Tuesday, February 18, 2014
Lessons Learned From The Accelerator Trenches: MuckerLab's Erik Rannala
Story by Benjamin F. Kuo
Over the last few years, there's been an explosion in startup accelerators in Southern California, and in particular along "Silicon Beach" on the Los Angeles westside. One of the accelerators to emerge out of that boom a few years ago was MuckerLab (www.muckerlab.com), headed by Erik Rannala. MuckerLab is one of a number of accelerators who have managed to scoop up venture funding for its companies, with such portfolio companies Surf Air, Retention Science, Wallaby, Chromatik, and others. We thought we'd catch up with Erik on what he's learned about this market, advice he'd give to companies hoping to get into an accelerator, and what gets a company funding.
How are things going over there at MuckerLab?
Erik Rannala: Things are going well. We just had the demo day for our third batch of companies. We had eight companies that presented, and those companies are doing well and moving along well. They're all very different, doing well in different ways, and all have differnt businesses. Of our previous two batches of eighteen companies, all eighteen are still going, and plugging away. Collectively, they've raised almost $45M together. We continue to see a ton of interest not only from great companies in Los Angeles, bu companies from all over the world and the country. The majority we end up working with are here in Southern California, but we've had companies from Hong Kong, the East Coast, and a bunch of other different places participate.
Now that you've been through this for a couple of years, what's the biggest thing you've learned about how to make an accelerator work?
Erik Rannala: I don't know if there's been one really big "a-ha" moment, but I think we've continued to evolve the model as we go around. We view every glass, in general, as a prototype. I think we will keep evolving it, and will continue to forever, frankly. I do think the way we work with companies is a little different from other programs, in that we view it much more like the wasyI personally think about investing and venture capital. That is, once you invest in a company, you're a shareholder, and you help that company for the course of its life. It's not really a set timeframe where they work out of your office and that's it. Instead, while there's an initial period where we're more intensively involved in a company, for the period of three to twelve months we don't view that duration as the extent of the relationships.
It's not a three month program, demo day, and folks move out or move on. Increasingly, our conviction is that three months is not long enough to do anything. Most companies working with us, keep working out of our office for six, nine, upwards of twelve months. Although we will do roughly one class a year, that's 10 or so companies under the accelerator, seed stage model -- but we don't really limit to three months in-and-out. We take companies all through the year, and have a demo day once a year with the companies who are ready for demo day, where they present, while other might not. While we still will have a period of three to four months where things will be the most intensive, and we'll also have a demo day, it's not limited to three, four, or five months. We encourage them to stay in our office, as long as needed to work more closely with them. I think our process is always evolving.
From your experience, given that many of your companies have gone on to find funding, what gets those companies funded?
Erik Rannala: I think a part of it, is we view this as investors ourselves. We try to help the companies get to a place where we would, as investors, also want to invest in them. When we look at companies, the simplest way to think of it is product-market-fit. When a company either has revenues, if that's the primary metric, or if it's a consumer application, high user acquisition and engagement, we know there is some degree of product-market-fit. That might be very different, depending on the type of the company. We're very focused squarely on product market fit, and we've very involved, operationally, to get there. We're quire hands on working with companies, even down to the tactical stuff.
We refine the product or technology, help refine the product, help refine the go to market, and get to a place where we have at least some modicum of product market fit, or where they're really starting to scale out or break out. We've had companies before, where we were already doing a seven figure run rate. Our focus, no matter how well companies are doing, is it's also important to know that we have lots of relationships with investors in the Bay Area, because we spent a lot of our careers there. However, that said, no matter how well we know investors in Silicon Valley, you can't force them to invest in a bad company just because you're friends. Instead, you have to prepare those companies, and make them competitive with the best companies in Silicon Valley who are getting funded. That's why we work really closely with them.
Where's the right place for people to work with an accelerator like yours? An idea, prototype, customers, where?
Erik Rannala: We're open to any companies, from pre-seed stage, where they haven't gone and raised an institutional round, to companies with one, two, or three million in seed capital from venture funds and institutions. Anything before that point is a good fit for us. I think to be best positioned, a company should be more than an idea on the napkin. We're still happy to talk to folks really early on, and we have worked with companies before with just an idea on the napkin. However, though we're open to that, it's not an optimal time for us to invest. I think the perfect time is when they've got the team, the core founding team in place. Usually, that's a business person and technologist working on an idea full time. Ideally, they have some prototype, or if a prototype is not possible, the right data. There's many forms of data. A prototype is one, but it could also be customer acquisition testing they've done. It needs to be something they've executed, even though it doesn't have to be a fully fledged product with customers and revenue. I think we want to see a team that makes sense, dedicated to something full time--a strong indication of commitment--and which has executed on something. That's the minimum. For an accelerator or pre-seed company, we want to see that they've executed on something.
What's your one piece of advice for entrepreneurs?
Erik Rannala: I would tell them, surround themselves with great people. No matter how smart any one individual founder or technologist or business person is, starting a company is really hard. Usually, that means you need to have one really good co-founder, or a great team that can work with you to find great investors. Surrounding yourself with great people is the most important thing anyone can do. It's not just people as a resource, in terms of productivity, but it's really people in every respect. Relationships are really important, and the way things get done is through relationships. Silicon Valley runs on relationships. The culture is collegial one, of collaboration, and people really do go to help each other with no intention or expectation of getting anything in return. Building a relationship in the ecosystem around you, who are help you and be supportive, is unbelievably important, and really improves your probability of success. Companies ar really hard, and improbable to begin with, and without people around to help you, it's even harder. Even worse, people get into a situation where they've picked bad founders, or a bad investor, and that undermines their success, or hurts your business, or they even try to steal your business away from you. Again, those are all kinds of people and relationship issues. Surround yourself with great people and avoiding bad people is a really important part.