The numbers are pretty impressive. The team at the Nashville Entrepreneur Center has vetted more than 2,000 company ideas in four years and the 81 companies that have launched under its umbrella have raised more than $25 million. Over at three-year-old JumpStart Foundry, which focuses on quickly developing ideas into companies, half of its alumni that are still in business have raised follow-on capital averaging $800,000 per round.
So it’s clear something good is at work in Nashville when it comes to the very specific model of bringing to life a startup that can quickly receive venture capital. But the main backers of the incubators have had to learn their own lessons along the way.
Michael Burcham, CEO of the EC, says his team has learned (or consistently re-learned) that the following concepts are crucial to making the incubation process work:
• Test the value of business models: Burcham says there inevitably is a fundamental flaw in even a good idea. Persistently poking at the assumptions being made will make for a better company at an earlier point in time.
• Get customer validation early: Many entrepreneurs will focus much of their attention on getting their initial product just right before going to market. Burcham says his team has found it much more productive to get a good — rather than perfect — product into the hands of users and then solicit feedback.
• Know why investors invest: A typical angel investor, Burcham says, is looking for a return of at least 10 times his investment. That means start-up founders accepting angel funding need to focus on getting their companies to a big valuation more quickly. One solution he often recommends: Think about raising less money early on, but growing faster toward your next funding benchmark.
The Jumpstart microfund was launched with the idea of helping first-time entrepreneurs launch companies with very little money and in very little time. Founder Vic Gatto held monthly pitch meetings and funded seven concepts in 2010. For the following year, he decided to tap into the network effect and bring his handful of new investments together at the same time.
“We hold people to an almost unrealistic standard of building a company — develop a product, find beta customers, then find paying customers — in three months,” Gatto says. “With the cohort model, we realized how much progress they could make by teaching each other and helping each other.”
That same benefit of scale also has boosted the EC’s ability to lift all boats. Moving into the EC’s new Rolling Mill Hill home this summer boosted the number of seats to 80 from 18, setting the stage for so many more interactions among participants and mentors.
On top of that, the bigger space has allowed the EC to make available more spaces for mentoring and education. A key design change with those: Rather than make them for one-on-one interactions with mentors, there are now six to eight chairs available.
“One-on-one talks tend to slip into the mentor giving advice and the entrepreneur following that advice,” Burcham says. “With the bigger space and more people at the table providing input, we’re forcing the CEO to think more like a leader. They have to weigh all that’s been said and make a decision.”
One thing both the EC and Jumpstart are paying attention to is finding ways to maintain the momentum generated by their programs. For Burcham and his team, that involves finding better ways to connect alumni to good content, particularly with an eye on avoiding the downside of the growth curve.
“It’s about always refining your model,” Burcham says. “We’re asking them to keep thinking about the next iteration of their company.”
Gatto is looking west to give his graduates “another shot in the arm.” Jumpstart earlier this year opened an office inside the nestGSV incubator in Silicon Valley, where alumni will receive office space and apartments to keep building their networks.
Earlier this year, Jumpstart and the EC also launched JumpWerx, which aims to inject elements of incubation into larger organizations by teaming groups from those companies with entrepreneurs looking to build products.
And just in case you were thinking that incubating businesses in Middle Tennessee has become easier, consider this: Both Burcham and Gatto say the typical venture today begins life in better shape than its predecessors of even just a few years ago. That means the bar has been raised for the EC and Jumpstart.
“It’s easier to make a credible company now,” Gatto says. “But it’s harder to make a credible company work in the market.”
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