Month: February 2023

In order to build a startup culture, a city or region needs some key elements in place – like an innovation engine to drive startup ideas. It needs a couple of successful exits, which in turn drives angel investing as entrepreneurs growing increasingly wealthy look to help new founders building companies reach their own goals.
Boston offers a world of advantages for startup founders by Ron Miller originally published on TechCrunch

In order to build a startup culture, a city or region needs some key elements in place – like an innovation engine to drive startup ideas. It needs a couple of successful exits, which in turn drives angel investing as entrepreneurs growing increasingly wealthy look to help new founders building companies reach their own goals. It requires accelerators and incubators and coworking spaces to help nurture early ideas, and it needs VC firms investing across stages.

Success begets success, and before you know it, a startup scene is born.

Boston has all of these elements, starting with a long history of innovation, perhaps not surprising when considering the 44 colleges and universities located in the metro Boston area including Boston University, Tufts, UMass, Northeastern, Harvard and MIT, all of which act as an engine for startup activity.

It also has a long history of innovation and a rich tech legacy.

Attend the TechCrunch City Spotlight: Boston event on February 27, 2023.

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Route 128, the highway that runs outside of Boston, was once known as ‘America’s Technology Highway,’ rivaling Silicon Valley for influential tech companies. Consider that mini computer companies like Digital Equipment Corporation, Wang and Data General were born and thrived for a time before falling by the wayside of technology history in metro Boston.

And while we saw a generation of brave founders launching companies from the ‘60s to the ‘80s, it was probably more typical for engineering students coming out of Harvard and MIT to go to big companies like IBM, Texas Instruments, and Motorola with dreams of stability and steady income, rather than starting a company of their own. As such, Silicon Valley remained the tech standard bearer.

In the ‘90s a new generation of Bay State startups started focusing on areas like chips, storage and memory. By the time the new century came around the area began to shift to look like a modern startup scene. Over time the Boston area watched the development of a robust technology startup ecosystem across industries like cybersecurity, robotics and biotech with companies like Hubspot, Wayfair, Rapid7, Boston Dynamics and Moderna, to name but a few.

We are also seeing the rise of a green tech startup scene with companies like Commonwealth Fusion Systems, which has raised $2 billion, Form Energy, which has raised $816 million and Boston Metal, which has raised $200 million, as three examples.

All of these industries have something in common. They require a lot of raw engineering smarts and Boston has an abundance of that.

What is Boston like today and why should founders think about launching their companies here? We spoke to several people who have been investing in this region for years, and while Boston isn’t perfect – let’s face it, no city is – it has its charms, and we talked about what kinds of companies and industries have thrived here and why.

Boston by the numbers

The chart below shows Boston fluctuating between third and fourth place in overall venture capital investment over the last several years, moving back and forth with the Los Angeles area startup scene.

Boston had a steady investment growth trajectory until it dropped off (like everyone else) in 2022 as investment overall slowed in an uncertain economic environment. After topping out in 2021 at $34 billion in total investment, doubling its 2020 output, it dropped to $21 billion last year, behind San Francisco, NY and LA.

Cait Brumme, CEO at early stage tech accelerator MassChallenge says that Boston was not immuned to the vagaries of investment cycles in 2022. Citing those Pitchbook numbers, Brumme noted that area investment growth was down close to 40% last year.

“I think that’s a good directional indicator of the fact that the funding environment has slowed and therefore it’s much more challenging, for sure,” she said.

But she says if you have a good idea, there’s still money out there. It’s just harder to come by than earlier years. “What we hear is great companies will get funded. And the onus is really on founders to lay out a good process, meaning they know what they’re going to accomplish. They’re hitting really strong metrics, they built a good team and they’re solving a problem that has clear customer traction or demand.”

Boston strengths

It’s clear Boston’s universities are a unique differentiator over other top startup centers like NYC and SF. These schools, both private and public, act as an engine for ideas and producer of engineering and business talent.

