This Week in Startups - E1054: The Power of Accelerators E3 Siobhan Dullea, CEO of MassChallenge on running a non-profit accelerator, accepting hundreds of companies per year, what makes a great application, why East Coast investors are more conservative & more!

Episode Date: May 6, 2020

0:42 Jason intros MassChallenge CEO Siobhan Dullea 3:09 What is MassChallenge & how is it different from a typical accelerator? 5:48 How many startups do they accept across their different programs? 11:33 How does their prize money situation work? How are the winners selected? 19:05 How is MassChallenge sustainable as a non-profit 22:55 How is MassChallenge funded & how do they track portfolio success, what government & corporate sponsors looking for out of MC? 29:22 MC's top accelerator companies 32:24 What makes for a great application? 39:00 Why are East Coast investors obsessed with intellectual property? Why are they more conservative? 44:10 Thoughts on virtual accelerators? 47:20 Red flags when accepting companies? 50:08 What will change post-COVID-19?

This week in startups, the Power of Accelerators series, is brought to you by Embroker. The Embroker Startup Insurance Program helps startups secure the most important types of insurance at a lower cost and with less hassle. Save up to 20% off of traditional insurance today at Embroker.com slash twist. While you're there, get an extra 10% off using offer code Angel 10. and LinkedIn jobs. A business is only as strong as its people, and every hire matters. Go to LinkedIn.com slash power

and get a $50 credit towards your first job post. Hey, everybody. Welcome to another episode of this week in startups. Hope everybody is taking care of themselves during the coronavirus. Thank you to all the frontline workers, delivery people. Thank you for your service, doctors, nurses, janitors, is EMTs, everybody on the front line. We really appreciate your service.

And we are now dealing with some of the second order of business issues. People's lives obviously come first and livelihood second in most people's estimations. So we're going to keep talking about business and we're going to keep talking about startups. Startups are in a lot of ways the driver of our economy startups most often fell. And the founders learn a lot of lessons and then they get back to work and take those lessons to other companies or they start another one. And once in a while, those tiny little companies get really big and change the world. You know the names, Apple, Facebook, Google, Uber, Robin Hood, a lot of great companies out there all started and backed by venture capital, angel

investors, seed funds, and of course, accelerators, formerly known as incubators. And today on the program, we have the CEO of the Mass Challenge, which I spoke out years ago when it was a conference. And it's a bit of a hybrid here. It's a conference and it's a accelerator, does a lot of different things, and we're going to find out all about it. The CEO and former C-O-O is Chavon Delay. Shavon, are you there? I am. Hi. All right. And you can hear me okay, five-by-five? Yes, yes. Awesome. Technology is working, and I'm assuming everybody is safe and sound. We're taping this in April, the thick of the coronavirus quarantine. How's everybody doing at home? Great. I am in this house with a husband, two teenagers, and a dog. And hopefully you'll only hear me during this time. But I can't guarantee it. I was in a podcast and the twins. I'm at home with a dog, three girls, all under the age of 10, a 10-year-old and two identical twins were four. So I'm in the think of it too.

Really is fascinating to be home for 30 or 40 days straight, whatever it is now. It's a really weird feeling, isn't it? It feels like infinity, but yeah, I guess it has only been a little around a month. And I am right now have a 16 and 18 year old who have committed not to me on the internet while I'm doing this so we don't cause any broadband issues. Wow. Well, we'll then get right to it. Tell us what is the mass challenge? How does it work? And how does it relate to what we'll call the traditional or perhaps even standard accelerator model today, six, 7% for 100, 125, 150K. Yeah, well, we're very different from your standard accelerator. We are more than an accelerator. We're a global network of programs that support startups. We're about 10 years old and we're nonprofit. So we focus on the startup, helping them to launch and grow their businesses. We're mainly focused on early stage startups, but we also have some programs for later stage.

And do you invest in the companies or I see there are prizes? I was a little confused and was trying to parse it. I too when I actually started launch festival back in the day. We'd do a 25K, 50K, 100K prize at our events. It was riddled with issues like giving prizes. Are they taxable or whatever? So we wound up netting it all out to the winner. We'll get a $50,000 investment prize pending due diligence.

And if the first person doesn't pass due diligence, you go to the second or third. so it wouldn't come across as a taxable prize. And then I eventually started, just went with the standard model for our accelerator. So tell us, how does that work? I see on the website, there's millions of dollars in prizes and it's a little bit confusing for me to be honest. How would I tell one of my founders how to apply and what to expect? Sure, sure.

So we're non-profit. So really mission-driven, focused solely on the startups and on developing innovation ecosystem. So what's different about us, we don't take equity at all. We work across industry from anywhere. We accept startups from anywhere in the world. So our funding, no funding, comes from the startups. So we're one of the largest accelerators in the world. So we have a huge network of experts, resources, and partners to help our startups grow their business. And it's It's a competition framework. So we accept fewer than 10% of the people that apply.

It's based on judging. And Mass Challenge doesn't decide who gets into our program. Our community of experts do. So our volunteer experts judge the applications and then the startups, get them into our cohort. And then our cash prizes are also chosen by volunteer judges. Great. So you have hundreds of people apply and you take dozens or what's the ballpark, how many times a year to run cohorts? Yeah, we have nine programs across seven locations. So our early

stage programs, which are most of our programs, of those nine programs, seven are early stage. And we do that at scale. So for example, Boston this year, we'll get around 1,000 applications and we'll have a hundred startups. It's our biggest cohort. 100 startups in our cohort this year. Someplace like Israel, we accept 54, 50 to 60 a year. And was mass challenge, Massachusetts challenge? Was that the original concept here? It started there and it's evolved into massive challenge. So again, what we're about the problem, the problems the startups are solving. So it turned into massive challenge. But we did start and our head. quarters are in Massachusetts. So when you have those 100 people join the cohort, say, in Massachusetts,

