Fireside Chat | Accelerating Startups for Mutual Success

Foreign. Well, hello to all of our attendees and thank you for taking the time to join us for this very special fireside chat with David Cohen, co founder and chairman of techstars, the worldwide accelerator network built to help entrepreneurs succeed. This is a great way to kick off our second day of the summit. My name is Bailey DeVries and as Jennifer Shih recently shared, I am the Associate Administrator of the Office of Investment and Innovation at the Small Business Administration. Today, David and I will be talking a little bit about his extensive experience in accelerating startups across both the country and the globe. We will also talk about strategies for providing support to startups in growing ecosystems. So without further ado, let me welcome David to the session. David, thank you so much for taking the time to join us today.

Hey, thanks Bailey. Good to see you taking the time. You're the one that's been so busy with all these announcements at the sba. So glad to be here.

Well, I just am fortunate to be surrounded by an incredible team and have an incredible boss in Administrator Guzman who is challenging to be very entrepreneurial and customer first. So it's just an exciting time to be at the agency and we're doing as much as we possibly can to support small businesses and startups around the country. So I think many people have probably heard of techstars, but for those that haven't, and also just to refresh some folks memories, I think it'd be wonderful if we could talk a little bit about the organization. I mean, you've built an impressive, impressive global organization which began in Colorado back in 2006 with now over. Do I have the statistic correct? Over 3090 graduate companies representing over 71 billion in market capitalization. Is that right?

Yeah. I like when we say over because every day it's more. We're funding about 600 new investments globally a year. I think next year we'll be at 800. So it's been pretty wild. I was the original managing director here in Boulder and so we're 15 years old now. Now we have 100 investment professionals around the world, a team of 350, and we're operating in 15 or so countries and dozens and dozens of cities. So it's become really one of the, if not the largest sort of pre seed investors in the world. You know, we make make lots of investments at very early stages. So we're built to do that.

That is so exciting. I have been thinking a lot about Techstars recently, given some of the work that SBA is engaged in with the Department of Defense and some of the co founders of AFF Works. I have it right that Techstars was very involved in early days in AFWorks, is that correct?

Well, we did partner with them, yeah. I don't know how involved we were from their perspective, but it was a great partnership and funded, I don't know, 20 or 30 companies together. Some really awesome success stories like Vita Inclinada, which is helicopter load management, and lots of really amazing sort of drone oriented and logistics oriented companies. So I think we sort of help them get into that accelerator model and understand what we do. And since then they've done obviously an amazing job at deploying capital and help for these companies.

So cool and so impactful. So techstars brings together founders, mentors, investors and other partners to cultivate a very robust and very dynamic innovation ecosystem. I mean private markets are very dynamic and always changing, as is venture, which keeps it very exciting. Right. But for those unfamiliar, could you provide an overview of all the types of services and support that you provide to those stakeholders that you work with?

Sure. So at our core we are an investment business. That's, that's what we do. It's, it's a for profit model. We happen to do that through a model known as the Accelerator model, which is a three month mentorship driven program where we provide capital in exchange for equity. So we're investing in the entrepreneurs that go through these accelerator programs. As I mentioned, there'll be about 600 companies this year, 800 next year. So really scaling it. We offer that in local markets all around the world. So we operate from Austin to Boulder to Chicago to Singapore to Oslo and all over the world. So people have access to that wherever they are. So the accelerator is what we're known for and that's the core of our business as investors, the mega pre seed investors globally. That's what we do. But we also are the people behind something called Startup Weekend that you might have heard of. Startup Weekend is a weekend experience of entrepreneurship. It's just designed to expose people to entrepreneurship, build their network a little bit. We run through a network of 7,000 volunteers. We run that playbook a thousand times a year. So any given weekend, there's 20 or so startup Weekends going on in the world where people can get exposed to entrepreneurship. We also do something called Founder Catalyst, which is a non investing activity that builds ecosystems. For example, in Tokyo, Japan we work with an organization called Jetro who really wants to improve the startup community there. And it's, it's, if you will, sort of a Light version of our accelerator where we're teaching entrepreneurs how to raise capital, do sales, you know, build their team, connect to global markets. It's a big part of what we do. We have this, you know, very large global network that we can help with and we have innovation partnerships. We work with lots of large corporations, so we engage in many ways, but at our core we are investors and that's our business.

