TechStars Honchos David Cohen & Andy Sack: The Post-Demo Day Download

11/7/11Follow @curtwoodward

If you want a glimpse at the leading edge of tech startups, TechStars Demo Day is a fine place to go prospecting. In just 60 minutes of total pitch time, you’ve got a damn good idea of the industries, customers, ideas, and technologies that top entrepreneurs and investors think are ripe for innovation.

And the accelerator phenomenon itself is certainly part of that picture. Organizers say attendance at pitch day was up significantly this year, as was the number of applicants—700 startups vying for just 10 spots, compared with 400 in 2010′s inaugural Seattle class. That growth comes as we’ve seen a big spike in the overall incubator/accelerator scene nationally, with increasing competition for getting into the top programs.

I’ve already posted the most complete rundown anywhere of Seattle Demo Day 2011, and you can also find quick snapshots, links, and founder contacts at this handy page put together by the group.

Today, we’re throwing in some extra insight from the head honchos themselves: TechStars CEO and founder David Cohen and TechStars Seattle director Andy Sack, who we interviewed right after the pitches wrapped up Thursday night.

One clear trend in the companies presenting in this year’s class, Cohen said, is the use of social media as platforms to build businesses that could have some substance, coming up with “new and interesting ways to actually monetize” all that sharing.

“So companies like Bluebox or Vizify are taking advantage of this proliferation of consumer data and the sharing that’s going on to drive that value back to businesses,” Cohen said. “That’s certainly a trend that continues to be the case. I think four years ago, it was all the social stuff coming out. This is the actual application of it for business.

David Cohen

Another reflection of the mood of investors is the presence of “very real businesses that have very clear revenue models—things like EveryMove. There’s a lot of money being spent in health care. Those guys are tapping into that,” Cohen said. “I think what investors want today are businesses that have a revenue model that they can understand, but that take advantage of the cool, hot, new, and social to really leverage it.”

“The other trend that you’re going to see more and more of—I know TechStars is looking at it—is the area I would call human-computer interaction. Broadly, I would throw robots into that, which you saw with Romotive,” Cohen said.

“You take this guy,” he said, holding up a smartphone, “that we’ve all spent money on, and you figure out other cool stuff to do with it. Or you take the iTouch that your kid has and you figure out how to make that do something cool and new. And that’s, broadly, the interface between reality and virtual.”

On the topic of TechStars itself, I noted that the program had recently announced a new investment program for its startups: A syndicate of VCs have put together $24 million that will be used to offer each new TechStars company an additional $100,000 in the form of a convertible note, on top of the $6,000 per founder (up to $18,000) that TechStars already gives its startups in exchange for a 6 percent equity stake.

The startups onstage this week weren’t sharing in that new fund, since it doesn’t take effect until the 2012 classes (this year’s Seattle companies, it should be noted, had already raised a combined $3.5 million already heading into the demos).

The new fund, of course, signals increased competition among the top-tier incubators. Silicon Valley-based Y Combinator in particular announced a program earlier this year in which every single startup could borrow $150,000 from Yuri Milner and Ron Conway at very favorable terms. The TechStars fund was announced in September, just as the new Seattle class was getting under way.

Cohen has said that TechStars’ new fund could get a broader slice of entrepreneurs to consider the program, since it takes some early fundraising headaches out of the picture.

But in our interview, he also pointed out that TechStars differentiates itself in other ways, primarily by gathering a large group of entrepreneurs, investors, and executives to act as mentors for the startups.

Andy Sack

“I go back to community. There are other programs that have a fund or a person that throws some money at them,” Cohen said. “What makes TechStars unique is the community … versus a sort of closed, it’s just one VC kind of deal. And we’re very, very conscious of that. I think it’s really different.”

When I asked Sack for his take on the big changes from year one to year two, he immediately put his own performance as a leader under the microscope. “I ran a better program this year than I did last year,” Sack said. “I knew timing. I knew what to expect. I knew when to lean in.”

For the startups, that meant the director wasn’t going to treat them with kid gloves—a change from a year earlier, when Sack says he felt more of a drive to treat all the companies equally.

“This year, I told them exactly what I was thinking. I compared them to each other all the time,” he said. “And the reason I did that is because everybody in this room—you just heard 10 pitches—is like, ‘Which one is my favorite? Which one presented the best?’”

“And everybody’s always doing that. So I was much more vocal about my feedback. And that’s a concrete example of me consciously running the program different,” Sack said.

“In addition, you’ve got investors who now know what to expect from the program and mentors who now know what to expect from the program. All that in a broad context of the TechStars brand growing—you get more applications,” Sack said. “It’s the whole cycle.”

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

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