Y Combinator Recombined: Talking with Philadelphia Startup Incubator DreamIt Ventures

10/6/08Follow @wroush

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quite a few people from these partners companies to be on their boards.

The other piece of it was that while we did put up some money ourselves, as part of our focus on making this a privately run, entrepreneurial activity, but we also managed to get three or four economic development groups in the area to pitch in, to get the community really involved.

X: You also provided work space for the teams, right?

ML: Yes, a local economic development group was getting ready to move into a new building, so some space opened up in the University City Science Center. We were able to take over a floor of one of their buildings and supply everybody with working areas. What’s interesting is that that wasn’t a focal point of our original plan; we wrote into the application that teams could work anywhere they wanted. But it turned into one of the highlights. The companies spent a lot of time working out of the space and helping each other out. It actually surprised me how much of a community developed.

X: When you were deciding how to structure the DreamIt program and you were examining other incubators, what did you like and dislike about the Y Combinator model?

ML: What we liked was the core idea that you get a bunch of bright young folks in, give them some money, give them some help, and in a fairly short amount of time they either sink or they swim. They manage to pull it off, or they don’t. It was a much more appealing model than the traditional incubator, where a company could languish for a year or more. It was very black and white—giving them everything in a very focused amount of time. What Y Combinator does and what TechStars does in Colorado works very well. We just tried to enhance it by giving the teams access to some other people and resources that could help them in different ways.

There was one team, for example, that was very strong on the business side, but not as strong on the development side, so we hooked them up with a mentor who was very strong technically. We tried to leverage the strengths and weaknesses of each group and match them up with resources to balance their team out.

Lecture at DreamIt VenturesX: What are your selection criteria for teams applying to take part in the incubator program?

ML: We look for a combination of four things. There’s nothing incredibly unique or proprietary about this—it’s all on our website. We’re looking for a good idea, something that has the capacity to scale up, a good team with at least two people where there is a reason why these are the people who can be successful with it, and something where they can achieve a milestone by the end of the four-month program—whether it is having a prototype done or having their product to market. We got a couple of interesting healthcare applications, but they had to go through certain approvals to get their products out there, and it just wasn’t something that could happen in the window of our program.

But in the end, I believe, as almost any VC will tell you, that it is really all about the people. We met with each group of entrepreneurs in person or over video conferencing. We tried to get to know them and hear what they had to say and ask questions.

X: Is there any sort of expectation that the companies you fund will stay in Philadelphia? Some of them from the first class, like SCVNGR, obviously, have already relocated. But if you’re getting funds from regional economic development groups, there must be some pressure to make sure the startups stay in town.

ML: There is no hard and fast requirement. The only requirement is that in order to go through the program the teams have to spend the summer in Philly.

But our thinking is that by teaming the companies up with local people, accountants and lawyers and mentors, and other experts—that everything else being equal, if they don’t have a compelling reason to relocate, there is a higher chance that they will stay if we help them create the infrastructure here. From the economic development groups’ point of view, the goal is, number one, to provide a reason for people not to leave the area to begin with, and number two, to attract people into the area. I think we accomplished number one really well. Of all the companies that had been founded here, I don’t think any of them plan on leaving anytime soon. And of the ones we brought in, I think there are one or two who will relocate here. Then there were others, like SCVNGR, that had other reasons and incentives to go back home.

The big picture is, what can we do to help elevate or transition the entrepreneurial community in Philadelphia? We want to provide an outlet in this region for young innovators and entrepreneurs with great ideas to get a head start. It’s really the same motivation that a Y Combinator has, but we want to do it in this region and, over the course of some number of years, make Philadelphia a hub of entrepreneurial activity. If we stick with this for a few years and have 80 or 100 companies that have come out of DreamIt, we will really start to have an impact.

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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