Thank you for that. It leads me to another question which is that as you are partnering with these ecosystem support organizations that come in many different flavors, could you share a little bit about how you catalyze these relationships, how you might select them and what might be a fit for a techstars type partnership as you look to help them spur innovation in their own either geographic communities or industry communities. Would love just to hear a little bit about that.

Yeah, so we've learned a lot about, you know, as an investment business partnering with organizations. We've done more than 300 partnerships and these are meaningful. Most of them are investment oriented. Again, that's the core of what we do. So for example, you know, we've, we've partnered with organizations like Barclays bank where they want to, you know, invest in companies that are in the fintech space, which is an area we're also interested in investing in. So we're essentially co investing in that space together, leveraging the power of the techstars startup network and the obvious reach of a bank like, like Barclays globally. And it's been super powerful. You know, we started tinkering around with things like blockchain and, and you know, all of that Web3 stuff as we now know it. And I think about 2014 when I first wrote an article for TechCrunch about, you know, how that would impact, you know, financial think the world. And Barclays wanted to partner and experiment with that. We funded, for example, a company called Chainalysis. Back then, well before people were talking about, you know, the blockchain in every everyday conversation or web3. And Chainalysis today is, I don't know, an $8 or $10 billion company that market cap that, you know, works to prevent fraud and track things on the blockchain, which is sorely needed. So because we get there early and we spot these trends, that helps partners like Barclays to be able to co invest in them or learn about over time while making money doing it. So that's our primary mode. I mentioned the Jetro example for something like Founder Catalyst. Those motivations are less about investing today and more about building a community And a startup ecosystem, which is an obvious topic for today. You know, in that case, we're providing a lot of the same types of support for entrepreneurs in an ecosystem that maybe is still evolving or still coming into its own. And you know, we take a long view as investors. The same reason that Google wants to lay fiber in, you know, some remote location because when the Internet is used there, Google will have more business there. We want to help create vibrant entrepreneurial ecosystems around the world so that someday we can be investing more there. So again, multiple modes of partnering. Primarily we co invest with our partners in areas of interest to them and help them get exposure to those innovation opportunities.

I like the analogy. And also just the long term and relationship oriented view, not transactional at all. So it definitely helps better align you with the entrepreneurs and the different stakeholders in those communities as well to ensure success. Now if I might, I'd love to talk about, you know, a recent partnership that, that was announced. So I understand that techstars has, you know, partnered with, as you've mentioned, you know, many corporations and nonprofits. But earlier this year Techstars at JPMorgan Chase announced a very significant partnership to invest $80 million in divers startups over the next three years. And it will be distributed to over 400 companies through your accelerator network and through 37 Techstars programs and nine cities. Is that right? So did I get all the statistics right? I mean that's so impressive. Just, you know, would love to hear how it's going first of all. And yeah, and if you think it's going to lead to any big change, I mean it sounds substantial.

Yeah, it's a super interesting opportunity and JP Morgan has done a ton, committed a lot of capital and their network and intentionality around diversity in early stage and in tech and startups in particular. And this fund's an example of that. You know, we are already off and running in five of those nine cities. Atlanta, Chicago, Detroit, Miami and D.C. recently also launching Oakland. So really being intentional about where we're doing it, taking our accelerator model, the same exact model where we invest in, in those companies that have, you know, in our portfolio. That same model that you know, has produced dozens of unicorns already and, and really being intentional around opening that opportunity to diverse community. So it's off and running. We are as part of, I think what's really exciting is not only we're investing in those companies and you know, getting them ready for the venture capital market, getting them connected to it, which I think is a gap in the market Today we're also hiring more of our own team. Right. So internally it's impacting our own team and our own, our own demographics. So for example, we're hiring lots of, you know, black or brown managing directors. Who are the people that are directing this investment capital. Many of those people, I think 20 or 30 so far, have gone on to start their own venture funds after leaving techstars. So we expect that that will happen with these, you know, diverse managers as well. So it's changing our demographics internally, which is good. It's, it's training new investors in an investment model with capital that's there. And you know, we have investors behind that from, from J.P. morgan and their, you know, private bank that expect to make a profit. That's what we do. Again, we're going to invest it and we expect that we'll have great outcome both on the investing side and on sort of the impact side as well.

