Tandem, a Silicon Valley-based high-tech incubator focused on mobile start-ups announced a new $32 million fund to invest in early-stage ventures by providing $200,000 of working capital, access to office space for 6 months, and mentoring in exchange for a 10% equity stake in the venture. Currently, Tandem has a July 1, 2012 submission deadline for companies to apply for the latest round of investment awards.
Tandem Model
Per the company, Tandem invests “muscle capital” in six start-ups at a time. Tandem also stresses that it is not a VC or angel fund. Presumably, this means that beyond the 200 large, a company can expect to receive some fairly intensive mentoring during its 6-month stay in the Tandem incubator. Indeed, Tandem identifies seven areas in which portfolio companies receive advice and support as part of the process:
- Strategy development
- Product design
- Technology
- Architecture
- User acquisition
- Employee recruiting
- Channel development
What’s the Difference?
While most VC firms have a network of executives that they’ll place within portfolio companies, Tandem’s model of making focused investments and then concentrating on mentoring does blend some of the more touchy-feely aspects of the incubator and/or accelerator model with the typical investment model which places a lot of chips on the proverbial roulette board and then counts on a few big hits. One strength of the Tandem model would be that it seems to minimize the number of partners that an early stage company might have to deal with by going a more traditional VC route.
By way of example, in Austin, where I live, all of these resources are at an entrepreneur’s disposal. However, they might have to deal with up to three separate organizations to tap into what Tandem appears to deliver in a one-stop-shop. For example, Austin Ventures has loads of cash, but isn’t as much into the hand holding of early-stage companies. Austin TechLive is an incubator hosted by Capital Factory that provides office space and some mentoring, but doesn’t have deep pockets. Napkin Venture will help provide some of the logistics involved in ramping up a company by helping to create a pitch, firming up marketing/customer acquisition strategies, etc., but they take a fee which could be a catch-22 for a small venture. These are all valuable parts of the start-up nurturing ecosystem, to be sure, however having access to all three facets under one roof does appear to be a differentiator for Tandem’s approach.
Results
While the company touts a 90% success rate, that definition, as described by Tandem co-founder Doug Renert, could be viewed as somewhat broad. “We measure success at any given time as either a company that’s had a positive liquidity event (usually an acquisition) or a business that continues to grow and raise money at higher valuations.”
The firm has been in business since 2007, and, to its credit, a few of the Tandem’s portfolio companies have achieved notable success.
- ZumoDrive (now MotoCast) was purchased by Motorola in 2010
- Attassa was bought by YouSendIt in 2011
- PlayHaven and BitRhymes are growing fast, according to Tandem
However, it does remain decidedly unclear how Tandem plans to allocate its new $32 million war chest considering its next round of six investments will use only $1.2 million. Perhaps with investment opportunities in areas such as mobile advertising, mobile payments, and, as always, mobile games looking lively, Tandem will expand its model beyond the present early-stage incubator path.
Final Take – The Implication on Jobs
While tracking the money flow is fun, the importance of the exercise comes in the implications that it has on the types of innovations that might become commercial in the near terms, and perhaps more importantly, how that money flow will impact the economy. Looking beyond Tandem’s announcement, and viewing it within the larger context of new funds, funding deals, incubators and some all-in-one-type programs coming online this year, it appears that the momentum behind mobile broadband, M2M, and the digital economy as a whole means that the prospects for innovators are looking strong. It also means that we could be headed for a “talent war” as new companies seek folks with the skills needed to design solutions, while network operators and service providers look for folks that have the skills needed to deploy, integrate and maintain the solutions that are coming down the line. If so, that’ll be a nice problem to have.
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