For years after the dotcom bubble burst, being a founder was weird and hard. Things were just starting to pick up again when the bottom fell out of the global economy.

The GFC kicked off the most sustained period of fiscal and monetary stimulus in modern times. Just as the Fed was coming off the gas COVID hit, forcing a quick return to zero interest rates plus a massive new liquidity pulse to keep the lights on after we all went home.

When borrowing is free all kinds of strange things start to happen. Easy to spot stuff like price inflation and frothy equity markets. But also less tangible shifts in the perception of risk, or the lack thereof.

For founders, the past fifteen years were a dizzying elevator ride from scarcity to abundance, with a final wild peak of absurdity. Being a founder went from gritty and unfashionable, to glamorous and well-paid, to a LARP that YOLOing college grads played with other people’s money.

Fueling it all was a headless Ponzi scheme:

– LPs reaching for yield overallocated to venture.

– Existing GPs supersized, and new GPs sprang up by the hundreds to catch the crumbs.

– More funds deploying more dollars lowered the quality bar while pushing up valuations.

– Startups booking sales to other startups laundered the money flood and called it “blitzscaling”.

– Bigcos, with inflated stock as currency, picked off the winners at eye-watering multiples.

– Liquidity flowed back to LPs, who eagerly recycled their gains on ever-shortening fund cycles.

Unlike the dotcom bubble, this last one was mostly a waste. In Carlota Perez terms, there was no messy but productive “installation phase” for an important new industrial capacity. Instead, we got a series of trivial and mostly made-up “next big things” like crypto, AR/VR, fintech and the Metaverse.

In early ‘22, the Fed finally took the punchbowl away. For the first time in a long time, money wasn’t free. Thank god.

Building a generational company from scratch is the hardest thing you can do in capitalism. It’s not, or at least it shouldn’t be, a YOLO lark with other people’s money.

But VC bubbles deflate slowly. With private markups hard to come by and liquidity drying up, it can take years for LPs to figure out the J curve is actually an L curve. But with the risk-free rate at 5% and the Ponzi played out, the illiquidity of venture just doesn’t pencil for most LPs. The tide will keep going out.

What’s the plot twist in this story? The money fountain is sputtering just as the first real innovation in a decade roars into view.

After half a generation of overhyped trivialities, Large Language Models have reminded us what real technological breakthroughs look like. Less than two years after OpenAI released the first version of ChatGPT, the user adoption rate for GenAI now exceeds that of either the Personal Computer or the Internet. 

The only thing growing faster than GenAI adoption is the capital budgets of foundation model competitors. OpenAI just raised the biggest venture round in history ($6.5B at $150B post), with Anthropic a relative bargain at just $40B. Meanwhile, Meta is either fueling the fire or salting the earth by pumping out open-source models as capable as the private ones.

As useful as they appear to be, training new foundation models is wildly expensive, well beyond the deployment capacity of even the richest VCs.

As a result, the model wars are mostly not powered by venture dollars. Instead, the big winners of the last cycle – Amazon, Google, Meta and Microsoft – are jockeying furiously for continued dominance over the next one. LLMs are compute and energy hogs, and renting state of the art bundles of compute and energy by the millisecond is what tech incumbents do best.

So what’s a founder to do?

As the easy money dries up and the capex elephants dance, the real opportunity is snapping into view. Like PCs, smartphones and the cloud before them, LLMs will transform the way knowledge work is done. But unlike prior technology waves, LLMs won’t just give humans superpowers, they will increasingly replace those human workers entirely.

As always, the LLM business cycle will be powered by corporate buyers. Homework cheaters and deepfake campaign videos are just the cultural exhaust of capitalism’s relentless quest for new levers of productivity and competitive edge.

Inevitably, billions will be wasted on wrong bets about where value will accrue in the coming wave. How can private models recoup their training costs when open source ones are just as good? Will small models and bounded datasets beat LLMs crunching the sum of human knowledge? Will selling AI tools to incumbents prove more valuable than “full-stack” competitive attacks? No one really knows, and that’s what makes it interesting.

But one thing is certain: as the money tide recedes and uncertainty spikes, being a founder is becoming gritty and hard again. LLM breakthroughs are coming too fast, and finding a place to stand that doesn’t get washed away by the next model release is too hard for most teams to handle. Real builders working backward from customer problems are finding ways to stay relevant, but the game has barely begun.

Investors and founders can wait decades for moments like this one. Let the fun begin.

My recent obituary for Techstars generated a surprising amount of attention. One of the questions I heard most often from commenters was: “if Techstars is an example of a failed accelerator, what does a good one look like?” In that prior post, I had offered Y Combinator as a positive example, but I didn’t break down exactly why. This post is an effort to unpack what’s required of a startup accelerator to truly serve the needs of high-performing founders.

Step 0: Understand the goal

Before you attempt to design a system to do a specific type of work, it helps to articulate the beliefs and assumptions underlying your design. 

Every time I talk to someone about the work we do at Founders’ Co-op, I have to first explain that we don’t really care about technology or business ideas per se. As our name suggests, we believe that founders – small groups of unreasonable humans obsessed with solving a specific problem – are the engine of most positive change in the world, and that’s what we’re solving for as investors.

We have lots of opinions about how those groups can best use the tools available – technology, capital, ideas – to achieve their goals. But if you ever forget that supporting extraordinary founders is the whole game, and that your only job as an early stage investor is to identify them and help them progress, you have irretrievably lost the plot.

Step 1: Find the best founders

An uncomfortable truth about this work is that not all founders are created equal. Being an effective founder of a high-growth company requires a bundle of technical, analytical, leadership and communication skills that don’t often come packaged in a single individual. Certain types of people are uniquely suited to the role, and sifting the world of ambitious humans to discover and help those who have the potential to become great founders is the hardest and most important step. 

