Tired of losing out to Silicon Valley, Berkeley steps up its innovation game
Michelle Calloway is standing in front of a group of potential investors holding a microphone. The rules of the pitch are strict: no videos, no samples, nothing in fact that could make it simple to describe the product she plans to launch onto the market. Instead, she has the simple power of words.
So Calloway takes a deep breath and launches into a description of the augmented-reality greeting card company Revealio that she and her husband, Jerry Bowden, hope will disrupt the greeting card industry. People are craving connection, she tells the group, and a personalized, emailed video card could shorten the emotional distance between a soldier overseas and his sweetheart, for example, or a grandmother and grandchild.
“It’s a printed card that comes alive before your eyes,” says Calloway. “It’s amazing.”
Calloway was giving her practice pitch at The Batchery, Berkeley’s newest tech space, located at 2036 Bancroft Way, near Shattuck Avenue. Calloway was hoping the feedback provided by The Batchery’s partners — all of whom have deep experience either starting or running companies — would refine her delivery.
Berkeley city officials and tech investors have high hopes for The Batchery, which markets itself as a “global incubator for seed-stage startups ready to go from idea to launch at lightning speed.”
The Batchery is the first non-UC Berkeley-related incubator/accelerator space to open in Berkeley, and it represents a maturation of Berkeley’s tech ecosystem, something city officials have been working toward for a number of years.It is backed by 50 tech veterans who have started their own companies or worked at places like Google, Oracle and Accenture. More importantly, most of the partners are also investors with strong connections to venture capital and other funding sources in Silicon Valley.
“Having a group of angel investors from Silicon Valley identify Berkeley as a place to expand to is perfect from my point of view,” said Jennifer Cogley, the sustainable business coordinator for the city of Berkeley. “It was a key thing missing.”
For years, city officials and tech experts have wondered why Berkeley wasn’t able to recreate the tech ecosystem that exists around Stanford and Silicon Valley. Most of the necessary ingredients were here: a world-class university, brilliant students and professors creating interesting products and a city eager to help nurture their businesses. Yet those smart students and professors kept leaving Berkeley for Palo Alto, Menlo Park and, lately, San Francisco, in search of startup funds.
“There are incredibly smart students and smart faculty,” said Larry Rowe a retired UC Berkeley professor of electrical engineering and computer science, who co-founded the database management company Ingres Corporation in 1980. Rowe is also an investor in The Batchery. “They are making groundbreaking discoveries all the time. The question is, how can those discoveries get out into the real world, become a product and make an impact? We need a way to get those ideas out… Students want to stay here in Berkeley but the infrastructure didn’t exist to do it. They threw up their hands in disgust and went to Silicon Valley.”
Students want to stay here in Berkeley but the infrastructure didn’t exist to do it. They threw up their hands in disgust and went to Silicon Valley.”
Historically, part of the reason seemed to be that there was no physical location for fledgling startups to land, finalize a product, do customer research and then seek funding. Berkeley had a number of corporate R&D labs, like Siemens, Yahoo, and Intel, but they were more focused on bringing products in-house, not spinning them out, according to Arding Hsu, who opened the first Siemens lab in Berkeley 17 years ago. He too is now a partner at The Batchery.
“If you go back seven years we didn’t have a working incubator in town,” said Michael Caplan, the manager of Berkeley’s economic development program. “There might have been stuff on campus, but you didn’t have anything in a broader ecosystem that was trying to start up and grow into the city… we didn’t have the notion of a cradle-to-scale strategy.”
That started to shift in 2010 when UC Berkeley began to focus more seriously on supporting and growing entrepreneurship within the university, and through public-private partnerships. That year, UC, the city of Berkeley and the private sector banded together to form the Berkeley Start-up Cluster, which promoted town-gown collaboration and networking. In 2012, in a major development, UC Berkeley consolidated three different on-campus incubator spaces into the Berkeley SkyDeck, an accelerator on the top floor of the downtown Chase building. Backed by $1.4 million in annual funding by the university, its goal is to nurture young, Cal-connected companies. So far, 50 businesses have gone through the Skydeck program. Seventeen companies are currently enrolled.
Cal now has eight startup accelerators connected with the campus, including CITRIS Invention Lab, the Foundry@CITRIS, the QB3 Accelerator (which focuses on biotech), Venture Lab, the BECI institute and the Cyclotron Road program. The university has also strengthened its academic offerings and currently has about 40 programs related to innovation, according to Michael Alvarez Cohen, director of innovation ecosystem development in UC Berkeley’s Intellectual Property & Industry Research Alliances (IPIRA) office.
