Big Companies Can Avoid Disruption by Partnering With Startup Accelerators

06/27/2015 10:14 am ET | Updated Jun 27, 2016

David Cohen started as a software programmer at age 13 and since then he has had only one job interview. Cohen started three startups and now is the founder and general manager of Techstars, a mentorship-driven startup accelerator is considered one of the best startup accelerators in the world. Less than 1% of the companies that apply to Techstars are accepted -- a lower acceptance rate than getting into MIT, Stanford or Harvard. Techstars a global ecosystem that enable and empowers entrepreneurs to bring technologies to the market.

2015-06-27-1435412304-5609774-109_david_cohen.png
David Cohen - Founder and GM of Techstars

Cohen (Twitter: @davidcohen) describes Techstars as:

What Techstars is fundamentally a global ecosystem in which entrepreneurs are enabled and empowered to bring new technologies to the market. So we focus on technology companies, primarily Internet companies. We do that through our accelerator programs, which are three-month intensive mentorship programs that operate in cities around the world; 13 different cities.

We also have about 300 million in venture capital to back companies that are exciting and are emerging from that ecosystem. We recently acquired Upglobal, who are the folks responsible for 'startup weekend'. If you've never experienced a startup weekend, it's like discovery and inspiration for entrepreneurship, it happens 1000 times a year around the world.

Cohen started Techstars in Boulder Colorado because he wanted to improve the entrepreneurial community in Boulder. He has his partners Brad Feld, Jared Polis and David Brown took a 20 year view towards this mission of creating a vibrant and active entrepreneurship community. "The four of us wanted to make Boulder better as an ecosystem over a long period of time, and tried a way to do Angel investing that made more sense," said Cohen.

To achieve this mission, Cohen and his partners created a mentorship driven accelerator model. Companies apply to Techstars and 10 out of every 1,000 applicants are accepted.

We spend about three months with each company, three months of intense mentorship and we get the best entrepreneurs in each of the communities that we operate in. We fund them with a little bit of capital, not enough to do any damage. But a little bit to get them going.

At the end of three month mentorship period, the companies share their ideas with venture capitalists and investors, and hopefully go on to build businesses.

Techstars started because we wanted the ecosystem to be better. Today, we do that in many communities around the world and we also do it on behalf of major corporations.

The real power is in the network

Cohen views the history of venture capital as hierarchical and old school, where entrepreneurs would present their ideas in a boardroom on Sand Hill Road, in front of Silicon Valley investors, being judged and then potentially funded. The network effect of today's accelerator model takes advantage of the community of mentors and investors around the globe. For example, Techstars has 150 mentors in New York alone. There are 10 companies that Techstars mentors during an intensive period, guided by a network that spans Chicago, Seattle, London, Berlin and many more major cities around the globe.

Cohen believes that the power is in the network. Techstars wants to see these startups succeed. The Techstars alumni who have already had an exit are coming back to Angel invest. Cohen believes the new flip model for venture capital means that the ecosystem will put network ideas first over the ideas of the old school hierarchy.

The quality of the network is in the quality of the mentors. The Techstars mentor ecosystem is 2,000 strong and global, consisting of business operators, successful venture capitalists, and Techstars alumni who are there to help, not be in charge. Cohen makes this very important distinction that a good mentor is there to give first, hoping to get back in some unexpected way later. Mentors are not here to tell people what to do, but rather they are here to share their experiences and provide guidance as needed. Cohen provides a checklist to the mentor community, with specific requirements that ensures a quality mentor-mentee relationship.

We're working with many innovative corporations like Nike, Ford, Microsoft, Barclay's, Sprint and many other that have understood the power of this 'give first', where you just provide help to entrepreneurs and that's what these mentors are doing.

What's coming back to them is opportunities to invest or perhaps a job as a CEO of an interesting high growth startup. The network is giving back to them in an non-transactional way. In almost a karmic way, and I think this is the nature of entrepreneurship, we are on a mission to help educate people around the world.

Successful characteristics of entrepreneurs

Cohen and his team of mentors look for 6 entrepreneur characteristics as part of their selection process:

  1. Team (incredible executors)
  2. Team (technical and business savvy)
  3. More team (capabilities, core values, guiding principles)
  4. Market - what market are they in?
  5. Progress - the ability to do stuff
  6. Idea - ideas do matter

We have this theory we're pretty sure it's correct. We think that entrepreneurs do stuff, they don't just talk about stuff, and so we look for signs that they actually do stuff.

We put ideas at number six only to help people understand that it's last. Ideas do matter. Ideas are bonus points. Good ideas of course matter, but they're going to change a lot and it's much more about the team and the market and the ability to get stuff done.

Cohen's own experience, which includes more than 600 portfolio companies, is that founders who are really about the mission are the best ones to build great companies. Mission driven founders view the world in a certain way. "When Ryan Graves from Uber were just starting, he viewed the world a certain way and was able to invest until his view came true. They don't all work out that well but they're not going to stop until the world works that way," said Cohen.

"You want to look at people who are really attached to the problem and not to their solution to the problem. That are willing to throw it all away to get it right to solve the problem and change the world in the way that they envision," said Cohen.

The importance of transparency in business

Coehn and his company are incredibly transparent about their successes and failures. You can go to the Techstars website and see every company that Techstars has ever funded -- how much money have they raise, how many employees they have, where are they based and more. You can also find the founder's email address. Techstars publicly provides a 100% reference able client list.

