21 Feb How Bears Breed Unicorns: Inside Cal’s Vast Startup Ecosystem
Reposted from California Magazine.
By Bill Snyder
How’s this for a modern take on the venerable office vending machine? You swipe your credit or debit card, open a fridge-like glass door, and choose from an array of fresh entrees and snacks. If you want a receipt, the machine will email it to you, and it keeps track of your preferences: next time there’s a sale on your favorite yogurt, Byte Food’s cloud-based servers will give you a heads up.
Or maybe you’d like a glass of the freshest possible beer without going to the brewery or the pub. Hopsy will deliver the suds to your door in a container that will keep them brewery fresh and cold.
At the more serious end of the entrepreneurial spectrum, Dost, a startup led by a team of three women, is using mobile technology to bring better parenting information to families in India. And Sanivation is helping to solve the problem of human waste disposal in the underdeveloped world by converting feces to a cleaner burning version of charcoal.
These four companies are just a sample of the hundreds of startups spawned on UC Berkeley’s campus since 1968. None more than a few years old, they exemplify the entrepreneurial energy that has made Berkeley a leading center of innovation.
The campus’s proximity to Silicon Valley and its entrepreneurial culture would likely have made Berkeley a fertile ground for startups without institutional support. Although there’s always been a heavy emphasis on faculty research at Berkeley, putting serious muscle behind student- and alumni-based startups is a post-Dot com phenomenon.
“Ten years ago entrepreneurship was not a big deal,” says Ikhlaq Sidhu, the founding director of the Sutardja Center for Entrepreneurship and Technology. “When I first got here I had a little office in the Engineering School,” and the center offered only one course.
Now the center teaches hundreds of undergraduate and graduate students, it founded the SkyDeck accelerator, it holds intensive boot camps and team-building workshops and it has gained wide recognition for developing the Berkeley method of entrepreneurial education.
Important as it is, the center is only one part of the “startup ecosystem,” a sprawling web of resources that includes an array of graduate and undergraduate classes, startup accelerators, incubators, competitions, mentoring, and funding mechanisms. Berkley has so many resources for startups that it’s nearly impossible to keep track of them.
To some extent, that’s an embarrassment of riches. A good problem to have. However, there’s a danger that even creative chaos can lead to waste. “Two years ago I was horrified at the duplication of resources,” says Rhonda Shrader, executive director of the Berkeley-Haas Entrepreneurship Program.
She wasn’t alone.
When marketing consultant and freelance journalist Tamra Teig was commissioned to write a series of blog posts about Berkeley startups in 2015, she was surprised that there weren’t even listings of their events on the campus Web site, let alone an easily accessible database or directory of resources. “It was really chaotic, really unorganized,” she says.
Teig argued that the vacuum needed filling. With help from SkyDeck Executive Director Caroline Winnett, Teig convinced then Assistant Vice Chancellor Robert Price to award a $150,000 grant to build a searchable online platform containing links, news and information about campus startup resources. The platform, now called The Berkeley Startup Network, debuted in October of 2016, and with the benefit of another grant is on track to expand later this year.
The platform is just one piece of a broader, campus-wide strategy. With the help of a $2.2 million state grant, Cal is working to streamline and improve the startup ecosystem. “We want to create more transparency and make the pipeline more robust and more helpful to help student entrepreneurs,” says Assistant Vice Chancellor Carol Mimura.
…there is no reliable estimate of how many startups have been launched from Cal, although they clearly number in the hundreds.
It appears that no one person in the administration has a handle on how all of those programs are paid for. Mimura’s office prepared a chart showing about 50 disparate programs that make up the ecosystem, but when asked how much all that costs the university, she said, “I have no idea.” And there is no reliable estimate of how many startups have been launched from Cal, although they clearly number in the hundreds.
In general, funding is split between contributions from the university, alumni, and corporations, many based in Silicon Valley. SkyDeck, a well-known startup accelerator, spends about $1.5 million a year helping new companies get off the ground, says Winnett. “For now, somewhat more than half of the funding is from the university, but we’re working to become self-funded,” she adds.
