The courtship almost always starts with the small company approaching the HQ of the big company they desire as a strategic partner.  Usually, the big company is too distracted or the joint value from a partnership isn’t perceived as significant.  If very lucky, a successful pitch is followed by numerous conference calls, lab trials, partner program paperwork and accompany payment.  Eventually, the new partnership is revealed to the big company’s sales team and the pitching starts all over again.  After all, if this sales team doesn’t take interest in the offering then all the work leading up to that point was wasted.  So why not reverse the sequence of events?

Click here for the full blog post.

President Obama visits Capital Factory to learn about Austin Innovation.

Mr. President,

Thank you for coming to visit us today. We are honored to have you here and to be able to share our story with you.

My good friend Dr. Bob Metcalfe, the inventor of Ethernet, founder of 3Com, and now Professor of Innovation at the University of Texas, says we should “Celebrate our entrepreneurs like we celebrate our athletes.” What you are doing here today is an example of just that. I guarantee you that a new startup company will be founded in Austin by an entrepreneur inspired by your visit. Someone might already be coding on it right now.

The day before your visit, CTO of the United States Todd Park said that “we’re looking forward to showcasing the innovative spirit of Austin as a model for the rest of the country.” I hope your visit reinforced that message.

Capital Factory is a blueprint that other communities can learn from and replicate. There are 3 key parts:

1. Physical space for startups to work, intermingle, and play. This is all about density.
2. Community leaders to organize the meet-ups, hack-a-thons and other events
3. Angel investors that were previously entrepreneurs who can mentor and invest in first-time entrepreneurs

All together, this is a virtuous cycle that gets better and better over time. It starts with the big success story, which trains, funds and inspires a next generation of startups.

One or more universities to supply a pipeline of fresh talent is table stakes. Nothing happens without talented and experienced employees. Austin is fortunate to have the University of Texas at Austin, St. Edwards University, Texas State University and Austin Community College – not to mention many other universities in Texas.

The numbers say it’s working.

• 250 entrepreneurs work here
• Almost 100 startup companies
• 30 successful entrepreneurs that mentor and invest
• 2 large meeting spaces are booked every night of the week
• Thousands of talented engineers coming through each month
• Our successful companies are attracting venture capital, creating jobs, and staying in Austin

President Obama meets with the Capital Factory Mentors

ANGEL INVESTORS

While you were here you met with the Capital Factory Mentors - 30 successful entrepreneurs who collectively contributed millions of dollars to open our facility and invest in first-time entrepreneurs.  Each of them are entrepreneurs who have built large companies and now spend a significant amount of their time and money helping first-time entrepreneurs.  Most are doing this while still running their own company. Collectively this group has created over 10,000 jobs in Austin.

For example, Rony Kahan founded Indeed in 2004 and now has 750 employees. Indeed is the largest online job board who’s product has helped millions of people find jobs.

Ross Buhrdorf is the CTO of HomeAway, which employs 1,400 people. Brett Hurt is the founder of Bazarvoice, which employees 800 people. Both are public companies and some of their best employees have gone on to found many other startups, which is a common pattern in the healthy startup ecosystems like Austin.

No startup ecosystem exists without Angel Investors. Each week at Capital Factory about 50 entrepreneurs and mentors are matched for “office hours.” Austin is also fortunate to have CTAN, one of the most active Angel investor groups in the country.

This is what makes startup ecosystems work… and this can be replicated in other cities.

Austin Startup Ecosystem

THIS IS WORKING

Here are 3 examples of recent success stories at Capital Factory that are creating jobs and contributing back to the Austin startup ecosystem.

The first is my own. My startup OtherInbox, the cure for email overload, was acquired a year ago by Return Path. With hundreds of employees in New York and Denver, you would think they would have shut this office down. But instead we have doubled to 20 people and have made Austin home of our new Labs Innovation team.

The second is WP Engine, the leading service for hosting WordPress websites. Jason Cohen founded the company just over 2 years ago and they just recently added serial executive Heather Brunner to the team. They started in Capital Factory and now are the largest company with more than 30 local employees. They are out of space and will be moving into their own 14,000 square foot office a few blocks away – effectively “graduating” from Capital Factory.

