from the friendly mentor’s firm, or his VC pal sitting in the back of the room?
Probably not.
As for Burn rates, if you’re employing more than 3 people, have an office, marketing budget, and outsource your coding, you are getting up there pretty darn quick. That, once again, I’ve seen firsthand.
Bottom line: you people offer too little and ask for too much. Your claims of “successful startups” are questionable at best. Your legal advice is an inherited conflict of interest against the startup owner, and at the end of the day, you’re the Playa with 20 other girls in 20 other ports, while the poor startup CEO kid thought you loved only him.
BTW: I’ve seen you speak. Not impressed.
Josh,
What is the best way to contact to you or one of your colleagues at Capital Factory?
Best Regards,
Ruth Gonzalez
Plug & Play Tech Center
Ruth@plugandplaytechcenter.com
Hi Ruth,
If you have questions about the program, the best way to get answers is to post your question to our forum on GetSatisfaction at http://getsatis.../capitalfactory
You can also ask us questions directly on Twitter @CapitalFactory
Finally, we’re having a meetup at Conjunctured in Austin on Tuesday at 5pm if you want to meet with some of the mentors in person.
http://www.face...2656&ref=ts
I look forward to hearing from you!
Hi there, I blog about US and UK seed funding at http://weklik.wordpress.com. I’m trying to map out all seed and early stage seed investment funds on google maps (see the Resources section of my blog). Joshua, would you be able to email me a location so that I can put Capital Factory on my map (even just a street address)? apgu4 @ mac.com
Aristos