CITRIS, one of four UC Institutes for Science and Innovation (CITRIS, QB3, CNSI, and Calit2) that provide seed money and a variety of programs to support startups nurtured on four University of California campuses, receives annual funding of around $4 million from the office of University President Janet Napolitano, according to Camille Crittenden, deputy director of CITRIS. Some of that funding, she says, supports the CITRIS Foundry and operations as well as other programs and research. In addition, over the last years, $700,000 per year has been provided by UC Berkeley. But future funding from Berkeley is not guaranteed, particularly in light of the campus’ present budget constraints. “For that reason,” she says, “We are developing corporate partnerships and seeking other sources of extramural funding through grants from public and private sources.”
Research that flows from faculty and graduate student research generates a significant amount of revenue from the licensing of intellectual property: more than $253 million since 2004. But startups rarely need to license intellectual property and with the exception of the CITRIS Foundry, which takes an equity stake of 2 percent in its companies, startups keep whatever profits they earn (the equity stake taken by CITRIS is owned by the university).
An Economic Multiplier
On a Wednesday evening in mid-November, more than 100 people filled Sutardja Dai Hall on the north edge of the campus. The crowd of students, faculty members, and potential investors were there to honor and learn about that semester’s crop of startups launched by the CITRIS Foundry, one of the campus’s seven startup accelerators and incubators.
Entry is competitive. Potential portfolio companies are generally in an early stage, but their product or service has to be more than a gleam in a founder’s eye to gain admittance. “A short written description isn’t nearly enough to capture the impact of your idea. Show us a concept prototype instead,” the application enjoins.
For every dollar given to a startup by the Foundry, a typical company raises nearly 200 times that amount from outside sources, says Peter Minor, a co-founder of the accelerator.
Each startup selected to join the CITRIS Foundry receives $5,000 in cash, plus more than $30,000 worth of in-kind infrastructure and services, including office and studio space on the campus. Not all Foundry startups thrive, of course, but many do. Since its debut in 2013, the Foundry has helped launch 31 companies, which have collectively raised more than $30 million in venture capital to fund themselves. For every dollar given to a startup by the Foundry, a typical company raises nearly 200 times that amount from outside sources, says Peter Minor, a co-founder of the accelerator.
Like its parent, the Foundry encompasses four campuses: UC Berkeley, UC Davis, UC Merced, and UC Santa Cruz. To qualify, at least one member of the team must be a student, faculty, staff, or alumnus who graduated no more than five years previously.
Companies that have gone through the Foundry represent a diverse mix of people and technologies. A representative sample of the companies that gave presentations at the November “Demo Day” graduation ceremony, include:
- Ayar Labs, a San Francisco-based hardware startup with a new twist on semiconductor technology. Ayar’s technology is designed to help companies keep up with ever increasing volumes of data by using fiber optics to speed the transmission of data within computer systems.
- Frootbot, may sound like a game, but is dedicated to the serious business of developing software and hardware that will automate data collection in a farmer’s field. Data collected by Frootbot devices is then used to suggest things a farmer needs to do, such as fertilize or water a specific part of a field.
- Nosocom Solutions is developing technology to help reduce the spread of diseases within hospitals and other medical settings. Its first product is a tool that uses ultraviolet light to disinfect the lead aprons and white coats often seen in doctors’ and dentists’ offices.
The Lean Launchpad
When traffic is blessedly normal, it’s a 20-minute drive from Solano Avenue in Albany, where Hopsy caters to the beer cognoscenti of the East Bay, to Sproul Hall. But the psychic distance is quite a bit shorter. Hopsy, a startup betting that consumers will pay to have fresh beer delivered to their homes, was born on the Berkeley campus and its connections to the startup ecosystem are “almost too numerous to mention,” says co-founder Sebastien Tron. “Everything at Hopsy originated at Cal.”
