Techstars’ Cohen on Promoting Diversity and Preparing for a Downturn

Techstars has made its views on diversity in the tech sector no secret. The Boulder, CO-based accelerator operator made commitments to the White House earlier this year, alongside various other prominent national organizations, to improve diversity in the industry by doubling the number of women or underrepresented minorities in its startup programs.

Even more recently, it launched the Techstars Foundation to help it reach those diversity goals. Techstars executives and alumni made cash and equity contributions to the nonprofit foundation to start it out with a $500,000 base fund. That money will be used to provide grants, scholarships, or sponsorships to groups that have a “meta” impact on diversity, according to Techstars co-founder and CEO David Cohen.

Cohen recently spoke with Xconomy about the foundation, the impact it wants to have, and how the organization has changed over the years. The conversation has been edited for clarity and content.

Xconomy: What’s driving Techstars’ interest in tackling diversity?

David Cohen: It’s terrible in the industry today. It’s obviously a hot topic. A year ago, when we started making these strides, we said, “Let’s not just do the thing where we publish our stats and say we’re going to make it better. Let’s do that and also have a lasting impact on the issue.” We started a few different initiatives.

X: What are they?

DC: The first one is called Risingstars. We’ve been having our alumni do a one-year mentorship period—alumni who have graduated from Techstars accelerators— for underrepresented entrepreneurs. We would find someone who seemed promising, pair them up with a mentor from the alumni network, and have them spend a year coaching them. We’ve done 35 to 40 of those. The second thing is Patriot Boot Camp. We’ve been running these events all over the country, where we invite military veterans or spouses who are starting companies to come get mentorship from the Techstars community.

X: And now that you started the Techstars Foundation, what will it do?

DC: It will in 2016 start making grants that we believe have a meta impact on diversity in tech entrepreneurship. So that doesn’t mean it’s going to just fund an African-American entrepreneur, unless that person is making a meta impact—they’re doing something to broadly impact diversity in entrepreneurship.

X: What’s an example?

DC: If there’s a group that’s teaching young black women to code, that’s the kind of thing. We’re still kind of figuring this out. Our initial thought is that it will be targeted at grantees—that could be individuals or companies or nonprofits—that we believe have a meta impact. Not just an entrepreneur of a diverse background. Not just a female-led company, but rather a female-led company that is having an impact on this issue. It could be a white male-led company that is having an impact on this issue.

X: You’re going to offer scholarships and sponsorships too?

DC: It could be scholarship for education, for someone who is working on this issue. Perhaps it’s someone who is studying this issue and creating research that is valuable.

X: How are you funding it?

DC: It’s mostly the people, not the company. Some of the founders around Techstars, some of the key executives, gave the bulk of that money. We had a few mentors and alumni that chipped in as well. We expect that the community will continue to grow that base. This $500,000 was a level we thought that was a pretty good [starting place]. Company founders can contribute equity. We had one mentor name the Foundation in their will already.

X: Is there a broader goal you hope to achieve with it?

DC: We hope to infect an entire generation of entrepreneurs with the thought that this is important. They should learn about it, think about it, deal with unconscious bias in a very direct, head-on way. This is not just about internal support to our community. We expect most of this money to flow to the outside of the Techstars community. Whoever is doing the best work can expect to get the grant.

X: It started with your commitment to the White House to promote diversity, correct?

DC: We committed to improving diversity in the application pool to our accelerators. We want to double the number of women who apply to Techstars over the next four years, to try to make the mentor pool in these accelerator programs more diverse. We’re making sure that every single selection group, where we pick companies to fund—which happens in the 18 different places we operate—that it’s a diverse group of people who are picking companies we can fund.

X: Since you co-founded Techstars almost a decade ago, how have things changed?

DC: Techstars inspired a whole bunch of other accelerators around the world that use this community and mentorship model. That has a meta impact on entrepreneurship. Wherever you go around the world today, there’s an accelerator and it’s using this model. Obviously, groups like Y Combinator are well-known too. But our model is the one that is expanding around the world, where others are copying it. We think we’re changing the way entrepreneurship is done, the way communities think about generational entrepreneurship and sustained cultures of mentorship. It’s really cool to be able to add in these philanthropic components.

X: How has the investing strategy for Techstars Ventures changed?

DC: Obviously, we have more capital under management. We’re about $300 million under management today. We’re able to invest in more later–stage, still not late–stage, companies. We historically have been pre-seed at the accelerator level and seed at the venture fund. Now we have the resources to continue to back companies through Series A. It’s a little bit of a different game. We’re just bringing more resources to the table for companies in the ecosystem.

X: Even though the economy is booming right now, how do you—if you do—prepare for a possible downturn?

DC: We definitely know we’re at a high point in the cycle. I think the Techstars business is in a great position because, just this year, we did a closing of a $150 million fund. We have plenty of capital to ride through something like that. We won’t react to macroeconomic stuff. That has nothing to do with startups. The best companies often get started in downturns. Our strategy would just be to play through it. We have the resources and balance sheet to do that.

X: What about for your portfolio companies?

DC: It’s the same advice, which is always good advice: Don’t overspend. That’s something you can always manage. Raise a little bit more money while you can. It’s a really good market to raise money in. A lot of people worry about a macroeconomic downturn, and of course they should. But 2014 was the biggest year ever on file for venture capital being raised from limited partners. There’s four times the amount of seed money this year than there was last year. Those funds don’t get deployed this year, it takes four to five years. There’s going to be lots of money out there for good companies, even if something happens over the next few years.

X: You’ve worked on expanding the various types of accelerators offered. How did the first Qualcomm Robotics Accelerator program go?

DC: It was a pretty typical first program. There’s some things that didn’t work, some things that are very promising. We were pleased with the outcome.

X: Do you think developing hardware with embedded software can work in the Techstars model?

DC: For us, it’s more thematic. The idea that we get to go invest in robots is exciting. It’s a funny one because “robots” sounds futuristic, but you have one in your house: a dishwasher. We don’t think of it as a robot, but that’s what it is. It’s just a smart machine. I think hardware is hard. It’s harder to get funded, and it’s harder to cross that gap with all the inventory, production costs you have. You have to be smart about it. We’ve also done an Internet of Things, IoT, accelerator. A lot of those companies have gone on to do really well. Certainly they won’t all make it. That’s the nature of startups.

X: How did the Techstars Mobility accelerator in Detroit go?

DC: That was super exciting. Detroit is one of those places where it’s such a no-brainer to be involved in the community. So much good will pouring into it, so much renaissance. We saw tremendous investor interest there, tremendous corporate interest. I think some very real programs are going to come out of it. We got applications from like 50 countries. We had a high volume of applicants and, more importantly, high quality. We ended up with what exceeded my expectations for the program.

X: You’ve said you’re taking a little time off. Why and how hard is it to free up your schedule to get away?

DC: I’m doing it because I think it’s healthy. It’s not a super long one, but it’s just totally getting away from work. It’s been 8 years. We’re very conscious of that need to step back and rejuvenate. Techstars is 130 people now. We have a top-notch management team in place. It’s no problem. We’re bigger than one person. It’s exciting to get a little time away. I’m very confident that things will run smoothly.

David Holley is Xconomy's national correspondent based in Austin, TX. You can reach him at [email protected] Follow @xconholley

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