One failure mode for less effective accelerators, and even more so for the related “studio” or “incubator” model, is to pretend that people who otherwise would not be founders can be coached into the role with sufficient time and scaffolding. This has not been our experience. Teaching entrepreneurial skills is a worthy endeavor and likely offers career benefits to ambitious employees and their employers, but it is not the purpose of a startup accelerator. A good accelerator concentrates and focuses the energy of people who “can’t not” be founders. Anything else is well-intentioned startup theater at best, cynical value extraction at worst.

The essential question at this stage is: “how do you know if a founder is any good?” The internet is awash in takes on that topic, and it’s well beyond the scope of this post, but one reliable way to find the answer is to (a) meet a lot of founders, (b) pick a broad and diverse set you think are the most promising, (c) work with them closely to see how things play out, and (d) repeat, refining your approach through each successive cycle of learning.

Aviel and I know something about this. Between our 15+ years at Founders’ Co-op and another 10+ running the Seattle-area Techstars programs, we’ve screened literally thousands of founding teams and invested in over 250 of the ones we thought were most promising. About half of those then worked in our offices for at least three months, allowing us to interact with the founders and their early team members through every possible flavor of startup crisis: wrong customer, wrong solution, bad hires, bad investors, bad communication, founder conflict, financial mismanagement, latent sociopathy – the ways startups fail are almost too many to count, and we’ve experienced a rich and diverse set of those modes. 

We’ve also seen a large enough set go on to varying degrees of success – an IPO, a multibillion dollar acquisition, many eight- and nine-figure outcomes and over a dozen companies still valued at a billion dollars plus – to have an informed view on how that comes to pass. And while the paths to failure are many and various, the modes of success are fewer, and all of them hinge on the unique capabilities of the founding team.

Over time, we’ve developed a strong conviction that certain types of people, and certain combinations of those types, are many times more likely to productively persist in the way that eventually produces startup success. Building a system that selects for these types of humans and invites them to join a community of similarly high-performing peers is the only way we know to set in motion a process that can eventually produce a world class startup accelerator. 

Back to the Y Combinator / Techstars comparison, over the past 20 years, each of those systems had the same opportunity to screen tens of thousands of teams, select a subset of them to try to help, and then see how those experiments played out over time. Despite some drift on batch sizes during the peak ZIRP/Covid years, only Y Combinator was able to retain an institutional commitment to attracting and selecting the most promising founding teams in the world as their prime directive. That was and is the foundation of their success, but it’s also just the first step.

Step 2: Get them together in batches

The most effective founders often begin life as outsiders. They are too impatient, too persistent, too curious, too obsessed to fit comfortably into traditional social or professional roles. The early spark for high-performing teams is often based purely on the magic that occurs when a set of humans who have been lonely in their separate obsessions find a set of “similarly different” people and choose to make common cause.

But building a company from scratch is a very specific kind of work. It has many parts, and very few who haven’t done it before even know what all the parts are, much less how they all fit together and in what order. No matter how capable the group of individuals is on a founding team, when faced with the work of creating a new high-growth company, most will freely admit that they have no idea what they’re doing most of the time. 

Rather than requiring each team to separately discover or invent the many skills needed to build, grow and finance a new company, accelerators work in batches. 

Imagine the joy of finding a small group of people you trust and care for enough to start a company with them. Take that energy and multiply it by a Dunbar’s number of equally skilled and enthusiastic founders, each pursuing a different opportunity, but all at roughly the same stage of development, and applying a broadly overlapping set of technical approaches. Put them all together in a shared workspace with some light programming that encourages random interaction and candid discussion and see what happens.

Accelerators make a big show of their access to experts – the successful founders and big name investors who come to visit and share their experience – and we’ll get to that in a minute, but a surprising amount of of the power in the model comes from the curated peering that a highly selective, cohort-based, in-person program provides. Batches of teams that trust and communicate openly with one another form a learning network that radically accelerates feedback cycles and reduces unnecessary errors for all teams in the batch.

Done right, the intensity of these relationships carries far beyond the duration of the program. Peers in a batch will become their own first-order professional network for the rest of their careers, sharing new learnings; referring customers, employees and investors; providing candid feedback; commiserating when things go wrong, and celebrating wins with a true understanding of what it took to achieve them.

Step 3: Give good advice

Most startup advice is bad. Not that many people have actually built a successful high-growth company, and not everyone who has is able to see clearly how their success came to pass, and what parts of their experience might be useful to others. In other cases, a putative expert may have relevant experience to share, but also has incentives that cause them to shade their advice in ways that serve their own interests, reducing its usefulness or making it actively harmful to the founders being advised.

But while every company’s journey is unique, there is a huge amount of repeatability in the methods and practices required to build and scale a high-growth company. One way that a startup accelerator can bring leverage to its admitted founding teams is to offer access to the best of these ideas. 

Sometimes that takes the form of an inspiring speaker who began where the current cohort is now, but has progressed some number of steps beyond and can crumbtrail their experience and lessons learned to help the current group make better decisions. Another, more interactive method is to pair founding teams with individual coaches, also drawn from the set of experienced founders, who can listen more deeply to the current challenges a team is facing and offer specific advice. Still another approach is to gather information and experiences from a broader set of relevant peer companies at different stages and distill that into a set of best practices for specific disciplines like hiring, sales, fundraising or communication.

A good accelerator will use all of these approaches to help the teams in their care avoid obvious mistakes and discover potentially effective ways of solving specific problems without having to learn it all by trial and error. But no accelerator worth participating in will view the advice component of their offering as anything but a hit-and-miss attempt to reduce the inevitable frictions of building a company. The real work is done, and the hardest lessons are learned, by individual founding teams taking actions and seeing what happens, as fast as they can on as many fronts as they can, over and over.

It is worth mentioning that a bad accelerator will not only misattribute the importance of their advice, they will also invite in and tolerate providers of bad advice, including those who don’t know what they’re talking about, as well as those who do, but whose incentives are misaligned with those of the founders they are supposed to be helping. This is a primary failure mode for poorly-run programs.

