Startco bets on Memphis to become a 'venture city'

Eric Mathews talks fast. Then again, he’s got a lot to say. From window-lined offices on the second floor of 88 Union Ave., he has a high vantage point of Main Street but remains close enough to almost read the faces that pass on the sidewalks below. Which is fitting, as his job as CEO and co-president of Startco is, more or less, to read people as they're moving forward.

Startco is described as "part venture development group, part accelerator, and all work." The group is focused on turning ideas into effective Memphis companies through access to mentors, investors and communal facilities. Startco has partnered with Jumpstart America, Inc. of Cleveland, Ohio to turn Memphis into a "venture city." The company facilitates four different business start-up accelerators, each with its own brand and national presence: the Seed Hatchery for IT start-ups; Upstart for women-led ventures; Sky High for social innovation; and SparkGap for logistics technology.

How it Works
The accelerators run simultaneously, but mentoring and resources are customized to the sector-specific needs.  It is a three-step process, says Mathews: "Money, mentoring, and marine style boot camp." Once the six teams, or cohorts, are accepted into a program they are given $15,000 in investor money and access to all the mentoring they can handle. Partner firms like Baker Donelson, archer>malmo, Mosaik, and The Marston Group provide resources and mentoring in legal, marketing, technology, and financial areas. All in all, Startco has about 150 mentors contributing their "collective intelligence" to the 24 cohort teams (representing some 60 to 70 entrepreneurs), utilizing common co-work space, and about 80 accelerator alumni. "Collective intelligence is focused like light in a magnifying glass on these start-ups," Matthews says.

Then there is Demo Day – a drop dead date that never changes – when the cohorts must execute their plans and seek more financing. The looming threat of this deadline is where the peer pressure comes in to play. "If one team launches before the rest, everyone else is on notice." Another crucial element is the accountability of the teams – the investors want their money back.

There is a method behind all the accelerators sharing the same launch date – 24 start-ups making their debut in the same room attracts a larger pool of global investors, which translates into over a billion dollars of investor money represented on Demo Day.

An Entrepreneur's Home
While the launch event is one of the largest of its kind, the essential model isn’t totally unique to Memphis. The three-step process is the go-to model for start-up accelerators across the country. What sets Startco – and Memphis – apart is the focus on building founders, not companies. "If we build a good founder, the rest of the problem will take care of itself," Says Mathews. "And in the event of failure, which is highly likely, these entrepreneurs will be able to go on to other ventures with less demand on our resources going forward because they have been highly trained."

Which is where a place like Memphis gets its edge in the process. "Memphis is a very accessible city. You can get a meeting with the Mayor’s office and top business leaders," Mathews notes. This isn't easily accomplished in cities like New York, Los Angeles, or intense, hyper-competitive places like Silicon Valley.

Then there are the Memphis demographics. As a minority-majority city, the entrepreneur pool in Memphis reflects people who are traditionally under-represented in the venture capital markets.  Women led start-ups, for example, receive some 3 percent of venture funds nationally. About 25 percent of Startco investment capital goes to women. Mara Lewis, the San Francisco-based cofounder of Stopped.at, SpeedFeed and FAQtv, brings her experience to bear as the Entrepreneur-in-Residence, overseeing the Upstart brand.

Attracting (and Retaining) Talent
Acceptance into the accelerators is open to teams across the country, but they are required to move to Memphis for the 90-day program and three months afterward. "I want people to stay, like I did." Mathews, by his own admission, is the son of corporate gypsies who moved all over the country. After three years in Little Rock, Ark. for high school, he attended Rhodes College and has been here ever since. "Memphis has gravity." He spent seven and a half years at the FedEd Institute of Technology in charge of research and development. While witness to a lot of "cool technology" he began to wonder where the start-ups – the ones that have been responsible for most of the new job creation over the last thirty years – were.

Mathew wants to bring them to Memphis. His role in this ambitious vision is not only to access collective intelligence and otherwise inaccessible investor money and resources, but to vet applicants for the various accelerators. What he is looking for are teams that work well together to execute a plan: teams that can get feedback from potential customers, be told "their baby is ugly," then scrap, merge and melt existing plans to come up with something better for the market. This makes a good founder, and a good company. It is also good for the city. Entrepreneurs, he says, are problem solvers.

The hope is that these companies will be attracted to the low cost of living and available office space, or the bee-hive of activity being fostered by the accelerator alumni. In 2014 so far, Startco has attracted some $700,000 in investor capital. The markets these start-ups serve, however, are not local. While anchored in Memphis, they must look beyond. "These are not small business plans here. They’ve got to have a national or global application." Then, conceding the point that keeps cropping up, "The investors want their money back."

Success Stories
The first Seed Hatchery IT accelerator cohorts received no further financing. In the second class, one did. The third achieved three out of six, an almost unheard of ratio. Two of those three, Screwpulp, a publisher built on its ability to accurately price eBooks, and Musistic, offering a plug-in which largely solves the music-file sharing problems of collaborative musicians, share downtown office space. Since leaving the program, Richard Billings, co-founder of Screwpulp, has been in talks with one of the largest publishing house in the world, Random House.
    
Earlier this year, Musistic received $200,000 in second round financing led by Startco’s angel investors. "This round of funding is a vote of confidence in what we have known all along, that this product has the potential to change the music industry in a big way," says Jim Lattimore, who was brought in as CEO of the company late last year.

None of these successes particularly surprises Mathews. "We want to have a vibrant community, we have to have entrepreneurs betting on themselves – betting on Memphis."