what do they do? Do they all come to a weekly session pre-corona pandemic? Is it an in-person thing? Is it a permanent space where you work out of it for? And then what's the duration of it? How does it work? Sure. So our early stage program is four months. It's similar to other accelerators in that we provide co-working space, but that has been less valuable over the past 10 years. As you can imagine in 2010, the co-working space was one of the biggest benefits. It's still very valuable for some of those companies, less valuable for others. Our access to our mentors and experts, when you think about our global network of over a thousand experts, there might be entrepreneurs that get attach to your startup and help you through your specific challenges at the time. Or you may have

a specialist that you need at a particular point in time. You may join our global office hours and have access to them. Or you may have a one-off question for one of the experts. So the mentorship and experts is a big part of it. We run curriculum that is focused on what our specific cohort needs. We're running everything virtual this year, as you can imagine. So people connect into what they need. We see a big opportunity running our global programs virtually because we can get our strongest speakers or strongest experts around the world's access to everyone. Like YC has like a weekly day or we do Thursdays where everybody gets together. There's there a day that everybody gets together and presents or is it all virtual?

Right. So this year, it will be all virtual. It depends on our programs. There's a different cadence. So in Boston, Boston and Rhode Island, they do a lot together. They're within driving distance to each other. So every other week we'll have some in-person time. But the cadence is different based on where we are in the world. Israel has a different cadence from Mexico than Switzerland. Okay. And when we get back from this quick break, I want to understand how does a million dollars in prize money get split amongst the hundred companies? we get back on this week and start up. I want to take a moment and tell you about the importance of insurance for your startup. And I am an expert at this because I've been doing it for 30 years. I had a magazine. I had a search engine. I had a blogging company.

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10% off by using the offer code Angel 10. All right, Chavon Delay is with us. She is the CEO of the Mass Challenge. If you heard about that and a little confused, you think it's an event. It was an event. At some point, at it, I remember, when I was in Boston at some point. Maybe it was even further than, it felt like it was earlier than 2016. Did it exist as a conference before that? Yeah, so we started in 2009, and what you spoke at was our finale event when we gave out the awards at the end of our Boston program. Got it. Okay, so when you go to the website says, hey, there's a million dollars in prizes. I'm curious, that's got to be like a very weird thing to award having been in giving out those prizes before.

At a certain point, we had a judging committee, and it just became super conflicted and convoluted in our case. Like, how do you do it? And I just said, listen, whoever is giving the prize money can just decide for themselves, what they think of the best investment is. In my case, it was me. So I would just decide. But I would let people vote on their favorite startups, obviously, outside of that at the launch

festival back in the day. Is that $1 million from one person and given by a committee? Is it $100K prizes? What is it? Yeah, so the million dollars is just attached to our Boston program. We actually give two million out around the world across programs. But let me explain it in the context of our Boston program. There are four rounds of judging. The first two are just to get accepted into the program, through applications and then in person. Then there are two rounds of judging while you're in the

program. About halfway through, you find out if you're one of the winners, meaning the winners of the program. And then that final judging session is focused on allocating the cash. And we have a million dollars in those final judges can allocate it however they want. So they could give. They never do, but they could give a million to one startup. But what they do is usually look at the top startups and split it out, usually the 100k down to the smallest is usually about 50k. So have a hundred companies graduating, the hundred companies graduating, how many of them would actually get to the prize, get in the money as it is in the poker world, would be in the money? Yeah, get in the money. It's usually about 10 to 15, get some piece of that money. And that's a prize, so they've got to pay tax on that, right?

Or is it a gift? How do you, is a grant because it's a nonprofit? How do you handle that? I'm curious. Yeah, we give them, we give them a non-dilutive grant. So usually they have to do its unearned income. Got it. So that means that to pay tax on it, I guess, in some level. They do, yeah. Yeah. And so.

If they're a for-profit, yeah. If they're a for-profit, yeah. And how do you pick which 10 to 15 are the winners? These are very early-stage startups. From what I understand, you're accepting even pre-launch, pre-customer, pre-revenue, correct? Definitely. Yeah. Pre-revenue. What percentage are pre-launch when they get accepted to the program, would you say? When they get accepted to the program, I'd say about probably a third might be pre-revenue. They usually often have some sort of revenue. It might not be their final product, but they are funding part of their development. Got it. And so how do you pick who wins or how does the judging committee pick who wins? Because there's, and this is another thing I can.

came across when we tried to do this, which made it mind-boggling for me. I'm curious how you solved it, which is, well, you might have somebody who's been added for five years and they're just growing 10% a year, year over year, and they got to, you know, I don't know, $500,000 a year in revenue by year five. But then you got somebody who's in year one, but their product is just all of a sudden making $10,000, $20,000, $30,000 in the first three months. Now, it's still a fraction in total revenue for the year. But, man, their slope is they're growing 100% or 50 to 100%. percent, 75 percent in that example, month over month, on average, well, this could be a rocket ship. How does one judge that? And then pick the prize and then how do the people feel about it?

Because I know when I did this, I had so many bad feelings of people coming up to me afterwards. Why did you pick this one? Why did you pick that one? We were better than them. And they would, you know how entrepreneurs are. They got a big list of why you got it wrong when you, when you annoyed somebody and they just keep coming back at you. How do you deal with that? How do you explain it? Well, there are a few things are it's final. It's done. It's final. We don't come back to the decision. And it's a group of people. It are like the founder and CEO of a major pharmaceutical company. These are people sort of beyond reproach. And it's a group of them. And they decide. And it is confidential what their discussions were.

They focus on. So we have a really standard, you know, this is your input. This is your presentation. There's Q&A and your cut off and the decision is made on that. The spirited conversations that I am usually part of and focus on what is the potential impact of this company and impacts defined in different ways. When you're talking about we're not looking at their equity, we're looking at their impact. So it could be financial impact. It could be social impact. It could be environmental impact. What is their impact? Do you get a bit of that Sundance effect then? like where, you know, at the Sundance Film Festival, they would kind of, the filmmakers would make a joke, like the more horrific or socially, you know, were all positive it was, you know, the more heartbreaking, the greater the chance it was going to win. And if you just did a comedy or you did a horror flick or you did a sci-fi flick, maybe you didn't have any chance.