Step 4: Help them raise money

Almost by definition, high-growth companies consume capital. As with advice, there are many sources of capital available to early-stage founders and many of them come wrapped in harmful packages. An important role for anyone who wants to help founders is to connect them with sources of capital that are most aligned with their goals, and least likely to derail them for reasons other than bad execution.

There is lots of information online about how to raise money for startups and it’s not really the focus of this post, other than to say that startup accelerators must exert the highest standard of care when matching founders with investors. 

This process is thankfully much less opaque than it used to be, and the balance of power between founders and funders has improved somewhat, but eliminating bad investors and inappropriate terms are two of the most solvable parts of the startup success puzzle and it is something that good startup accelerators must excel at. 

A well-run accelerator is a great equalizer for startups raising capital. By curating batches of high-potential teams, and reducing the defect rate through effective peering and sound advice, good accelerators significantly increase the odds of investors actually making money. And by controlling access to their cohorts and sharing information about investor behavior with founders in their programs, accelerators can weed out bad actors and reward those that most effectively balance their own needs with those of the founding teams.

Step 5: Take the long view

Well-designed and well-maintained systems get better over time; the opposite is also true. Done right, every company in every batch is better off for having participated in a well-run accelerator program. But the real power lies in the accretive benefit of a program that is founded and run by people who continuously make choices necessary for their system to become the best in the world at helping unreasonable people achieve impossible goals.

Every action in a program designed this way reinforces every other:

1. Great founders are attracted to a program that clearly focuses on their needs and delivers results. 

2. Thoughtful selection creates exceptional batches that help every team accomplish more and aim higher than they otherwise might. 

3. Exceptional founders who are further along in their careers are more willing to share their time and experience with teams so clearly hungry for the advice and able to put it into practice.

4. Excellent investors are more likely to see the quality of companies passing through such an effective process, and to offer terms that reflect the higher expected returns and game theory implications of interacting with the platform and not just the individual companies.

5. Having experienced the power of being selected, working alongside high-performing peers, receiving caring advice from more experienced practitioners and benefiting from a more level investor playing field, program alumni become its strongest advocates and referrers.

6. Return to Step 1

This cycle is continuously compounding – the longer it can be sustained without compromise, the more powerful and effective the platform becomes. But it is also vulnerable and subject to decay at every step. Losing sight of the prime directive, lowering standards to grow more quickly, scaling batch size past the point of human trust and authentic connection, or tolerating bad actors in any part of the system can cause it to trend toward collapse. As with the startups it aims to help, the outcome is entirely in the hands of the founders.

A final note on economics

You may have noticed that this essay did not make any specific assertions about what an offering like this should be worth to the founders who participate, or the terms under which that bargain should be struck. 

It could be argued – and some have tried – that the role of the accelerator is so valuable that its owners should be entitled to a founder’s stake in each participating company. I have seen accelerators (and more often their nominal cousins, the “incubators” and “studios”) demand founder stakes of 10, 20, even 50% for their three-to-six month contribution to the actual founders’ decade-plus journey.

I don’t have an answer to this question, but it’s instructive to note that Y Combinator, without question the closest real-world example of an accelerator run by founders, for founders, has settled on a rake of around 7% for their services. Maybe that’s the right number, maybe it’s not, but it’s hard to see how any other system can defend anything more, and it may be that the most farsighted accelerator founders would find a way to ask for less.

tl;dr

+ Techstars was once one of the world’s leading accelerator programs, but has steadily been eclipsed by Y combinator.

+ Techstars recently announced a string of executive departures and program closures – including termination of the Seattle program, one of its oldest and most successful.

+ Despite similar beginnings, Techstars chose a different strategic path than Y combinator – those changes compounded over time to strengthen YC and weaken Techstars.

+ This post offers an insiders’ view of some of the key strategic decisions that led to Techstars’ decline.

————–

Techstars is – or was – one of the world’s best startup accelerator programs. Founded in Boulder not long after Paul Graham ran his first cohort at Y combinator, Techstars eventually operated dozens of programs around the world, some under the Techstars brand, but over time and increasingly, in cooperation with corporate partners.

We at Founders’ Co-op know the Techstars system well: our partnership created the Techstars Seattle program back in 2010 and ran it for a decade; we also helped to create and run two corporate Techstars programs: an early and short-lived program in support of Microsoft’s Azure ecosystem, and another in cooperation with Amazon, focused on the Alexa developer community. 

We were saddened, but not completely surprised, by the recent string of bad news coming from Techstars’ Boulder headquarters. Headcount reductions and executive departures aren’t exactly news as we unwind 15 years of zero interest rates and the many asset bubbles those policies helped to inflate. 

But we were caught off guard by the decision, announced just today, to cancel the flagship Seattle Techstars program. Not just because we created and led it for many years, but because Techstars Seattle is also the source of many of Techstars’ most successful and celebrated successes; Seattle program alumni like Remitly, Outreach and Zipline are regularly held up as evidence that Techstars can produce billion-dollar outcomes for both founders and investors, something that has happened less and less often in recent years. 

Seattle is also the only Techstars city that is home to two of the Magnificent Seven, the tech bellwethers that continue to drive the lion’s share of public company value creation. Apart from Seattle-based Amazon and Microsoft, all the rest (Alphabet, Apple, Meta, Nvidia and Tesla) are based in the Bay Area. These companies are global magnets for technical talent eager to work on the most advanced and highest-impact technology products in the world. Not coincidentally, they also serve as training grounds for some of the world’s most successful startup founders.

Although we haven’t been on the inside at Techstars for several years, we grew up with the program and have watched with growing dismay as it drifted away from its original focus on founders. This post is an attempt to unpack the changes we observed both during and after our time with Techstars, to draw out potentially useful lessons about how things might have gone differently.