Entrepreneurship transparency I think is important because there are so many problems that you just have to be real about them. There are so many way for a startup to die, so the transparency attitude is key.

The first thing we say in orientation to entrepreneurs is to drop the act. You are already in, we're on your team, so show us all the problems. The more you're real with people, and the more you let people help you, the more they get to understand how you operate as an entrepreneur. The stronger that relationship is, then the more likely there's a future together in that relationship.

Cohen believes that mentoring and managing startups is really about managing psychology. The mentor network consists of these experienced psychologists around, who are operators who have done it before. They'd help you through the difficult times which are inevitable.

Techstars has funded 200 companies around the world. With only a 1% acceptance rate, these are all very interesting people and companies. Those companies have raised $1.5 billion in venture capital and employee thousands and thousands of people. The report card is, are we creating a better ecosystem for these companies to be successful every day. The measure of success for Cohen and his team is based on creating meaningful, long-lasting companies. "Ask me then, how many companies did we create that you know became very meaningful, sustainable, and long-lasting companies who have an impact on the world. I feel like there is eight or nine multi-billion-dollar companies in the portfolio. I only know three or four of them, right, but there is probably five more that are given all the promising companies that are out there," said Cohen.

Accelerating corporate innovation

Cohen and the Techstars accelerator programs are demonstrating to big companies that they can augment or replace corporate sponsored innovation programs and/or accelerate technology roadmaps by leveraging startups. Cohen notes that today's Fortune 500 companies are 50% different than 20 years ago. Cohen sees big companies valuing innovation and yet failing to produce and deliver solutions that fit today's market needs. Cohen sees very few successful corporate venture capital funds that have sustained - he cites Intel and Qualcomm as exceptions.

What happened to Techstars is that we got approached early on by Microsoft, and earlier on they were a partner of ours and they said, 'we want you to run an accelerator that's just like what you do, but around our technology.' We did that and we discovered something really interesting.

By creating the combination, letting Techstars do the same thing we normally do, with our normal mentors, but calling it the Microsoft accelerator, whereby we supplemented the mentors with people from inside the Microsoft organization, something magical happened. The fact that Microsoft employees had to leave the campus and come down to a startup space that has a cool vibe, and then just give first and participate -- instead of trying to get anything -- we produced amazing companies.

These amazing companies were born, they got the benefit of Microsoft's partner network, and the funding around Techstars and Microsoft didn't take anything. They [Microsoft] didn't take any equity, they didn't take any options, they didn't take the right to buy, the right to do business with -- nothing like that.

What these companies did get is a lot of opportunities to do those things because they gave first. Since then, we've rolled that model out, refined it and do it now for many partners like the ones I mentioned earlier. They are focused vertical like Qualcomm, for example, who run an accelerator in the robotic space. Ford in the mobility space in Detroit, Disney in entertainment and so on. To enable that magical combination, we demonstrated to corporations the understanding that by giving first, they actually get more out of it.

One example of this magical combination was the Disney accelerator and company called Sphero. Sphero makes a robotic ball gaming platform -- it's hard to make robotic balls move because there is no forward or backwards or left or right and control with thumb. Their work inspired the character VB8, which is the new R2D2 in the next Star Wars movie. This was a great innovation and partnership for both companies and it all happened because Disney gave first and they unselfishly partnered with a great young company to build something magical. Disney did not view this as a transaction to get something up front, but rather an opportunity to accelerate innovation through mission driven collaboration.

Only the most enlightened companies are approaching us early on, but it is getting broader and we have a lot of companies that are interested in this.

They see what we do, and they see the track record of companies that go through Techstars -- on average always two million in venture capital. We've had 65 M&A acquisitions. We've got many big companies that want to know 'how do we create that in a space that's near us, so we can be near it and understand it, and drive some innovation, and perhaps we can acquire', and we teach them how to do it.

How do big companies measure success with accelerators? The answer varies based on each company.

Nike really cares about 'at that moment in time' -- they have the Nike Fuel API, they make the Fuel Band, and we are trying to create this kind of point system activity, which is obviously taken off hugely.

Nike had a tech platform and they were going to release their API's, and rather than release them to the world, they decided to partner with 10 high potential startups and just give them this before anybody else and see what they can do. These startups pushed the envelope on that technology and informed Nike about what they should do to make it better. In Nike's case success was about learning. Now, they got a lot of PR out of it and it didn't hurt.

Large corporations realize that we are going to get disrupted on many levels and technology is moving really fast. To be close to the pace of innovation, and have the opportunity for fist mover advantage, it makes perfect sense to partner with startup accelerators and a highly motivated and experienced mentor ecosystem.

"Companies like Qualcomm have a venture fund and venture group that is among the top corporate innovation venture funds out there. The group is interested in building future products. Led by their CTI, the purpose is centered on technology and innovation," said Cohen.

To learn more about corporation innovation programs and real examples with tech accelerators, the changing role of the CIO and more early stage investment advice for startup CEOs, you can watch the full interview with David Cohen here. Please join me and Michael Krigsman every Friday at 3PM EST as we host CXOTalk -- connecting with thought leaders and innovative executives who are pushing the boundaries within their companies and their fields.