But if you did some tragic, socially relevant thing, you were going to win. And so it just all steered that direction. and the whole, then they would call it like the Sundance Film Festival, the sadness film festival, because every director wanted to win. So they just increasingly made the films more dramatic and more tragic, which is something they had to fight against in terms of the acceptance committee, since I knew some of the people who were involved in it, who were directors, they would explain to me like this kind of gaming of the system.

So do you find that if somebody is just a cut-throw capitalist who has a product that just makes a ton of money, has an incredible margin, they're going to lose to something that is just super whirlpaws. And how do you balance that decision-making process? That is a really insightful question. That comes up in the earlier judging stages. By the time they get to final, those, our final judges are astute enough to say, yeah, that's a huge, like, tear jerking, tear-jerkie.

Save thepuppies. Right, right, right. We're capitalists. We need, so Impact, they're smart enough to know that Impact Consulting has to actually work. So impact sort of impact investors, they know that the solution actually has to solve the problem. And this has to be long-term viable. This isn't, we're going to save three puppies. If they saved all the puppies in the world, now that's big impact. And they could do that in a sustainable way for a really long time. Now, that is something that's sustainable. It's not a one-shot deal.

It's not a sad problem that everyone wants to solve. It's a problem that is going to be. be solved and can be sustainably solved. How do you become sustainable then? And let's put the spotlight on you as a nonprofit. How do you become sustainable because you're giving away this million dollars in prize money, which seems to me crazy? Why not make it an investment from your nonprofit and make it evergreen and use the profits if there are any in 10 years to just make the program bigger? I don't understand. Yeah. Well, that's a great model. And there are a lot of accelerators based on that model. And all for it. We decided to do something different. And we, We think it's a competitive advantage because we get public-private partnerships that we get people to work together that never would work together.

I was on the phone with 32 other accelerators last week because we wanted to figure out how to make our business sustainable. So we're there for entrepreneurs because we are part of the solution for the economic problem. At the beginning for economic recovery, at the beginning of this podcast, you talked about the big guys. Well, I also want to talk about all of the people who create jobs. So we have accelerated over 2,000 startups over these 10 years, and they have created over 157,000 jobs around the world. So those aren't small jobs. So that is part of it.

Yeah, high paying jobs that have massive triple down effects. I know people get triggered by trickle down for obvious reasons and they're not wrong. But it is true if you know you have somebody who's a high wage earn or they're going to to spend a lot more money because they have a lot more money. It's just basic math. They're going to be pouring more money into an economy. These are very high-paying jobs that then tend to create other jobs in the world or other investing in the world. When we get back for this quick break, I want to know who are the last three or four winners and how do you track if you're doing it right? Because you don't have returns and IRR and, you know, multiple on cash invested as your benchmarks and as your, you know,

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terms and conditions, of course, apply because they're giving you 50 bucks. Okay, let's get back. This is an amazing episode. All right, it's our power of accelerator series, special 10-part series where we're looking at all the different accelerators out there. They come in different flavors. There are the traditional ones where you just put in 100K, 150K for 6, 7%. There are ones where they're virtual.

And there are others that are contest-based like the Mass Challenge. There are global ones. There are local ones. And everything in between today on the program, we have the CEO of the Mass Challenge, Chavon DeLay. And she was just telling us about 2,000 startups graduating the program in 10 years, 150,000 plus jobs created. And I would like to know, how do you know as the CEO, and I guess you have a board and you have funding, I guess, from corporate sponsors or the funders of this? Yeah, about 80 to 90 percent of our funding comes from corporate funders. The rest come from

governments, individual, high net worth individuals, are found. A governments, that makes total sense. They want to do economic development. And so how many full-time people work at the mass challenge organization? We're a lean team with 100 globally. A hundred is not lean. That's a big, it's like a lot of people. Wow. So maybe five, 10 people per program, I guess. Something in that range? Yeah, yeah. It depends on the size of the program. But yeah, globally, we have about 100 people. That's nine programs. Amazing. How do you know if you're hitting the mark? in terms of picking the right companies to give the prizes to? And do you track that, how successful was the company post going through the program? Yeah. Yeah. So we have to track what as a 501c3 or nonprofit and other places around the world. We have to track what our metrics are.

So we measure number of startups. We accelerate the funding those startups receive, the revenue they generate, the revenue they generate, and the jobs they create. So we track those. We actually reach out to our startups every six months and track those over time. So over the 10 years, we've accelerated 2,458 startups. Those startups have received over $6.2 billion in funding. They have earned over $3 billion in revenue, and they've created over 157,000 jobs.

How do you get the people who are, you know, the people who are, your benefactors, they must have an agenda or a reason to do this. So for the corporates, I'm curious, and for the governments, what are their commitment levels and then how do they judge if you're doing the job because you have to get them to re-up every, I don't know, if they do a two-year deal or a four-year deal, what metrics you have to show them to get them to show up with another check? Yeah, well, governments, it's about job creation, talent retention, commitments to innovation in their area. So, in Massachusetts, they're really committed to life sciences creation. They're committed to very

focused on beyond just general economic development, building the fintech ecosystem in Massachusetts. They're really interested in advanced manufacturing. So robotics is very interesting to them. So they have picked some sectors that they believe are important for the Massachusetts area to have robotics and fintech among them. And they're in a dogfight with other areas for fintech like the Bay Area or New York. And so now you say, hey, we're going to run prices here. That could either have those companies be based there in the future or at least inspire some people who are local to do it. Is that the concept? Yeah. And Massachusetts is really good. They've identified fintech recently and want to commit to it. So they have a public, private partnership

