IVCA Q&A: Troy Henikoff, CEO of Excelerate Labs On the Participation in the 2011 Program

IVCA Q&A: Troy Henikoff, CEO of Excelerate Labs On the Participation in the 2011 Program

July 6, 2011

CHICAGO - “ One of the most successful programs of last to support entrepreneurship year, Excelerate Labs, returns in 2011 with an improved process and another ten businesses to mentor towards development. Armed with Excelerate's support which includes orientation, $25,000 in seed capital, free office space, pro-bono legal and an organized staff of mentors, the ten companies will work all summer toward presenting their innovation to angel investors and venture capital on Demo Day at the House of Blues Chicago, August 31st, 2011.

Troy Henikoff, the Co-Founder and current CEO of Excelerate, is a primary driver in making the program work. Henikoff is a serial entrepreneur, including having founded SurePayroll. Now in his second year leading Excelerate Labs, he spoke to the IVCA about lessons learned from year one, goals for the current process and the overall success of the program.

IVCA: This is year two of the Excelerate Labs program. What did you learn from 2010 that allowed for an easier set-up and transition for the current class?

Troy Henikoff: There were so many things, I don't know where to start. First, we figured out how hard it is and that we needed more help. We now have a staff of four instead of one, which we had last year so we are much more organized administratively. Scheduling mentors, for example, has gone much more smoothly. This year, the mentors have a packet that includes key information on the team they're meeting with, the schedule, what room they're in. It's amazing how much more smoothly it's running.

I think we distilled our value proposition down, and understand that better, which is really important for communicating what we're doing to the community, to the teams and to the mentors. We knew we were doing something good, and we knew it was working last year, but I don't think it had catalyzed into what it really was.

For the community, in my mind, we are putting a really bright spotlight on ten companies each year. And this is all about making those ten companies successful. But the real big picture impact is not just the ten companies, but that those ten companies become a beacon or aspiration for the hundreds of companies in Chicago that are thinking of taking the leap. We're really trying to raise the visibility regarding the high tech start-ups in Chicago.

IVCA: It sounds like the goals of the program are relatively simple.

Henikoff: I like things that are simple, and I want to distill what makes the ten companies successful. I think there are four things you need in order to have a successful start-up. One, you need an entrepreneur with the right DNA. What I mean by the right DNA is someone who has a penchant for problem solving, is comfortable dealing with uncertainty, who has a bias toward action and that those things are part of their personality. You either have that or you don't. If you are uncomfortable with risk-taking, you're not going to be a good entrepreneur.

Second, you need people with the right business idea. One that addresses a big market and is scaleable with a clear customer acquisition strategy. We filter the first two entrepreneurial characteristics in the application process. We get hundreds of applications, and we take ten companies, so within that top three percent we hopefully will get good people with good ideas.

The third element is giving people the skills necessary to run a company. Teams may not have been exposed previously to SEO (Search Engine Optimization) , SEM (Search Engine Marketing), financial modeling, legal contracts, patent-and-trademark, HR, PR, so many of the skills that they need. But we believe we can teach them these skills. We actually run a mini-MBA course. The month of July is a series of 90-minutes lunch-and-learn sessions, where we give them exposure to what they really need in order to launch a successful start-up.

And the fourth and probably the most important element is the mentorship. The mentors give the potential start-ups a lot of guidance and the teams can learn from the mistakes other start-ups have made. The mentors also give them access to an incredibly powerful network. No matter what business you're starting here at Excelerate, we're going to have mentors who either know something about your industry or can connect you with potential customers and partners. In the end, if we select the entrepreneurs that have the right DNA, with a great business idea, give them the tools to be able to manage the business and give them access to a great network, they almost can't help but be successful.

IVCA: You knocked it out of the park in 2010 ultimately, with nine out of ten companies who presented on Demo Day still operating. What element of the first Excelerate program did you think ultimately made the best impression on those investors on that Demo Day last year?

Henikoff: There were a couple of things. One was that the investors who came in and were part of the mentorship process saw the evolution of the companies over the summer. Investors don't generally invest in a point, they invest in a line. They want to see progress. When the mentors saw how much progress the ten companies made in such a short time, they were so impressed that they wanted to back those entrepreneurs. Second, there were the investors who didn't participate in the process but wanted to invest anyway, and they showed up on Demo Day. That's why we spent so much time working on the presentations. I'm biased but I think the presentations were awesome last year. It was a direct result of how hard the teams worked on that piece. I think it showed in the results.

IVCA: Was there anything glaringly different from the applicant companies in 2011 that was a marked change from the previous year? How did you streamline the application process in the current class, either on their side or yours?

Henikoff: I don't think there was any glaring difference in the applicant pool. And if anything, we didn't streamline the process, we spent more time with it. Selection is really critical...if you pick the wrong ten companies you're not going to do well no matter what, because you don't have great people and you don't have great ideas. So we put more effort and time into the application and interview process this year.

