David Cohen on TechStars

As the founder of three software companies, I had learned too late the true value of mentorship. I had been lucky, having had two of those three companies go on to be successful. What I hadn’t realized in those moments were the now-obvious benefits of having great mentors to help you navigate your growth and even your exit. The time I founded my fourth startup, TechStars, I understood this dynamic much better and my vision was to help up and coming entrepreneurs understand it.

I did very well in my first startup. We founded the company in 1993 and had a very successful exit to a public company in 1999. But here’s the kicker. I now know for a fact that we left about half of the potential exit value on the table. I know that, because the CEO of the company who bought us eventually told us that he would have paid twice as much. If we had simply engaged more mentors who had navigated large exits in the past, we could have literally doubled our money. This was not a small lesson for me.

This painful lesson was driven home in 2007 when I watched a TechStars mentor who had negotiated dozens of exits literally double the exit value of one of our companies during a single phone call. The founders of that company were ready to take what was being proposed, and ended up with twice as much money in their pockets. The mentor didn’t ask for a dime, although I’m pretty sure he got a nice dinner out of it at some point. Mentors matter, as in this simple example that I’ve now seen play out again and again. If you have great ones, you go faster, you avoid mistakes, and you make more money.

I founded TechStars because I had finally come to understand this opportunity. There were so many great potential mentors in the world, but they had very few outlets where they could help high potential, pre-screened companies. TechStars would provide that and more – it also provided a social context and recognition for their efforts. And best of it all, it helped them grow the very entrepreneurial communities that these mentors lived in and loved. Today, TechStars mentors have helped over 100 companies. 80% of them have gone on to raise angel or venture capital. Ten of them have already been acquired by larger companies. These mentors have helped create, encourage, and grow many high growth businesses. They’ve changed the world.

When I started TechStars, this insight about the value of mentorship was key. Like most things, insights are pretty obvious in hindsight. Other insights at the formation of TechStars included the obvious fact that most angel investors lose money. I figured that had to be doubly the case for those living in secondary markets such as Boulder, Colorado. So TechStars set out to change the rules. It was a way to attract more talented companies to where I lived, and it was a way to harness the intense desire that many successful entrepreneurs have to both give back to their communities and to help amazing young startups.

For me, and for TechStars, the early challenges were everywhere. How would we build a world class group of mentors? How would I learn the entire VC industry when I was just an angel investor who had done about ten investments at that point in time? How would we raise the capital necessary? It turned out that the answer to all of these questions was to have an intense focus on quality. I immediately approached Brad Feld who I felt was the person that could have the largest impact on TechStars quickly if he were to come on board. I had no expectations, and ten minutes into a first meeting, I had an investor and partner. Brad recruited many mentors nationally such as Jeff Clavier, Dave McClure, and others. Suddenly, our mentor base was world class. This attracted fantastic companies right away, and made investment very easy to come by. Those great companies would generate several exits within 18 months, fueling the program forward. Since the beginning, TechStars has focused on quality over quantity, and in business I think this practice almost always wins.

Today, TechStars operates in 5 cities around the country, and we power another program for Microsoft called the Kinect Accelerator. It’s been a series of carefully measured experiments, with a focus on making sure everything we do is very high quality. It’s how all the best startups work. TechStars gives me an outlet to do what I love – I get to work with 50+ high potential startups every year. I can’t imagine what could be more fun.

Doing what you love and focusing on quality, while surrounding yourself with great people who have been there and done that – in my view, it’s a winning formula.

My Notes:

David’s story highlights the power of mentoring.