Coolhouse Labs: A Crazy Idea that Worked Until it Didn’t

Another Startup Post Mortem on Medium

Photo Cred: Kevin Skobac

Three years ago I did something stupid. I quit a great job in NYC, and dove headfirst into building a startup Accelerator in my hometown — a tiny 1,000 person resort community in Northern Michigan .

The idea was simple enough. We are going to create a summer camp for startups. We would recruit companies from all over the world to spend a summer with us focused on nothing but building products that people love, and finding ways to get those products into customers hands. Basically, get away from all the bullshit and focus on building something real. Stop going from coffee meeting to coffee meeting and take 12 weeks to build your product.

We could figure out the details later.

At the time I was 26, had approximately $5k in savings, no idea how Venture Capital even worked, and no real “startup” credentials. I’d never started a company, hadn’t been an early employee, really I had no business deciding that I was going to go raise a venture fund and in turn invest that money into other companies.

Fuck it, Coolhouse Labs was born. In 5 months, I cobbled together the start of a fund, recruited 60 + mentors, designed and built out a space, hired a team, and brought in our first cohort of 5 companies from all over the world.

“It's an idea that’s so crazy that it might just work.”

The crazy thing? It actually worked, and we were able to add real value to our companies. From that first summer 2 out of those 5 companies are seriously kicking ass. TRNK + ViaTRM both have gone on to raise additional rounds of funding, and importantly are generating that elusive thing in the startup tech world: revenue.

The unofficial officialCoolhouse Labs Gif.

It wasn’t easy or smooth. In many ways we made it up as we went along, but we just kept moving forward and stayed focused on one simple principle : its all about the long term success of the founders we work with.

Our strength as a program was that we had a clear alignment of interests with the companies we worked with and invested in: the only way Coolhouse Labs was going to be succesful was if our companies were succesful.

Couple that with the fact that we were way, way, outside of the traditional startup world map, we had the freedom to be creative and take risks to find alternative ways to add value to our companies.

Our goal, was to build authentic relationships with the founders we worked with, and to support them in whatever way we could long after they left our program.

2014 — YEAR 2: THIS MIGHT ACTUALLY WORK?

After that first program we felt like we were on to something. Fundraising was going well, we got some good press that gave us a big awareness boost, and we spent the winter and spring on the road meeting with as many companies as possible.

That summer we brought in our second cohort. It was an impressive group, with 8 companies tackling some really interesting and big problems.

We rolled out two new features of the program. We realized that if we can provide free housing that it would take one additional piece of the puzzle off the plate of our companies, and that design was a real tangible resource that we can scale across multiple companies efficiently. We recruited and hired a team of 8 designers and UI/UX fellows to spend the summer working with our companies. They did some really amazing work creating new brand identities and designing some awesome products.

Again we had some significant bumps in the road in Year 2: we had to ask a team to leave, our top company dropped out to go back to med school, and one of our company founders passed away suddenly ultimately leading to that team dissolving. Outside of the one off issues we began to see some underlying problems with the Accelerator model (more on that in Part 2): essentially we had to scale or die.

So that fall, we put together plans to launch a second program in Ann Arbor with a group of rockstar entrepreneurs, and we started raising a second fund that would add in a Seed stage funding component.

2015 — YEAR 3: NOPE JUST KIDDING

Year three, we moved across the bay to a new location, brought in 5 companies, doubled the amount of money we gave to each company, and focused on bringing in companies that were a bit further along in their development.

In many ways the program was our best ever. We had a great team, our companies got along great, and we had figured out a process that worked for us.

The question was what do we do going forward? In the three years since Coolhouse Labs was born the Accelerator industry has undergone a significant evolution driven by three key factors: growth of heavily funded corporate accelerators, the increase in accelerators raising large follow on funds, and the rapid expansion of the accelerator model (+1000 new “accelerators” over the past three years).