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In the Beginning: Champions of the Local Startup Ecosystem

Techstars launched its first program in Boulder in 2007. Just two years later, in 2009, we worked out a deal to create the Techstars Seattle program, with our first program running in 2010.

From the beginning, we were deeply committed to Techstars’ “give first” ethos and mentorship-driven approach to startup investing. We also had a strong incentive to make our program successful: despite the shared branding and core values, each Techstars program was funded and owned by the mentor and investor community in the city in which it operated. 

As Managing Directors of Techstars Seattle, we raised a series of funds from mostly local LPs, including participation from some of our best-known local VC firms, as well as many of the mentors who worked with the founders during and after each program. In simple terms, the local LP community owned 70% of the fund economics, the Managing Director owned 20% and Techstars owned 10%; we also paid Techstars a $50K annual fee to support the program’s back-office operations.

This tight alignment of incentives and shared values among investors, mentors and program leadership in the Seattle ecosystem created a powerful flywheel effect, stitching together our previously disparate community of startup supporters and creating an open, legible way for high-performing founders from across the region to access the best that Seattle had to offer. 

The result was a series of exceptional Seattle program cohorts, including not just the “unicorn” outcomes listed above, but hundreds of millions of dollars in venture financings and liquidity events deep into the roster of participating teams, year after year. It’s fair to say that the Seattle startup community would not be where it is today without Techstars.

Compromising for Cash

When Y combinator moved from Boston to the Bay Area – without doubt the dominant market for venture backed tech innovation in the world – Techstars began to see itself as the “YC for everywhere else”. Rather than compete for the #1 market, Techstars made a virtue of supporting nascent startup ecosystems in the other major tech and financial hubs in the US, and eventually, around the world.

This was a fantastic strategy in terms of impact, raising the bar for startup excellence in key startup ecosystems and opening up access to the Venture Capital financing market to founders who couldn’t or didn’t want to relocate to the Bay Area. But it also created two big problems for Techstars as a business: cash flow and brand identity.

Even when run on a shoestring (as we did in the early days), running an accelerator costs money: not just the investment capital for the participating founders, but also rent for offices, stipends for program staff, and the hosting and event costs of an intensive three-month, face-to-face program with dozens of founders and hundreds of mentors. Supporting the growing roster of programs also required more administrative overhead to solve legal issues, track investments and support cross-program communications and learning.

Bottom line, Techstars needed cash. And since the program-based fund model didn’t provide it, Techstars started looking within the local ecosystems in which it operated.

It began with an effort to extract “sponsorship” dollars from local service providers: the lawyers, accountants, recruiters and PR firms that cater to startups. But for every sponsor who agreed to write a check, there were a dozen other vendors who were equally or more qualified to support the teams in the program. What did we owe our sponsors, and did that put us in conflict with our commitments to give founders the best possible advice, and to never waste their time?

The next logical step was to go up-market and look for financial “partners” among the many corporations struggling to keep up with the pace of technological innovation during the go-go ZIRP years. Techstars was attracting many of the world’s best founders, surely some of those founders would be interested in solving problems faced by these large corporations?

It’s not hard to see where this all leads: from a principled beginning, laser-focused on helping the world’s best founding teams achieve the best possible business and financial results, soon the Techstars system began to play host to mandatory, sponsor-led “education” sessions for participating teams. Next, entire accelerator programs were created on behalf of corporate partners, promising them access to cohorts of world-class founders eager to listen to their needs and use their APIs. 

Both ideas started with good intentions, with Techstars working hard to select values-aligned partners and set the right expectations, but halfway through a program and after a multi-million dollar investment, the tone would inevitably shift the moment the partner suggested they might not be getting their money’s worth.

Killing the Golden Goose

Organizations become what they’re staffed and led to do. As Techstars invested in centralized sales and support functions for its valuable and demanding corporate customers, the headquarters organization ballooned, driving additional needs for short-term revenue to fund the growing headcount. And the culture inevitably shifted, from a passionate commitment to founders and the entrepreneurial journey, to a system focused on generating cash from paying corporate customers, with the promise of “innovation” on their terms.

The final straw came when it became clear that many of the new programs and MDs were struggling to raise their own, local funds. In response, Boulder made the unilateral decision to pull that function away from all the local markets, making investment capital more readily available to new programs, while also allowing the central organization to capture the fee income on Assets Under Management (AUM) across the entire system.

This may have made sense from a corporate capitalization and cash flow perspective, but the net effect was to eviscerate the incentive system that had attracted high quality Managing Directors to run programs, and had bound together investors and mentors in each local market in the shared work of sourcing and supporting the highest-potential founding teams. 

After this change, MDs still earned a portion of the returns from each program, but no longer had a mechanism to share program economics with their community via investment in the local fund. The autonomy and sense of ownership that attracted outstanding local entrepreneurs in the first generation of Managing Directors (many of whom now run their own funds) quickly devolved into a demanding but low-paying job, with a steadily-growing set of requirements from headquarters to carry water on behalf of the central organization.

Gradually, Then Suddenly

Brands and organizations decay slowly; it can be hard for outsiders to see the weakness until it’s readily apparent to all. But customers are smart, and all of Techstars’ customers eventually saw what was happening, and acted accordingly.

The first to spot the weakness were startup founders. Their ambition and acute realism made them sensitive to the clear shift in Techstars’ priorities, away from serving founders and toward the “corporate innovation” business. With dozens of programs scattered around the globe, often in partnership with second-tier brands, and in locations with little to no native startup ecosystem, it was hard to say exactly what the Techstars brand stood for anymore, but it clearly wasn’t “helping entrepreneurs succeed”. While Techstars wanted founders to see Techstars as a single thing, smart founders realized that their outcome and ROI depended entirely on the MD and specific program they participated in.