That's really exciting and it's wonderful to hear about the flywheel of opportunity and connections that it seems to be creating. I will share. You know, I have heard that there's perhaps some controversy that has seemed to arise from these and many similar accelerators and program leaders felt that this type of funding, this $80 million perhaps could have been diversified to bring in accelerators who were already solely focused on some of the underserved communities that this initiative sought to support. So just to be blunt, would love to hear how you'd respond to that.

Yeah, we certainly see that criticism and I certainly understand where it's coming from. I think, you know, there's obviously, you know, not, there's not a lot of equity in this country around black and brown, especially as it relates to venture capital today. We're trying to be part of that solution. I think it's, it's important to understand that Techstars has been operating for 15 years. As an investor, we are the number one investor before all of this in the US by a number of deals and black founders. For example, in the US so far, about 700 portfolio companies are led by black brown founders. So we built a track record over the last 15 years. And our partnership with JP Morgan is not JP Morgan saying here's $80 million, it's us pitching JP Morgan's high net worth investors on the investment opportunity based on our track record for us to go and do more of that. Right. And so these are people that are investing in techstars with their capital, not, not money that is a grant or anything, the expectation of return. And so this is what we're doing, right? And we think that it's having a very big impact. I understand, you know, the frustration, as some people say, well, I wish that would have come to us because we're already, you know, focused on that. Techstars is focused on that too. And I think that, you know, feedback is always welcome. We hear it. I think what's not helpful is sort of the notion of, well, you know, don't trust this organization because they're not really going to do it. We are really doing it. You know, these programs have, you know, 80 plus percent of the founders in the programs are coming from diverse backgrounds. Again, we're already leading in a lot of these categories. So JP Morgan, by the way, is doing a lot of other things. You know, they, they are doing advancing black pathways, which is a massive investment, advancing cities. There are much broader things that they're doing. So I think it takes all of us. And while I do agree that it would be great to, you know, fund more black managers, that's part of what we're doing as well. And I think other people can get involved and do that as well. But in our case, it's an investment that people are entrusting us with based on our own track record. And we're just trying to do our part. So I encourage people to reach out. We love the feedback. Again, understand, understanding where people are coming from is helpful. Taking a look at, for example, our DC program, you know, I think there's 40% or so that come from HBCUs in that program, 75 or 80% that are, you know, black or brown founding teams. It's heavily diverse. It looks like the cities that we're operating in, and that was the goal. They have a demo day this Thursday for D.C. people that are interested in that one if you want to check it out and learn more about it. But, you know, I think ultimately feedback and criticism can be helpful. But I think, you know, it takes all of us to make this change.

Now, I have to share. I dropped in on techstars demo day with the first Equitech accelerator that techstars had launched in my hometown of Baltimore. And I have to say I was very impressed by it. And also your comment about the return seeking capital I think is a really important one in that it is thinking about things from the lens of a financial return. And you're working with a financial institution that has a fiduciary responsibility to its clients as well. And I think there's always something magical and great when you have Great alignment between the LPs and the GPs and also the founders all rowing in the same direction together. But the last thing I'll lift up and just would love your thoughts on this. One of the things that we are keen to do as we're uniquely positioned as a federal agency, is often to convene and connect. There's a lot of other things that we can't do, but we can convene and connect. And this year with our Growth Accelerator Fund competition, we're really eager to catalyze relationships with established organizations and new organizations where we're partnering accelerators with local incubators and other nonprofits and philanthropy. And as you mentioned. Right. There's a lot of organizations that exist in different communities that can engage in different ways. You know, we just, you know, love to hear from you about, you know, how you think about engaging with some local partners on initiatives to support, to support more underserved communities.

