“Changing the Way We Start Companies”: Q&A with AngelPad’s Thomas Korte

11/15/10Follow @wroush

Last week I reported on the inaugural demo day presentations from startups at San Francisco-based AngelPad, the newest of the Y Combinator-style tech incubators springing up around the country. After the presentations I had a chance to speak with Thomas Korte, one of the founders of AngelPad, about the vision behind the program, and I’ve written up the full interview below.

Korte says he and six other ex-Google executives (Richard Chen, Keval Desai, Vibhu Mittal, Deep Nishar, Gokul Rajaram, and David Scacco) started AngelPad in order to create space for founders who are slightly older and more experienced than those who join other incubators like Y Combinator or TechStars. And indeed, 60 percent of the founders invited to join the first group of AngelPad companies are themselves Google alumni, usually with several years of engineering experience under their belts. (Korte says that the proportion of ex-Googlers will drop over time, now that the AngelPad application process is open to anyone.)

In the venture world, it’s sometimes said that there’s too much money chasing too few good ideas. But far from worrying that there might be too many incubators these days, Korte says there should be many more. The rise of incubators, he argues, is basically an indictment of business and engineering schools, which he believes don’t really prepare their graduates to be entrepreneurs. “I think there ought to be hundreds more incubators,” Korte says, including wine-company incubators, restaurant-company incubators, university-specific incubators—essentially, one for every geography and specialty.

Most incubators these days offer startup founders roughly the same combination of services. That includes help defining a product idea and a business model, encouragement and mentorship from experienced entrepreneurs, an artificial 10- or 12-week timetable to encourage rapid iteration, and, of course, a moderate amount of cash (in return for a small amount of equity) and access to a larger community of investors.

That’s the formula at Y Combinator and TechStars, and AngelPad is no exception, Korte says. He credits Y Combinator’s Paul Graham with inventing the model (and says he’s made individual investments in over two dozen Y Combinator companies). “It’s exhilarating,” Korte says. “We’re changing the way companies are started. I think the likelihood of them succeeding is going to be much, much higher.”

Here’s the full Q&A.

Xconomy: What’s your sense of how the pitches went tonight?

Thomas KorteThomas Korte: I think it was really good. I think one thing early on for me [was that] I wanted to have a diverse group of companies that do different things in interesting spaces. And one thing through the program that we continuously hit on was, ‘Do something big. Try to change the world and see where you end up, and you’re going to have an impact. But if you start with a small problem, it’s not going to be interesting.’ I think we succeeded in that. We have mostly companies that are willing to take on big problems.

X: I can see that with MoPub, with AdKu. Most of these companies are addressing big markets.

TK: Not so much big markets. Obviously, big markets are interesting to me as an investor. But when I look at the challenges that they tackle—even something like Curate.by. Everyone talks about the social graph and people tend to forget about the interest graph. My Facebook feed today is full of stuff that I’m frankly not that interested in. If it were random people [instead of my friends], I wouldn’t even read it. It would just be noise. But this really surfaces the interesting stuff. If I were to get the stuff that you tweet about, that is relevant to the economy and startups, I would love to have that. I think from that perspective, they all take on big challenges.

X: Fill me in about how AngelPad was born. You said in your introduction that you almost didn’t do this until you got encouragement from one particular team, I think it was Snip.ly, which said they would joining up if you did this, which gave you some validation that you would be able to get some cool teams that would want to be part of it.

TK: Yes. If you look at the history of incubators, it’s not a good history. Incubators 1.0, back in the bubble, were big funds that would force people to use their services. They would bring people in and have ideas and spin them out of the incubator. There were few that were really successful. It was like, you bring people in to tell you an idea that you then own a majority stake in? It’s the wrong way to go about it. That’s not the kind of founder you want.

So when you saw the next wave of incubators coming out—and I personally dislike the word “incubator” very much, because it misrepresents what the second wave is all about, which is Paul Graham with Y Combinator. Paul early on had very young founders coming out of college, saying “Hey, I could do grad school, or get a job at Google, or I can start my own company,” and he really helps them through the process. There was still a big question mark for me about whether you could cross the chasm to a more mature founder, a founder that has five years at Google behind him, that probably could go out by himself to raise money. And through the process I found out that it’s not about the money. Of course raising money is part of the life cycle of a company, but it’s much more about being part of an environment where other smart people operate, they tackle big problems, they challenge each others’ assumptions, and having access to all these mentors who are going to help you through the process. When you have smart people with good ideas and big visions, the money comes.

X: Do you see AngelPad as part of that second wave? Is it the same kind of animal?

TK: Very much so. I would group Y Combinator, TechStars, AngelPad in the same category. We all carve out our own niche, be it geographic, or what kind of companies we attract, or what kind of founders we attract.

X: Okay, so what is your niche? I’m assuming it has something to do with this focus on Google alumni, basically.

TK: [Laughs]

X: Well, that’s how it looks.

AngelPad's Entrance Hall Mural & SculptureTK: It does very much look like that. That’s because the seven people who started it, we have known each other from the last 10 years of working at Google, and our social network, our offline social network, is very much around Google and ex-Googlers. So right now this group is 60 percent ex-Google. Over time that is going to decrease. We didn’t have a public application process. This was literally invitation-only on the first iteration. We asked our network, “Who is about to start a company, who just started a company?,” and really picked founders from there.

X: Is the whole thing self-funded at this point? The seven ex-Googlers who got together to start AngelPad are putting up the capital for the stipends?