Greg Dracon, a partner at .406 Ventures, a venture capital firm that focuses on Series A investing, says the schools are a huge advantage for Boston.

“Boston’s always been a great technology town in my opinion, and it’s hard to beat [all the] colleges and universities with more STEM grads than in any state in the US. So it’s always been really good at technology,” he said.

He says it’s particularly good at cybersecurity with companies with almost 100 startups headquartered in the city, per Pitchbook data. Examples of security companies based in the city include Snyk, a late stage startup, Rapid7, which IPOed in 2015 and Carbon Black, which VMware acquired for $2.1 billion in 2019.

“I would argue even in the 2007 timeframe when we started our firm, we specifically focused on things we think Boston excels at.I lead our cybersecurity investing, and I can talk for hours about cybersecurity. If I were to start a cybersecurity company, there’s no place in the world I would start it other than Boston,” he said.

While New York has easy access to Fortune 500 companies, Dracon says Boston is close enough that the distance isn’t appreciable.

“New York’s got all these big companies, which is true. But if you’re building a startup, especially something that sells to enterprise, those are perfect early adopters and proofs of concept. So it’s a train ride down to get access to any big decision maker,” he said.

“You have the talent in Boston as you start to scale because universities are spitting people out like crazy. And what’s different today than 2006 when we started the firm is that we now have very big companies that have gone public or were acquired,” he said, noting these large companies and their founders often act as a startup feeder system.

Ajay Agarwal, a partner at Bain Venture Partners, has been investing in startups since 2007, and he says one of Boston’s biggest strengths is in the sciences. We saw Moderna, a Cambridge, Massachusetts pharmaceutical company emerge from relative obscurity in 2021 when it developed an early COVID vaccine.

“I think that the Boston scene, first and foremost, has always had incredible strength around hard science…You think about the stuff that Katie Ray is doing at The Engine, the whole world of life sciences – we have a separate fund here at Bain Capital that’s focused on life sciences – and I think the hard sciences, given the MIT roots, have continued to be, a real strength of the city,” he said.

Brumme says her firm tries to take advantage of the city’s strengths in terms of the types of startups the accelerator accepts. “We’ve been working hard in and around the area of fintech and digital health for long periods of time, given some of the institutional industry leaders that have characterized Boston’s corporate landscape and are seeing a lot of momentum in those categories,” she said.

She also mentioned robotics, green technologies and what she calls bio-convergence, a cross pollination between robotics and biotech. “If you think of MIT’s AI unit coming together with the Broad Institute’s biotech [focus], and just really fascinating companies [are being created] at that intersection of biology and computer science, and we think Boston has a chance to be a real global leader in that adjacent area as well,” she said.

It’s not for everyone

Boston clearly has a lot going for it, but it’s not all things to everyone, and the folks we spoke to said for whatever reason, it hasn’t been a great place to start a consumer company. There are exceptions, of course, like Wayfair selling furniture online and Tripadvisor, running a travel site that was launched in the Boston area, but overall it’s not as well suited to consumer technologies.

Dracon thinks that could be because of the deep tech knowledge in the city, again due to the colleges and universities. “If there’s one industry that’s lacking, its consumer, and it kind of goes with the same thing. We’re an enterprise, deep tech, somewhat risk-averse town. That’s more of an enterprise-type of product and sale,” he said.

Agarwal agrees, saying the city lacks consumer focus for some reason. “I think the city, good or bad, tends to focus on companies that are real, they’re adding real values that fundamentally have a defensible value proposition,” he said. “Consumer tech is lighter weight technologically under the hood, and is based more on the application or UI design.”

“The city doesn’t have a ton of consumer DNA. It’s never really been the strength of the city,” Agarwal said.

But Boston has had its share of successes over the years with companies like Rapid7, Hubspot and Wayfair going public in high profile IPOs. There have also been a number of billion dollar acquisitions led by EMC, which was based outside the city and was acquired by Dell in 2015 for $67 billion, still one of the largest tech acquisitions in history. IBM acquired Lotus 1-2-3, an early spreadsheet company for the PC for $3.5 billion in 1995, VMware bought cybersecurity company Carbon Black for $2.1 billion 2019, and Vista Equity Partners bought Acquia, the commercial company built on top of the open source Drupal project, for $1 billion also in 2019.