that we're part of, look at what are the different, how can policy be more attractive to financial technology companies? We started a slightly later stage fintech program a couple of years ago, focus on the challenges that corporations have here. And we invite different financial technology companies to help those corporations like AARP, Mass Mutual, Putnam Investments, Fidelity. How can they help solve those business challenges they have? There is a tried and true feeling about corporates involved in startups here in the Valley, which is don't let the fox into the henhouse, be careful letting some big corporate into an accelerator or to talk to founders because they might steal their ideas and they might be using it for intelligence. How do you manage that? If you've got some big fintech companies there or some big biotech companies and they're inspiring people, putting up the money, seeing all the applications, meeting all the,

companies as mentors, how do you know that they're not going to, as a founder, use it as an educational opportunity and develop competitive products against you? Yeah. So being vigilant, at the first sniff of that, I'd break up with that partner. So we are focused on startup benefit. It's do absolutely no harm. But most corporate partners, they see the innovation that comes from that. So they're looking for partnerships in our challenge-based programs. They're design advisors. So for the startup, they can design their product around a specific need and get a paying customer. And of course, that large corporation is going to maybe turn into investment, maybe acquire or be a really great customer of them.

Large corporations understand that startups move faster, their doers, their innovators, they move faster. they move faster than a large company can. So some large traditional companies, even if they got the idea, they can't move quickly enough to steal it. They know that it's smarter to partner with them. And those are the companies we work with. Yeah, that seems to be almost universally the case is that the big companies just can't even move fast enough to steal the idea if they wanted to.

And the smart ones know that. Yeah. It's kind of why they're doing it, right? It's like they know they can't innovate internally. So they look at this as an external innovation opportunity. to maybe, if anything, just get an early warning signal to invest in the company or maybe to buy it. Who are the top two or three companies to come out of the last two or three years? Historically, who are the top companies come out of it?

Let's start it from that way so we can look at the big picture. Yeah. In terms of people who actually went through the accelerator, not just appeared at the event, but went through the proper accelerator program. Who are the winners? Sure. Yeah. So some of the big ones from some of our early days are flywire.

It's a financial technology company, links banks to universities and complex payments. So they're valued over at a billion, so their unicorn status. They are raised Series E in February of last year at $120 million, valued over at a billion. Mike Massaro, who's the CEO, is actually on our board of advisors for our Boston program. They're really connected to us. Ginko Biworks is another thing. When FlyWire went through, what was their, what stage were they at? And that was, that was founded back in 2010. So just when you're starting. They went through in our 2010. So they were really early. They were called peer transfer at the time. Huh. Wow. Yeah. So they were focused exclusively on universities then, but now they do complex payments for business, large institutions. Okay. And Ginko BioWorks, that's a major one. Did they go through the program as well? Yeah. Yeah. In 2010. Yeah. So they print D&N. So their biotech, which is huge from Massachusetts anyways, where they just announced a huge commitment. So, yeah, their unicorn raised Series E in 2000, end of 2019.

But they announced a commitment for they switched their platform to focus mainly on COVID-19 solutions and $25 million commitment in resources to help diagnostics, therapeutics and vaccinations to scale their solutions. So they're doing amazing work then, and we're actually working really closely with them. And localitics, I know, went through there as well. That was a pretty successful company. They were acquired back in the day. Yeah, yeah, they went through in the early days as well. And then, you know, some go on to when they're at later stage. I think localetics is actually went to WICOM later when they were closer to exit. And that's a really good focus for when they're close to exit, they may partner with another accelerator, work with us in the early days to start to scale. I'm going to say, since you're not taking equity, the cap tables are generally

going to be super clean. You're kind of like a great place for other accelerators to look for companies. You see that phenomenon a lot? Yeah, we have, we have with tech stars. If they go through, if they get into mass challenge, they skip some of their first levels of due diligence for tech stars because they know that their quality. So we have that with a lot of accelerators. Yeah. And actually, we have a great track record. We, as I said, we check with our alumni, almost 90% of our alumni are still in business or have been acquired. So it's huge. What makes for a great application? When an application comes up and you're looking through them, what is like a snap decision onto the next round? When you're doing that first round,

what have you seen specific tactical things that make you move them on to the next round? Yeah. So in our context, the community moves them on because the judges look at that. But I can tell you because I look at every application before they become startups. And it's about the size of the problem and the credibility of the solution. Got it. So the size of the problem is this just for puppies or does it include kittens too? if includes kittens, that's twice as much, then doubles the population.

But in all seriousness, the scale of the problem that you're trying to solve. And then the credibility of the solution. And when you say credibility of solution, does that mean product team both? Yeah, it's a little bit of both. But there's, is there IP? Is it, is it? So you talked about it. The size of the problem, it could be these huge problem that's a tearjerker that makes us all, you know, sad dance.

But the solution. isn't there. The solution is just a pipe dream. Is there something there? Does the team, so is there something there that's viable? Is there a credible team or advisors behind it? Why? Why can this team uniquely win? And is there any sort of traction with the customer? So we're pre-revenue, but do you have a definite, is the technology so wonderful that maybe you don't need a customer yet? Or do you have an idea of who your target is and is there a, you know, an addressable market. All right. So let's do a little role play here.

I'm a founder. And here I am. I have a, Chavon, I have a startup. It's an app. It makes people less lonely. And so here I'm not pulling on the heartstrings. And yet, you know, 57% of the country reports feelings of isolation and loneliness on a monthly basis.

So it's a huge problem. Now how do you evaluate me from this point forward? Yeah. How are you going to solve that? Is there research that shows that your solution is actually solves that? What makes you credible to this, credible in that? Are you a psychologist? Do you have data?

Is there MIT? We're a team of three counselors who worked with people who were suffering from anxiety and depression and we just spent it out to create this company. We're working on our weekends. So now I've increased my credibility. but you really actually want to know how what's that not really not really i mean you have you are it sounds like you really uh really care about this problem and uh might be committed to do it but why is an app the right solution what sort of research beyond your personal experience do you have

to deliver on that yeah we tried four different formats and we found that people were most responsive not to video conferencing or email but we found with SMS messaging and emojis we send them a series of 10 questions and we have them pick the emoji they like best that suits their feelings. And then we asked them follow-up questions and we asked them to journal those on their own time. And we found that 78% of people said they would, that it made them feel much less lonely. And every, out of every 10 users who've used the program, they've referred 14 people to it. So we actually have a little bit of a viral coefficient starting. Now how does that sound? Yeah, yeah, yeah.

