Tandem Applies Muscle to Mobile (Alternative Accelerators, Part 1)

10/31/13Follow @wroush

“College” used to mean something pretty clear: a residential experience where you paid a certain amount for tuition, room, and board and, after about four years, you got a bachelor’s degree. These days, of course, there are just as many two-year community colleges as four-year institutions; you don’t have to live on campus; there are many financing options; and fewer than a third of public-university students actually earn their BA degree in just four years.

In the startup world, similar kinds of changes are leaking into the format for accelerators. The “traditional” accelerators, with Y Combinator, Techstars, and 500 Startups as leading examples, admit large cohorts (often 30 startups or more) into an intensive product-development bootcamp that lasts about 12 weeks. They usually offer a modest amount of seed funding (around $100,000) in exchange for roughly 6 percent of each company’s founding equity. But more and more accelerators these days are fiddling with each of these dials. They’re admitting smaller or larger cohorts, making their programs longer or shorter, and offering more or less funding (and taking a corresponding amount of equity).

I’ve recently met with the founders of two accelerators that are resetting these dials dramatically. One is a brand-new program called 9+, and I’m going to write about it next week. Today I want to focus on Tandem, a more established accelerator fund that focuses on startups developing mobile software and hardware.

Tandem admits roughly six companies at a time, and they stay in residence at the company’s downtown Burlingame office for about six months. The fund invests $200,000 per startup, in exchange for 10 percent of a startup’s equity plus a convertible note (a loan repaid in the form of preferred stock once a startup has raised a Series A funding round). Tandem’s portfolio of 23 companies include a handful of fairly well-known names such as PlayHaven, PagerDuty, Bash Gaming, Flightcaster (acquired by NextJump), and ZumoDrive (acquired by Motorola).

Co-founder Doug Renert says Tandem falls somewhere in between a venture fund and an accelerator. At one end of the spectrum, a VC will put in a lot of money, “go to a board meeting once every two months, and help however they can, but it’s not heavily weighted toward working with the company,” he says. Accelerators, on the other hand, “are mostly bringing in large classes, not investing very much money, keeping them for a short time, exposing them to a network, giving them a lot of information, and then letting them go so they can grow up.”

Tandem, by contrast, is taking a third way: “investing considerable capital over time, only doing a select number of companies, and working with those companies much more deeply than the VCs will and much longer than the accelerators will.”

The program at San Francisco-based 9+ is even longer, at 9 months. In essence, both traditional and alternative accelerators are looking for the sweet spot: the right amount of seed funding and training needed to optimize their startups’ chances for success. Each accelerator has a different idea about where that spot may be for the technology sector in which they specialize.

And each one is taking a different type of financial gamble. The Y Combinator model, in Renert’s view, is to “make 100 bets and say, ‘Hey, some of these guys will probably get there, because we’re pretty good at identifying smart people.’ And some will get there.” But he says Tandem’s model is different: it makes fewer, larger bets and puts more work into help each startup, in the hope that a larger percentage will turn into high-growth companies and achieve lucrative exits.

“We are going to apply a lot of focused attention and brute force to lift the companies up into the growth curve,” Renert says. “To that extent, we should have a higher success rate, because we are being more selective in who we support and we are working very closely with them.”

The brute-force approach leads Renert to label Tandem’s approach “muscle capital,” in contrast to venture capital. “It’s more about the people and the effort we put into companies, as opposed to the cash, although we do put in a reasonable amount of cash too,” he says. There’s also a bit of a fitness angle to the muscle-capital tagline: the accelerator’s symbol is a tandem bicycle.

Renert, a veteran of Oracle and an Internet communications startup called Tello, started Tandem in early 2007 with co-founder Sunil Bhargava. They raised a $12 million fund to invest in their first few batches of startups. But they didn’t actually start out with a focus on mobile technology. “It was a very different world,” Renert says. “It was before the term ‘lean startup,’ before the iPhone had been launched, before this wave of super-angels and incubators and micro-VCs.”

Within a year, though, Apple had launched its world-changing smartphone, Google had announced its plans for Android, and Facebook had opened up its platform to outside companies. So when Tandem raised its second $32 million fund in 2011, Renert and Bhargava decided to … Next Page »

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

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