It’s fair to say that Boston lacks some of the glitz and glamor of other cities, and there has been a history of Yankee frugality, that perhaps has led to a reputation of being risk-averse when it comes to investing in consumer-facing companies. There has also been a tendency to not want to toot its own horn that has allowed Silicon Valley to grab the spotlight and the attention, especially in the ‘90s. Over the last 15 or 20 years, Boston has built an ecosystem to rival Silicon Valley and NYC, making it a place where startups can launch and grow and thrive with a deep pool of talent in their own backyard.

Boston offers a world of advantages for startup founders by Ron Miller originally published on TechCrunch

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Ahead of TC City Spotlight: Boston, we gathered insights from five investors active in the area about startup trends and the resilience of the city.
5 investors discuss Boston’s resilient tech ecosystem by Anna Heim originally published on TechCrunch

Boston has had a thriving tech startup ecosystem for a while, but things can change fast. After setting records in 2021 as “Zoom investing” took off, how are local startups faring in 2023?

To find out, ahead of TC City Spotlight: Boston, an extended TechCrunch Live event during which you’ll get to hear from local leaders on how startups can take advantage of Boston’s extensive resources, we gathered insights from five investors active in the area.

It seems Boston is faring well, and part of the reason for that appears to be that remote pitching is still a trend. “Fundraising has changed significantly and founders at all stages are now taking many first meetings on Zoom,” said Russ Wilcox, a partner at Pillar VC.

Attend the TechCrunch City Spotlight: Boston event on February 27, 2023.

Register for the free virtual event here.

However, in-person gatherings have also made a return and are sometimes preferred. “In-person events have picked back up in Boston, particularly around the innovation hubs across campuses, so we expect more serendipity to come back into the equation,” said Underscore VC general partner Lily Lyman.

‘Serendipity’ accurately describes a lot of what’s going on in Boston’s tight-knit tech community. As our very own Brian Heater previously noted, startups are often located in “a five- to ten-block radius a stone’s throw from MIT (and, for that matter, Harvard).”

That also explains why Boston startups are associated with ‘tough tech’. “Boston, world-class universities and hard tech all go together,” said Sanjiv Kalevar, a partner at OpenView.

This combination is also arguably what makes Boston more resilient in the current downturn. According to Rudina Seseri, founder and managing partner at Glasswing Ventures, “Boston remains a vibrant startup and VC market in 2023 […] Despite tough markets, a recessionary economy, and overall business pessimism, I am confident Boston will see a new wave of founders starting new companies.”

We spoke with:

Rudina Seseri, founder and managing partner, Glasswing Ventures

Lily Lyman, general partner, Underscore VC

Sanjiv Kalevar, partner, OpenView

Katie Rae, managing partner, The Engine

Russ Wilcox, partner, Pillar VC

Rudina Seseri, founder and managing partner, Glasswing Ventures

How would you describe the pace of venture capital dealmaking in Boston this year so far?

Boston remains a vibrant startup and VC market in 2023. The overall pace of funding has declined since 2021, but we are continuing to see high-potential companies and founders secure funding today.

We especially see this in the AI and security markets. Recent data published in the Pitchbook-NVCA Venture Monitor shows that Boston had roughly the same share of the number of VC deals in the U.S. between 2021 and 2022, and we expect that trend to continue or improve in 2023.

For a Boston-based founder, does fundraising in 2023 still involve a lot of Zoom calls? Does it depend on which stage their startup is at?

We continue to use Zoom calls during our diligence process. They give us the opportunity to be efficient with a founder’s time and meet them where they are.

Having said that, it is a priority for us to meet in person when we can. The founder-investor relationship is a lasting one. We enjoy building close bonds with our founders while also giving them the opportunity to meet our building partners.