The third is Sparefoot, the place you go to find and book a storage unit. We moved Chuck Gordon and Mario Feghali to Austin right out of college in 2009 and now they have 80 employees and will double in the next year. They are located right across the street, contributing to the density of the downtown Austin “Startup District”.

AUSTIN IS THE MODEL

When you talk about tech startup cities, everyone first thinks of Silicon Valley.

Silicon Vally is clearly the leader, but it’s unique – it’s a unicorn that can’t be re-created elsewhere (plus its in California). You can’t replicate Stanford and you can’t replicated the VCs on Sand Hill Road. But you can replicate this blueprint of Physical Space, Community Leaders and Angel Investors. Nick Longo is doing it San Antonio and Tony Hseih is doing it in Las Vegas. There is 1871 in Chicago and 1776 in DC.

WHAT WE ASK OF YOU

• Celebrate our entrepreneurs like we celebrate our athletes. Support Startup America’s mission to highlight and inspire the next generation of America’s innovators.
• Keep Capital Gains tax low to encourage angel investors. Make it zero if you hold an investment for more than 5 years.
• Reduce immigration friction so that we continue to attract the world’s best entrepreneurs and talent
• Make sure we deliver on the JOBS Act
• Support initiatives like SHIELD to stop patent abuse and encourage innovation
• Keep the Internet working by opposing initiatives such as SOPA & PIPA
• Protect our privacy by opposing initiatives such as CISPA

Mr. President, thank you for visiting Austin and for highlighting all of the incredible entrepreneurs and mentors at Capital Factory.

Sincerely,

Joshua Baer
Managing Director
Capital Factory

p.s. In 2017 when you’re unemployed, you should consider coming in to pitch a startup idea to Capital Factory!

Some investors want to be the last one to commit and few want to be the first.  It’s mostly a safety and survival technique.  Think about it from their perspective.  The first investors to write you a check run the risk that you only get half-way to your fundraising target, which means your business is suddenly an even riskier investment than what they originally predicted.  Savvy investors that write checks early in the round will intuitively take this into account, which might explain why they are being extra cautious and demanding in their due diligence.

Click here for the full blog post.

I don’t know who came up with this analogy but I’d love to thank him/her because it’s a perfect way to think about your offering and its value proposition.  Is it a vitamin?  In other words, does it create an opportunity for some improvement?  Or is it an aspirin?  In other words, does it solve a problem?  Both might sound like beneficial offerings, and they are.  But there’s actually a big difference when it comes to buyer behaviors.

Click here for the full blog post.

Seems like every third startup nowadays is using the “Freemium” business model: The lowest service tier is free, and the business is designed to get those users hooked and then upgrade to a paid plan.  It can work wonderfully of course, but usually it crushes and destroys companies, not only because it costs more than anticipated but because the founders didn’t realize the business model itself caused them to make incorrect decisions.

Click here for the full blog post.

One of the most common requests from entrepreneurs that I meet is for help finding a co-founder. Sometimes they have an idea but know that they don’t have all of the skills needed to pull it over. Other times they know they want to be an entrepreneur but aren’t inspired by a problem yet. More often than not I meet business co-founders (“Hustlers”) looking for technical co-founders (“Hackers”) but occasionally I see the other way around too.

Click here for the full blog post.

Sales professionals are a different breed, so you’ve got to understand how they think in order to best motivate them and keep them aligned with company strategy.  And if you don’t do it correctly, don’t blame the sales rep for doing things that put the most money in their pocket.  In fact, never break these basic rules when setting compensation plans for your sales team.

Click here for the full blog post.

It finally happened.  You’ve been trying to get the attention of a huge strategic alliance partner and finally they gave you a chance to explain the value you can bring them.  Not only do they get it but after a couple of subsequent meetings they utter the “exclusivity” word.  You’ve heard from your advisors and read in books to avoid exclusive relationships if at all possible.  But you don’t want to bring the positive momentum to a grinding halt by immediately saying “no”.  Where do you go from here?

Click here for the full blog post.