At 33, Tron already has two startups, a bevy of consulting gigs, and a Haas MBA (’15) under his belt. Food and beverages are his passions; he’s worked with Munchery, SpoonRocket, and NakedWines.com. The French-born entrepreneur says he’s always been intrigued by the beer industry, and while interning at a wine delivery company he met two other young men who shared his love of the suds business.
As serious beer drinkers, the team realized that the very best tasting beer is found at breweries, not in cans or even on tap. They hit upon the notion of delivering beer from local breweries to customers in growlers, beer talk for an air-tight jug, typically made out of glass, ceramic or stainless steel. The growlers are filled at the breweries using a method that limits the amount of oxygen in the jug, a trick that improves quality. Unlike canned or bottled beer that gets warm, Hopsy keeps the growlers chilled, another advantage over mass-market delivery.
Would anybody pay for that service?
Students at Haas are drilled on the “Lean Launchpad” method. It focuses on a seemingly obvious question that many at failed companies neglect to ask: “Is there actually demand for a potential product or service?”
Tron, who was exposed to the method at Haas, conducted more than 100 interviews with potential customers, and completed Mark Coopersmith’s “Workshop for Startups,” where he got help refining his business plan. “It was tremendously helpful,” Tron says.
The Hopsy team competed for the Sutardja Center’s Delta Prize, and as finalists then completed a three-month mentorship at the center. Tron and his colleagues won the competition, split the $15,000 prize with another team, and then entered the SkyDeck program.
SkyDeck, an accelerator that grew out of the Sutardja Center, was formed in 2012 as a joint venture between the College of Engineering, Haas School of Business and the Office of the Vice Chancellor for Research. It’s already had a good deal of success—10 members of teams that came out of SkyDeck have been named to Forbes magazine’s prestigious “30 Under 30” lists—and is yet another example of the evolving Berkeley mindset about startups.
“Working at a start-up, being an entrepreneur, was stigmatized,” when she was a student, Caroline Winnett, SkyDeck’s executive director, told CALIFORNIA Magazine last year. “Things are much different these days,” says Winnett, who received her MBA from Haas in 1990.
It wasn’t only startups that were stigmatized in the 1990s: corporate funding of research was anathema to some on the campus. A $25 million research grant from Novartis, a biotech company, in 1998 sparked intense debate over the influence of corporate funding on research.
That debate appears to be over. In nearly two dozen recent conversations about entrepreneurship on the campus, those concerns did not arise even once. “We’re now three generations past (the Novartis controversy),” says Mimura. “People see that we don’t take money and say ‘tell us what to do.’ Maybe there had to be a critical mass of people doing industry-funded research to understand this,” Mimura says.
How to Succeed
If location, location, and location is the key to success in real estate, networking, networking, and more networking is the key to success in the startup world. And that was the case for Tron and his colleagues when they connected with the while at SkyDeck.
Angels are early stage investors, and the Angel Network has been helping to fund Cal-related startups since 2012. “Early investors bring capital and risk appetite, but they also bring mentoring and advice,” says Catherine Chiu, a co-founder of the Berkeley Angel Network, and a partner at Opero Partners, a Silicon Valley consultancy.
The network is focused on UC Berkeley, but considers investing in companies nurtured on other campuses as well.
Whether a prospective investment is from Cal or not, Chiu and her colleagues are quite selective. “We want (funded companies) to have the strength to withstand outside competition,” says Chiu, a Haas graduate. Time spent mentoring and steering young entrepreneurs to funding sources is done on a volunteer basis by the Angel Network, but their companies may profit if they agree to fund a startup.
We used to see a dozen or so companies each cycle that weren’t even close to meeting standards. That number is a lot smaller now.
The network gets some 60 applications each cycle, but only a fraction are funded—and the choice gets tougher every year. “We used to see a dozen or so companies each cycle that weren’t even close [to meeting standards]. That number is a lot smaller now,” Chiu says. One reason: “Vastly improved support for entrepreneurs on campus,” she says, referring to a sharper focus on entrepreneurship at Haas and increased opportunities to meet with mentors and Silicon Valley veterans.
