Tumml Accelerator Evolving Formula For Urban Venture Financing
Call it social entrepreneurship, impact investing, or urban ventures—Clara Brenner and her friend Julie Lein were sold on the idea after they each did a summer stint with a community-based enterprise before earning their MBAs in 2012.
“We were just really impressed by the ability of these startups to have a huge positive impact on their communities,” says Brenner. One of those growing ventures was Oakland, CA-based Revolution Foods, a provider of healthy meals to schoolchildren. Brenner and Lein were so sold on local businesses with a public mission that they did a quantitative research study on such enterprises. They found a big need to fill.
“These companies are less than one-half as likely to secure seed funding as more traditional entrepreneurs,” Brenner says. To try to change that, the two friends founded the non-profit San Francisco, CA-based incubator Tumml right after they graduated from MIT’s Sloan School of Management. They describe Tumml as a venture accelerator for startup founders who want to solve urban problems that local officials often can’t address themselves.
Since the summer of 2013, Tumml has run three sessions of its four-month-long incubator program, including a winter session. Tumml provides the young companies with $20,000 in seed money in exchange for a 5 percent equity stake. It also provides desk space at its SOMA headquarters on Harrison Street; volunteer mentors from successful urban impact companies; and introductions to regional civic leaders who can help startups take root in a community.
Early graduates of the program are gaining some traction, while Tumml has been learning how to steer them toward willing investors.
Tejal Shah, a participant in Tumml’s first session, co-founded her company KidAdmit in 2012 to spare other parents the time-consuming ordeal she went through to find the right San Francisco pre-school for her son. She could find no adequate central listing place for the more than 200 preschool options in the city. Also, parents applying to multiple private schools had to fill out different application forms for each one. Shah’s company created an inclusive listings website and a standard, digitized application form that parents only need to fill out once when they apply to one or more preschools participating in the KidAdmit program.
“By the time we finished the Tumml program, we had launched the portal and had signed up 20 percent of the schools in San Francisco,” Shah says. Now, a year after her Tumml session, nearly 35 percent of the city’s private preschools use the KidAdmit application process, and the company has also enrolled schools in all nine Bay area counties, she says. Parents pay KidAdmit a $10 fee for each school they apply to, in addition to the schools’ own separate application fees.
KidAdmit raised a $500,000 seed round this year from investors including San Francisco, CA-based SV Angel and K9 Ventures, a Palo Alto, CA-based micro VC fund.
Tumml has nurtured 17 startups so far, and the third class of participants is about to finish up the summer 2014 session. Anyone can check out what these seven companies are up to—members of the public can buy tickets to Tumml’s Sept. 15 exhibition day, which will be held at the offices of the non-profit urban planning organization SPUR in downtown San Francisco.
But a sneak preview of some of the current Tumml participants illustrates the reasons why Brenner and Lein think urban ventures require an accelerator program tailored to their specific needs.
Chariot is using Web data to augment public transit in San Francisco. The startup has already launched two commuter shuttle routes in the city, based on GPS tracking and other data that identified the Marina district as poorly served by buses and trolleys. The startup’s passenger vans circle between the Marina—a desirable residential area—and workplaces in the downtown financial district and in the tech company gulch south of Market Street.
Buying a small van fleet is a capital-intensive startup plan—and traditional investors often shy away from such social impact ventures, says Brenner. Like Chariot, urban-based entrepreneurs often organize the use of physical products, she says—bike sharing and food distribution programs are two examples—and so they need to persuade investors or lenders that the higher capital outlays will pay off.
Community-based ventures also tend to need more help from civic and government leaders than more traditional tech startups, Brenner says. “They need permits to operate in physical spaces,” she says. Among Tumml’s current startup participants, for instance, is Letsmake, an online marketplace where chefs, craftsworkers, and other “makers” can find workshops or commercial kitchens to rent in their communities.
Unconventional urban enterprises can also veer into regulatory grey areas, Brenner says. The growth of pioneering services such as travel rental network Airbnb and driver-for-hire platform Uber raised questions about how much they needed to conform with regional licensing and tax policies that apply to traditional hotels and taxi companies.
