The application notes that the company has a prototype, and it suggests that Tisch e-mail the founders for a password so he can access it. This inconvenience is too much. "You need me to e-mail you for access to your site?" Tisch yells at his screen in disbelief. He pauses, then calmly says to no one in particular, "Next."
The evaluation takes 2 minutes and 35 seconds, about a minute more than Tisch spends on a typical company. "At the end of the day, you're trying to look at somebody and ask, 'Are you the type of person I could foresee building a $500 million company?' " Tisch says. "It's pretty clear in 20 seconds whether that person has it in them or not. You don't need to know that much."
There are, as many have observed, two American economies. Whereas huge swaths of the country remain hobbled by scarce credit, depressed home prices, and high levels of unemployment, the technology hubs in Silicon Valley, Boston, and New York City are booming. "If you're where the start-ups are, you'd never think there was a recession," says Yael Hochberg, an economist who teaches classes on venture capital and entrepreneurship at Northwestern University's Kellogg School of Management. To young people who can write software code, the question of the moment is not whether or not they will be able to find jobs. It is, says Hochberg, "Do you want to raise $200,000 to start a company, or do you want to go work at Groupon?"
As the rest of the country worries about the slow pace of economic recovery, the tech world frets about whether there's a new start-up bubble. "The global economic meltdown had very little impact on our universe," says Brad Feld, a Boulder venture capitalist and a co-founder of TechStars. Four years ago, Feld made an angel investment in Zynga, a company that makes online video games for Facebook users. Today, Zynga trades on the Nasdaq and is worth more than $9 billion. Facebook itself is expected to be worth as much as $100 billion when it goes public later this year.
TechStars and its chief competitor, Y Combinator, have become the easiest way into this world. "There's this whole tech scene, and it can feel like you're either in or out—whether it's raising money or hiring or whatever," says Josh Wais, the 23-year-old founder of Wantworthy, a 2011 TechStars graduate. His company, which allows people to make online shopping lists, raised $1 million from investors in January. "TechStars puts you on the inside. It's like how people who want to work at Goldman Sachs get an M.B.A. from Wharton."
Companies accepted into TechStars New York get free office space, $18,000 in cash, $100,000 in convertible debt, and access to 150 mentors—the list includes Fog Creek Software founder Joel Spolsky, venture capitalist Fred Wilson, and Foursquare founder Dennis Crowley. At the conclusion of the program, graduates take the stage at New York City's Webster Hall to pitch their companies to hundreds of reporters and investors. In exchange, the program takes a 6 percent stake in each company.
For most entrepreneurs, that's a small price to pay. Of the 126 companies that have completed a TechStars program, only 8 percent have failed. By comparison, the failure rate for most technology start-ups is thought to be as high as 90 percent. The average TechStars company raises $1.1 million from venture capitalists, and some raise much more. "If you take a really talented group of people and give them intense mentoring, you sharply increase the chances that their company will be successful," says Hochberg. "I tell my M.B.A. students to apply for these programs. The model works."
In 2005, a little-known engineer named Paul Graham launched a new kind of angel investment fund. "Start-ups," Graham later explained in an essay, "are undergoing the same transformation that technology does when it becomes cheaper. It's so cheap to start Web start-ups that orders of magnitudes more will be started." Graham's program, Y Combinator, which is based in Mountain View, California, and is backed by Sequoia Capital, has cranked out some 380 companies to date. It has helped create the social-news site Reddit, the video site Justin.tv, and the cloud computing company Heroku, whose owners sold it to Salesforce.com for $250 million after just three years in business. A 2007 Y Combinator graduate, Dropbox, has reportedly raised $250 million in venture capital at a valuation of more than $4 billion.
Though Graham himself argued that start-up factories (or incubators, or accelerators) like Y Combinator would work best in Silicon Valley, with its large base of entrepreneurs and investors, David Cohen, the TechStars CEO, thought the model could be adapted to other places. A soft-spoken engineer who had founded three companies in Boulder, Cohen had been making angel investments since 2005 but was looking for a way to get closer to the companies he was trying to help.
In late 2006, Cohen wrote an e-mail to Graham asking if he could partner with Y Combinator to create a Boulder branch. Graham, who declined to comment for this story, refused. "He basically told me to fuck off and die," Cohen says, his voice dripping with bitterness. Cohen went ahead with the program anyway, under a new name. He printed a brochure and finagled a meeting with Feld, who in a matter of minutes agreed to invest. "My thinking was that, worst-case scenario, we'd attract 20 new smart entrepreneurs to Boulder," Feld says.
Although TechStars hasn't yet produced the kind of hits that have come out of Y Combinator, it has quietly established itself as a strong second choice, especially for companies outside Silicon Valley. Socialthing, a graduate of the first TechStars class, in 2007, was sold for roughly $10 million, and SendGrid, a 2009 graduate, now employs 65 people and has raised $27 million in venture capital. Its founder, Isaac Saldana, a Mexican American engineer from East Los Angeles, applied to Y Combinator in 2009. He didn't even get an interview.
Cohen's success in adapting the Y Combinator model to Boulder inspired many other competitors. There are now more than a hundred accelerator programs worldwide, with names such as Seedcamp, DreamIt, 500 Startups, and Tech Wildcatters. TechStars is loosely affiliated with 30 of these programs—serving in an advisory capacity and allowing the programs to use its application—and it runs TechStars programs in New York City, Boston, Seattle, San Antonio, and Boulder. "There is a start-up revolution occurring," says Feld. "Every major metro area in the world will eventually be able to support an accelerator."