At the same time, Y combinator remained laser-focused on dominating the world’s #1 startup geography (the Bay Area) and delivering value for its core customer, the most exceptional founding teams in the world. As YC racked up highly visible startup success stories and sweetened their funding offer, Techstars struggled to keep pace. (YC suffered its own excesses at the height of the bubble, growing class sizes and drifting up into the growth investing business, but under the leadership of Garry Tan have acted quickly to refocus and rightsize in support of their core mission).

The next important group to spot the weakness in Techstars’ strategy was the investment community. Startup investing is a power-law business – a very few extraordinary success stories drive returns and cover the losses of the many failed attempts. As Techstars’ track record fell further and further behind YC, their investor sales pitch of “buying an index of the global startup ecosystem” fell flat. Even during the frothiest period of the ZIRP bubble they struggled to hit their fundraising targets, further weakening their capacity to support their growing overhead.

The last to spot the problem, but from Techstars’ perspective the most essential, were the corporate innovation groups who had provided most of the cash for Techstars’ rapid growth. Unsurprisingly, the world’s best founders don’t particularly care about the problems of any given corporation, and startup investors don’t care to babysit corporate execs or attempt to teach them the foreign ways of entrepreneurship. Churn among Techstars’ corporate customers started high and only accelerated, creating a “leaky bucket” problem for the company’s growth strategy. Add in a global pandemic, and then a rapid deflation of the global asset bubble, and the writing was on the wall: no matter what business Techstars’ corporate partners happened to be in, “innovation” quickly dropped in priority as soon as the startup threat receded and more urgent financial priorities beckoned.

Slowly, inevitably, Techstars’ bet on corporate customers at the expense of founders came home to roost.

Old Lessons, and Simple Ones

The story of Techstars’ rise and accelerating fall is neither unique nor surprising. When interest rates are too low for too long, capital flows toward riskier assets that offer the promise of higher returns. Technology startups can produce rapid growth and high margins at scale; investment intermediaries that offer access to these returns have an easier time raising capital during bubbles; the question becomes: what do they do with it once they have it?

As the YC example shows, Techstars had the opportunity to build one of the world’s top investing platforms for technical founders in every major tech hub outside the Bay Area. But in their rush to occupy that “everywhere else” market, Techstars cut strategic corners to generate near-term cash flow, creating a path-dependent trajectory to their current outcome. By making corporate funders, and not startup founders, their primary customer, Techstars built a centrally-controlled sales- and operations-driven culture that made startups the product, not the customer. As soon as the top tier of startup founders figured out that YC had their interests at heart in the way that Techstars once had, but no longer did, the game was over.

It’s hard to prove a counterfactual, but imagine that Techstars had stuck with its original model: a loose but values-aligned federation of career startup investors, each responsible for building the highest-performing investor and mentor community in their respective markets, but sharing information, best practices and back-office infrastructure. As it was in the beginning, 90% of the economics were sourced from, and returned to the local markets, but Techstars accumulated its 10% profit-sharing strip from each market, plus an overhead charge that allowed them to invest not in ever-growing sales and operations teams, but rather in high-quality software tooling and infrastructure that served the entire network.

This model wouldn’t have grown as quickly, and would have required much greater selectivity in the markets in which it operated. It would also have required more patience from the owners of the network itself, but would have been much more likely to serve their long-term goal of massive value creation over time.

We’ll never know the answer, but if YC serves as a fair proxy for the type of scaled impact and durable value creation that startup accelerators can create, Techstars offers an object lesson in the strategic cost of losing sight of your core customer in the relentless pursuit of growth. Techstars was and is an organization founded by great humans, and its current struggles are shared with many once-promising startups that flew too close to the sun in an era when wings were cheap.

Founders’ Co-op turns fifteen this year. We started the firm in 2008, on the cusp of the Global Financial Crisis, and it’s somehow fitting to be entering our 15th year as the laws of financial gravity reassert themselves once again.

Our firm’s original premise was – and remains – dead simple: Seattle is a global gravity well for engineering talent, thanks to the sustained excellence and corresponding human capital needs of Amazon and Microsoft. But as a “company town” where most engineers come for a well-paying job, not as founders seeking like-minded peers, our region’s entrepreneurial support systems are surprisingly weak. Creating a “day-zero” launchpad for high-performing technical founders in the Pacific Northwest and connecting them to the global capital markets at Series A+ has been our mission since inception.

But as with most founder journeys, while our mission has remained the same, our path from concept to reality has come with plenty of hard lessons and course corrections along the way. Aviel and I are both self-taught VCs: the parts of the job we learned as founders and operators of our own companies covered just a fraction of what it means to be effective money managers, fundraisers, board members and trusted partners within the tight-knit community of professional investors.

The deepest irony of the VC business – which we understood not at all when we started but is obvious in hindsight – is that excellence in investing requires the exact opposite of what’s demanded from the best startup founders. 

Startups are defined by velocity and growth, learning and adapting faster than your competitors on the path to dominance in your chosen category. By contrast, venture capital is a craft that defies both speed and scale. Funds are deployed over years, and managed to maturity in decade-long cycles. Decisions are few and largely irrevocable: once an investment is made, it’s nearly impossible to unwind until the company fails, is acquired or becomes tradable on the public markets.

The implications of this are many. First, the increment of learning in VC is investment decisions managed to maturity. The initial deployment step can be parallelized to some extent, but the rest takes time, typically five to ten years for seed-stage investments. Because the number of decisions that make up a fund are few and the feedback cycle so long – maybe 20-25 first-check commitments managed for a decade-plus – adding more bodies to a fund doesn’t add capability, but rather dilutes institutional learning and accountability. In an ideal world, the same people who make an investment decision will also be the ones who manage it to maturity and recycle their learnings into each successive commitment. By the same token, adding more capital to a fund strategy doesn’t scale the strategy, it shifts it, often into a segment of the market very different from the one the GPs know best.

