I've written posts on Venture Capitalists and Angel Investors, but what about Startup Factories?
Although it's a bit simplistic, generally, Venture Capitalists are investing to make as much money as soon as possible by encouraging businesses to 'swing for the fences'. They know that most will not succeed.
Most Angels, on the other hand, are looking to help give a leg up to budding entrepreneurs, hoping to repay their good fortune from previous successes.
A Startup Factory looks a lot like a mix of the two. Unlike an Incubator which helps entrepreneurs get started by providing office space and some assistance, a Startup Factory usually owns a large percentage (often a majority, sometimes 100%) of the companies it's 'nurturing'. Startup Factories are usually founded by successful entrepreneurs who hope to replicate their success by betting on multiple companies at the same time in a 'collaborative' environment.
For those of you who aren't familiar with Startup Factories, I highly recommend The Next Big Thing You Missed: Startup Factories by Issie Lapowsky of Wired.
Startup Factories have been around for a while. They seem to come in two Types:
Although it's a bit simplistic, generally, Venture Capitalists are investing to make as much money as soon as possible by encouraging businesses to 'swing for the fences'. They know that most will not succeed.
Most Angels, on the other hand, are looking to help give a leg up to budding entrepreneurs, hoping to repay their good fortune from previous successes.
A Startup Factory looks a lot like a mix of the two. Unlike an Incubator which helps entrepreneurs get started by providing office space and some assistance, a Startup Factory usually owns a large percentage (often a majority, sometimes 100%) of the companies it's 'nurturing'. Startup Factories are usually founded by successful entrepreneurs who hope to replicate their success by betting on multiple companies at the same time in a 'collaborative' environment.
For those of you who aren't familiar with Startup Factories, I highly recommend The Next Big Thing You Missed: Startup Factories by Issie Lapowsky of Wired.
Startup Factories have been around for a while. They seem to come in two Types:
- Those where ideas come from the Factory itself and are then grown into companies within the Factory (which may spin out once they're self-sufficient) taking advantage of the shared infrastructure offered by the Factory .
- Those that are more like incubators, bringing entrepreneurs under the umbrella of the factory to share resources (including design, engineering, marketing).
One of the big advantages of both types is that they leverage facilities, design and engineering resources, management, marketing, etc. These are usually provided to the fledgling companies by the Factory. Often, the Factory will also provide seed funding and assist with raising later rounds.
Startup Factories sound like they could be the perfect mix of Venture Capital, Angels, and Incubators.
So, should you join a Startup Factory? It certainly seems like you can reduce your risk of failure by getting help from those who've been there before. With the Factory's resources, you can leverage your own to focus on bringing your idea to fruition much sooner. A percentage of your company might be a small price to pay. And if you're someone who has an idea but is without a way to build it, or you're an engineer with the prototype but lacking the skills to put together a company and get your product to market, a Startup Factory is worth considering. But even in those situations, you should be careful.
If you join a Type 1 Startup Factory, you'll become part of their team. You may be an idea generator, a developer, a manager, a marketer, but the bottom line is that you'll be an employee. You need to look at the Startup Factory as the 'startup' that it is. You'll likely get a great salary and benefits and some stock options - maybe also some options in the companies within the factory. But your return on those options will obviously depend on success of the companies and of the Factory as a whole.
If you join a Type 2 startup, be prepared to give up 50% of your ownership in exchange for seed funding and the help that the Factory will provide. If your idea and company takes off, you'll likely do quite well.
Unfortunately, the fact is, that aside from a few exceptions, Startup Factories don't have a great track record. In the Type 1 Factories, you often have a successful entrepreneur who is looking for the next great idea or trying out his own ideas in a venue that lets him hedge his bets. That isn't necessarily a formula for success. Experience shows that a startup requires 100% dedicated focus to have any chance of succeeding.
Also, for both Types of Startup Factories, if one of the startup companies begins to succeed, often most of the Factory's resources will move in that direction. In several Factories, the founders have actually left the Factory to focus on the one opportunity. If it was your company, you might be in luck. If not, you and your company may suddenly have the rug pulled out from under you.
And even if it is your startup that gets the attention, you may find yourself displaced as the Factory's founder(s) steps in.
I'm sure that many of the current Startup Factories will see more successes than they have so far. It certainly seems like combining Venture Capital, Angel and Incubator approaches should work. However, I'm afraid that with Startup Factories, many of the strengths of each may be lost. Although I'm not a fan of early stage Venture Capital, that swing for the fences approach is a strong motivator and sometimes leads to success. With Angels and Incubators, as an entrepreneur, you have the control you need to run your company. With everything on the line, you will work hard to succeed.
Maybe the Startup Factory provides too much of a safety net.
If you have a good idea and are motivated to build a company around it, I suspect there are better ways to get your startup off the ground.
Startup Factories sound like they could be the perfect mix of Venture Capital, Angels, and Incubators.
So, should you join a Startup Factory? It certainly seems like you can reduce your risk of failure by getting help from those who've been there before. With the Factory's resources, you can leverage your own to focus on bringing your idea to fruition much sooner. A percentage of your company might be a small price to pay. And if you're someone who has an idea but is without a way to build it, or you're an engineer with the prototype but lacking the skills to put together a company and get your product to market, a Startup Factory is worth considering. But even in those situations, you should be careful.
If you join a Type 1 Startup Factory, you'll become part of their team. You may be an idea generator, a developer, a manager, a marketer, but the bottom line is that you'll be an employee. You need to look at the Startup Factory as the 'startup' that it is. You'll likely get a great salary and benefits and some stock options - maybe also some options in the companies within the factory. But your return on those options will obviously depend on success of the companies and of the Factory as a whole.
If you join a Type 2 startup, be prepared to give up 50% of your ownership in exchange for seed funding and the help that the Factory will provide. If your idea and company takes off, you'll likely do quite well.
Unfortunately, the fact is, that aside from a few exceptions, Startup Factories don't have a great track record. In the Type 1 Factories, you often have a successful entrepreneur who is looking for the next great idea or trying out his own ideas in a venue that lets him hedge his bets. That isn't necessarily a formula for success. Experience shows that a startup requires 100% dedicated focus to have any chance of succeeding.
Also, for both Types of Startup Factories, if one of the startup companies begins to succeed, often most of the Factory's resources will move in that direction. In several Factories, the founders have actually left the Factory to focus on the one opportunity. If it was your company, you might be in luck. If not, you and your company may suddenly have the rug pulled out from under you.
And even if it is your startup that gets the attention, you may find yourself displaced as the Factory's founder(s) steps in.
I'm sure that many of the current Startup Factories will see more successes than they have so far. It certainly seems like combining Venture Capital, Angel and Incubator approaches should work. However, I'm afraid that with Startup Factories, many of the strengths of each may be lost. Although I'm not a fan of early stage Venture Capital, that swing for the fences approach is a strong motivator and sometimes leads to success. With Angels and Incubators, as an entrepreneur, you have the control you need to run your company. With everything on the line, you will work hard to succeed.
Maybe the Startup Factory provides too much of a safety net.
If you have a good idea and are motivated to build a company around it, I suspect there are better ways to get your startup off the ground.
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