TechNexus Cracks Forbes Top 10 Incubators List by Focusing on Collaboration

By Nathaniel Mott , written on May 16, 2012

From The News Desk

TechNexus became one of the country’s leading incubators almost by accident. Forbes listed the Chicago-based company as one of its top ten incubators – no small compliment, as a fast-growing number of incubators, accelerators, coworking spaces, whatevers take root across the US.

Co-Founder Terry Howerton wasn’t immediately comfortable with being placed on Forbes’ list. The company didn’t self-identify as an incubator for the first five years after its launch. Howerton says, “We very purposefully didn’t use the term 'incubator' in the beginning. It had a lot of baggage. Today, the term 'incubator' has become a little more in vogue, but back [when we first launched] it had a lot of baggage and negative connotations.”

TechNexus’ status as a top-ten incubator, then, isn’t the result of cheerleading. Instead, the company’s claim to fame is based off the one thing that matters: the companies that call TechNexus home. Some 160 companies have launched from TechNexus’ office, and have raised around $80 million collectively. Broken down, this comes out to $500,000 per company on average, which is pretty good for a market like Chicago.

But it pales next to the two incubator giants. 81 companies that pass through TechStars have raked in around $150 million, collectively. With an average hovering around $2 million, TechStars companies ultimately raise four times more than their TechNexus counterparts. And TechStars isn't even number one on Forbes' list; that spot belongs to Y Combinator, whose 172 companies have collectively raised $7.8 billion.

Despite the huge discrepancy in funding raised, Howerton isn't afraid to throw stones. He points to the homogenization in the startup scene as a byproduct of the market’s emphasis on big-league players in the incubator space.

“In a typical accelerator, you bring in a class of 10 companies that all look the same, 10 entrepreneurs that all have the same experiences and the same goals,” he says, “and mash them with a torque of mentors that build them in a very rigid, formulaic way. That’s not all that entrepreneurial, is it?”

It isn’t difficult to find evidence of this homogenization in the tech sphere. More location-based applications were launched in the weeks and months leading up to SXSW than I can even count, each one performing similar functions with only slight differences. The press latched on to each of these companies for about five minutes before moving on and leaving the companies to continue working in relative obscurity.

TechNexus was founded specifically to avoid the homogenization trap. The companies and entrepreneurs that call the office their own range from leaders of multi-million dollar companies to students that want to get a taste of startup life. “We wanted to be thought of as a collaboration center, as a place where people could come together and serendipity could happen,” Howerton says.

Emphasizing interaction between entrepreneurs appears to be a growing trend in the startup sphere. We recently wrote a story about N Combinator (which since has been renamed "nReduce"), the “open source” Y Combinator, built to foster community and encourage the exchange of ideas after its founders were barred from Y Combinator’s class. While TechNexus is a bit more formal than N Combinator’s “grab a beer” approach, the basic premise is the same: Meeting people and talking to them will help companies succeed.

The "it's who you know" ideology doesn't just apply to first-stage investments. As VCs are throwing capital around like so many grains of rice, companies focus more on the reach and reputation of the firm than the amount of capital they're being offered. (Not that a large offer hurts.) By commoditizing capital, investment firms are now trading on their expertise and what they have to offer beyond their bank accounts.

As Piccsy founder and CEO Daniel Eckler puts it, “Investors validate business in technology online. You get more press, you get more interest from people that want to be employed. [Piccsy doesn’t] necessarily need the money today, but there are reasons to take it.”

Howerton is acutely aware of the fact that institutions like Y Combinator and TechStars give entrepreneurs access to deeper pockets, and he's careful to point out that he doesn't see TechNexus as a competitor to the leading incubators.

“I think if you can open your mind and redefine what you believe an incubator is, if you can let go of thinking that an incubator is the same thing attached to a university or the government, or understand that the thing we’re doing is different from Y Combinator,” he says, “we’ll take and own that term ’incubator’, but we’re going to have to redefine it.”