If the path to excellence in venture capital is making lots of investments and seeing how they play out, the hard part is surviving long enough to reap the rewards of that slow accretion of experience. Raising a first fund requires a leap of faith by your initial investors. Raising a second demands some promising early results. But raising funds three and beyond generally means you’ve actually delivered returns and built processes that justify a repeat commitment by LPs with access to a near-infinite shelf of alternative products, a bar most managers fail to meet.

We’re currently investing out of our fifth core fund, and since inception have backed 125 founding teams as GPs. We also created the Techstars Seattle and Alexa Accelerator Powered by Techstars programs, enabling us to roughly double our investor at-bats in the same time period, with an even more hands-on approach than a typical VC (one of the reasons we chose to exit the accelerator business a few years ago). 

As a team of two, it’s a safe bet that Aviel and I have more road miles as very early stage investors than all but a handful of VC managers worldwide. Along the way, we’ve made more than our share of rookie mistakes. We missed out on a generational public company because its $4M seed valuation was “too high”. We confused sociopathy with charisma more than once. And we’ve thrown good money after bad more often than that by letting companies fail more slowly than was healthy for everyone involved.

Our investing journey has also spanned one of the most pronounced and sustained oscillations of the business cycle since the VC business was invented. We began just as the GFC was dragging the global economy into its hardest reset in decades, and then experienced the slow buildup of a massive global asset bubble that finally popped early last year, investing steadily along the way. 

As generalist tech investors we’ve witnessed the invention of hype cycles for dozens of “innovations” both real and imagined, hardening our own judgment about what’s real and where we have an edge (B2B SaaS, Cloud, Payments) and what’s not, or at least not for us (Crypto, Drones, AR/VR, DTC, etc). With 250+ at-bats, much of this learning came from the school of hard knocks, a more searing and reliable source of conviction than TechCrunch articles and Gartner reports.

But as wrenching as the past year has been for the financial markets, and more importantly for the many founders and early hires whose lives have been upended by the sudden pivot from abundance to scarcity, it has come as something of a relief to our partnership.

When you’ve built a firm – and a worldview – on a commitment to patient craft and dependable performance, the frenzy of an asset bubble in its final throes can lead you to question your most closely-held beliefs. Why did that team get funded at all, not to mention on those terms? How did that company get acquired, and how did they justify that price? What the hell even is a SPAC, and how can it make sense for that company to be public? Is our fund too small? Do we need more money or bodies just to stay competitive? Are we stupid, or has the world really changed in ways we don’t understand?

Only time will tell if Aviel and I navigated this past few years of market dislocation with the right mix of skepticism and shrugging acceptance, but from our perspective a general return to long-term, customer-driven value creation is both welcome and long overdue.

As we embark on our next 15 years, we’ve learned to have no set ideas about what the future will bring, but we do know a few things for sure. Even in an era of remote work and Zoom-first investing, the Pacific Northwest remains as talent-rich and investment-poor as it was when we started. Aviel and I love working together to find and develop the most talented founding teams in our region. And as much as they value our help at Pre-Seed and Seed, no team in their right mind would prefer to raise their Series A from a regional generalist fund when they can access the best specialist investors in the world for their next stage of growth. By keeping our fund sizes small and laser-focused on the gaping hole in our market, we can deliver exceptional returns for our LPs, make the most of our hard-earned institutional knowledge, and have a hell of a good time doing it.

To all the founders, investors and business partners we’ve had the good luck to work with and learn from these past fifteen years, thank you for helping us discover work we love and a community we’re proud to call home. Here’s to the next fifteen years!

As software investors we love complexity. The more byzantine the problem, the more value great software can create by bringing clarity, transparency and mathematical optimization to even the messiest domains. And if you could choose one area that drives both employers and their workers completely crazy with complexity, cost and consequences, it’s health benefits.

That’s why we’re so excited to be able to announce our investment in Pebble Health alongside the news of their public launch and $17M capital raise. 

Cofounders and longtime friends Manoj Pinna and Vinay Reddy bring the perfect combination of skills and perspectives to this problem. Manoj was on the founding team at Nubank and previously led teams at Capital One and ZestFinance, He loves untangling the complexities of financial products to find value for customers. Vinay is a Google veteran whose skills in applied machine learning at massive scale bring the engineering leadership needed to winnow the jumbled mess of regulation, product and pricing information across multi-state health benefit offerings to build the right solution for each company.

Large corporations can use their economic heft, backed up by teams of analysts and negotiators, to strike the best deals for their employees. Pebble makes that same capability available to CEOs and People leaders of almost any organization, improving benefits offerings while also driving down costs. Most early growth companies are overpaying carriers and getting poor benefits. Pebble delivers better, cheaper packages for core benefits, and also makes it possible to offer sought-after benefits like fertility and expanded mental health coverage to their employees.

The Pebble team has been keeping the company and fundraise under wraps for over a year to build out their care delivery network and fine-tune the optimization logic required to deliver tailored packages in all 50 US states. A handful of our portfolio companies – like Mystery, Spice AI, Dendron and Relevvo – were given early access to the offering and quickly switched from their previous providers because the value proposition was so compelling. Today the company’s solution is available to any early growth company, and particularly those with remote-first workforces distributed across multiple state insurance regimes. To learn more visit http://pebble.health

We all need a kick in the ass once in a while. I got one Wednesday when I read the New York Times article on Patagonia founder Yvon Chouinard’s decision to put his family’s entire $3B ownership stake into a perpetual trust, with 100% of future company profits dedicated to protecting the environment.

I worked for Yvon and Malinda in the mid-’90s, first heading up the “technical” products group (all the sport-specific products requiring specialized fabrics and construction), and then leading the effort to build the company’s first online store. I was just 26 when I started there, in way over my head professionally, and still trying to figure out how to reconcile my interest in business with my desire to make the world a better place. For me, at that moment in my life, Patagonia was the perfect place to try to understand how those two often-conflicting value systems could be brought into (uneasy) balance.