TK: Yes, exactly. A subset of the mentors are the ones who are footing the bill.

X: It does strike me that this group of people, as a cross section of founders, is a little older and more experienced. They might have been around the block one more time than the typical Y Combinator group or the typical TechStars group. A lot of them do have that Google pedigree. So they’ve been thinking about big data and measurability and metrics for a long time. I wondered whether that was part of your formula—to go out and look for people who are already proven, as a way of improving your chances of getting a payback on your investment.

TK: I don’t think it’s so much about having a payback. All of us are slightly older, so this is kind of our social circle. What is different is that these groups are attacking problems that they had seen in their professional careers, not so much in their pre-professional careers. When you look at Facebook, for example: Facebook had to be started by someone who was in college, understanding a problem. If you solve someone’s problem, if you understand that problem like no one else, then you can build a good company around it. I don’t think it comes naturally to someone out of college to think about e-commerce optimization or mobile ad serving. So I think we have different kinds of companies just because of the different experiences people have had over the last couple of years, rather than from their college or just-post-college experience.

X: Do you ever worry that there might be too many incubators—that there might be a little bit of exhaustion? It seems there is a demo day every month or two these days, and often it’s the same faces—the same angel investors, the same venture partners—showing up.

TK: I don’t worry about that at all. In fact, I think there ought to be hundreds more incubators, literally. If you look at universities, there are hundreds of universities that have different specialties, different criteria. For me, this new wave of incubators, Incubator 2.0, is really in large part a [a reflection of the] failure of engineering and business schools to actually teach people how to start companies and to actually teach MBAs how you really do start companies. Nobody writes a business plan anymore, no one does a five-year forecast. For me, there ought to be a lot more. There should be an incubator that understands the wine industry really well and starts wine companies. There should be an incubator for restauranteurs. There should be incubators for all these different places where people start companies, and we would end up with much better companies than we have today.

X: That’s a really interesting idea. It strikes me as sort of like medical school, in a way—there’s a realization that a four-year medical education doesn’t really qualify you to be a doctor, so you have at least three to five years of residency after that, where you’re working alongside experienced professionals.

TK: Precisely. It’s like the real deal, this is how it’s done. In a way, it’s for engineers to touch PowerPoint for the first time, and it’s for MBAs to drop the PowerPoint and actually do something that matters. To ask what is the problem we’re solving, not what is the market we’re looking for.

X: It does seem that your groups here are mostly engineers. I didn’t see anyone among the founders who is clearly a marketing person by background.

TK: Yes, absolutely. When you start and fund and found a technology company, the most important thing is to be able to build something. Especially if you don’t have funding, and you can’t hire people to build it. The iteration cycle has now become so fast—if you were to have an idea, spec it out, go to a design firm, go to an engineer to build it, and by the time it’s done and you have spent $50,000 on it, [in that time] you should have iterated three more times. These are engineers, and they can iterate by themselves. They see that this works, this doesn’t work. Starting a technology company is not about making all the right decisions, it’s about making more right decisions than wrong decisions, and realizing them very early on and doing it very fast over and over and over again.

X: I wanted to ask you about the 10-week schedule. It strikes me as an incredibly short time. How are you supposed to have time, in 10 weeks, for at least one pivot—you want to leave room for that—and build a decent product, and have time to polish the presentation at the end?

TK: It is a very short time. But a lot of what’s happening here is proving out a vision, building something, iterating on it, and seeing if there is some traction. You heard some of these companies talking about how they had found thousands of users in a few days. Well, if you are finding thousands of users in a few days, you can extrapolate that out. But it is extremely short. At the pace technology is moving, creating more urgency is the only way to succeed.

X: But do you feel that these companies are really prepared to leave the nest at the end of the 10 weeks?

TK: It’s not about leaving the nest. I think this is just a space in the life cycle of each company. One thing that happens in the 10 weeks is that we build very strong bonds with these companies and we know them from then on. I actually think it really is the right amount of time. Anything longer, you end up not really seeing the end in sight. Anything shorter than that is rushed.

X: That makes sense to me. Although I’ve seen startups coming out of incubators that take another 10 months after that to really launch. Or they pivot once or twice again before they find their real business.

TK: Absolutely, and most of them ought to. Most of these companies, they tackle problems that haven’t been tackled before. Social e-commerce that is location aware? It is going to be a couple of iterations before they get it right. And most of the companies here have actually worked on this for some time before. They don’t start the day they arrive here, they all show us demos as part of the application process. Most of these companies, or their ideas, are six to eight months old now at least. That’s the beauty of having hackers, having engineers. They build something and they show you. It’s not a business plan we’re buying into, it’s a demo we see.

X: It sounds like part of what you trying to do is provide them with the tools so that if they need to pivot, if they need to reinvent themselves, they’ll be in much better position to do that.

TK: Oh, yeah. Most companies, as they come in, we know that we want them to not do what they are planning and do something much, much bigger. You get them into a certain mindset. You help them draw out the picture of what this could look like, what the big problem is.

For me this is almost surreal, how this is actually coming to life now with these companies. It’s exhilarating. We’re changing the way companies are started. I think the likelihood of them succeeding is going to be much, much higher, no matter if they go to TechStars, Y Combinator, or here. I’m in an investor in over two dozen Y Combinator companies. I love the program and I think Paul is phenomenal. I’m glad he started this, because it really is changing the way we start companies.

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

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