7:00 AM EST, February 1, 2013
Excelerate Labs, Chicago's first and most prominent tech startup incubator, is joining TechStars, a Boulder, Colo.-based competitor that has expanded to five cities and boasts an international reputation for growing technology companies.
The local program now will be renamed TechStars Chicago. Excelerate co-founder Troy Henikoff said the partnership will allow the incubator's graduates to access TechStars' global alumni and mentorship network and provide more capital to companies that are accepted to the program.
Henikoff, Excelerate's chief executive officer, will remain in charge of the local program as managing director of TechStars Chicago. Its offices will remain inside 1871, the technology co-working space in The Merchandise Mart.
Accelerators and incubators are rising in cities across the country as boot-campesque alternatives to MBA programs. They climax with a demo day, in which hundreds of potential investors gather to hear that year's class pitch their startups. In the lead-up to demo day, the incubator provides intense one-on-one mentorship from industry veterans.
Excelerate, founded in 2010, was modeled on TechStars, founded in 2007. In effect, the partnership is a merger, although no assets are being bought or sold. Instead, Excelerate and TechStars are creating a new investment fund for future graduating classes. Many, if not all, of the same Chicago-based investors who put money into Excelerate will be a part of the new fund. TechStars' co-founders and some of their partners also are investing in it.
Applications for TechStars Chicago's 2013 class are being accepted starting Friday.
"I think we're getting the best of both worlds," Henikoff said. "We're going to have our mentors, our process that's proven over three years, 30 companies ... and we're going to put that on top of the TechStars platform, which gives us a national presence, a louder megaphone and more visibility."
TechStars launched in Boulder in 2007, Boston in 2009, Seattle in 2010 and New York City in 2011. In 2012, TechStars launched an accelerator for cloud-computing companies in San Antonio, where they partnered with Rackspace, which is headquartered there and is a leader in the field. TechStars alumni from all of its sites attend an annual conference.
"If you think about Harvard Business School alums, there's a really powerful network back there," Henikoff said. "There's very little you can point to tangibly, 'Oh, look, they have a meeting once a month.' But at the end of the day, it's a really powerful network. People pick up the phone and call one of their classmates, and stuff gets hopping, deals get done. And the same thing happens with the TechStars alums."
When Henikoff and dating website OkCupid co-founder Sam Yagan began forming Excelerate in late 2009, they sought to team up with TechStars and become one of their early expansion cities. TechStars co-founders Brad Feld and David Cohen declined the request. Feld said they were trying to expand "slowly and with a focus on quality." And at that moment, they were focused on expanding in Boston.
"We didn't even know if TechStars was working yet, it was so early," he said.
Feld and Cohen, however, provided guidance to Excelerate, which quickly built a track record. Three companies from its first class in 2010 have achieved "exits," meaning they've returned capital to Excelerate's investors. GrubHub bought food-ordering app FanGo; Groupon bought FeeFighters, which provides online payment services and comparison shopping for credit card processors; and MediaMath bought Tap.Me, an advertising company for mobile games.
A few months ago, Feld had lunch with Henikoff in Chicago and asked Excelerate to join TechStars.
Henikoff said that if Excelerate hadn't agreed to the partnership, he believed the Boulder-based group would "eventually" set up operations here as a competitor.
"This is the first time we're joining forces with an existing program and having an existing program be a part of TechStars," Feld said. "We have other conversations going on in other cities that are similar, but to date, every program has been a brand-new program. ... We have confidence in their ability to join up with us."
Chicago will lose the Excelerate brand name, which has become a point of pride for the city's burgeoning startup community.
"I would say that instead of losing our baby, it's just graduating," said Harper Reed, the former chief technology officer of T-shirt maker Threadless and a prominent figure in Chicago's tech community. "The TechStars guys, David Cohen, Brad Feld, they have a very proven track record, and part of it is the brand. We would love to assume that everyone just judges you on your laurels, but I think that the brand really adds a lot. And one of the things that Chicago needs — and we all know this; Groupon helped a lot, Orbitz helped a lot in the past — but it needs more big names that people can call out to. ... It needs brand-name recognition."
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