Grading Gener8tor’s Startup Accelerator: Exits, Failures, & Progress
[Corrected 12/27/14, 2 p.m. See below.] For all the hype that Gener8tor has garnered in Wisconsin since it formed in summer 2012, the startup accelerator’s leaders acknowledge that they’ll ultimately be judged by the performance of their portfolio companies and the returns that the accelerator’s investors get.
This month, Chicago-based Optyn became the first announced acquisition of a Gener8tor-backed startup. One other Gener8tor program graduate has been acquired, co-founder Joe Kirgues says, but the deal is being kept confidential at the request of the acquirer.
Now that Gener8tor is starting to see its first exits, it seems like a good time to take the accelerator’s temperature, much like we did recently with Wisconsin nonprofit accelerators VictorySpark and The Water Council’s BREW. (Gener8tor and The Water Council are also Xconomy underwriters, but our coverage is determined independently by our editors.)
Unlike those nonprofit accelerators, which dole out grants, Gener8tor uses the classic accelerator model made famous by the likes of Y Combinator and Techstars. The Wisconsin accelerator invests $20,000 in exchange for a 6 to 9 percent equity stake in the companies that go through its three-month program, which is held twice each year and rotates between Milwaukee and Madison. Following the program, the companies also receive up to $120,000 in the form of convertible debt. That includes $50,000 from Gener8tor, $20,000 from Oshkosh, WI-based Angels on the Water, and a possible $50,000 from BrightStar Wisconsin Foundation if the startup has a permanent office in Wisconsin.
It’s unclear how big a return Gener8tor’s investors made off of the accelerator’s two exits, as the deals’ terms weren’t disclosed. But here are some statistics provided by Gener8tor that give a flavor for how the accelerator has performed thus far, after five classes:
—Of the 28 companies Gener8tor has invested in, two have been acquired, two have shut down, and at least one is on hiatus.
—Gener8tor graduates have gone on to raise more than $34 million in follow-on investments, which is an average of about $1.2 million per company. Those numbers are boosted by six companies that have raised more than $2 million each, Gener8tor says, including Madison-based EatStreet, which says it has raised $12.6 million from investors.
—At least six Gener8tor companies are on pace to generate $1 million in revenue over the next 12 months.
—Gener8tor portfolio companies have created more than 250 jobs.
—Seventeen of the companies are based in Wisconsin, a stat that will no doubt please local economic development officials and advocates of the state’s startup scene. The key for Wisconsin will be whether the successful companies stay.
It’s still too early to evaluate the success of Gener8tor’s investments, many of which still need at least another two or three years to properly germinate, says Jeff Rusinow, a Milwaukee-area angel investor who has put money into three Gener8tor graduates. But “so far, things look great” for Gener8tor, he says.
The accelerator is developing a good reputation among venture capitalists and startups nationwide, Rusinow adds. “It’s getting more competitive to get in. Time will tell” if that leads to higher quality companies that achieve more success, he says.
“The challenge, especially for new accelerators, is that there are hundreds of programs out there and very little data to differentiate between them,” says Yael Hochberg, a Rice University entrepreneurship and finance professor who has studied accelerators, in an e-mail message. “Every entrepreneur has heard of Techstars or Y Combinator. But among all the smaller, regional programs? It can be tough to know who is good, who will deliver value, who is the right fit for your company.”
That’s partly why Hochberg, who is also an MIT research affiliate, and three other academic researchers compile an annual report ranking startup accelerators nationwide. Kirgues says Gener8tor recently submitted its performance data to be included in next year’s report, the first time it has participated in the study. Hochberg’s early assessment: For a “relatively new program, these are good results” and “above the average” for last year’s rankings sample, she says.
The proliferation of accelerators has led some programs to focus on a single industry, like healthcare IT, to distinguish themselves, Hochberg says.
Gener8tor hasn’t gone that route. It targets companies that are “technology-enabled,” co-founder Troy Vosseller says—a broad criterion that has resulted in investments ranging from data analytics software to movement sensors to clothing manufacturers who sell directly to consumers via the Web. Gener8tor primarily chooses startups with products already on the market, but it usually invests in at least one “napkin idea” per class—a company that might have a prototype, but hasn’t sold anything.