SCALE OR DIE

We saw this shift coming in early 2014 and we realized that the only way to continue to recruit top companies we had to find a way to scale and increase our resources and our ability to continue to generate demand on a global level. That is why we made plans to launch a program in Ann Arbor, and increase our fund size to invest at later stages.

Here are the four core challenges we faced as we looked at scaling Coolhouse Labs:

Our Core Value Proposition Doesn’t scale — Our location was a key differentiator, and while we layered on some great value add resources— product + design team and long term support — the core value proposition of Coolhouse Labs was always “spend 12 weeks in an idyllic summer community and focus on nothing but building your company.”

Lack of Local Corporate Sponsors — As much as our location was a strength, it ultimately created a challenge as there was no natural local corporate sponsors. Corporate sponsor dollars have played a significant role in the expansion of the accelerator model and the 4x increase operations budgets, giving programs greater ability to generate demand and provide long term resources for their companies while at the same time retaining their fund ROI.

Lack of a Strong Angel + Seed Stage Environment in Michigan — Most privately funded accelerators like Coolhouse Labs are supported by local Angel Investors or VCs. Its a win-win, as Accelerators provide great dealflow and education for founders in a startup community. The problem, there simply is not enough demand in Michigan for high-risk early-stage investments to sustain an Accelerator over the long term. Unlike Chicago and Indianapolis, there hasn’t been a large catalyzing event — like a big exit — to materially shift what is naturally a very conservative Midwestern business culture.

Lack of Local Dealflow — The University of Michigan is one of the most prolific producers of startup talent, but we can’t capture enough of the talent in the state to make a difference. Only two founders that we invested grew up in the state, and not a single company stayed in the state after the program as there simply isn’t enough talent or investors to make the decision to call Michigan home.

Ultimately, when looking at the evidence and challenges the calculation to stop running programs was simple — we felt that it would take a significant capital investment to scale the program to the level needed to ensure that we could continue to invest in high quality companies and that investment would prevent us from generating returns to our investors.

So after three amazing years, we decided to shift our resources and energy to helping our existing portfolio companies grow and scale. We have 9 companies that are still active and growing, and I’m excited that I get the chance to continue to work with them.

WHERE THINGS GET A BIT EMOTIONAL

All of this is true. It was both the logical and right thing to do to stop running programs and return money to investors, but it doesn’t mean it wasn’t deeply complicated and an difficult decision to make. For three years Coolhouse Labs was constantly on the edge. I personally went in the red more times than I can count just to ensure that we could make payroll, or that we had enough cash in the bank to make sure we could make an investment. It was a constant battle of the game, problem -> solution. In the end the only thing that kept it going was the fear of failure, and the desire to not let people down.

This was a huge mistake. I never fully let anyone in on the level of stress and pressure that I was under. I didn’t allow myself to be vulnerable and ask for help until it was too late.

Would that have made a difference? Probably not, you can’t fully control outcomes, but I probably would have been less of an asshole to the people in my life that loved me the most.

My ego, my identity, and my entire net worth were wrapped up in the success or failure of Coolhouse.

Through many tough conversations with mentors, family, investors, friends, and companies I was able to start letting go of my ego and untangle my identity from the program. I‘m extremely lucky to have an amazing group of supporters who, without them, Coolhouse Labs would never have been possible. They backed me in countless ways. They made introductions that opened huge doors. They wrote checks. They took phone calls and listened to my crazy ass ideas. They traveled to Northern Michigan. They pushed me to be better and called me out when I was screwing up. For that, and much more, I will forever be grateful.

I want to especially thank the 43 founders and the 28 staff that I have had the pleasure to work with and call friends over the past three years. You guys took as much of a risk on me as I did on you. In the process we built this uniquely diverse, weird, and creative entrepreneurial community. You are an extremely talented and thoughtful bunch (except for you Roger Graham).

I look forward to continue to build amazing things with you (and do you think one of you could sell your company for lots of money? Cool thanks.)