I think that... Stay in character. Yeah, yeah, yeah. So the feedback that I give is that's really interesting. There needs to be more. And what would end up happening is they may be okay and be credible, and so many other people would be better. So that's what's great about having a competition-based program.

Based on what I just explained, we've had 50 people go through it. and the last 10 paid us $300 for the program because it was $100 a month for three months for unlimited back and forth with your person. How close am I in that pitch that I just did? The three people who work in it, they got 50 people going through it,

they got the app built in a 1.0. Am I halfway there? Probably not. I mean, I think it's interesting that people paid for it, but did they pay for it again? And did more people pay for it again? It's just like any other. So I'm halfway there maybe in that estimation.

What else would you need to see from this example. So if let's say somebody had gotten this like, because it seems to me like a decent amount of progress towards the goal, a little bit got some people to pay, but how much further along do I need to get? Now we're down to sustainability repeat customers and then I might get in. Yeah, I'd probably want to see.

Well, it all depends on who else is getting in. So if you have a synthetic, synthetic DNA company that is credible because they've done some of this in undergrad work, I don't know if you'd get in. But for this one, I'd want to see a little more traction and repeat business. So if you had some people pay for it, that's really interesting. But over time, did it? What were you marking in terms of loaniness?

How did that improve? And how did that improve over time? And did those people buy again? And did they get more people to buy again? I think that would be interesting. But also, just because three people are counselors, I want to see what else are you doing to show that your solution might have some viability. Are you looking, are you doing some research? So what we've learned from this is that you guys are not that early. It's not an incubator. It really is an accelerator. Like, if it was an incubator, I'd feel like if I got to the MVP stage and I got three or four people to pay for it, I would be kind of in the money for an incubator. But you guys have a higher benchmark. It's really competitive. So it's sometimes it's also the technology and you don't have the business around it. So like a hydration sensor. You could apply that like a wearable, one of our companies, I

I just was talking to her not too long ago. She was a few years back, but when she came in, she knew that she had the technology, that it was a hydration sensor that you could get through probably some sort of wearable, but all she had was that it worked. But it was, you know, in the lab. It could be sports. It could be health. It could be for soldiers, lots of different applications.

They knew the technology work. That would probably get in before they had on the market for it. So what you talked about is the solution. I don't know if it's any good. All right, two things. They're both kind of tactical. Why are the East Coast investors so obsessed with IP? I hear it all the time. IP, IP, IP, what's the IP?

And then I never hear that on the West Coast. I mean, East Coast, boy, growing up on East Coast. I always heard people, and even to this day, all the investors out there talking about IP, I never hear it come up out here. I want to know why that is, if you have any feelings on it. And then number two, I want to know if you believe in this new world we're in with pandemics, if and you do a lot of what you do in person, but some of a virtual, I'm sure. I want to know if you think a virtual accelerator will work, and if so, under what circumstances, because I suddenly

find myself with a launch accelerator, launching our first 100% virtual accelerator, and I have not met any of the seven companies we're going to give $100,000 to in person. And I don't know if this is brilliant or it's ridiculous, but why are you all so obsessed with IP? Why does this keep coming up? Is this some historical thing because you got too many lawyers in Boston? Yeah, they're just more conservative investors here. They ask every question 20 times. So I think that, you know, I wish we could be more middle of the road. So I do think that there is a little bit of, I have a great idea and I went to this fancy named person and got advice and someone slaps down 50 grand.

on the West Coast. I think it is a little too fat. Right. Right. Right. Someone said they like it. That guy that I know said they liked it. Here's 100K. And on the East Coast, it's way to, I asked you this five times, but I want to ask you again. Oh. It's too much. So scared. Why are they so scared? I don't know. I think it's still illegal to eat peanuts and church on the East Coast because of the Blue Law. So I just think that there's so many. You know what I think it is? I'll tell what I think is. I think if you're, historically, there haven't been some crazy outliers. So it would be like if you're playing in, I don't use the lottery as an example because there's no skill involved in playing the lottery. But let's just take a poker tournament. Like if there were only, you know, poker tournaments with, you know,

a hundred thousand dollar price pool and then the people in Vegas were playing with, you know, regularly million dollar price pools. People might play a different style of poker knowing that, hey, you know, the distribution in this casino is they pay out a lot of people, so you just want to get in the money and double or triple your money. And then people out in Vegas might be like, you know what, you just want to play aggressive and you want to double your stack and triple your stack as quick as you can so you get to the final table because really majority of the money goes to the top two winners. In other words, there's a power law. And I think out here we just experienced the power law at such an extreme example with a lot of decorns, which let's face it, on the East Coast,

you do have a lot of unicorns these days, but you don't often have a deck. of corn. And I, I, in New York, never met anybody with the exception of Fred Wilson, I think, who had invested in a company worth over 10 billion. He did Twitter. But out here, I mean, I'd pump it to people who are complete idiots. And they're like, yeah, no, I invested in LinkedIn and Twitter. And I'm just like, but you're an idiot. And they're like, yeah, I am. But I invested in LinkedIn and Twitter. And I'm like, how did you do that? They're like, well, I was at a party. And I was doing mushrooms with this kid. And he was in Twitter and he told me about it. And I got in. And I'm like, what? But you're an idiot. He's like, yeah.

Isn't it great? Just like, wow. Anyway, you didn't expect that answer, but there's something between those two. There is something about the density, too. Yes. Like, everyone's everywhere. So you're seeing lots of opportunities all the time. It's a little more formal on the East Coast.

