Welcome to these four seasoned veterans as our newest Capital Factory Partners.  See biographies here: www.capitalfactory.com/mentors .

(Contributed by Jason Cohen, Capital Factory Partner)

What do you do once your startup is off the ground and it’s time to make a “real” investment in advertising? Should you work on optimizing AdWords since they’re working, or optimizing banner ads since they’re not working? Should you cut off the affiliate program since it’s a waste of time, or redouble your efforts in affiliate management? Should you optimize these existing channels or try to find a new, more productive channel?

See the full blog post here.

Welcome to Bob and Brett as our newest Capital Factory Partners.  See biographies here: www.capitalfactory.com/mentors.

Guest post by Ian Clarke, Capital Factory Mentor and CTO of OneSpot

Imagine you’ve started a business (many of you won’t need to imagine). You’ve invested your savings in this business, taken risks, and endured the stress and uncertainty. Your social life suffered – perhaps even your relationships.

After years of challenges, your revenues finally start to exceed your costs. You’ve created a successful business and you can start to think about expansion.

And then you get your first threat.

A stranger tells you that you can either pay them or they’ll destroy your business. This stranger hasn’t contributed anything to your business, has taken none of the risks that you have. They haven’t built anything. You ask around, and it turns out he isn’t bluffing. Everyone tells you that your best option is to pay up – so you do.

Sounds like an episode from The Sopranos, doesn’t it? Actually, it describes the predicament of many of today’s software entrepreneurs. The stranger isn’t a criminal thug; instead, it is a perfectly legal company known as a “non-practicing entity,” better known as “patent trolls.”

A patent is a powerful weapon. With it, you can sue anyone who independently reinvents whatever is covered by your patent. It doesn’t matter that they weren’t aware of your patent. Yes, you can argue that the patent is obvious, or that it wasn’t original, but even if you win, fighting the patent troll can cost you millions, while costing them next to nothing. If all they’re demanding is a few tens of thousands of dollars, doesn’t it make sense to pay up?

This is why companies such as Google must divert billions of dollars away from research and development, and spend it acquiring huge numbers of patents that they hope will defend against this kind of attack. Of course, the small software entrepreneur doesn’t have Google’s vast resources.

Fortunately, our political representatives have taken notice. Sen. John Cornyn recently introduced legislation to make life more difficult for patent trolls and, therefore, easier for software innovators.

One of the most important reforms is to force the loser to pay for patent litigation. This significantly shifts the calculus of both the patent troll and the entrepreneurs they attack. Now, if the patent trolls can’t adequately make their case, they’re on the hook for the entire cost of litigation. This alone should be a significant disincentive to patent trolling.

The legislation would also improve transparency: Patent trolls often operate through shell companies to disguise who they really are. The law would make this more difficult by forcing trolls to reveal anyone with a financial interest in the patent.

Of course, this legislation is not a panacea. The ultimate solution to this problem – at least within the software industry – is to say that you cannot infringe on a patent through the writing, distribution, or use of software. In other words, get rid of software patents.

None of the software innovations we rely upon today owe their existence to software patents, while the threat to innovation is clear. Indeed, if these patents were had been widely enforced prior to 1990, the Internet and many other important technologies that we take for granted today probably wouldn’t exist in their current form today.

That said, the perfect should not be the enemy of the good. Senator Cornyn should be applauded for this legislation.

About Ian Clarke

Ian Clarke is a Computer Scientist and Entrepreneur, with a track record of both technical and business innovation, and an outspoken thinker and activist on issues relating to freedom of speech, intellectual property law, and technology. Ian is best known as the founder and coordinator of the Freenet Project; designed to allow true freedom of communication, Freenet was the first decentralized anonymous peer-to-peer network, and a precursor of the “distributed hashtable” data structure. Ian has also founded a number of innovative and diverse commercial ventures, including Revver, the first online video website to share revenue with video creators, SenseArray, a powerful machine learning engine.  Ian is currently the co-founder and CTO of OneSpot, an ad network focussed on content marketing. You can follow him on Twitter @sanity

(Contributed by Jason Cohen, Capital Factory Director)

In the first year of business, you have literally no data for making decisions and predictions.  Even after the first hundred customers, half of those were serendipitous one-offs, not representative of repeatable, controllable customer acquisition, and the scale of the data isn’t statistically significant.  One of the root questions you have at the start, which is supposed to be data-driven (but you don’t have data) is: What’s the maximum I should bid for CPC (cost-per-click) campaigns like Google AdWords?

Click here for the full blog post.

(Contributed by Gordon Daugherty, Capital Factory President)

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 for any city that wants to be in this game. Nothing happens without talented and experienced employees. Austin is fortunate to have the University of Texas at Austin, St. Edward’s 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 whose 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 Bazaarvoice, 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 the 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 Valley is clearly the leader, but it’s unique – it’s a unicorn that can’t be re-created elsewhere (plus it’s in California). You can’t replicate Stanford and you can’t replicate 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 in 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!

(Contributed by Gordon Daugherty, Capital Factory President)

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.

Welcome to Dan and Rob as our newest Capital Factory Partners.  See Dan’s biography here:  http://capitalfactory.com/mentor/dan-graham/ and Rob’s biography here: http://capitalfactory.com/mentor/rob-taylor/.