Have Boston-based tech workers been as affected by layoffs as their peers in the Bay Area?

Every corner of tech has been affected. Yet, despite tough markets, a recessionary economy, and overall business pessimism, I am confident Boston will see a new wave of founders starting new companies.

Innovation shines the brightest in dark times, and it is in these times that transformative ideas are born. Among the technologists laid off from big tech companies recently, we expect many will find a fire in their bellies and build incredible products. Now is an excellent time for early-stage founders to implement their ideas.

Have in-person networking and startup community events in the Boston metropolitan area returned to pre-pandemic levels?

We have seen the number of events in the broader community tick up and are excited to keep bringing the community together as we head into the spring and summer. We host a wide range of ecosystem events, from networking for the AI and cybersecurity industries, to thought leadership sessions on making your first marketing hire. We will continue to push our ecosystem forward with gatherings at our office in the heart of Back Bay, around the area, or online.

What link do you see, if any, between two of Boston’s strengths: “Tough tech” and university spinouts?

These are inextricably linked. Boston’s academic rigor is a critical ingredient in delivering the transformative technology that pushes our economy and society forward.

We work very closely with universities and research labs in the area (including, but not limited to, the MIT and Harvard ecosystems) and back leading founders building AI and frontier technology products for the enterprise and security markets.

What’s the most interesting Boston-based company you’ve invested in recently?

One of our latest investments is in FeatureByte, an AI startup founded by the team that built the backbone for DataRobot. FeatureByte is a platform built specifically for data scientists to simplify the creation, serving, managing and monitoring of machine learning features.

Are you open to cold pitches? How can founders reach you?

Yes, we are open to cold pitches, but prefer warm ones if a founder is able! We are looking for strong founders leveraging AI and frontier technology to build applications and infrastructure for the enterprise and security markets. My email is: rudina@glasswing.vc.

Lily Lyman, general partner, Underscore VC

How would you describe the pace of venture capital dealmaking in Boston this year so far?

Looking across the data, it’s clear that the pace of venture dealmaking in Boston slowed in Q3 and Q4 of last year, like everywhere else, as investors and founders were trying to get a sense of the market dynamics.

But thus far in Q1, we are seeing strong, high-quality investment opportunities at the earliest stage. It’s a great time to invest in early-stage startups. Great founders are starting businesses that are cash-efficient and thinking about business models from Day 1, which helps them attract strong talent at a more affordable rate, face less competition, acquire customers more affordably and solve big problems.

What has changed, particularly at the later stages, are the length and depth of diligence processes. We are no longer seeing the hasty timelines we saw in 2021. Late-stage investors are digging deeper into business fundamentals and projections. Price discovery is harder in this market and late-stage investors are afraid to overpay.

For a Boston-based founder, does fundraising in 2023 still involve a lot of Zoom calls? Does it depend on which stage their startup is at?

5 investors discuss Boston’s resilient tech ecosystem by Anna Heim originally published on TechCrunch

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The startup economy has grown and shifted since the turn of the century, and universities — stocked with a never-ending supply smart, ambitious young people — have increasingly taken part. Boston has always had a robust university-to-startup pipeline, but the last decade has supercharged it, as well as student aspirations to found the next unicorn,
Boston’s university-to-startup pipeline defies downturn to grow and diversify by Devin Coldewey originally published on TechCrunch

The startup economy has grown and shifted since the turn of the century, and universities — stocked with a never-ending supply smart, ambitious young people — have increasingly taken part. Boston has always had a robust university-to-startup pipeline, but the last decade has supercharged it, as well as student aspirations to found the next unicorn, change the world, or do both at the same time.

Institutions are increasingly embracing this tendency as both inevitable and prestigious. Harvard and MIT loom large over the rest, and their immense resources tend to allow them to experiment with new methods and approaches, such as MIT’s The Engine and Harvard Innovation Labs. Other schools and organizations are not far behind, and the revamped Boston environment is decidedly collaborative.

