Grading Gener8tor’s Startup Accelerator: Exits, Failures, & Progress

[Corrected 12/27/14, 2 p.m. See below.] For all the hype that Gener8tor has garnered in Wisconsin since it formed in summer 2012, the startup accelerator’s leaders acknowledge that they’ll ultimately be judged by the performance of their portfolio companies and the returns that the accelerator’s investors get.

This month, Chicago-based Optyn became the first announced acquisition of a Gener8tor-backed startup. One other Gener8tor program graduate has been acquired, co-founder Joe Kirgues says, but the deal is being kept confidential at the request of the acquirer.

Now that Gener8tor is starting to see its first exits, it seems like a good time to take the accelerator’s temperature, much like we did recently with Wisconsin nonprofit accelerators VictorySpark and The Water Council’s BREW. (Gener8tor and The Water Council are also Xconomy underwriters, but our coverage is determined independently by our editors.)

Unlike those nonprofit accelerators, which dole out grants, Gener8tor uses the classic accelerator model made famous by the likes of Y Combinator and Techstars. The Wisconsin accelerator invests $20,000 in exchange for a 6 to 9 percent equity stake in the companies that go through its three-month program, which is held twice each year and rotates between Milwaukee and Madison. Following the program, the companies also receive up to $120,000 in the form of convertible debt. That includes $50,000 from Gener8tor, $20,000 from Oshkosh, WI-based Angels on the Water, and a possible $50,000 from BrightStar Wisconsin Foundation if the startup has a permanent office in Wisconsin.

It’s unclear how big a return Gener8tor’s investors made off of the accelerator’s two exits, as the deals’ terms weren’t disclosed. But here are some statistics provided by Gener8tor that give a flavor for how the accelerator has performed thus far, after five classes:

—Of the 28 companies Gener8tor has invested in, two have been acquired, two have shut down, and at least one is on hiatus.

—Gener8tor graduates have gone on to raise more than $34 million in follow-on investments, which is an average of about $1.2 million per company. Those numbers are boosted by six companies that have raised more than $2 million each, Gener8tor says, including Madison-based EatStreet, which says it has raised $12.6 million from investors.

—At least six Gener8tor companies are on pace to generate $1 million in revenue over the next 12 months.

—Gener8tor portfolio companies have created more than 250 jobs.

—Seventeen of the companies are based in Wisconsin, a stat that will no doubt please local economic development officials and advocates of the state’s startup scene. The key for Wisconsin will be whether the successful companies stay.

It’s still too early to evaluate the success of Gener8tor’s investments, many of which still need at least another two or three years to properly germinate, says Jeff Rusinow, a Milwaukee-area angel investor who has put money into three Gener8tor graduates. But “so far, things look great” for Gener8tor, he says.

The accelerator is developing a good reputation among venture capitalists and startups nationwide, Rusinow adds. “It’s getting more competitive to get in. Time will tell” if that leads to higher quality companies that achieve more success, he says.

“The challenge, especially for new accelerators, is that there are hundreds of programs out there and very little data to differentiate between them,” says Yael Hochberg, a Rice University entrepreneurship and finance professor who has studied accelerators, in an e-mail message. “Every entrepreneur has heard of Techstars or Y Combinator. But among all the smaller, regional programs? It can be tough to know who is good, who will deliver value, who is the right fit for your company.”

That’s partly why Hochberg, who is also an MIT research affiliate, and three other academic researchers compile an annual report ranking startup accelerators nationwide. Kirgues says Gener8tor recently submitted its performance data to be included in next year’s report, the first time it has participated in the study. Hochberg’s early assessment: For a “relatively new program, these are good results” and “above the average” for last year’s rankings sample, she says.

The proliferation of accelerators has led some programs to focus on a single industry, like healthcare IT, to distinguish themselves, Hochberg says.

Gener8tor hasn’t gone that route. It targets companies that are “technology-enabled,” co-founder Troy Vosseller says—a broad criterion that has resulted in investments ranging from data analytics software to movement sensors to clothing manufacturers who sell directly to consumers via the Web. Gener8tor primarily chooses startups with products already on the market, but it usually invests in at least one “napkin idea” per class—a company that might have a prototype, but hasn’t sold anything.

At the end of the day, entrepreneurs will flock to the accelerators that fit their company and run a quality program, Hochberg says.

“If you can’t provide a good program, the entrepreneurs quickly figure that out, and your supply dries up,” she says. “Lots of programs run a first cohort and then die. The ones that manage to sustain are the ones who have thought carefully about content, mentors, managing directors, resources, etc.”

Gener8tor officials are pleased with the accelerator’s results thus far. “I’d say we’re outpacing where we anticipated we’d be at this point, both in terms of amount of follow-on financing and number of exits,” Vosseller says.

The two defunct companies are SpanDeX, a cloud-based software program that made it easier for researchers to collaborate on academic papers, and … Next Page »

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