Tumml encourages its startups to preview their plans with local authorities before setting up shop, Brenner says. Current Tumml participant Volo is in private beta mode while it explores ways to help city drivers find scarce parking spots through peer-to-peer mobile communication. Brenner says Volo is trying to avoid the problems encountered by its forerunner parking apps, including ParkModo, which was accused of encouraging drivers to sell access to the spaces they were leaving to other motorists searching for a spot. After ParkModo’s debut, San Francisco’s city attorney filed a court action to block the service.
While most Tumml startups are aimed at consumers, the accelerator has now accepted companies whose intended customers are businesses or government organizations. Among these is current participant Valor Water, whose mission is to help water utility companies manage drought conditions and promote conservation. Christine Boyle, a PhD water policy consultant, says she founded Valor Water in November because she saw opportunities for utility managers to mine the valuable information in their customer billing records.
For example, say the utility’s customers have cut their water use by a total of 20 percent in response to a drought. But that also means a hefty chunk of lost revenue for the utility. “Will this be permanent?” is one of the questions utility managers have to ask themselves, Boyle says. It’s possible that many customers have installed more efficient new sprinklers, or have made other permanent changes that will curb their water consumption well after the drought period, Boyle says. So, should the utility trim its future budgets, and table a planned expansion of water delivery capacity?
At one utility, a granular look at the billing data revealed that a large fraction of the total drop in water usage came from a limited number of formerly high-using customers, Boyle says. Armed with that insight, a utility manager could contact those customers to find out whether they installed permanent fixtures to reduce their water use. The Valor Water platform analyzes 25 different patterns of this type from the billing data, presents them in graphic form, and allows utility officials to run simulations on various actions they’re considering.
“The idea is to make this part of their everyday decisionmaking,” Boyle says.
Boyle gives a thumbs-up to the Tumml program as a leg up for her company’s development. “It was kind of like a crash course in business,” she says. “We’re aiming to get three contracts by the end of summer. We already have one.” Boyle says that customer is a large Bay area agency, but says she can’t yet announce the name.
Boyle agrees with Brenner that community-focused enterprises are harder to scale up than many consumer-oriented tech company platforms that easily cross geographical boundaries.
“They’re much more time-consuming to scale than Facebook,” Boyle says.
Tumml looks for startups with a basic business model that can be duplicated from city to city. But Brenner says urban ventures that begin in San Francisco still must coordinate closely with the leaders in each new community.
“Just going across the bridge to Oakland is like starting again, because it’s a whole new set of decisionmakers and sometimes a whole new set of rules,” Brenner says.
Investors looking for fast growth may be concerned by the more arduous scale-up path, Brenner says. Tech investors have been tracking the rapid, borderless expansions of Web companies such as Facebook, Twitter, and Pinterest. So what strategy did Tumml evolve to help its startups find seed money?
When Brenner and Lein started the Tumml program, they assumed that investment groups dedicated to supporting startups that aim to deliver societal benefits would be the first to back their fledgling urban ventures.
“But they’re not seed investors,” Brenner says. “They said, ‘Come back when you’re ready for a Series A.’ ”
Tumml learned to encourage its startups to focus their attention on traditional angel investors. That strategy worked out for KidAdmit and for another Tumml alum, HandUp, a mobile platform that allows donors to contribute money to support a needy person of their choice. HandUp raised an $850,000 seed round from San Francisco, CA-based SV Angel and other investors.
Tumml, itself still a startup, attracted its first investment from the Blackstone Charitable Foundation, which was followed by a roster of backers that includes the Omidyar Network and American Express. Tumml raised $500,000 in its first fiscal year ending March 2014, and anticipates raising double that amount for the year ending March 2015, Brenner says.
In addition to the support of investors, the value of Tumml’s program is reflected in the engagement of city residents in its startups’ projects, Brenner says. She points to Chariot, which has sold 9,000 tickets for its first two commuter bus routes. The company is using its Web data to plan more routes that would take city residents to their workplaces more quickly than existing public transit lines.
“Our companies are solving problems that real people face every day, and they’re getting a lot of love for it from the community,” Brenner says.