TechNexus co-founder: Incubators should make friends with corporate America

Fred Hoch and Terry Howerton (left), cofounders of TechNexus.

When you’re young, it’s natural to think of grown ups as party-spoiling bores. But wait a few years until you’re a fellow adult and that uncool elder brother or once sedate seeming older cousin suddenly becomes fascinating and fun loving. Adults generally aren’t stodgy to other adults.
What has this got to do with tech and collaboration? A lot, according to Terry Howerton, co-founder of Chicago-area collaboration space and incubator TechNexus, which Forbes recently ranked as one of the top ten incubators in the country. In an interview with GigaOM, Howerton argues that rather than view big corporations as innovation killing, community destroying infiltrators into the startup or coworking playroom, it’s time for some segments of the tech industry to leave the garage and dorm room mentality behind and recognize that they’ve grown into big time players that can benefit from closer ties to large corporations.
What’s the history of TechNexus?
We created TechNexus as a collaboration center in 2007. The idea originally was not an incubator. We didn’t like that word.
What was your objection?
Five years ago many incubators were government subsidized or attached to an academic institution. Our feeling was that any time that government or academia funds an incubator, the success metrics of the incubator get really fungible really fast. What we were creating wasn’t going to be dependent on any kind of government money. It wasn’t going to be overly identified with any one academic institution, so that word incubator just didn’t resonate. We liked collaboration center and clubhouse.
Do you have an open door policy or do you actively curate the community?
There is an open door policy to an extent. We host lots of events and partner with 75 different community organizations and groups like the Illinois Technology Association, The Clean Energy Trust. It brings a lot of different people through. But the special sauce is curating that collaboration. It’s knowing who’s on the floor, how they create value for other people and connecting them up in meaningful ways.
So how did you end up becoming an incubator if that wasn’t what you set out to do?
Early on when we set out to build the collaboration center, we had startups who came in and said: ‘This is like ground zero for what I’m trying to do. All the right people are already coming through here. Would you mind if I had a desk here?’ And we said: ‘Sure, take a desk.’ Then we started providing a lot more mentorship and direct value for those companies that were resident. Today, to jump ahead, we’ve had 167 startups that have launched from the floor and they’ve raised about $80 million in capital and had about 500 employees. We didn’t set out to create an incubator, but we ended up creating the most successful incubator that Chicago has yet seen, and we did it by focusing on building the quality and the diversity of the community.
Who’s involved in TechNexus today?
Almost 3,000 people a month flow through TechNexus – entrepreneurs, engineers, executives, students, faculty. On average we have people who represent 900 different companies coming through every month.
What does the participation of corporations in the space add for the startups?
To me, one of the limitations of a lot of the accelerator and traditional incubator models is that the people in those programs tend to be very homogenous. They tend to look the same. They tend to be at the same stage. They tend to have the same background, the same experience levels.
We wanted to have a really heterogeneous community. If you wander around the floor at TechNexus on any given day, you’re just as likely to run into members of the Advanced Research Team at Motorola Mobility as you are to run into the founding team of a company called Open Kernel Labs, which has built software that is now in over a billion mobile devices worldwide but started on our floor four and a half years ago, as you are to run into a 17-year-old kid doing a startup for the first time. Having those three different people – the big corporate research team, the well established startup and the young, just-getting-off-the-ground mobile app developer — hanging out at the water cooler and working out in the gym and having us facilitating that collaboration, that’s a key part of our success.
Are you just focused on that informal interaction, or do you also have formal programs to catalyze collaboration between these groups?
There are workshops, roundtables and programs, and then with relation to specific startups, we get involved and, because of our position in the community, we connect them with the exact mentors that they need to talk to. We say, listen, we’re here for you. We’ll be in front of the white board with you. We’re going to go find people with experience of your specific problem because we can leverage our relationships and bring them in. Or we’re going to connect you up with the corporation who can help take you to market. So there are formal, structured events and then there is a more personalized program with mentorship and traditional incubation.
Do you think your approach is due in part to your location – does it reflect the fact that Chicago has such a diverse business scene as opposed to, say, Silicon Valley?
We’re very strong in financial services, in manufacturing, in real estate. A company like Archipelago, who thought of themselves as a financial services company, ended up merging with the New York Stock Exchange. But if we look at their history, we consider them to be a software company, a technology platform that transformed the way stocks are traded. Leveraging those kinds of verticals is something I think we can almost uniquely do here. Certainly you’re not doing that in Silicon Valley.
That also shapes the kind of companies that we tend to welcome into the incubator. I’m not necessarily a big fan of the social web, get as many consumer eyeballs as we can, try to figure out some business model somewhere down the road sort of thing. That capital efficient, digital startup model sounds attractive, but it’s tough for us to understand where the real value is in many of those companies. I am much more interested in working with companies that are going to transform industries and that can leverage those strong, diverse industries that exist here in Chicago to do that.
