Autumnal light sifted into the reclaimed industrial confines of HQ Greensboro, a co-working space in the city’s burgeoning South End district on recent Wednesday evening as Joel Bennett handed out nametags and directed guests to the back for pizza and beer before they heard presentations from investors.
A business consultant with a background in industrial design, Bennett is a principal at New City Ventures. Founded by April Harris, a community and business development manager, New City Ventures is a prime mover in the hive of workshops, pitch events, competitions and mentoring programs that have animated the startup community in and around the city’s makerspace and two co-working spaces. The evening’s program offered a twist on the usual format of entrepreneurs pitching their business models to investors with the apt title “Reverse the Pitch.”
As retired executives, graying academics and young entrepreneurs — about 70 in all — settled into folding chairs or huddled along the exposed brick walls, Monica Doss, also a principal at New City Ventures, laid out the presenters’ dual challenge of explaining how they work with startup founders while also attracting new members to build capital.
“They’re going to be speaking out of both sides of their mouth,” Doss said. “Not like investors don’t do that all the time. Just kidding.”
Timothy McLoughlin, a junior partner with the Cary-based investment fund Cofounders Capital, went first.
“Thanks for welcoming me all the way from Cary, North Carolina,” he said. “It was a pretty quick trip. We need to get over here more often.”
He explained that the $12 million seed fund typically finances the first round of investment in business-to-business software.
“We invest in local companies,” McLoughlin said. “The reason we invest in local companies is because we are incredibly hands-on, which we’ll talk about in a bit.” The funds’ investors — “high net worth individuals, formerly successful entrepreneurs, C-level executives in big companies” — bring not only cash but expertise to the table. The fund typically writes checks for $300,000 to $350,000 in exchange for 15 to 20 percent ownership in the companies, he said, acknowledging, “That’s a pretty big chunk of equity that we’re taking in the company.”
McLoughlin salted his presentation with references to deals Cofounders Capital has recently closed with North Carolina companies.
“One thing we are very, very excited about is Urban Offsets, which a lot of you know Urban Offsets, which is a local company out here,” he said, eliciting whoops and clapping from the audience in recognition of a tenant at HQ Greensboro. “And that just closed Monday.”
Urban Offsets, which sells carbon credits to universities and then uses the funds to pay cities to plant trees that sequester carbon as part of an effort to limit climate change, recently completed its seed round of financing with Cofounders Capital, pumping $300,000 into the company and allowing it to make payroll for its six employees for the first time.
Like many startups that are quickly ramping up in the Triad, Urban Offsets’ young life has been markedly affected by a passage through an accelerator — a program that literally speeds up development by testing and modifying business models to achieve viability and quickly obtain financing that helps to overcome the substantial front-end costs needed to make a product and deliver it to market.
The process emerged, naturally, out of Silicon Valley, the region that leads the nation in tech innovation and wealth generation. It utilizes a method called the “lean startup” popularized by Steve Blank, a professor at Stanford University. Blank credits one of his students, Eric Ries, with coining the term based on similarities in the Toyota production system known as “lean manufacturing” to an emerging schema of “iterative agile techniques.”
“Why the Lean Start-Up Changes Everything,” an article written by Blank for the Harvard Business Review in May 2013, outlined the process. The “lean start-up” method, Blank wrote, “favors experimentation over elaborate planning, customer feedback over intuition, and iterative design over traditional ‘big design up front’ development. Although the methodology is just a few years old, its concepts — such as ‘minimum viable product’ and ‘pivoting’ — have quickly taken root in the start-up world, and business schools have already begun adapting their curricula to teach them.”
At the time, Blank wrote that the lean start-up movement — based on “principles of failing fast and continually learning” — hadn’t “gone totally mainstream” and remained “mainly a buzzword” that wasn’t widely understood.
Today, according to a recent story by Tad Friend in the New Yorker, there are 160 start-up accelerators in the United States, and thousands more around the world. Perhaps the most illustrious accelerator, San Francisco’s Y Combinator — which helped launch Airbnb — provides $1.7 million to its startups.
The lean start-up model immediately appealed to Bennett, for whom iterative processes were second nature thanks to his background as a designer. Among other jobs in his portfolio, Bennett created models for the Swedish home-appliance manufacturer Electrolux and designed a trade-show display for Tanger Outlets.
Like business incubators, start-up accelerators act as a kind of intervention by providing external support to allow new ventures to weather adversity and eventually become viable. Bennett made the case in an interview that accelerators are particularly suited to the rapidly innovative environment for tech companies.
“An accelerator has a specific start and end date,” he said. “There’s an injection of capital. An accelerator is an immersive process with specific benchmarks. You have to prove your hypothesis. You validate your assumption or not. If you can’t validate your assumption, you have to pivot. An incubator has a different duration of time; it’s a longer-term engagement. Both an accelerator and an incubator provide resources not easily available like mentors and service providers. Tech companies can accelerate — that is, grow very rapidly. That’s a new business model because of technology. That compressed timeframe — three months is all you need.”
Not all accelerators strictly adhere to the model, as Bennett acknowledged, and some don’t provide capital to their startups. In 2014, the Greensboro Partnership recruited Bennett to lead the Triad Startup Lab accelerator, whose graduates include Home State Apparel and the Artist Bloc, at the Collab co-working space. Bennett said the Triad Startup Lab, which ran four sessions from the summer of 2014 through the winter of 2016 and received public funding, was “not a true accelerator” because it didn’t provide investment capital to its participants.
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