At the end of the day, entrepreneurs will flock to the accelerators that fit their company and run a quality program, Hochberg says.
“If you can’t provide a good program, the entrepreneurs quickly figure that out, and your supply dries up,” she says. “Lots of programs run a first cohort and then die. The ones that manage to sustain are the ones who have thought carefully about content, mentors, managing directors, resources, etc.”
Gener8tor officials are pleased with the accelerator’s results thus far. “I’d say we’re outpacing where we anticipated we’d be at this point, both in terms of amount of follow-on financing and number of exits,” Vosseller says.
The two defunct companies are SpanDeX, a cloud-based software program that made it easier for researchers to collaborate on academic papers, and DineInTime, a mobile app that would notify restaurant patrons when their table is ready.
SpanDeX, which was part of Gener8tor’s inaugural class, shut down because one of the co-founders took a job with Yahoo that he “couldn’t turn down,” Vosseller says. DineInTime, part of the accelerator’s second class, closed up shop because “the chemistry wasn’t there” between the co-founders, Kirgues says. “It was a napkin idea that couldn’t get past the napkin stage,” he adds.
The future of Swapferit, another member of Gener8tor’s first class, is up in the air. The company created an online bartering marketplace that allows users to execute multi-person trades of goods and funds. Founder John Bialk says the idea still has legs, but he has struggled to attract users and craft a clear marketing message, and the company is in a holding pattern. “It’s too early to call it dead,” Bialk says.
He’s no longer actively running Swapferit, having turned his attention to Quietyme, a startup that earned him a spot in Gener8tor’s second program in early 2013, and later the Healthbox accelerator in Chicago. The company sells sensor devices for monitoring noise, temperature, and humidity levels in hospitals, hotels, and homes. Quietyme has raised more than $1.5 million from investors, Bialk says, and it has 16 employees in the U.S. and three in India. By the end of January, its devices will be running in more than 20 hospitals, he says.
In addition, Xconomy recently caught up with three other Gener8tor-backed companies:
—EatStreet is probably the hottest startup in Gener8tor’s portfolio, having raised the most from investors and grown its staff to 80 people, co-founder and CEO Matt Howard says. The online restaurant ordering service is a competitor of Chicago-based GrubHub (NYSE: GRUB), which raised $192 million in an initial public offering in April and allows users to order deliveries from more than 30,000 restaurants in more than 800 cities. But EatStreet seems to be holding its own. It has signed up 15,000 restaurants in more than 150 cities, Howard says, and last summer it announced a partnership with Yelp to allow users to place food orders directly from restaurants’ pages on the review website.
—Driblet Labs, a Mexico-born startup that went through Gener8tor’s previous winter program, has relocated to Cambridge, MA, and grown to five employees, with plans to add another 10, co-founder and CEO Rodolfo Ruiz says. Following the Gener8tor program, Driblet initially intended to stay in Wisconsin, but it moved east primarily to be close to its business partners’ manufacturing and design facilities located in Massachusetts, Ruiz says.
Driblet created smart devices for monitoring water consumption and temperature. They also can control the flow of water through the pipe to which they’re attached, Ruiz says. The machines don’t require batteries or power cords because they’re powered by the energy generated by the water running through them. The company’s product is in beta testing, but it will start selling to the public next year, he says.
—Milwaukee-based Scanalytics has come a long way since co-founder and CEO Joe Scanlin built its prototype by ripping apart and repurposing a mat used to play the “DanceDanceRevolution” video game. The company’s sensors measure foot traffic at places like retail outlets and trade shows. In addition, it’s now exploring uses in gaming, home healthcare, and home automation, Scanlin says, aided by the exposure and connections Scanalytics made while participating in a home automation startup accelerator held this year at Microsoft’s headquarters. Scanalytics has raised nearly $2 million from investors, Scanlin says, and has hired 13 full-time and three part-time employees. The devices came out of closed beta testing in August, and sales have been growing an average of 18 percent per month, Scanlin says. [An earlier version of this paragraph incorrectly stated that the company’s devices were still in beta testing. We regret the error. The paragraph has also been updated with a more current fundraising total.]