TechStars Seattle Demo Day: Have You Invested Yet?

11/1/12Follow @bromano

[Updates at 3:45 p.m. PT Nov. 1 and 10:33 a.m. PT Nov. 2, See below] There are a number of ways to measure the success of TechStars Seattle as its third class comes to a close with Demo Day this afternoon.

But let’s follow the money. I think we’ll see that this year’s class has received more angel and venture capital commitments going in to Demo Day than either of the previous two.

This reflects the increasing quality and renown of the program, which finances, nurtures, and mentors 10 startups selected from among hundreds of mostly local applicants. (An improving tech economy is also likely a factor.) Rather than waiting for the public fundraising pitches of Demo Day — the peak of hype and exposure for these startups — and the frenzied deal-making rush in the hours and days following, are smart investors putting more money into TechStars companies before the event?

The historical record: The Fall 2010 class (which included only nine companies instead of the usual 10), had landed about $500,000 in commitments, Kayla Roark, manager of TechStars Seattle, tells me after reviewing Demo Day pitches from the prior two years.

That’s 16.3 percent of the $3,075,000 the inaugural Seattle class ultimately raised.

In Fall 2011, pre-Demo Day funding commitments to the 10-company class were $3.35 million, exceeding the total in the prior year, but representing only 14.3 percent of the Fall 2011 total — a whopping $23.4 million. (Here’s the full TechStars stats page.)

I’ll be at the Showbox Sodo this afternoon to listen to the pitches, focusing in particular on the pre-Demo Day raises and talking to investors about the timing of their TechStars investments. My hunch is that some of them are feeling a growing sense of urgency to invest in TechStars companies ahead of Demo Day to get a good deal and avoid missing out.

[Updates at 3:45 p.m., Nov. 1 and again at 10:33 a.m. Nov. 2]:

It’s halftime at TechStars Seattle Demo Day. With five companies having presented, we’re definitely seeing a trend of strong pre-Demo Day investor interest.

Tred, Sandglaz, Glider, Leanplum and Bizible are collectively seeking $5.75 million. They already have commitments for $3.85 million, or about two thirds of what they’re seeking. Bizible is actually oversubscribed raising $1.5 million in a Series A led by Madrona. (Note:Bizible didn’t actually announce the round on stage, but they were introduced by Madrona managing director Len Jordan, who said he is really enthusiastic about Bizible CEO Aaron Bird and team, noting their deep technical expertise and “maniacal focus on customers” as they go about linking offline sales to online advertising. Bird said in his presentation: “We’re raising $1.5 million Series A, and we’re really excited to say that right now our round is oversubscribed, and we’re even more excited at the investors that are participating.” These include one of Bizible’s customers and “our lead investor is also a top tier venture firm, and they were our number one pick, and we’re just really excited to have them join the team to help us seize this opportunity.” So I’m connecting the fairly large and obvious dots here. Bizible, by the way, had the most capital committed of any of the companies in this year’s class.)

Halfway through this year’s class, they already have commitments in excess of those made to the full 2011 class.

Now having heard from all 10 companies, the total committed going in to Demo Day was $5.95 million, or more than 70% of the $8.4 million sought. Apptentive, which aims to improve the customer service experience of apps, had $1 million committed, well above the $600,000 they sought. [/Updates]

That’s not to say there won’t still be lots of money raised going forward; indeed that’s the point of Demo Day.

“It’s the showcase of what have we been doing for the last three months,” Roark says. “They have six minutes, sort of short and sweet. They’ll give the business and the investment opportunity. We’re going to have over 500 people there this year. Afterwards, it’s sort of this frenzy. We try to get as many investors, angels, VCs there as possible, to make matches with teams and investors that would be interested in investing in them.”

Why is TechStars able to draw such investor interest?

In addition to being more selective than the Ivy Leagues, as the accelerator boasts, once companies are in, they get all kinds of help. Over the program’s three-month run the companies get access to the networks of executive director Andy Sack and other luminaries. One CEO I talked to was introduced to more than 20 people, each of whom might have taken months of pestering to meet. And thanks to the TechStars imprimatur, he was instantly differentiated from the dozens of other entrepreneurs clamoring for investor attention.

The companies also get good deals on professional services, cloud computing from the local big boys, and other infrastructure.

Roark and the other TechStars leaders are most proud of the mentorship opportunities they can provide. She relates this story of a random Tuesday night a few weeks back: T.A. McCann “decided to drop by, buy all the teams pizza, and donate like three of his hours to being in the basement” — that’s The Easy, a room downstairs that constantly smells of pizza and sometimes stale beer — “listening to people’s pitches and giving them feedback.”

“Having this group where really high-profile, amazing mentors feel like they can plug in and really give back and connect has been a phenomenal change for the startup ecosystem here in Seattle,” Roark continues. “It’s definitely been a huge impact on TechStars, this class.”

Adam Loving, CEO of Linksy, which helps brands identify influencers to drive word-of-mouth marketing over social media, says that mentorship helped his team think bigger.

“Through talking to customers and talking to two mentors, we’ve expanded the scope to something that’s genuinely more exciting when you talk about it, and more fundable,” he tells me.

In addition, the companies help each other. Set up at clusters of desks spread out among the concrete pillars and exposed brick on the second floor of the South Lake Union building (that was there before the towers of Amazon) that Loving says is now “the epicenter of Seattle startups”, the teams trade ideas and expertise and share the long hours that real entrepreneurship demands.

Loving, a software developer, acknowledges that there are tradeoffs to this work environment. He loves his noise-cancelling headphones when it’s time to turn off the distractions of his colleagues and bang-out some code.

The 39-year-old has seen tech startups from a lot of different angles, starting in 1999 with a company that “didn’t quite boom in the first Web boom” and then working on a mix of startups, big company consulting projects, and his own side ventures in the decade since.

“This didn’t exist 10 years ago,” he says, noting that earlier waves of entrepreneurs had a tougher road without the support of accelerators such as TechStars. “In some sense, we’re kind of, to be crass, pussies, [compared to] entrepreneurs 10 years ago who didn’t have that infrastructure. But it’s great to have that.”

Benjamin Romano is editor of Xconomy Seattle. Email him at bromano [at] xconomy.com. Follow @bromano

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  • http://twitter.com/adamloving Adam Loving

    Oof. That isn’t the wording I should’ve used – though the sentiment I was trying to express is accurate – regarding how TechStars makes entrepreneurship easy. One correction: Lewis Lin is CEO of Linksy. I’m the CTO. Thanks Ben!