August 24th, 2020
By Amos Schwartzfarb, Managing Director of Techstars Austin Accelerator
I read this quote when Allison Bar Allen tweeted it and it couldn’t better sum up my own feelings about inviting and investing in companies to the next Techstars Austin class!
I’m asked often (maybe 500+ times a year) how I choose companies for the Techstars Austin class each year. The answer has evolved greatly over the past five years, and as I head into my sixth program I’ve refined it a little more — and Allison’s thoughts greatly capture the most important theme for me.
Generally speaking, I invest in people. But yeah-yeah, every VC says that (and in my opinion most of them are full of S&%t). And frankly, in my first couple of years, I said just that and didn’t even really know what I meant. Then, after my 2nd program, I stepped back and asked myself what I meant by that statement. I dug deep into my own ‘why’ and developed a way to express what I mean so that I can both share it with founders and have a framework to evaluate if Techstars Austin is the right mutual fit.
This is how I currently think about my investment strategy. (And as is true with everything I do, I love feedback so feel free to tell me what makes sense and where you think you’d like some more clarity - or even if you think I’m flat out wrong.)
A. Build a meaningful company. What I mean by this is two things. The first: is the CEO mission-driven? Does the CEO believe so deeply in ‘the thing’ being built that they really can’t and shouldn’t be doing anything else right now? Second, do I believe the CEO is willing to put their entire self into the business for, at least, a decade from when they enter Techstars?
B. Attract world-class talent. What I mean by this is: do I believe that the CEO is the type of leader that people want to follow, coupled with a mission that the CEO’s employees can get behind with equal passion?
To be fair, this is nearly impossible to quantify (at least I haven’t figured out how to yet), AND I get this wrong a few times every year, but this is what I look for when selecting founders for Techstars Austin. If I can’t get conviction in these two things, then you are not a good fit for my program.
There are also several other attributes that, over the years, I’ve added to the list of things that help me understand what kind of leader and business person the CEO will be. I like CEO’s who have lots of experience both winning and losing. I love hustle and overcoming hardships, and it’s very important to me that the CEO has a natural attribute to respect and leverage data.
A. Cohesive. When I watch a founding team interact (CEO included), do I believe they are a team that shares a common vision, or is it a bunch of individual players working towards a common goal? My preference is for the former because it tells me a couple of things: that achieving the vision is more important than any individual hitting their goals( which in my experience has a greater chance of success), and it helps to set a culture of teamwork early on.
B. The right team to work in ‘this’ business. This ties directly to the mission-driven aspect of the CEO’s persona. I don’t necessarily care if the team has direct work experience in the industry, but it matters that the team and individuals have something real in their life that pulls them to this business. Their drive needs to be more than just ‘solving interesting problems’.
Now obviously, team is important. But if you refer back to #1B, if I have conviction that the CEO can attract world-class talent, then on some level this should be a given. I also have the expectation that team members will change/grow/evolve as the business grows, so this aspect is really about the next 24ish months.
This one has a lot of nuance to it because ‘big’ is relative. Techstars is such an early investor, takes common (vs preferred) equity, and because our fund structure is different than a traditional VC we have different return profiles. For example, a bootstrapped company that never raises any outside capital with a small exit can have the same dollar return to Techstars as a company that raises several rounds and has a $500M+ exit. Because of this, we (and I) look for different types of companies to invest in. Hence “big” is relative (and meaningful is more important).
Do I care/am I interested in working in this market for the next 10 years? When we invite a company into a Techstars accelerator, MDs expect and anticipate working with the founder, and on the company, for a 10 year period of time. For me, it’s important to be interested in the market for that long, too.
During the months when I’m looking for companies to join our next class, I don’t pay a ton of attention to #3. Instead, I focus on finding, what I believe, are the best 20-30 CEO’s and founding teams each year. #3 comes into play once I have it down to the final group - and then it becomes very important. At this point, I’ve already developed a strong conviction that a CEO can build a meaningful company and attract great talent, and I already have conviction that the founding team is cohesive and the right team to be working on their business. I then try to stack-rank the companies on a combination of conviction and #3 to build the final class of 10 businesses.
To bring all of this full circle, the reason I love Allison's quotes is because I love working with real people building real businesses. If you are someone who thinks entrepreneurship is a career path, then Techstars Austin is probably not for you. Likewise, if you think you need to raise money in order to prove your idea can one day be a business, then the Techstars Austin is probably not for you.
However, if you are a founder who is deeply passionate about the thing you are building, and you are going to make it a reality with or without outside capital (including Techstars), and are looking for helping BUILDING YOUR COMPANY, then I’d love to meet you!
If you are interested in connecting there are a couple of ways you can get in touch:
Request Office Hours, one-on-one meeting time, with the team.
Attend an upcoming Meet and Greet, events run by the Techstars leadership team.
If you think you already have what it takes, go ahead and Start Your Application Now.
We look forward to hearing about you and your startup!
Amos Schwartzfarb is managing director of the Techstars Austin Accelerator, and after over 70 seed stage investments, he has become one of the more active early stage investors in all of Texas. Amos is the is the author of Sell More Faster.