Students are now encouraged to create new companies while still in school. The Berkeley-Haas Center Entrepreneurship Program trains students in business principles and helps them start companies. (April 28 is demo day for Launch, the university’s four-month-long incubator/accelerator program.) Another program, the College of Engineering’s Sutardja Center for Entrepreneurship & Technology, focuses on “technology-centric” entrepreneurship and innovation.
“There was not a conscious effort on the university’s part to support companies,” said Cogley. “Now the university has shifted to this being an activity they support and encourage.”
UC Berkeley’s focus has led to some notable successes, such as Gradescope, an automated test-grading program started at Cal in 2012. In mid-April the Berkeley-based company announced it had raised $2.6 million in venture funding. There’s also Magoosh, a rapidly growing online test preparation site that was conceived at the Haas School of Business, and has its offices in downtown Berkeley. And on April 18, Cal grad Jeremy Fiance announced he had launched The House Fund, a venture-backed fund that will invest $6 million in UC Berkeley-related startups.
All the activity at the university has finally started to flow into the city and ignite the tech ecosystem that officials had long been hoping for. For many years, Berkeley had a dearth of Class A office space. Startups that wanted to stay here were often forced to go elsewhere for lack of work space. Starting in 2009, a number of co-working places opened up, however, offering low-cost shared office and conference room space in the city. They include Impact Hub, Sandbox Suites, NextSpace and WeWork, all of which are helping to ameliorate that problem. A report presented to the City Council in 2014 estimated there were around 350 startups operating in Berkeley, with most of them focused on software development.
But for the most part, no critical mass of outside money has so far flowed into the city of Berkeley.
David Koehn, vice-president of product management at D2L, and a member of Sand Hill Angels, a group that invests in early-stage startups, had also been frustrated by the migration of talent out of the East Bay. Koehn moved from the South Bay to the Tri-Valley area about five years ago and started to more closely observe what was happening in Berkeley. He was tired of the trek to Palo Alto and wanted to create something closer to home.
“I looked at how many incubators and accelerators there were in Silicon Valley,” he said. “I looked at how many incubators and accelerators there were in San Francisco. There were densities across both of those environments. In one three-block area in San Francisco, there were four incubator/accelerators. But when you just cross over the bridge to Berkeley, outside of the UC system, there were none.”
Koehn launched The Batchery in October with the goal of getting the backing of 50 investor/advisers involved with angel funds and venture capital. He now has 43 partners with connections to the Sand Hill Angels, the Berkeley Angel Network, Spruce Advisors, Partech Ventures, Sierra Angels, and others.
Koehn had a vision for The Batchery that was distinct from the business models of well-known incubators like Y Combinator or 500 Start-ups. Koehn is involved with the latter, but he wanted to create an incubator that fostered deeper interaction between startups and advisers. The current Silicon Valley model is to ready a company for a demo day and ask angels to invest after a short presentation, he said. Yet most of Koehn’s previous investments came only after he knew company founders for more than six months. Koehn wanted to create a place that fostered deeper relationships, he said.
The Batchery is structured to maximize interactions between those starting companies and the 50 investor/advisers, as the partners are called. Each investor/adviser must spend eight hours a month in the 12,000-square-foot office offering his or her expertise. There are office get-togethers so those in the program can meet informally with the investor/advisers. Many of the investor/advisers stay in close email contact with the companies they are helping during the times they are away from The Batchery. If the investor/adviser can’t solve a company’s problem, they often know someone else who can.
“What The Batchery allows all the investor/advisers to do is build relationships with many, many companies all at once and work with them over time to get them what they need,” said Koehn. “Sometimes that’s a bunch of other things like customers and leadership, legal assistance, marketing assistance, financial advice. Then, as companies mature, we see what they are capable of. We make better informed decisions about funding them.”
For former Cal professor Rowe, this engagement is what sets The Batchery apart.
“You have skin in the game,” he said. “That’s important because if you don’t, you aren’t necessarily going to focus your attention.”
The Batchery currently has 27 startups that have been accepted to the program.
Companies who join The Batchery pay a monthly fee of $400 for a desk, said Sam Strom, The Batchery’s operations manager. The partners get a 2% warrant of each company (essentially an option to buy in after the next funding round) and, if the company stays for 90 days, the partners get another 2% warrant, she said.