All right. Let's move on about, yeah, $500,000 in diligence for a 5K check. I literally had somebody who was like, I'm putting 5K into a syndicate. What level of diligence should I do? If you're doing a syndicate, I would suggest you use. the product and maybe you could find a customer or two on your own who use it or read the reviews and then make a decision because you're putting in 5,000. But if you were putting in 50,000, maybe you could talk to the founder a bit more. And if you're putting in 500,000,

that's when you would do diligence. I'm trying to explain that 5K, 50K, 500K thing. But what kind of, it's a good side diversion. What kind of diligence do you do on accepting them? Because you're not putting money in, so you don't have to do too much diligence. Are you doing like this deep level of diligence? That takes a lot of work. No, no, I make sure that he is, so I joke as I go through, I make sure that they're not trying to hurt puppies. Right. They don't, they're not doing, they're not doing harm.

No explicit harm. And the rest is the community sorts out the judging. So we make sure they're not doing harm. Yeah. Yeah, that's an interesting. I see, I think that means you get to take more risk because you're not disqualifying people because you looked at the cap table and you're like, oh, this cap table is messy or you're in LLC.

You need to be a C corp or you're. ESOP or you're fully, we have to go through all of these things because we're, we're handing people off to VC firms and seed firms who are going to disqualify people. So I kind of feel like you're just that stage earlier, you can take a little bit more risk. Totally. How do you feel about 100% virtual accelerator programs investing in companies you've only met on Zoom? Have you done this in the past? Yeah. And what should I do? Because now I'm about to do this. And I feel like this is either,

the most brilliant thing I've ever done, or I'm going to look incredibly stupid for giving people $100,000 having never met them in person. Yeah, well, I don't think you have a choice first, but we do a lot. Fair enough. Yeah, or you stop. You pause what you're doing. I don't want to stop working. What's the opportunity cost of that? Yeah, that's crazy. I have a friend who told me, who's a VC, it's like, yeah, we're just not doing any investments until the end of the year. We're just going to work on our portfolio. And I was like, oh my God, that's terrorizing. That's terrifying. Oh, my God. the people who will come out better, the people who take risks and innovate and are decisive right now, just like every company out there. So you need to embrace the opportunity and go for it. If you can't

pivot into a different environment, well, yeah, you should wait until the end of the year and you're going to have mediocre opportunity. So I feel really, if you can't tell, I feel really strongly that you morph into a new reality. And these companies have to be able to work well globally. I mean, virtually. And if they can't, then you'll know that you shouldn't invest in them. We do a lot of work virtually and this year we'll do everything virtually. There's great opportunities. You can connect with them more frequently. You can connect them to people who are also working virtually elsewhere in the world to get advice and push them. So I don't think you're crazy. I think you just have to look a little differently and a little possibly a little deeper. Yeah.

Right now we've been hosting virtually, and we're getting more investors from more regions, obviously, because we're not saying, hey, you have to come meet them on Thursday at 2 p.m. in San Francisco proper. So it does open up the aperture for us. And we are, it's really interesting. I find when I'm watching them on Zoom, I'm really keyed into their decks a little bit more because that's all I've got. and I'm typing notes and I don't like to type notes in front of them in person so I have a no device rule in person

because I feel like people then just start squaring around doing email and now what I'm realizing some of the investors who are doing it I'm like I wonder if they're doing email or not and I'm like you know what

they're probably when they're not interested in a company feeling free to go do their email or Slack somebody but when they are interested in the company they're probably doing Google searches and visiting their website so maybe they're going

deeper with some and not as deep with others. Substance over form, right? This is the opportunity. You're looking at them and they can't do the song and dance. They have to really know what they're doing. I think that the flexibility to work in a different way, they're not always going to be in front of their customers or they have to do well when they're not in person as well as and work in different ways. So I think it's an opportunity. When you look at companies, what are the red, flags looking back historically where you knew we're accepting this company but you had that sense or that internal or the committee had the debate like I think it's going to fail and you kind of knew it's going to fail you accepted them and of course they did fail and then you iterate on your process and say no more of this no more of these type of companies no more of these type of founders no more

of companies at this stage these are the red flags what red flags have you identified where you're just like oh i'll give you some of mine but yeah go ahead yeah i don't think i'm going to give you anything that is mind-blowing here. But I do think that any sort of, just like in interviews, people, if you have that niggling feeling that, oh, that was weird, it's just going to get worse. So they were arrogant. They flushed. They sort of sideline questions about research around the fundamental technology. They seemed a little weak on the business side. And it all comes out, it all is clear later than the road. In fairness to Elizabeth Holmes, you know, she tried her best.

Thank you. Did that one land or no? I don't know if that joke landed, but it just literally while you were saying it, I was like, wow, that sounds exactly like, Farronose. They wouldn't answer questions about the technology and they had no business that would work. But boy, was she charming, right? So she probably did great in person. She would never survive virtually over Zoom because they'd say, the goods wouldn't be there. You just said this. I Googled it and you're wrong.

You're lying. Right. Oh, I think that's actually a profound insight is that in person, you might be easier to snow people in person. And it might be, people might be a little more candid and cutthroat and matter of fact over a Zoom. Because they can end the Zoom.

They can leave. When you're in physical proximity, you got that hour long, you have that, which is why I think a lot of founders are like, instead of when they pitch me, they're just like, please pick a date. And I'm like, yeah, can you answer these five questions by email first and then we'll pick a date? I don't know if you get that. The founders are just immediately trying to get in person because they know an in-person

meeting. Wow, now they've got that charisma they can try to deploy to get you to invest. Yeah, you and I are extremely charming right now, but not many people have this skill. Not on Zoom. Not on Zoom. No, I mean, I'm literally starting meetings and saying, insert pleasantry here. Let's get down to business. I mean, it's one of the nice things about the East Coast is that people just get right to the point out here. Oh, my Lord. People are like, hey, yeah, what camp and burning man are you in? And oh, yeah, you know, just like, oh, wow. Yeah, it's a little bit too much repetitive banter. What, there's a big discussion right now. And anytime we have a crisis,

it'll never be the same. Life is going to change forever. We're never going back. The new normal. What do you think post-coronavirus, assuming we beat this, and I think we're going to beat it, and I think we're going to beat it in 2020. I think we'll beat it and we'll be back in the third quarter and full steam in fourth quarter. That's my personal belief. People can debate it. I'm sure there are people smarter than me who will nail their timing better. But are there going to be things that you personally believe will change forever, or do you think

we're going to go back to largely the same life? Well, so old enough to, you know, after September 11th and after the recession, some things did change for good. And I think that, and they get a little softer over time, but things that I'm excited about changing because I fully believe, I don't know the timing either, but I fully believe we're going to be back in action. And while we have economic recovery to deal with, we're going to be right back as focused as we were. But some, um, of the things that I'm excited about is that we broke through in telehealth. People have been starting companies around telehealth and the system has been pushing them back because it's changed.

