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The X factor

Why entrepreneurs are flocking to Stanford-originated non-profit incubator StartX

Dawid Bilski

It’s been called a “giant tech incubator with a football team”. Certainly, Stanford University has a well-established track record when it comes to entrepreneurship. It started in 1909 with former student Cyril Frank Elwell launching Federal Telegraph at Palo Alto; in the 1930s, William Hewlett and David Packard were encouraged in their inventions by Stanford dean Frederick Terman; and more recently, the founders of companies such as Cisco, Sun Microsystems, Yahoo, eBay, LinkedIn, Instagram, Snapchat, Google… indeed, the who’s who of tech world as well as the new brat pack, can trace its lineage to the Palo Alto campus. According to a 2012 study by Stanford, alumni and faculty have created 39,900 companies since the 1930s, generating revenues of $2.7 trillion a year and creating 5.4 million jobs over the past 80 years or so. 

One recent student, though, wasn’t happy with the lack of a formal structure at the university for fostering entrepreneurship among students. As an undergrad at Stanford, Cameron Tietelman founded not one, but two companies. “But the [Stanford] system isn’t optimised for actual value creation,” he feels. He spoke with 220 alumni who had built companies out of Stanford to see if there was a broader problem and concluded there was. “There was no efficient way for founders to learn what they needed — it was very ad hoc and loose.” That led Tietelman, in 2009 (a year before he graduated), to launch his third start-up: a non-profit, educational incubator called StartX, which offers training, mentoring and office spaces for companies started by entrepreneurs with a Stanford connection. 

A good start

For a three-year-old, StartX has

an impressive track record

StartX kicked off operations in 2010 and in three years, has backed 331 founders building 136 companies that have on average raised over $1.8 million each — the 109 companies that have graduated have so far raised over $200 million. “For a start-up, success in the first two years means not dying. In three to five years, it means having some capital and scale and after that, it means having large valuations and growing,” says the 25-year-old Tietelman. Most of the StartX portfolio companies are under two years old and only 15 of the 136 companies have shut down, while the rest have capitalised or are profitable. What’s more, 10 companies from the diverse StartX portfolio have been acquired, seven in the current year alone. That includes Luma Camera, which was taken over by Instagram in August 2013, WifiSlam bought by Apple in March and Loki Studio bought by Yahoo in May. 

By that token, StartX can certainly be considered a success as well. Especially when you consider that it has also raised over $5 million in funding so far, including $1.65 million in grants from the Kauffman Foundation, Microsoft, Cisco and others, and more recently, a $3.6 million grant from Stanford University and Stanford Hospital & Clinics.

Silicon Valley is a hotbed for tech entrepreneurship. So, what sets StartX apart? 

Moving faster

To begin with, StartX is meant only for Stanford, although it is legally and financially independent of the university — at least one of the founders has to be from the university, either as a student, faculty or alumnus. Every company that makes the cut gets free office space and web and legal services, as well financial aid to cover basic living costs where required. The focus, though, is on learning and education — the programme seeks to objectively help participating founders gain practical ‘entrepreneurial’ skills such as leadership, communication, understanding interpersonal dynamics, building teams, corporate culture and so on and every session has over 60 educational and community events. The idea at every step of the three-month programme is to learn from and help each other, taking advantage of the multi-disciplinary background of participants, says Tietelman. “We create an environment where you listen, share information and move quickly. That’s how you build successful companies,” he adds.

More significantly, StartX takes no equity in the companies it incubates — it is supported entirely by grants and sponsorships from companies such as Johnson & Johnson, Wells Fargo, Intuit. In May 2012, the incubator also created an industry-specific arm, StartX Med, which runs six-month programmes for biotech and healthcare entrepreneurs. It’s the incubator’s mentor programme, though, that wins the most kudos. 

Like-minded company

StartX has a three-tier mentoring programme — lead mentors are usually coaches and serial entrepreneurs; industry experts and VCs form the board of advisors; and entrepreneurs-in-residence, more experienced founders who work out of the shared office space and are on hand to offer advice and encouragement. The mentor roster of over 200 serial entrepreneurs, investors and professors includes Facebook co-founder Matt Cohler, LinkedIn co-founder Konstantin Guericke, David Lee of SV Angels, Vinod Khosla of Khosla Ventures, Asheem Chandna of Greylock Partners, Naval Ravikant of Angel List and Joe Lonsdale, founder of Palantir.

It was this mentor-focused ecosystem that drew Pramod Sharma to StartX. The 33-year-old ex-Googler started Tangible Play when he realised that his young daughter had a room full of toys and games, all with limited playlife. The iPad, on the other hand, offers unlimited entertainment time. “The idea was to bring that unlimited playtime of the tablet to physical toys,” says Sharma. Seven months ago, he and Jerome Scholler, also from Google, started their Palo Alto-based company, which uses technology that helps the iPad camera recognise objects in the real world. A mirrored device placed over the iPad camera allows it to see what’s being played; artificial intelligence (AI) then helps it understand what’s going on. 

Tangible Play started with angel funding from a friend and entered an AOL incubator called First Floor Labs. It already has two games and one utility application and has two third-party developers creating games for it as well. “Our vision is to build a surface computing platform on top of which we or third parties could build apps,” says Sharma. The company is closing another round of funding and will run a beta programme for the next three months before going mass in mid-2014.

In Summer 2013, the company came over to StartX (Sharma has a master’s degree in engineering from Stanford) for its strong entrepreneurial community. “It’s not just companies, but also the mentors. They assign you mentors but you are free to talk around and get advice and insights from everybody there,” says Sharma. That was especially important to Tangible Play, since the company’s product straddled multiple areas — physical, gaming and AI. The company graduated from the incubator but the relationships continue — “I am having lunch with an expert I met there. The StartX ecosystem is extremely valuable.” 

Kyle Wong had a similar reason for joining StartX last year. “I wanted to be surrounded by some of the best entrepreneurial talent coming out of Stanford,” says the 23-year-old Stanford engineering graduate who co-founded Pixlee in 2012. The start-up aggregates images and videos from social media sites and connects brands with their customers, working with companies such as Coca-Cola, Yamaha, Red Bull and Miss Universe. Pixlee raised $1.5 million in its seed round from Andreessen Horowitz and XSeed Capital. 

A big factor in Wong’s decision was the fact that StartX doesn’t take equity, but what stands out for him was the entrepreneurial community. “Starting a company can get lonely. I remember being at the office several nights in a row until 3 am and it was always reassuring when there were other companies in the office with us,” he recalls. 

Fund windfall

Now, Stanford entrepreneurs have more reason to want to stick with StartX — the university and hospital have together created a venture capital fund to finance companies coming out of the incubator. The uncapped fund isn’t for untried, untested wantrapreneurs, though. It’s restricted to StartX companies, for a start, which has an acceptance rate of under 10%. That initial vetting aside, fund seekers have to prove themselves — they should have raised at least $500,000 from VCs and angel investors before the StartX fund will cut them a cheque for about 10% of the investment round. In the next five years, the university expects to distribute $50 million-$100 million through this route. “The focus of StartX will always remain on educating entrepreneurs, but the fund is a nice way to help them move faster,” says Tietelman.

It’s extremely far-fetched to think the presence of a VC fund will change Stanford’s admission process to include more potential entrepreneurs who will go through the StartX programme, create companies that Stanford can invest in and make the university a pile of money. But, certainly the presence of the incubator and Stanford’s own reputation as billionaire factory is having an impact. As Tietelman says, “The admissions department has told us that more people are putting in their applications that Stanford is for start-ups.”