Eventually my passion for the Internet pulled me away from Patagonia’s cozy home in Ventura up to the Bay Area, and then on to Seattle. But the path that Yvon showed me – brought freshly  into focus with yesterday’s news – is the same one I’m still trying to walk today.

But wait, you’re saying to yourself, you’re a venture capitalist; isn’t that among the darkest of the dark arts? How does the growth-at-any-cost world of VC have anything to do with making the world a better place?

Nearly 30 years ago these were the same kinds of questions I found myself asking Yvon and Malinda about their business. At the time, each senior leader was required to write a monthly letter to the two of them, outlining their activities but also raising issues or posing questions about the business that only the founders could address. Malinda in particular was known for reading each letter carefully, often sending it back with red-ink notes in the margin, responding on behalf of them both. Many of my letters to them found me struggling with the tension at the heart of their business: how does a company that sells affluent people more stuff they don’t need reconcile that with its stated goal of serving the environment?

Yvon’s answer to this question came in the form of a Zen parable: the “goal” of business isn’t profit, it’s to pursue your craft with a total focus on right action at each step. The process itself is the work, and if practiced with diligence over many years it will produce positive financial results, but only as “exhaust”, a side effect of having done the work correctly along the way.

The Chouinards never accepted the traditional rules of business, always finding a way to do the work that allowed them to be their authentic selves while also building a for-profit business that survived and thrived in an industry known for cyclical churn. Their decision to put the business in trust is just the latest twist in a lifetime journey of succeeding by doing things differently.

Patagonia is a global brand with $1B in annual revenue, Founder’s Co-op is a regional VC fund nobody’s ever heard of, with barely $100M under management. But when I read about Yvon and Malinda’s recent decision I felt a welcome jolt of recognition. 

Every day, Aviel and I wrestle with the same questions I struggled to answer almost 30 years ago: how do we build a business that both works and does right? How do we take care of our founders, our LPs, our families and our communities, all at the same time? Where are we getting it wrong, and how can we do better?

We already know we’re outliers in the blue-shirts-and-khakis world of venture capital. We’re self-taught VCs, having never worked at any investment firm but our own. For 14 years we’ve practiced our craft in a city that’s barely acknowledged as mattering to the global software business (despite decades of outperformance by firms large and small). In an industry that relies on Asset Under Management as the ultimate marker of both power and wealth, we’ve deliberately kept our partnership and fund sizes small. Over time, we’ve learned that certain types of founders and business models run counter to our values and we don’t choose to work with them, no matter how much money we think we might make by doing so.

None of this makes us better than any other VC firm out there. It just means we get to bring our whole selves to work every day. That’s the gift that every founder earns the right to by sticking their neck out to build something new. 

When you bring your authentic self into the world it inspires others, even if it takes a while. That’s what Yvon and Malinda taught me, and that’s our goal for the founders we back: to have the courage and strength to be 100% yourself, in life and in work, whatever that means to you. Founders are the most powerful force for good the world has ever known. If we pick the right people, and support them in the right way, everything else will come.

To celebrate Mystery’s blockbuster Series A fundraise led by Greylock Partners we decided to review and reflect on the April 2019 investment memo that we wrote in support of our first $500k investment into the company. To date, we’ve now invested $2.5m, a full 10% of our fund. Our third “all-in” position, alongside Ally.io and Logixboard.com.

Spoilers are no fun, but also videos aren’t for everyone. In the video we reveal that you can be wrong about literally all the risks of a startup as long as you’re right about its key strengths — specifically the founders’ bedrock capabilities as humans, and the insights and convictions they’ve developed on their journey to starting a new company. Most folks will call what Mystery pulled off a pivot, but we call it a focus. What was true and got us excited about investing three years ago is even more true today than it was back then.

Onward Mystery!

We’re excited to announce our investment in Goodbill, a new consumer advocate that spots and fixes overcharges in hospital bills. We’re even more excited to be sharing this investment with our friends at Maveron, a Seattle-based venture firm with an amazing track record in consumer-first investing. And we’re over the moon to be working with Goodbill co-founders Patrick Haig and Ian Sefferman for the second time.

We named our firm Founders’ Co-op because we believe that extraordinary founders – not clever ideas or VC cash – are the bedrock of startup value creation over time. The highest compliment we can ever receive is when a team of founders we’ve had success with in the past – and who because of their success could raise from any investor they choose – decide to partner with us again on their next company.*

I met Ian Sefferman back in 2008 when he was a developer at Amazon and we had just started Founders’ Co-op. He’d built a side project that he thought might be a company and wanted feedback on his idea. I backed him as one of our first fund investments and together we learned what it means for founders and investors to build a company together. 

Along the way I was introduced to a second-year UW Law student who was growing disillusioned with the idea of practicing law and was interested in startups. I introduced him to Ian, and before long Patrick Haig had dropped out of law school to join Ian as a co-founder. Their company was ultimately acquired by TUNE, which was in turn acquired by Toronto-listed Constellation Software, a happy outcome all around.

Ian and Patrick’s next project was a startup studio – Undefined – focused on health and wellness opportunities. As much as I loved working with them both, our founder-centric worldview makes us wary of the studio model, so we stayed in touch but didn’t invest (a choice that can sometimes sour a relationship for obvious reasons). But when Patrick reached out just before the holidays to say that he and Ian had fallen in love with one of their studio research projects and decided to go all in again as co-founders, we said yes without a second thought.

Healthcare payments in America are a Byzantine mess, and customers are regularly hit with surprise bills for thousands (or tens of thousands) of dollars. Medical bills are reported to be the number one cause of U.S. personal bankruptcy; they’re also rife with mistakes and overcharges that are difficult for consumers to spot and even harder to challenge. 

