Hurdles & Possibilities of TechStars’ Up Global Acquisition
Yesterday it was announced that TechStars has acquired Up Global.
Up Global is a non-profit that creates very early stage startup programs such as Startup Weekend (weekend startup hackathon), and Startup Next (a highly regarded pre-accelerator). In addition Up Global produced Startup Digest (startup news letter) and Startup Week (a week celebration of entrepreneurship).
TechStars is a Boulder based top startup accelerator where “over 600 companies have gone through 18 programs across 13 cities. They have collectively raised over $1.5B in capital, and are valued at over $50B in market cap. Techstars Ventures has $300M in capital under management”.
As an organizer and facilitator, I know a bit about Startup Weekend, but am not formally associated with Up Global or TechStars. Below are some informal thoughts about the acquisition of Up Global by TechStars.
- Up Global Spent 6.8-million in 2013. According to Up Global’s 990 tax forms, the organization spent $6.8-million dollars in 2013, including 2.3-million in salaries. Up Global employed 30–40 individuals. David Brown stated today that these individuals are now TechStars employees. The livestream inferred that TechStars would bring financial stability to UpGlobal programs. Startup Week events are free, Startup Next is now free, and I’m unsure if Startup Digest is revenue generating. For Startup Weekend, Up Global vets organizers, trains facilitators, and provides amazing support, yet charges no fees to startup weekend communities. If a local startup weekend had excess funds from an event, these net proceeds were split with Up Global. But as an organizer I could estimate expenses and limit an event’s surplus. For example Startup Weekend Tallahassee that occurred in April, Up Global received $45.62. Up Global received 5.8-million from contributions and grants and 1.6-million from event revenue. With the elimination of non-profit status, perhaps revenue from current funding sources may fall. Which leaves a question about how these programs become financially stable?
- Startup Weekend is not geared towards building a high growth startups. Startup Weekend is a 3-day experience that brings stakeholders in a startup community together and provides an educational and fun environment to explore entrepreneurship. There are success stories from Startup Weekend, but it is not the best environment to launch a venture because participants quickly form teams with little knowledge or understanding of one another. The perception that startup weekend is a good event to build a venture leads some participants take the event too seriously, and at each event few people leave if their ideas aren’t chosen and sometimes teams fight. It’s interesting to see how this event fits in with the TechStars ecosystem.
- Up Global is about people. I think the most valuable aspect of Up Global is network of individuals who support Up Global programs. In 2014 there were 80,000 attendees for 905 startup weekends, in 501 cities, and 135 countries. Up Global has 16,000 community leaders, including 8,000 new leaders in 2014, and 275,000 alumni and volunteers. By acquiring UpGlobal, TechStars now has a significantly larger pool of potential brand ambassadors, advocates, mentors, investors, sponsors, co-founders, and employees for its companies. This infusion of human capital compliments the 150-million dollar fund for seed and A rounds to support TechStars graduates.
- Startup Next is a high performing pre-accelerator. In Startup Next’s short tenure, 45-startups have been accepted into accelerators and collectively raised 26-million dollars. It is hard to think of a short pre-accelerator that can match these success stories. The fee for Startup Next was incredibly reasonable $150-$300 per team member. This fee is incredibly cheap and has been eliminated by TechStars. I’m curious if TechStars will now take a small percentage of equity for participation in Startup Next. This equity could also be paired with TechStars Equity Back Guarantee. Brad Feld and David Cohen have already bet on accelerators beyond TechStars by building the Global Accelerator Network (GAN). My guess is perhaps we will see a rapid expansion of Startup Next starting with cities where TechStars operate an accelerator. Perhaps the program can be run on the opposite schedule of the TechStars accelerator in that city and staffed by the same individuals. While companies will be free to enter any accelerator, I believe Startup Next will serve a main feeder to these TechStars locations. I also imagine that developing Startup Next programs is an easy way for TechStars to test expanding into new markets. For example, if a Startup Next location is highly successful, plant a new TechStars location. From the low fees, I imagine Startup Next’s are incredibly cheap to run and because the program is focused on very very early stage companies, the content should be more uniform and less customized, as compared to an accelerator, across startups.
- Startup communities are growing. For a startup, there are advantages to being located outside of the bay area including access to affordable labor. In addition startup communities are rapidly advancing. Non-traditional startup hubs are developing (Seattle, Atlanta, and DC). These hubs and sub-regional startup hubs, will continue to develop until startup communities mature. When startup communities mature, a startup will have a nearly equal shot at success regardless of where it is located. At this point, a startup will be largely supported by the local, instead of national, startup community of mentors, investors, and fellow startups. I believe TechStars has a significant advantage over other startup accelerators because it runs programs in multiple cities. I estimate TechStars has a distributed model because it projects the development of local startup communities and is preparing to position itself as the startup leader in each of community. The acquisition of Up Global, extends TechStars reach into thousands of new communities.
- Acquiring Up Global provides TechStars with a coherent pipeline. By adding Startup Weekend and Startup Next to its portfolio, TechStars has created a pipeline to support startups from idea through Series-A funding. Curious when TechStars will tackle Series-B.