Absolutely. I think it's super important because, you know, we don't think about our investing or entrepreneurship as a zero sum game. Right. It's, it's not, you know, if I win, you lose. The number of stories we have about supporting an organization where people are co investing or working together and mentoring on an open platform like Techstars where we invite, you know, we have 8,000 mentors very, very open that come in and help those stories change communities. Right. And so, you know, while it may be that one group invests and another group just helps, today what happens is the company that we help grows becomes a large company and then starts reinvesting in that community in other ways. Maybe they become an angel investor, maybe they start a venture fund. We see this all the time. And so I think as you mentioned earlier, taking a really long view is important. Being open in design is really important. We're not a guru driven model where we say, hey, we know how everything should work and we're going to be the magical wizards that tell you young startup how to behave. We're going to bring in the community and that's mentors, right. That's investors. And we're going to build a support system around every one of those companies. So I think you have to be open and you have to be long term in your thinking.

So I imagine you've just built a very impressive mentor network over the years. Could you speak a little bit about that mentorship network? That must be so important based on everything you're saying. How does that work? Are people mentors one? Do they stay in the program for Long periods of time. What does that look like?

Yeah, so there are some 8,000 of them. Again, we're operating all over the world, so it's a very globally distributed network. We call ourselves a mentorship driven accelerator intentionally because again, it's driven by really these mentors and a lot of them are alumni, a lot of them are the people that built and exited the dozens of unicorns we've been involved in already or other companies. And they're giving back in their own way. And that's this powerful, virtuous cycle that is really unique about our network, I think, is that people come back and help year after year. And it's, you know, every, every company going through the program has somebody 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15 years ahead of them in their cycle. Right. And so that's a powerful set of customers, investors. The mentors are originally were many of the people that have built the companies that we use every day. Right. And you know, today that continues. They, they remain engaged. Some people mentor more, some people mentor less, some people get busy. That's fine. We try to, you know, get people to engage at whatever level they have bandwidth and are available to do so. But it's incredibly powerful to have this built in customer base, this built in set of experiences focused on helping you succeed. And then the alignment of actually being investors behind that I think is really key. So it's, it's a, it's a really amazing thing to watch the give inaction from these mentors. They're not paid. They might be looking for a job someday, they might be looking to invest, but they're really wanting to build their communities and give first. To me, that attitude of just trying to be helpful without expecting it to be a transaction is the secret weapon of the best startup communities in the world. And it is how all the ones that will work in the future will operate is that way of thinking. And that's really relevant in the mentor network that we've built.

I love that, you know, and it's just that saying I think we all live by. It's like if you want to do anything great, don't. You're not going to do it alone. It's always going to take a whole community and sometimes you never know where that support is going to come from. But to be open to it and inclusive, that's so exciting and wonderful. You know, we've spent a lot of time talking about the investment organization, about the accelerators. I'd love if it's okay just to pivot for a couple minutes and talk a little bit about the techstars foundation that you've built. I understand it has contributed to more than $2.3 million and helped more than 50 nonprofit organizations. So you're working with other nonprofits to deliver scalable impact to entrepreneurs from underrepresented communities. So you can correct any of my stats if they're outdated. I'm sure you're growing all the time, but would love to hear more about it and understand more about the mission of the foundation and your process for selecting partners.

Yep. So it started about seven years ago with the simple idea that, you know, let's start a foundation to try to have some type of impact on, you know, access to, to tech to underrepresented founders. We didn't really know what that meant when we started it. We just knew we wanted to do something real. So I think we funded it with a million dollars of, you know, executive and sort of founder money around the system and then started asking our portfolio to contribute equity or you know, ca. Our mentors do the same and it's grown from there the last six or seven years. What we do simply is we find organizations that look really small but look like they could have a really big impact. Turns out we actually are pretty good at that. That's kind of what we do in the for profit world. We identify talent that's very early but could have a big impact on something. And we basically become the seed investors through a grant through our foundation for those companies and, and try to provide a lot of the same network and resources that we would provide in our accelerator. It's just that they're non profits, you know, so there's 50 plus of them, as you mentioned, that we've, you know, granted capital, but more importantly, network to and trying to help plug them in to other donors to opportunities, you know, so that they can have an impact. And that ranges everything from, you know, accelerators that, that they're building again, that, you know, might. Someone might say, well that's competitive with you, fine, but that's o. You know, again, it's not a zero sum game to, you know, educational organizations to organizations that are focused on things like entrepreneurship in the criminal justice system. Right. And reducing recidivism. So it's all over the board where we try to support and help with both that capital, but more importantly, that network.