Goodbill uses the power of software and machine learning to spot inaccuracies in medical bills and negotiate on the customer’s behalf to have those charges reduced or removed, saving hundreds to thousands of dollars per error. It’s still early days for Goodbill’s offering but their solution is already sparking excitement from customers and consumer medical advocates alike.

We’re thrilled to be working with old friends to solve this important problem. You can add your name to their waitlist here or take advantage of their first product here to help you get reimbursed for at-home COVID test purchases.

* We were curious so we looked it up: over 25% of our investments over the past few years have been with founders we’d backed previously – higher than we thought, and a number that makes us feel good about our repeat rate while also leaving plenty of room for new people and ideas.

Only two-and-a-half years ago we welcomed Vetri and Ally.io into the Founders’ Co-op family. Today, we’re congratulating them on joining the Microsoft family, where their vision to bring purpose and alignment to the employee experience will continue towards global scale, but now on a radically accelerated timetable. While we’ll miss spending time in the trenches with Ally.io’s fantastic leadership team in this next stage of their growth, Microsoft is and always was the perfect long term partner for them, and we couldn’t be more thrilled for everyone involved.

All startup journeys are different, even the wildly successful ones. In the past couple of weeks we’ve had the opportunity to celebrate an 11-year journey from first check to IPO with Remitly and now this much shorter journey from first check to blockbuster acquisition. To us, both paths feel just as complete. When we partner with founders, we’re backing them and their vision, and the best part of the job as an early stage investor is the moment when that vision grows into something that’s bigger than we or they ever imagined. (That and making our LPs happy, which goes hand-in-hand with these kinds of successes).

When Chris and I first met Vetri, we knew that he was going to build something special. We just didn’t know how quickly he’d do it. Today, Ally.io serves over 1,000 customers and employs over 250 people across multiple continents. And they’re just getting started. 

Vetri is a man on fire with the passion to impact and elevate others, delivered through a rare balance of charisma and humility that we look for in every new founder that we meet. Thank you Vetri and Ally.io for selecting us to lead your seed round and inviting us to go on this journey with you. It’s been a privilege, and you’ve made us better investors for the experience.

Today Seattle fintech unicorn Remitly (NASDAQ:RELY) begins its journey as a public company. This is obviously a huge milestone for the founders, not to mention the 1,600+ employees who have joined them along the way. It’s a different kind of milestone for me as an investor: 10 years ago I led the company’s Seed round and joined the board, where I served until the Series C. Today marks the first time in my investing life that an investment I led at Seed has made it all the way to its Wall Street debut.

I know this is a familiar experience for many of my peers in Venture Capital. And 10 years is a long time to wait in any career before achieving an important milestone. But for me, and for the investment partnership I co-founded, it still feels like a moment worth celebrating.

Today I’m feeling both lucky and grateful to have met the founders of Remitly when I did. Matt, Josh and Shivaas helped me learn early in my VC career what good really looked like. Not for their feats of “blitzscaling” or similar startup hype-factory nonsense, but for exactly the opposite: for methodically building a product and a culture that delivers real value to real people, with genuine care for the humans involved, fused with a relentless desire to get better every day, no matter how many days it takes.

Every founding team is unique, but my journey with Remitly, beginning as early as it did, helped me to see the raw excellence hidden in those that came later, from Outreach and Auth0, to Bluecore and Amperity, Ally and Level Ten Energy, Shelf Engine, Routable, Comet ML and a dozen others whose names you haven’t heard yet (but I expect you will). Along the way, I had the incredible good fortune to team up with a founder from our first fund — Aviel Ginzburg — as my investing partner. Our shared decade-plus as investors in over 250 companies — both as VC partners and in our roles leading Seattle’s Techstars programs — has built a foundation of trust, experience and craft that makes even our bad days good, and our best days better than “work” has any right to be.

The world of software investing has changed dramatically since we started Founders’ Co-op back in 2008. Things that seem obvious now — the collapsing cost of starting a software company, the corresponding ascendance of Seed (and now Pre-Seed) as the first institutional funding stage, the steady erosion of Bay Area dominance in company formation and the related rise of new centers of excellence in Seattle, Austin, New York, LA and beyond — all of these were unknowns when I began my journey as a venture investor.

I fell in love with the Internet back in 1993 and spent my first 15 years as a founder/operator, creating and launching Patagonia’s first online store, bootstrapping an ecommerce software startup to $15M in revenue before selling it to a public acquirer, co-founding — and failing at — a venture-backed startup, before switching roles to help other founders as an investor at the earliest stage.

The ‘aha’ moment for me came after moving back to my hometown of Seattle after many years in California. Founding a company here, even with the support of local and Bay Area VCs, was ten times harder than bootstrapping my first company in San Francisco had been. From raising money, to attracting great talent, to finding a local peer group of high-performing founders, building a startup in Seattle was frustratingly, unnecessarily hard. In a market so rich in engineering talent and an incredible — if concentrated — history of tech wealth creation, that seemed like a problem worth solving.

Like any startup journey, the years have been short but the days long. As a self-taught VC I learned my most important lessons the hard way. And the most enduring lesson of all is how long it takes to build anything of real value, whether it’s a company, a venture firm, or a startup ecosystem.

The venture industry values speed above all else, but today I know that every story of overnight success you read in the trades has been carefully pruned and compressed to create the illusion that the journey was both short and wildly successful from the beginning. Not only is that a misleading and disheartening lie to first-time founders, it dishonors the grit, craft and resilience of those few founding teams who do make it all the way to the public markets.

Ten years later, Seattle is still mostly a company town, where big employers like Amazon and Microsoft dominate the talent market and founders have to be twice as capable, persistent and resilient to raise their first institutional round. I still feel like an outsider in the very insider-y business of Venture Capital. And I still have so much to learn. But today I’m feeling grateful for my amazing investing partner, the extraordinary founders we’ve backed along the way, and all we’ve learned and done together that has brought us to this point. Go Remitly, and thank you Matt, Josh and Shivaas.