That is going to boom. Ed tech, there are tons of ed tech companies right now that are given away their stuff for free because people just need it. It's either homeschooling stuff or universities. There's going to be breakthrough in those. And I'm excited about how that will be different because we'll be able, it's going to have an implication on health care positively and health care cost positively and education. It's going to democratize some of that. So those are the things I'm excited about. I think, yeah, go ahead. No, I should say, like, it's almost like if the product was going to be delivered virtually, we now have this forcing function where you can't go see your doctor to get your prescription. You can't go see your therapist. You cannot go see your tutor. Therefore, the tutor

has to learn how to use these tools. And literally one of our tutors, one of our kids had a tutor. And they were like, it's kind of sort-after-tudor kind of situation. And they were like, if you don't come, this is four weeks, five weeks ago. If you don't come, you're going to lose your spot in the waiting list. And I was like, yeah, it's a goddamn, you know, this is a health risk. We're not coming. And it was like, this woman was a little heavy-handed about it.

and I was like, this is crazy. And then all of a sudden, she, because she does not do virtual, and then all of a sudden she's doing virtual. And I was like, okay, they were basically saying, put your child at risk, or you lose your slot with this, you know, sought after tutor. And sure enough, I probably lost it right now, but I blew it right now by talking about it on the pilot.

I don't care. I can get it. Trust me, I can afford a better tour than you if you're going to show an army. Don't worry about it. I'll find out who taught you and I'll hire them. Don't worry about it. But it is true. They are being forced to embrace this.

Just like I'm being forced to embrace, which I didn't want to, but now here I am with a virtual company that I never wanted. And now I've got to do this stuff. Speaking of that, are you on it every day? Are you on like with your team every day doing Zoom all day long? All day long. Isn't it exhausting? Are you exhausted from this? I find Zoom exhausting.

It is. It's intense. As I said, it's like we get right down to business. They're all half hour slots and there's no time for pleasantries. So it's just like you're on after. And your other guests have said this. It's 12 to 14 hour days, six to seven days a week. Like I work a lot anyway, but this just doesn't stop when you're at home. It's the blending too you talked about before where it's like, is it April, March or May? Is it Monday, Sunday? or Wednesday. Is it the morning? Everything's blending. I was just thinking about that with our accelerator. And I'm just like,

why are we even doing cohorts at this point? We should just literally wake up every day and if it's a great company, just add them. Right. Give them the money and just add them to the flow. And then if somebody raises money, just they can leave the program

and mission accomplished. It's just every, twice a week, we have a class and it's just a rolling class. I'm literally thinking about just doing a rolling, never, it's like the Bob Dylan tour, the never-ending tour or the Rolling Thunder Review. This may just turn into the Rolling Thunder Review where it's just one giant tour. Well, that's one thing that we really are working on. It's how to make the connections across the

cohort so that they get to know each other versus just the one at. So we're doing that. We're exploring new technologies. There's a ton out there. And it's going to get us doing things. We have our own technology, but we're going to explore others that can just. I looked at one. I wonder what you think of this one. you keep your camera on persistent. A lot of people are embracing this, like young startups I know. And I don't know how I feel about it. So I only invited like my three like folks

who I thought would be most open to it on the team. But it's a persistent video channel where you're on video the whole time, but it like will just do your headshot. And then it takes a photo of you every five minutes or 10 minutes. You set it, one, five, ten or not.

Or you can have it doing your video, like little looping videos. So when you're at your desktop, and you have two desks, two monitors. You have one monitor, which is everybody working, and you see people all day. And I was like, that's pretty fucking cool. Sorry, that's pretty fucking cool because now I feel like I'm not alone.

Sorry about that, Mom. You just said, sorry, and said. I know, but I just for my mom. I'm sorry. That was hilarious. Tell Grandma, I said, all right. Sorry, Mom. No, she calls me, and she's just like,

I heard the podcast and you dropped an F-bomb. And I don't think when you're, you know, you're so smart and you're on the podcast, dropping F-bombs, and it detracts from your argument. See, my mother would throw in an F-bomb. Your mom would throw in Boston or any of that area within 100 miles. Exactly, exactly. So I'm not into the persistent.

You're not into the persistent. No, no. So we have teams on all the time or, you know, Slack will do it, but we are constantly on that. What do you think about that, Nick? I'm asking my producer right now for a second. What do you think about that persistent thing? You like it or not? I mean, I feel like working for you, I give up all my privacy anyway.

No, I don't, I don't, it's been, it's, it became a discussion inside of, um, uh, the, the seed slack that we're doing and with this other seed investors are using it. And I was like, this kind of interesting, like, for an investment team to be on it. But I don't know. This is all. Really what? Like, all. Like, all right. Listen, continued success. Everybody apply. Chavon Dele is on the Twitter, but you're going to need a minute for me to spell this. S-I-O-B-H-A-N-D-U-L-L-E-A. Shvon-D-L-E-A.

Such a strange thing. Just delay. Just delay. I mean, are we ever going to go on planes again? That's the other thing I'm wondering. I haven't been on a plane in six weeks. It's very weird. What happens to all the planes?

