September 1, 2016
The Startup Factory Accelerator Closes, Celebrates 35 Investments & Impact in NC
After struggling to raise a second fund, the popular Southeast startup accelerator stops making new investments.
Chris Heivly has a lot to celebrate, and a lot to mourn.
After five years accelerating and funding early stage startups in downtown Durham, his brainchild The Startup Factory announced today it will no longer make new investments and will eventually shut down. Over the last year spent raising a second fund of much greater size than the first and creating a new model of bootcamps, accelerators and venture investments, it became clear to Heivly, partner Dave Neal and associate Lizzy Hazeltine, that the market wasn’t ready to support The Startup Factory version two.
“We got about two thirds of the way to a first close—and we set a high bar,” Heivly says. “But at the end of the day, we just couldn’t get it to go.”
The news is a shock in some ways—the accelerator funded 35 new companies and brought at least a third of those to our region from outside of it. In other ways, it’s a sign of the times.
There are more early stage funding options than ever before in the Triangle region, and nationally, many accelerators have either shuttered or changed their business models to adapt to the needs of entrepreneurs as they grow their companies.
According to Heivly, it feels as bittersweet as when he sent his three kids off to college.
“You’re excited for them, but you don’t need to be a parent to this thing any more,” he says.
The impetus for TSF came in 2009, when Heivly, a Mapquest co-founder and serial entrepreneur from Philadelphia, famously met with 250 people over just three months in an effort to build his network and get involved in the startup community.
In 2010, American Underground was just beginning and there were few other organized efforts to support entrepreneurs in the Triangle. Heivly wanted to bring the accelerator trend, launched by Y Combinator in the Bay Area in 2005, to the Triangle, so he raised enough money to host a single accelerator class of Launchbox Digital in Fall 2010.
It was enough to capture the enthusiasm of Durham, and Neal, a local lawyer and serial startup executive.
The pair raised a $6.64 million TSF fund over several months in 2011, and opened the three-month accelerator with a class of six companies the following spring. In the years since, portfolio companies went on to raise more than $20 million in follow-on funds after their initial $50,000 TSF investment. Two startups were acquired. About 20 are still around in some form, with about half of those showing the most promise.
It was the first real push for Anil Chawla, founder of Archive Social, to treat his startup like a real company.
“It was our first funding and got us some press and the spotlight in the community,” he says. “It changes behavior in a good way and makes you think more like a company.”
Both men admit the community loses with the end of The Startup Factory. Chawla wonders which organization in the region will be responsible for attracting companies from outside—TSF drew companies from Washington D.C., New York, Kansas and San Francisco. The free Groundwork Labs accelerator and NC IDEA grants are focused only on North Carolina companies.
Hoy is just frustrated.
“They’ve done so much to propel younger entrepreneurs,” he says. “If the best accelerator here in the area is going out of business, I think we are further away than we think we are from having a community that really fosters that part of the ecosystem.”
The trio aren’t yet sure of their future plans. Neal and Heivly will continue to manage the existing fund for five or 10 more years, but will likely work separately on other projects or companies. Hazeltine says she’s ready to work on a product after two years spent observing and coaching startups.
In the meantime, Heivly wants to celebrate The Startup Factory’s contributions to the Triangle. So look out for invites to an epic party—a celebration of four years The Startup Factory spent accelerating and funding early stage startups in Durham.