Attend the TechCrunch City Spotlight: Boston event on February 27, 2023.

Register for the free virtual event here.

But the last few years have been tumultuous and transformative in both education and business. And in the more immediate past, layoffs and a capital crunch suggest, if not a bubble about to burst, at least one with an alarming wobble. How have the changes wrought by the pandemic and stuttering economy affected Boston’s unique ecosystem? Here’s what leaders of some major Boston outfits had to say about it.

Embracing entrepreneurship

“We’ve seen an extraordinary rise of entrepreneurship focused programs,” said Cait Brumme, CEO of nonprofit startup community MassChallenge. “Tufts, Brandeis, Boston [University], UMass, all these universities now have entrepreneurship programs, incubators, on campus accelerators that are often included in the curriculum.”

Some of that has been just in the last few years. In 2019, Harvard Innovation Labs was tracking 93 concurrent ventures at the school.

“We’re at 673 now,” said executive director Matt Segneri. “There’s been a significant increase in students interested in this work; business, law, design, we’ve seen a representative pie of all of those. Edtech, climate, digital health and biotech, and enterprise have also seen a big uptick.”

Segneri also described crossover work between domains, with consumer-facing rather than therapeutic applications.

Pillar VC principal and co-founder of Petri Tony Kulesa echoed that, saying “we’ve seen significant exploration of fields outside of therapeutics, bioengineering broadly applied. We are seeing an explosion of entrepreneurs applying bioengineering technology to public health, climate biotech, food, agriculture, and sustainability.”

The shift to remote work and learning has had unpredictable aspects across nearly every industry and segment of society. In the case of student entrepreneurship it seems to have supercharged the community, says Subaita Rahman, a student and entrepreneur herself who has participated in startup scenes in Boston, Toronto, and beyond.

“I really think the pandemic increased and accelerated young people getting in earlier, because everything went remote,” explained Rahman, who is currently spending her gap year working at Boston’s Pillar VC. “That really changed things because you can find that environment anywhere you go. There’s also hacker houses popping up everywhere you go, and founders wanting to give back to their communities. Knowledge is being democratized, it’s all out there after years of people trying and failing, in tech and bio and crypto. It’s all just unfolding on the internet.”

Segneri said that this trend is noticeable at Harvard, where entrepreneurship is becoming a more common skill for students to want to cultivate.

“There are more folks coming into these programs who already have entrepreneurial experience — there are college freshmen who already have startup experience,” he said. “There are more people who are orienting to their degree program with entrepreneur experience, and we’re trying to meet people where they are.”

But the trend reaches beyond the student body: Kulesa described increased interest across the board — a migration, even, especially compared to the relatively insular academic community of just a decade ago.

“The most prominent change is the level of interest among academics — both grad students and faculty — in startups, with many even leaving academia to start and run companies. For example, consider these faculty that left academia to start companies: Daphne Koller of insitro, Andy Beck of PathAI, Sri Kosuri of Octant,” he wrote in an email. “This year for the first time, ~50% of graduating PhDs want to enter industry rather than remaining in academia.”

Learning and doing

In the undergrad world, it’s not just about learning Business Management 101, though. As Brumme points out, entrepreneurship involves more than that.

“It’s building in the notion of entrepreneurship as a professional skill: not just the founder as entrepreneur, but all of us as entrepreneurs in our own organizations,” she said.

“The education mission is essential,” Segneri said, and commercial success isn’t always the outcome or even goal. “For people just dabbling in this work, what they’re learning is not just how to build a company — they’re learning hypothesis testing, learning by doing. Applying what they’re learning in coursework to entrepreneurial work is a way to take that project-based learning into an impact space.”

A side effect of integrating startup lessons into classes is that these skills don’t need to be addressed remedially at the moment someone decides they’d like to start a company.

“And as more institutions engage in that early stage, it has allowed us to reduce our emphasis on classic curriculum and increase our emphasis on having a strong network,” said Brumme.