That's so exciting. Well, if I might, I think we have a little bit more time, so I'd love to actually bubble it up to just a broader, more macro question because you, you see so much from such an interesting position and you see it so early. Would love to hear your thoughts on just emerging trends and insights. So, you know, what are you seeing in terms of some of the trends that you're tracking from an industry perspective, just in different communities as well, different things that you're seeing in tech, flow of funds, all of it would love to hear.

I mean, I try not to repeat maybe all the stuff you're hearing. You know, it's harder to raise capital. We all get that. You know, when I think about our unique position, you know, we're seeing lots and lots of companies applying. We accept, I don't know, two or two and a half percent of companies that apply. So there's probably, you know, 10,000 plus applications per year that we're looking through. We see those trends, right, that you're asking about. And I think coming out of the pandemic and you know, know, associated economic crisis, you know, and, and other challenges that are going on in the world, we're seeing some pretty clear trends in what people want to work on and want to spend their time doing. And some of them are surprising. But when you really think about it, people are just creating more meaning. So, you know, they want to do things that matter. So we're seeing a lot more, you know, sustainability in climate technologies, for example. We're seeing a lot more ed tech, you know, started people had experiences with their kids in virtual schools and like, this is terrible, right? Fintech continues to be a thing lots of people want to work on. Has been for a long time. Ag tech is a surprising one to me. Right. Like how we're going to feed the world, how are we going to, you know, get these things where they need to be. This is a logistics problem. You know, what if we took all the brain power of a company like Uber and focused it on logistics for food and water, that could be amazing, right? And so we're seeing people thinking this way where they want to do things that matter. You know, it's like, if this is my last startup, what am I going to do? And of course a lot in the Web3 space, which I don't think is a space, I think it's like mobile 20 years ago. It's part of everything in the future. It's a way of working and thinking. But these are some of the areas that we're really seeing a lot of activity in our system.

Well, I find that encouraging and hope is so important in it. I think it's amazing what entrepreneurs can dream up and do. It certainly just makes the world better, makes our country better. Any last parting words for. For other ecosystem builders out there? Any advice or guidance that you might share? And then I think that our time is shortly up after that. But it's been a joy to have this conversation with you.

Yeah, I mean, first, thank you. It's because of leaders that are out there in the communities, you know, making the startup community better. It's so much better for the world. It's entrepreneurship is where all the net new jobs come from. It's where all the innovation and goodness in the world comes from. So thanks for doing it. And it's not a zero sum game, right? We can all help each other. I think that's really key.

Thank you so much, David. I couldn't agree with you more that we all need to lock arms and do this together. So thank you for that and happy holidays. We appreciate you joining us.

Thanks Bailey.

Great. Well, with that I will turn it over to Jamila. Thank you so much for having us today. Today. Thank you, Bailey and David for that insightful conversation. If you're new here, we give emoji applauses to our guests on the stage or you can express your gratitude today with the giphy. So let's give it up for Bailey and David. I'd love for you to share your takeaways from this session in the chat. If you share, I'll give your comments a thumbs up to let you know that I've read it. We're all conversing in the Stage chat, so find on your screen the word stage. Click that tab and go ahead and participate in the conversation with us. If you're just tuning in, welcome to our second annual SBA Innovation Ecosystem Summit where you have the opportunity to fellowship with other ecosystem builders like yourself. Check out AmericaSeed Fund Us, which is your go to hub for community resources. There are several exciting programs coming down the pipe, so visit the website to sign up for updates so you don't miss a thing and you'll be the first to know when they launch. We're going to take a quick break and when we come back, we'll chat with practitioners in three states about different structures of their programs, what economic development impacts they achieve, and how entrepreneurial support organizations can better connect with state funds. Stay tuned.