We had three people who read every single application, and then they bickered and argued as to which 75 applicants required further consideration. Then they rank-ordered them, and that's when I came in, to keep the perspective fresh, and read all 75 - “ looking at their websites, LinkedIn profiles and more. Out of that, we selected 50 that we wanted to bring in and interview. They each had an hour long interview. Two people began it for a half hour, they took a break and came up with specific questions based on the first half, and a third person asked those questions in the second half hour. Then there was seven hours in a boardroom deciding which of the ten we were going to make offers to, out of those 50. It was really difficult.

The companies who came in 11th - 50th were great companies too, we just could only take 10. So we developed a great program with the Chicago Entrepreneurial Center (CEC) and Illinois Technology Association (ITA) this year. All those companies are get-ting free membership in the ITA, free office space at the Tech Nexus and free mentoring from the CEC We want to raise the profile of as many tech startups in Chicago as possible.

IVCA: Since you provide capital funding for your 2011 entrepreneur class, how do you help them to steer that capital toward what the individual companies need for the summer? Do you find capital needs are different for everyone or are there similar resource allocations that each company tends to use the money for?

Henikoff: The $25,000 we provide them is just enough money so that they can quit their day jobs, and eat PB&J and Ramen noodles for three months [laughs] while they're working. We don't expect that the $25,000 is going to go far beyond taking care of room and board for the founding team.

One of the problems that the companies ran into last year was that the small amount of money allocated to them tended to run out before August 31st, and it took them a number of months to close the real funding. So this year New World Ventures has stepped up to the plate. They've allocated a half million dollars, or $50,000 to each company, in the form of convertible debt. This helps them get through the period between the program ending and closing their funding.

IVCA: You just started the 13 week program that the ten entrepreneurial start-ups participate in. Before they start with the program, what do you emphasize most in orientation regarding expectations and goals?

Henikoff: This is one of the other things we did much better this year than last. Last year they did not start until they showed up on June 1st, this year we met with them a couple times beforehand, in April and May to get them prepared to hit the ground running on June 1st. They all converted to C-corps, prepared to accept venture investment, had all their paperwork completed and knew what to expect.

In terms of goals and expectations, we make them understand that it will be one of the hardest 90 day periods they will ever go through. At the present time, we are on Day 13 of Mentor Madness Month, and our teams have had a total of 500 meetings. That's an average of 50 meetings per company in the thirteen days. It's really intense, but what comes out it is refinement of their business model and access to the network, which includes meeting the mentors and potential investors.

IVCA: What is distinctive about Excelerate Labs because of its roots in the Midwest? Since you were inspired to create the program after seeing other programs around the country, how did you think it would work best in the Midwest?

Henikoff: The thing that makes it work so well is the community. The core Chicago community has come together. It's interesting because I just talked to someone who is participating in a similar program in Texas this summer, and she was saying the mentor-ship was really different. Each company there gets assigned a handful of mentors, so they have only two or three mentors for the whole summer and that is it. Our program companies each will been exposed to a minimum of 50 mentors, some will get up to about 100.

IVCA: How will you handle Demo Day differently in 2011? Is there any criteria you needed to modify before inviting angel investors to that Demo Day this year?

Henikoff: If Demo Day in 2011 is as good as Demo Day in 2010, I will be ecstatic. It came out great last year. We have much more demand this year; many people have asked to be there. There will be more people physically at the House of Blues. We want ac-credited and active investors there as well as many of the mentors. If we have to prioritize it will be first, the people most likely to make an investment and second, the mentors. Finally, there is press and community interest. Even though we're at the main stage at the House of Blues on August 31st, there is limited space and it's definitely going to be standing room only.

IVCA: What is the most fun about seeing those three components percolate during the 13 weeks and which aspect of the program ultimately garners the most investor support on Demo Day?

Henikoff: For me, the most fun is the energy and the passion. To get the opportunity to spend 60 hours a week surrounded by companies who are this passionate and this driven is just phenomenal. I think the biggest thing that attracts the investors is seeing the execution of the presentation. Seeing how these people with the right DNA and good ideas evolve and pivot those ideas is amazing. They start with something sort of good, then they take it, refine it and end up with something really great. Seeing that progress is what I think attracts the investors the most.

In mentoring each of the companies we ask, what are the things you are going to be able to hold up that are going to demonstrate traction? How much traction are you going to demonstrate on Demo Day? At the end of the day it's about building a real business with real revenue, and you have to be able to show that before people will put their hard-earned money behind it.

IVCA: Finally, what would you like to express to the IVCA membership regarding the Excelerate program?

Henikoff: It's important for the membership to recognize, and I think they do, that the world is changing. Eleven years ago, when we were raising funds for SurePayroll, a first potential round was $8 million dollars, and that was pretty typical. Today, most of these companies are raising significantly less money, you can do far more with far less capital. We're seeing some interesting trends where a number of firms that are traditional venture firms are setting up separate deals or special sub-funds, in order to participate in this early stage activity. This was not something you saw venture capital do as little as three years ago. The investing world is changing, and there is something very interesting about those changes.

For more information about Excelerate Labs, click here.