Proliferation of accelerators, incubators helping drive local innovation economy

David Brown moved to Boulder in 1994 to an entrepreneurial landscape quite different from the one that thrives today. He and David Cohen had just launched Pinpoint Technologies a year earlier and, as the company grew, he admits they didn’t really know what they were doing as new growing pains arose.

“It still felt very much like a silo,” Brown recalled recently. “You were on your own. You were still condemned to commit the same mistakes as everybody else simply because you didn’t know any better.”

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Fast forward to the mid-2000s, and the eventual Techstars co-founders — a group that wound up including Brad Feld and Jared Polis as well — had found success and were doing some angel investing of their own in budding companies. But the angel model at the time — including the aspect of entrepreneurs having to subscribe to an angel group or pay to get in front of those investors — wasn’t appealing to them, Brown said. And it became the spark for the quartet to launch Techstars in 2006 and run their first accelerator cohort in Boulder in 2007. At the time, Y Combinator existed in Boston, but the idea of accelerators was for the most part a new one.

Another decade down, and going through an accelerator has become a sort of entrepreneurial right of passage for many top startups, offering an intense three months of mentorship from entrepreneurs who have already walked the path, with the idea that the companies that graduate are ready to land venture funding and quickly scale their businesses. The Techstars model — which includes startups receiving $20,000 in seed money in exchange for a 6 percent equity stake — is one that’s been often imitated, and Techstars itself has ballooned to 22 programs worldwide.

The drive to turn ideas into fundable startups is a major piece of the equation. Some 70 percent or more of Techstars grads go on to attract outside funding. But Brown said the bigger contribution by accelerators to the local innovation economy has no doubt been surrounding entrepreneurs with mentors.

“That’s sort of the magic that has allowed Techstars to happen,” Brown said. “That’s the Techstars model today, and that’s what was lacking when we started.”

Accelerator expansion

There are no fewer than eight accelerators of one form or another in Boulder County now. That’s not to mention others in Denver and Northern Colorado, as well as incubators, which provide another model for startups seeking out mentorship and other services. The proliferation not only is benefiting local entrepreneurs but also attracting more and more talented entrepreneurs to the state who initially come for the programs but wind up setting up shop in Colorado.

Mergelane and Canopy Boulder are two of Boulder’s newer accelerators that have fashioned themselves in the Techstars mold, albeit with their own distinct focuses. Mergelane seeks out and invests in women-led startups with the aims of not only increasing the number of women in leadership positions in the startup world but also of promoting the idea that investing in women is a smart business decision, not just the right thing to do. Canopy, meanwhile, is focused on startups in the budding legal cannabis industry, helping them not only with growth objectives but also with navigating the complex regulatory landscape they must deal with.

Sue Heilbronner — who led multiple startups before cofounding Mergelane with Elizabeth Kraus in 2014 — echoes Brown in asserting the value of the mentorship that top accelerators provide client startups.

“You’re immediately given access to between 50 and 80 fantastic, really engaged mentors basically in a day,” Heilbronner said. “That’s a network that may have taken you years to grow, and you may never have gotten to that quality.”

In an ever-growing sea of accelerators, Mergelane — which also has an investment fund — is taking its model of mentorship beyond just the startup programming. The company in November will host its first Mergelane Women’s Leadership Camp, a three-day program geared toward helping senior leaders at all types of companies enhance their capabilities and become more innovative in their leadership styles. A second session will be held in March.

“In order for our brand to both be sustainable and have a broader impact, we want to reach more people,” Heilbronner said. “This is a great way to do that and enhance the visibility of the accelerator.”

Canopy’s sustainability right now lies in the deep industry expertise and knowledge its founders aim to provide startups in a new frontier of sorts. For one, companies entering the legal cannabis fray are participating in the conversion of a black market to a legal market. Secondly, the regulatory frameworks vary state by state and even county by county. So Canopy works hard to find not only mentors with expertise in the cannabis industry but also those who have expertise in marketing and advertising in other sectors such as alcohol, which is also regulated differently in each state.

Like Mergelane, Canopy has its own investment fund in addition to the accelerator. In that way, cofounder Micah Tapman said, Canopy’s fund can act as sort of a screening process for investors who might be nervous about getting into the cannabis industry.  As those investors learn about the industry, Tapman said, they often get more comfortable about making individual investments directly in cannabis-related startups.

Tapman said Canopy has worked hard to be transparent about the investors and companies involved with the program to help build trust in a sort of Wild West business landscape.

“The (cannabis) industry is rife with fraud and scammers on both the entrepreneur and investor side,” Tapman said. “So I think the accelerator has been one of the foundational elements of trust in the industry. Everybody’s scared about getting ripped off on both sides of the table.”

The incubator route

If accelerators are suited to help startups that are primed for scalability — such as software companies — rapidly grow and earn returns for investors, incubators often provide a solution for companies that are more science-, engineering- or even hardware-based that aren’t necessarily accelerator-friendly because their paths to product development and raising capital are inherently longer-term.

Such is the case with Fort Collins-based Innosphere, which also has an office in Denver. Rather than taking an equity stake, Innosphere operates on a fee-for-service model in which companies pay about $7,000 per year. Companies generally join Innosphere for two years, with graduation defined by a set list of business milestones each aims to achieve, whether those include going to market with a product, raising outside capital or getting acquired. In the last six years, Innosphere has graduated 52 client companies that have gone on to raise some $220 million and create roughly 1,400 jobs.

The accelerator and incubator models, Innosphere CEO Mike Freeman said, aren’t mutually exclusive, and Innosphere has had client companies that have gone through accelerators as well.

“The key question for any company looking for help is what’s the nature of the help they’re looking for,” Freeman said.

The next generation

Despite the value of the mentorship and resources provided by accelerators and incubators, many in the industry, particularly on the accelerator side, believe an oversupply of such programs could soon occur if it’s not happening already.

But Brown, the Techstars cofounder, said there are still new angles for accelerators to pursue. While most have been focused primarily on the seed stage and getting ideas launched, growing startups and companies need help all along their life cycle.

“Startups have this sort of long journey from innovation to (initial public offering),” Brown said. “We want to help them at every stage of the journey, and I think there’s more there we haven’t explored yet.”