Accelerators play a multifaceted role in any startups ecosystem, providing access to investors and mentors and helping companies scale.
The main difference between accelerators and incubators is that the former typically invests in early-stage companies within a three- to six-month time frame, and helps them establish market validation. The latter typically nurtures ideas, but that’s not always the case. Some accelerators morph from one incarnation to another, while others act as hybrids.
In Orange County in particular, accelerators provide collaborative spaces that overcome the sprawl of the county by being spread out across it, said Ray Chan, managing director of Newport Beach-based K5 Ventures, which started as an accelerator and grew into an early-stage investment firm.
“They generate an important collaborative atmosphere that we’ve never had in Orange County before,” he said. “Orange County was more disconnected than places like Santa Monica and Silicon Valley. Accelerators address the problem that size presents by providing focused places for entrepreneurs to come together.”
The community of accelerators of various types continues to expand, including the latest entry, Wayfinder, which is managed by Applied Innovation, the innovation institute at the University of California-Irvine. It’s a hybrid type of incubator that accelerates venture development (see graphic, opposite).
Aliso Viejo-based Octane started the Launchpad accelerator in 2009. It uses a rolling admissions process and doesn’t charge a fee or take equity in the companies that participate. Launchpad uses the power of data, predictive analytics, and good old human interaction to create capital strategies and prepare companies to meet investors and identify other growth resources.
More than 400 companies have cycled through Launchpad, over 350 of those having received funding, Chief Executive Bill Carpou said. The companies have received $1.6 billion in capital, and if you add in those that have achieved exits, that rises to $2.1 billion. Carpou said there have also been $500 million-plus in liquidity events for some of those companies, where founders and investors were able to cash out their stakes.
Launchpad is part of a special capital-access program administered by the Governor’s Office of Business and Economic Development. It outperformed the other 42 statewide programs over the past two fiscal years and on its own accounted for more than 25% of the total capital infusion amassed statewide, according to Mike Daniel, regional director of the Orange County/Inland Empire Small Business Development Center Network.
Octane is a nonprofit operating as both a 501(c)(3) and a 501(c)(6).
One grateful Launchpad graduate is Irvine-based Mavenlink, a business software maker that passed through the accelerator in 2010. It’s since raised $84 million and expanded its employee base by 260, according to Chief Executive Ray Grainger.
“Octane has provided invaluable support, and their new growth services platform will further help develop the Orange County ecosystem,” Grainger said via email. “We are committed to building our company in Orange County and supporting Octane to lead the evolution of this ecosystem to world class.”
Meeting Tech Need
Entrepreneurs and long-term investors Chan and Amir Banifatemi started K5 Ventures as the K5 Launch accelerator-oriented fund because they identified a need in Southern California—specifically OC—for more sustainable technology-based businesses and the creation of an ecosystem similar to those in Silicon Valley, Boston and New York City, Banifatemi said.
They started K5 Launch in late 2010 as one of the first accelerators in the region, they said. Nine months later, they concluded that the accelerator model needed more of an established system of technology entrepreneurs, more funding sources, and widespread collaboration between stakeholders to sustain growing demand, Banifatemi said.
They adapted the best elements of the accelerator model and turned it into a hands-on investment firm. That meant working directly with companies by providing capital and expertise to help in execution, achieving the right market fit for the product, and helping demonstrate business viability. K5 takes 5% to 15% ownership stakes based on the company’s value and how much it invests, Banifatemi said.
K5 Ventures, as it’s now known, has worked with and advised more than 1,200 early-stage companies within the past six years and made more than 100 investments. Recent exits include Flipagram, which was acquired by China-based Toutiao, and Connectifier, which Sunnyvale-based LinkedIn acquired.
Banifatemi said that “with more than seven partners and more than 200 experts working with us, we have large hopes for Orange County as a meaningful hub of innovation and social progress.”
Hybrid of Sorts
Ergo Accel was born out of the desire to work with early-stage companies wanting to grow rapidly and plug into a community of mentors and advisers aligned with their goals, said founder Peter Polydor, chief executive of Ergo Capital, which supports the accelerator.
