For every 15 startups that apply to be part of San Diego’s nonprofit EvoNexus incubator, 14 are turned away, said Kevin Hell, the pro-bono chairman of EvoNexus and former chief executive of local software firm DivX Inc., which was bought out in 2010.
The lucky company that’s chosen will get about 18 months of free furnished Class A office space, free broadband Internet service, free business coaching, and guaranteed exposure to many of the big-hitting venture capital firms in San Francisco.
“It’s not an easy environment out there for startups,” said Hell, who attends monthly meetings with the incubator companies to ensure that their business plan is on track. He works hand-in-hand with CommNexus CEO and incubator co-founder Rory Moore. “There are a lot of landmines that you can step on as a new company. We want to make sure the strong survive.”
Rejected startups have complained that the incubator looks for companies that already have all the pieces in place for success; Hell doesn’t disagree. “We’re talking about committing a pretty significant amount of resources,” he said. “We want to make sure that those resources are applied in an effective way.”
EvoNexus isn’t loosening its standards. However, as of Jan. 30, it is giving more than twice as many companies the chance to participate. The incubator doubled in size, adding 15,000 square feet of space and accepted 12 new companies to a new location in downtown San Diego. Meanwhile, the incubator continues to operate its original 16,000-square-foot space in University Towne Center, where it’s currently housing eight companies, Hell said.
The new downtown incubator is meant to give a South of Market, San Francisco feel. It targets small, pre-funding startups known as “foundry” companies, and more advanced “forge” businesses that are nearer to raising venture capital, the group said.
Some of the accepted companies include Antengo, which developed real-time mobile classifieds; BigSho, a social webcam game show; Chatmeter, which has reputation management software; and TapHunter, a mobile app that helps users hunt down craft beers.
The Funding Factor
“Being at EvoNexus really helps with credibility,” said Jonathan Simkin, co-founder and CEO of SwoopThat LLC, a company in the downtown incubator that helps college students save money on textbooks. “It will resonate with investors as we look to raise money.”
Indeed, access to funds is one of the chief perks of being in the incubator. The original incubator in UTC has worked with a total of 14 companies since it opened in 2009, including six that have “graduated” after raising Series A venture capital funding and moving into spaces of their own.
Combined, those companies have attracted more than $55 million in venture funding and employ more than 250 people — 212 of those are at graduate companies.
“We’re batting at a very high average for early stage venture deals because we’ve been so selective on the front end,” said Hell, who makes regular trips to San Francisco with Moore to pitch the entire portfolio of incubator companies to venture capitalists.
“By a large margin, the most valuable thing about being in the incubator is that we were exposed almost daily to just a nonstop parade of dignitaries who could be important to my business or my funding,” said Mark Bowles, founder of Sorrento Valley-based EcoATM, a 2010 incubator graduate. “The mayor of San Diego came through and talked to us, we met venture capitalists, angel investors. The chairman of LG (Electronics) and his son even came through and took an interest in us.”
EcoATM, with 30 employees, makes automated recycling stations for cellphones, iPods and other electronics. “I came from Silicon Valley, where there’s such a density of inventors and partners and customers that there are often just random collisions,” that lead to new business connections, Bowles said. “In San Diego, the density is not as high. What the incubator does is create that density for random collisions.”
Bowles said that to his knowledge, EvoNexus is the only free, no-strings-attached incubator in the country.
“It’s unusual to see an incubator that doesn’t ask for equity,” Bowles said. “It’s almost too good to be true. I would be surprised if there aren’t people trying to copy this model elsewhere.”
Of course, in order to make it work, the organizers have to find enough businesses willing to pitch in pro-bono goods and services, with no promise of a return.
With EvoNexus, the office space is donated by San Diego’s largest office building owner, The Irvine Co., based in Newport Beach.
“As companies grow into space of their own, the hope is they will turn to us for space, which has happened with four of the six UTC graduates so far,” said Michael Lyster, vice president of communications for The Irvine Co.