Reinventing the tech incubator
Tech Daily: Betaworks is bringing back a '90s icon.
NEW YORK (Fortune) -- Like hip hop and Dockers, tech incubators were faddish in the late 1990s. These companies offered promising dot-coms work space, back office services like human resources and accounting, and a bit of funding. Most of them imploded along with the boom. Now a handful of incubators are resurfacing, and among the most promising is Betaworks.
Started by well-connected former AOL execs John Borthwick and Andy Weissman, along with a couple of initial investors, the startup is seeding a new round of innovation on the Web. It's not your garden-variety '90s incubator. It doesn't guarantee office space and it won't provide HR. Says Borthwick: "If you're an entrepreneur and can't find desks, you have other problems."
Instead, Betaworks makes small investments - average is about $100,000 - and then Borthwick, 43, who is CEO, and Weissman, 42, who is COO, offer hands-on help developing the business, advising entrepreneurs on strategy, pairing them with other interesting companies and even providing them engineers to help build out their products. On a recent afternoon at Betawork's offices in a loft in New York City's meatpacking district, several engineers tested a Pac Man-like game for the casual gaming site iminlikewithyou.com, while the site's founder, Charles Forman, looked on.
The companies Betaworks funds get something else: the best connections in the business. Borthwick has amassed a list of investors that reads like an insider's guide to the New York tech scene: Ken Lerer, cofounder of the Huffington Post, Google (GOOG, Fortune 500) Chief Advertising Officer Tim Armstrong, Pilot Group founder Bob Pittman, and Meetup founder Scott Heiferman are among them. Dave Shen, who spent eight years at Yahoo (YHOO, Fortune 500) in charge of experience design, mans a West Coast outpost. Says Heiferman, "John's got an amazing insight and a sort of prescience, and [Betaworks] has a unique look at how the interlocking partners of the Internet are evolving."
Borthwick sees great opportunity in making such early investments. Web entrepreneurs need less cash to get started now, he says, so innovation is earlier and happens faster. And big companies want in a lot sooner, preferring smaller acquisitions to billion-dollar payoffs. And it doesn't hurt that in this economic climate, these tiny startups largely evade the financial crisis because they are so cheap to run.
Unlike the old incubators that focused on churning out as many dot-coms as possible, Betaworks is building an integrated universe of connected media properties that augment each other. Borthwick calls his venture a loosely coupled media company. He hopes to avoid the innovation stagnation that both he and Weissman experienced while working at Web portals. "We saw a lot of great innovation bought up," says Borthwick, who sold his early Web startup to AOL in 1997 and spent five years working there. "Then it would just hang out or whither away."
Not everyone sees the benefit to buying in, however. An investor who chose not to get involved with Betaworks said it was just an opportunity to get to companies early. He said he was likely to see those companies anyway.
But in the year since it officially launched, several of the 19 network companies have already garnered attention. Their single sale and best example: Summize, a search engine that can sift through streams of microblogged messages, sold to Twitter for $15 million in July. And on December 11, Betaworks company Tumblr got $4.5 million in financing. "In the old model, returns came from one extraordinary win," said Borthwick. "For us, we're going to need lots of little wins." Two down, lots more to go.