Ergo Accel is in the Eureka Building in Irvine, which Polydor owns. Like a traditional accelerator, it invests capital in companies—$15,000 each—and surrounds them with people and tools for growth. But it functions more like an incubator, in that it provides space for companies for up to a year.
It’s taken on three companies since launching in January and has a goal of finding more entrepreneurs and maxing out at 10 companies in any given year.
Blasmo started in 2010 as a social media agency and became an accelerator in 2015. Founder and Chief Executive Peter Perez Jr. said it’s forward-looking in concert with his mindset, which “has always been 10 steps ahead of what we are trying to accomplish.”
He said he’s self-funded the accelerator from the get-go with approximately $50,000 and uses the same bootstrapping mentality to launch companies, most of which focus on software-as-a-service or are monthly subscription-based companies.
“We believe each startup on its own should self-sustain with little to no help from the outside,” he said.
Blasmo offers discounted services, such as design, development, branding and marketing in exchange for 2% to 5% of equity in companies it accelerates, Perez said. It uses “growth-hacking” tactics that require small budgets to vet minimal viable product. Growth hacking is a way for marketers to grow their businesses from the inside out instead of relying on traditional external means, such as Google ads.
“Why go all out and spend thousands of dollars on marketing, when in 2017, all the free and reasonable resources are at your disposal?” Perez said. “Through our own experiences and trials and tribulations, we pass that mentorship down. At the moment, we don’t have any angel investors or venture capitalists we are working with. We just align [the companies] with the right tools and tactics to get them funded.”
Blasmo is currently helping Qard, an ethereum-based app for company founders, designers, developers and growth hackers. Ethereum, like bitcoin, is a form of cryptocurrency. The demographic groups Qard targets can use the app to harness the entire scope of their personal brands, including choosing whom to communicate with, and they’re paid via blockchain for their insights, Perez said. Blockchain is a database enabling an open, distributed ledger that records transactions between parties. It was originally developed to enable safe trading of cryptocurrency.
Local investor Grant Van Cleve set up the VC Invest accelerator in 2010 to expedite growth of companies in which he saw potential.
He started with a fund, the amount of which he declined to disclose, and in the first couple of years invested in only a few companies. Starting in the third year, he picked up speed, understanding that diversification is considered key to portfolio returns. That resulted in 48 deals in the past three years, and he’s now invested in 55 companies. He said he gets shares but typically doesn’t ask for sweat equity in the companies in exchange for his acceleration expertise. Some “official” accelerators ask for additional sweat equity, shares received in exchange for the work they do helping companies grow, he said.
“The relationship with the founders needs to evolve organically, not contractually,” he said. “Nurturing links with the region’s founders has been a personal privilege, and something which has led to investment over time. They’re not clients or applicants. They’re comrades-in-arms.”
Despite investing for breadth, he said he’s made deep connections with a dozen companies, such as serving on the board or as an official adviser. Those include “stars,” such as Irvine-based Buy It Installed and Newport Beach-based Jetbuilt. Van Cleve plays coach by chatting on the phone for a couple of weeks with the founder or executive teams and playing matchmaker by introducing them to potential investors or teammates at networking events.
He’s also played the lead in bringing the companies to the attention of Irvine-based Tech Coast Angels, the largest angel investor group in the U.S., of which he’s president.
His focus nowadays is nurturing existing bets and awaiting returns so he can continue “sowing seeds.”
Ideas Welcome Here
The OC chapter of Silicon Valley-based Founder Institute started in 2014 as a very early-stage, four-month accelerator where founders need only an idea or two to enter the program.
Through the institute, founders take the ideas, create a company, work on validating the ideas, and develop a launch strategy. If their company gains traction after they graduate, they continue to grow or have potential to be admitted to next-stage accelerators, such as Y Combinator, Techstars or 500 Startups, said Aman Singha, a director of the chapter. Those accelerators concentrate on companies in later stages when teams have been formed and there’s more focus on fine-tuning product development, he said.
Nearly 30 startups have graduated from the OC chapter, Singha said. Because it works with companies so early in their life cycles, there haven’t been breakout stories yet.