Do you have any examples of this type of synergy between startups and corporations at TechNexus?
The very first company that moved into our facility was a startup with three employees, one of those employees was the former CIO of Credit Suisse, another one was the former CTO of Borland Software. It’s a company called CohesiveFT. They make a server virtualization tool and have benefited through IBM’s participation in our ecosystem and going to market together with IBM.
Within the broader startup and coworking communities, there’s sometimes a feeling that corporations kill the mojo or squash community spirit. Is that a fear you’ve encountered before and, if so, what’s your reaction to it?
The front half of our floor is a coworking space. There is, however, a big difference between what we call coworking and what the majority of coworking facilities out there are. Most coworking facilities are not focused on making sure the individuals there are building something that can become a growth stage business. That’s all we want, so you’re not going to find the freelancers, the consultants. Our coworking facility is very startup centric.
Now to answer your question, we actually leverage corporations. We’re not talking about IBM or Motorola coming in dressed in their button down suits. This is the advanced research team, the cutting edgiest part of the corporation. And also we’re talking about the tech industry, so even if we’re dealing with a $50-75 million company, the vibe is still there. They still depend on innovation.
If you look at our space, we’re on the 15th floor of 200 South Wacker, right across the street from the Sears Tower. This is big time corporate real estate. This is not the loft in the outer reaches of the business district where people can bring their dogs to work. Not that there’s anything wrong with that, but when you talk to people not in tech, that’s their image of everybody in the tech industry. Our place is a little funky, but it’s still a floor in a high rise because we want to portray that this is an industry that has arrived. The technology industry – and I’m no longer just talking about capital efficient digital startups, I’m talking about some very large technology businesses – is one of the leading industries in Chicago and it’s time we recognized that. Why the hell shouldn’t we be downtown in the middle of the corporate world?
That reminds me of Marc Andreesen’s comment that software is eating the world and nearly every company is becoming a software company.
That brings us full circle back to why involve corporations. Technology is, at a rapidly increasing pace, driving all innovation. You can say JP Morgan Chase is a bank. You could also say JP Morgan Chase is an information company, a technology company.
Let’s talk about the value of TechNexus from a corporation’s perspective. Why would a corporation want to be involved?
The pace of innovation, of bringing products to market that are truly disruptive to existing industries, is faster today than ever before. Banking, insurance, stock trading, even real estate, most of the innovation that’s happening in those industries is being driven by tech. So big corporations are facing the need to innovate faster. And fast, agile and entrepreneurial are not words you generally associate this big corporations, right? That’s reason number one why corporations are now reaching out to TechNexus. They need access to our innovators. They don’t have enough of that in their DNA anymore.
Does participating in TechNexus offer corporations other benefits?
The traditional venture capital model, in my mind, is dead. If you look at institutional VCs for the last several years that money has been moving later stage and higher dollar. Institutional VCs have moved up market. At the same time, angels and angel networks have gotten way more sophisticated, certainly in Chicago. Introduce crowdfunding into the mix in a couple of years and it’s going to continue to transform the traditional VC industry in ways that put pressure on corporate venture.
If you had a small venture group inside of your corporation and you were tasked with trying to keep your eye out for the latest, greatest early stage technology for the company to maybe acquire or invest into, you no longer find yourself competing with institutional VCs but with angels, accelerators, incubators, maybe ultimately with 30 million Americans doing crowdfunding. That’s driving corporations into our ecosystem.
How are your relationships with your corporate partners structured – are they putting in money to support startups or paying for desk space or something else?
All of the above. They’re paying a program fee. For example, one of the things that we’ve done is establish relationships with young engineering talent coming out of university. We’ve spent the last several years buying kids pizza at Notre Dame, University of Illinois, University of Chicago, Purdue and others. We’ve got corporate partners who have said: ‘How do we get access to that talent?’
Take someone like Walgreens. Most people don’t think of them as a tech company, but Walgreens does $1.5 billion a year in ecommerce. How do they tell rock star development talent that they’re one of the biggest ecommerce companies and have one of the best mobile apps in the world?  It’s a sexier proposition to say: ‘Hey kids, come hang out at TechNexus and build technology that would be of interest to Walgreens.’ And, as a result, create a pipeline relationship.
What’s next for TechNexus?
We’ve done tons of mentorship and facilitated lots of different things. One of the things we’ve not done is played a significant role in investing our own capital, or even capital that we’re directing. We haven’t had a fund that’s attached to the incubator. That’s now happening. We’re seeing these corporations come forward and say, ‘help us direct our capital investments,’ so capital is become more and more available to us to put in to some of these startups.
Image courtesy of Terry Howerton.