The Batchery does not guarantee that its startups will get funded. So far, investors/advisers have invested in around six or seven of the companies, said Strom. But, as most of investor/advisers are angel investors who know many other funders, the opportunity to find capital is certainly strong, she said.
The point of being a member of The Batchery is not just to secure funding, but to create confidence in your product, said Koehn. He used as an example the company Bliss, which was one of the first Batchery companies. Bliss assesses a company’s software code. When its founder, Brian York, first came to The Batchery from Galvanize in San Francisco, he was almost out of money. The investor/advisers spent six months working with him, offering suggestions on how to improve the company, said Koehn. Finally, Koehn and some other Batchery partners invested $25,000 in Bliss. It may not seem like a lot, but it signaled to the broader VC community that Bliss was a good company, one that had earned The Batchery’s respect. That vote of confidence led other VCs to invest around $1 million, said Koehn.
Hsu, one of The Batchery’s investor/advisers, said he stresses that raising funds is not the true marker of success. He advises startups to focus on who their customers will be and to go into the real world to validate their hypothesis. Hsu is having so much fun offering advice that he comes into the office twice a week, much more than is required.
Eric Frothingham and Venkates Swaminathan moved their company, Lifelaunchr, into The Batchery in November. They had started their company, which helps students select a college, in February 2015, and had received seed funding to get it going. They thought that the cutbacks in the number of college advisers in public schools (they said the ratio is 1 to 1,200) created a market for online advising.
Initially, Lifelaunchr focused on helping students learn more about their fit for individual schools and connecting them with real college advisers, according to Frothingham. But, after consulting with a number of The Batchery’s investor/advisers, they shifted focus slightly. Lifelaunchr added a new, but as it turned out, extremely important set of customers: parents. While students were the users, parents were actually the primary customers of the site as they often oversee their children’s college applications. The pair hadn’t realized this until The Batchery investor/advisers pointed it out.
“We were a little bit stalled,” said Frothingham. “We had to broaden our reach.”
Members of The Batchery also made introductions to various angel investors they knew, helping Lifelaunchr acquire more funding.
That kind of advice and connection is what promoted Shuai Jiang to move his company, Ucella, to The Batchery, even though he had already raised $1 million from angel investors in China. Jiang’s product is “the world’s first package and delivery mailbox.” It’s a “smart,” expandable mailbox that accepts packages and can even communicate with carriers for their return. Ucella has already had some success; a recent Indiegogo campaign resulted in around 225 orders. Ucella was also a finalist at Launch, the competition hosted by the Haas School of Business.
Jiang, 34, is attending Haas’ night and weekend MBA program, where he met Kal Deutsch, who serves as a mentor to students at Haas. Deutsch is also an investor/adviser at The Batchery. Jiang and Deutsch have developed a close working relationship, which Jiang wanted to continue. That is why he is moving Ucella to The Batchery May 1.
“[Deutsch] got our vision,” said Jiang. “He believed in the product we are building and the road map we put together. It’s important when you have someone who believes in the company and spends the time and effort to help the company grow. It means a lot.”
Jiang hopes to eventually draw on the expertise of the other investor/advisers, as well as their connection to venture-capital firms. “A lot of advisers have extensive experience in development and partnership building,” he said. “That is exactly our focus for the next step.”
Calloway and Bowden’s augmented-reality greeting card company was not very far along when the couple moved the business into The Batchery. They had been living in Reno and had hoped to launch the company from there, but soon found it impossible. While Reno business leaders had been enthusiastic about Revealio, and the couple had even gone through business training, they found it difficult to find seed funding. (They took out an $80,000 mortgage on their house to launch the startup.) But the biggest problem was finding developers to transform their idea into a workable product. At a certain point, even Reno business leaders suggested the couple find help in the Bay Area.
Calloway and Bowden heard about The Batchery and spent six months commuting from Reno to Berkeley. They decided to move to the Bay Area in January. Within two weeks, Calloway and Bowden had met with a number of different development teams, something they had struggled to find in Nevada. They also got marketing advice.
“I have gotten so much more done in a short amount of time in Berkeley than I did in Reno,” said Calloway. “I have gotten an incredible amount of insight. Now I have a solid team because of people I have met along the way from other startups or from investor/advisers.”
The pitch in front of Batchery advisors and visitors was one of many she had made. Calloway was perfecting it to go out in front of angel investors, some of whom she learned about from The Batchery. Revealio launched its product in March.
This story originally appeared on Berkeleyside.