What makes for a successful funding pitch? “Companies that do best have already received some form of mentoring, have some sophistication in how they approach investors, and have a reasonable approach to their business,” Chiu says.
Hopsy met that standard and won a significant investment; it now has approximately 8,000 customers and expects to open a distribution center in San Diego this year, Tron says.
The Art of the Pivot
When a football player makes a sharp turn, it’s called a pivot. Startups make sharp turns as well, and those pivots generally occur when a business is in trouble, or at least heading in the wrong direction.
That’s what happened to a Haas-spawned startup called 180 Eats, a prepared food delivery service based in Marin. Although the company’s service had gotten great reviews on Yelp, it’s business model was problematic—there was too much overhead required to bring fresh cooked entrees to consumers.
Now the company has morphed into Byte Foods, and it delivers meals to workplaces with smart fridges that bill and track consumer preferences via cloud-based servers and data analytics software.
“It just made a lot more sense to deliver a lot of meals at once to one place, versus a lot of individual meals to different doors.” Byte VP of sales and marketing, Lee Mokri told TechCrunch last year.
Unlike a typical coin-operated vending machine, Byte’s devices allow the use of credit cards to bill consumers and track their purchases. Since Byte knows what customers have purchased in the past, it can alert then when a favorite item is on sale.
The pivot seems to have worked. After bootstrapping—relying on friends and family for funding—for about 18 months, Byte landed $5.5 million in funding and now has more than 125 clients, co-founder Megan Mokri told CALIFORNIA Magazine.
Players’ lounge, a very different sort of company that also got its start at Haas, pivoted from hosting live, video game-oriented events to becoming an online platform hosting video game tournaments.
The two startups have something else in common: They went through Launch, the Haas startup accelerator and competition. “It was Launch that pushed us to become an online platform,” says Players’ Lounge co-founder Mark Murphy, a second-year Haas MBA student. “The feedback and the tough questioning were critical.”
Launch’s accelerator phase lasts three months, and is designed to get early start-ups off the ground and growing in a hurry. Teams are paired with mentors who are themselves startup veterans and they, along with the faculty, help the fledgling entrepreneurs master the basics of running a new company.
Launch is under the umbrella of the Berkeley-Hass Entrepreneurship Program, which itself has made something of a pivot recently.
Until 2016, the entrepreneurship program was the Lester Center. But a lot more than the name changed, says Executive Director: Rhonda Shrader. “My mission was to bring us into the 2.0 version.” As the Lester Center, it offered classes, said Shrader. We stopped doing one-off lectures. But “students want more hands on and less just sitting in a classroom.”
The Dean’s Startup Seed Fund, launched in late 2015, provides $5,000 grants to early-stage startups that include Haas students. The grant money is used for prototype development and for market research to identify potential customers. So far, approximately half of the funds have come from alumni gifts specifically designated for the Dean’s Seed Fund. The remainder has come from private donations to the Haas Annual Fund, according to a spokeswoman at Haas.
Meanwhile, the university continues to look for ways to boost and rationalize the startup ecosystem. The Berkeley Startup Network is headed for expansion, but it’s not at all clear what Vice Chancellor Paul Alivisatos will conclude in his evaluation of the ecosystem this year.
Alvisatos, himself a veteran of three startups, says the link between research and entrepreneurship benefits both the university and Silicon Valley. “Each time I worked in a startup it had a very positive impact on my scholarship. And each time the company was able to do things that the university couldn’t,” he said in an interview.
Although university funding for startup-related programs doesn’t appear threatened at the moment, administrators worry that an unexpected change in California’s budget could leave them scrambling. Like SkyDeck’s Winnett, there’s a general sense that looking for outside funding, particularly from Silicon Valley, which looks upon the university as a key source of talent and ideas, is a smart strategy.
And what about that other school down Highway 101; Is Cal attempting to overtake it? In a word, no. “We’re not in competition. The Bay Area is blessed with having two great universities,” says Alivisatos. “We have our own style and we have to be true to our Berkeley way.”