Segneri described the network side of things as “turning entrepreneurship from a solo sport into a rich community of founders.” Rahman seemed to concur, while also noting that the community reaches between institutions as well as within them.

“All these great universities are so close to each other and they collaborate so much — that’s the key to why Boston is in such a good place,” she said. “There are great people everywhere, not just your alma mater. I found value speaking with people my age, who were more like me, even if they were in different places. It’s always nice to speak with people with wildly different perspectives.”

She also found it a bit funny that, as universities have been working to recreate the tech startup world, “tech has been trying to recreate university, in a way, with hacker houses and stuff — they’re basically dorms, but more curated.” Clearly the collaborative atmosphere of idealistic, early-stage founders is a valuable resource.

Finding the right partner

In fact, it can be valuable enough that one perceives a risk of exploitation. Students are, of course, coming to university to learn, and that needs to be balanced with the siren song of startup millions.

“It reminds me a bit of paid sponsorship for athletes,” mused Brumme. “On one hand, you could say that allowing students access to resources to grow their businesses before graduating provides them value and runway, but does it detract from the core purposes of going to school?”

As young and inexperienced founders, they are also vulnerable to mistakes like trading away too much equity or succumbing to investor pressure. That’s the exception rather than the rule, but one it pays to be aware of.

“No one is insulated from this current environment, but we think the Boston seed and pre-seed system has held up pretty well. We’ve seen experiments from venture firms doing scout programs. Flybridge launched a student first fund this year focused on Harvard. We saw that with Dorm Room Fund and First Round Capital,” Brumme continued. “Startups would say it’s really hard to raise funding still, and we work on getting them access to non-dilutive options. VC is a very powerful partner for the right moment in time, but it is not the right mechanism or option for all founders, especially early ones. 25-30 percent of the companies we back intend to bootstrap as long as they can.”

“There are a bunch of new funding mechanisms coming online,” said Kulesa, naming Convergent Research, Arc Institute, Fast Grants, and Homeworld as organizations changing research funding models. VC is adapting too; Pillar is working directly with the student-led non-profit incubator Nucleate to find and fund university spinoffs.

Rahman warned, however, of biting off more than you can chew as a student founder.

“You have to know your own limits. Some people can full-on drop out and make this company, they’re the only one who can do it. But you have to realize that you’re young and you have to make a lot of mistakes,” said Rahman. “And I mean, if you’re under 25, your brain isn’t even fully developed yet! It’s not just about age either, it’s any first time founder.”

Kulesa recommended that any first-time founders do some real research before accepting investment.

“The best I can recommend is to be educated,” he said. “We put tons of resources online that include how to negotiate a term sheet and a term sheet grader, and there is a plethora of stuff out there from others as well. That being said, I think trust and shared vision/values is the most important thing. We always offer to buy common stock in rounds that we lead for this reason — we believe if we have the same economics as founders it leads to trust and alignment.”

Segneri was careful to clarify that although HIL does promote the companies going through it, they are in service to the students, not investors or any other interested parties.

“We will do demo days, so we are in that sense an intermediary, escalating certain student pitches to venture firms,” he said. “But what we center in all of it is the best interests of these students. We don’t typically have corporate partners. We’re largely supporting students launching or building their own thing.”

While everyone agreed that more resources and support are a good thing for student founders, Rahman had the most practical idea for improving the ecosystem.

“I think microgrants would be super helpful,” she said. “Getting money to travel to places for conferences, to take the chance to do an internship. Not everyone is able to afford San Francisco rents. Even a thousand or two thousand can change someone’s life”

“It’s hard, to balance your ambitions with being young, and just being a college kid. but I think you can do both,” she concluded. “It can be quite difficult to find people who are as ambitious and curious, who are dropping out and exploring things — it can be isolating and lonely. You might fail, you might fail badly — and that’s OK. That’s the best expectation to have. We can get caught up in the glamour, so just learn from the experience.”

Boston’s university-to-startup pipeline defies downturn to grow and diversify by Devin Coldewey originally published on TechCrunch

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