Capital Factory’s New Partnership: Growing the Pie

By SUSAN LAHEY
Reporter with Silicon Hills News

images-2Silverton Partners and Floodgate’s new partnership with Capital Factory is offering the incubator’s startups a chance to take their companies to the next level, according to Mike Maples Jr., Floodgate’s managing partner.
“When I moved to California, one of the things I noticed was that the cost of starting a company or validating an idea had collapsed,” Maples said. “It doesn’t cost very much to start a company or try out an idea…. But if you’re not careful you can go too far with that. People throw a whole lot of ideas against the wall and see what sticks. This will help serious entrepreneurs working on real ideas have enough funding to make a real go at it.”
With the new matching program, companies in Capital Factory who have $25,000 in support from two mentors will receive a $50,000 matching grand from Capital Factory’s fund. Then Silverton and Floodgate will both kick in $25,000 for a total of $150,000. That’s enough to let people quit their jobs, said Morgan Flager of Silverton.
Previously, said Flager, companies could come into the incubator’s matching program with lower dollar amounts, like $10,000, with a matching grant from Capital Factory.
“If you look at the west coast, incubators are offering more like $100,000 plus,” Flager said. In addition to enticing top companies who might otherwise choose incubators outside of Austin, offering $150,000 investment gives entrepreneurs the opportunity to work on a new idea full time, which having $20,000 in funding generally doesn’t. “This gives them more runway, more confidence to pursue their entrepreneurial ambitions. That kind of money can attract better people.”
In fact, said Josh Baer, executive director of Capital Factory, many companies in the matching program come with a $25,000 investment from angel/mentors. That’s the average investment. Most companies, he said, use a two-step process. First they engage in the incubator program by trading a two-percent equity stake for benefits like free office space, free hosting services and access to investors and mentors who frequent Capital Factory. Then they enter the matching program.
But the new partnership gives startups access to Silicon Valley money as well. “A lot of Capital Factory companies have been funded by Silverton Partners,” Baer said. Silverton has invested in companies such as Sparefoot, which started at the incubator. “And Mike Maples is the Austin guy. It makes so much sense having them involved. It gives the companies a lot of credibility both here and (in Silicon Valley).”
Maples identifies Baer as the “single most important force for leveraging the trend” of democratizing entrepreneurship. “By adding our time and money and expertise to Capital Factory we can help them get involved with even more startups and more entrepreneurs, hopefully with result of greater numbers of successful companies.”
Floodgate and Silverton will take equity positions with the companies they invest in, in the form of convertible notes. But the exact terms will be negotiated with each company.
“Investors either help grow the pie or help claim a bigger slice of the pie,” Maples said. “At Floodgate, we believe it’s all about making the pie massively bigger. We’ll be working with Silverton and Capital Factory so that a whole bunch of new companies can get funded with the probability that the pie that gets created grows massively, offering a whole lot of opportunities.”
The new investment will level the playing field for Capital Factory competing with incubators in other parts of the country that can offer more money, Flager said.
“Hopefully, he said, this will raise all boats. “

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