What do we do with them? I landed like two days before the social distancing started. Yeah, we'll go back. It'll just take time. Just like September 11th. People didn't think that fly again. Yep, that's right. We do eventually. You've got to get back to it. I was talking to, I have a friend, you know, like everybody's got that hysterical friend on their message, eye message thread. So I got this hysterical friend. And he actually predicted Trump and that it would be the end of the world. So you have to give him some credit. And he predicted Trump when he was like one of 10 Republican.

So unfortunately, he has some credibility, but he has been saying that 5 million to 10 million people are going to die in America. And every time it went from like the estimates from, you know, like a million to 500 to 200 to 200 to 60 and maybe it's only going to be 30 or 40. You know, he's coming up with reasons about why it's the end of the world. He's like it's never going to be the same again. And I said, you know, what changed after 9-11? We had two wars.

one of them may have been justifiable maybe the other one certainly wasn't and then what else changed? The TSA? Because we kind of unraveled the TSA with TSA pre and clear and we're basically saying like

it's kind of not necessary for most people so let's give you a hack if you just want to spend 15 minutes and 100 bucks a year. You don't have to go through this nonsense it's not for you. And then I look at the dot-com crash

and doesn't seem like aside from the company's making a lot of money now, that people have lost their appetite to invest and go big. And then I look at the 2008 financial crisis, and I guess hedge funds are levered up. Maybe the banks aren't. So I don't see like some major change except for those, which seem very small.

There's some. I mean, I did pre-9-11. You would run to the door and say, hold it and you'd get on. So security has opt a little, but there are definitely workarounds. I think that some of the, what kills me around now is all the businesses that laid off within 48 hours that weren't even in affected industries right now. That means that they weren't building sustainable businesses.

So I get why people have to lay off when their food and beverage, some of the really affected industries. but some people laid off that were in totally separate industries that they should have had some runway, larger companies. And that is where I think that people are behaving differently. They're not, I think that there was real hesitance mid-2010s not to have a better runway and we're thinking more about sustainability and being able to weather a storm. But that clearly is not happening. I've been preaching it for the last five years telling these founders have 18 months of runway. I can't tell you how many founders said to me, we know we raised a last year round so easy we're just going to do it every six months so we can build our valuation and i say you know it's not very resilient and you're going to be like after three months you're going to start the fundraising process and if anything happens if god forbid there's another terrorist attack or anything uh any kind of black swan and they're like what's a black swan i'm like kind of need to read the book um if there's a black swan the markets turn off for six to 18 months like you don't have enough runway to do it and if you even look at our supply chain with masks and p p p p.e or whatever

Like, or even drugs, we are not set up for any kind of resiliency. These are, these are fragile businesses. Forget about anti-fragile. These are just straight up fragile. Yeah. And even, I get if people don't have 18 months. But this is, we're talking, you know, within before 18 weeks, within 18 days, people were calling it.

And that's just not responsible. Well, and the real sin to me is if you could have had 18 months, I've had people who were like, we got an offer for a million dollars as like, you know, to top us off on that last round. I'm like, take it. And they're like, yeah, well, you know, I don't know. We just, we have three million in the bank. I'm like, yeah, but they, why don't you just raise your, you got the three million out of 15 million post. Offer those people who want to put a million in an $18 million cap on their note and take it. And they're like, yeah, we don't need it. Even if we didn't know that it was going to be as big as this, we knew since January that the supply chains from China

were interrupted and that there was going to be, at best, a downturn or a slowing down. So people from people who didn't take funding as early as that weren't reading anything. Yeah, read the room. Well, also, you think about these governors. I don't know if you start today, Cuomo, at the time of the taping of this, had all the governors on at once from the Northeast Corridor, Massachusetts, Connecticut, Delaware, New Jersey, everybody. And it was becoming very clear to me also when you just think about the structure of how the founding fathers set up the United States, they're like, you know what, let's make this redundant and resilient and anti-fragile. There'll be a federal government, but they'll be limited by what they can do, and then let's have the states and let's have them

be capped at what they can do by their state. And you know what? This may actually, even in a crisis, wind up being beneficial because you're going to see who's a really good leader. Like some leaders recognize this and took decisive action that other people are just lollygagging. It's a lot of lollygagging. We are lucky in Massachusetts. We have Charlie Baker, New York clearly has a strong leader, and we have some good ones around here. So I haven't seen that, but I can't wait to see it because it's a strong set of governors in the Northeast. Literally, I think you're going to have these blocks of governors now emerge where it's going to be like the Northeast or Southwest, Southeast, you know, the Pacific Northwest. Everybody's going to kind of

break into these groups and say, here's how we're doing it. And it's going to let people really that the federal government has very high limitations in that even in this crisis, Trump has got no ability to pick when people open. If he wants to open for Easter, yesterday, we're taping this, it's not his choice. It's not his choice. You know, these governors who are going to make a more logical decision, then people can pick the state they want to live in, just like to pick the country they want to live in. All right, listen, we could talk forever. Great job today on the pod. Everybody, if you want to apply to the Mass Challenge, what's the website? Masschallenge.org.

It used to be Massachusetts. Now it's just massive, as in you're going to build a massive business. Get in there, everybody. Win one of those prizes. Get those mentorship and good luck with everything. Stay safe, okay? Thanks for doing the pod. Thanks so much.

All right. Stay safe, everybody again. To the front line. Delivery people, Instacart, DoorDash, Postmates, Uber Eats. I like that last one best, but just an aside. to all the people in the hospitals, janitors, cleaning staff, nurses, nurse practitioners, attendance, doctors, obviously,

everybody, security guards, EMTs. We're in awe of you. We appreciate you. Thank you for taking all that risk. It really is something else to see you do that. We saw the firefighters run into 9-11. We've seen the police go into school shootings and all these kind of crazy things.

And this is a silent killer and you guys are putting yourself on the line with this incredibly horrific, deadly disease, just inches away from you. Wow, it's the same as running into a burning building as far as I'm concerned. You have our respect and our love. We'll see you all next time.

Bye-bye.