Assessing Hatch Labs' Accelerator Hybrid Strategy One Year In

By Erin Griffith , written on June 22, 2012

From The News Desk

Hatch Labs isn't an accelerator. But it's not not an accelerator, either. The IAC-owned "lab" has taken a unique approach to the increasingly crowded category. It has focused exclusively on mobile, avoiding the Valley altogether with offices in New York and LA, and it invests in people, not companies. Just over a year after its launch, the program's founder Dinesh Moorjani assessed its progress in an interview with PandoDaily and decided his particular twist on the incubator model is working. He's got six growing startups to prove it.

Blu Trumpet, an app discovery tool, helps developers monetize their apps. It's in 190 countries and boasts a 15 percent clickthrough rate. The company spun out of Hatch last year.

Shoptouch, which created wine discovery app Blush, has seen more than 100,000 downloads of its app, recommending 500,000 wines since its launch earlier this year. The company is nearing "spin-out" time and recently raised a round of outside funding from strategic and angel investors. Cash Island, a free slot game with actual cash prizes, has also been a strong hit.

A typical incubator or accelerator provides a company with office space, access to mentors, exposure to investors, and $25,000 or so in capital for a three-month program. The best way a large, publicly traded conglomerate might get involved would be to invest in the accelerator's fund, similar to the way Chinese gaming company The9 did with Silicon Valley-based Tandem last week.

On the East Coast, the word "labs" calls to mind the myriad of ad agencies with labs programs. Even though they're responsible for anything from novel apps to real businesses (Picle and Crowdtap come to mind, respectively), hardcore techies often dismiss these as "innovation window dressing." (Example: BBH Labs was behind the controversial "homeless hotspot" project at this year's SXSW.) Even agencies themselves have questioned the need for titles like "Chief Innovation Officer" within their organizations. Hatch Labs is something different with serious money at play. Each idea gets up to $1 million from the program.

Rather than play a passive role in its "innovation window dressing," IAC funded Moorjani to build a simple program that allowed mobile companies to leverage the media company's "unnatural advantage" with distribution, reach, and marketing, Moorjani says. Each startup takes advantage of the IAC connection differently. For example, the initial clients of Blu Trumpet were IAC properties like CollegeHumor and Daily Beast, which gave the company credibility at its launch.

Hatch Labs is an independent Delaware C Corp, but it's bankrolled entirely by IAC. Moorjani hires developers and tells them to build companies that will eventually be spun out, with the goal of launching a public beta in six months. The ideas for companies are harvested by Moorjani from across the organization. If their traction and metrics are compelling, IAC and other outside investors get a chance to invest in the next round of funding. If not, the project gets killed. Earlier this year Hatch wound down one of its projects. Of the company's six other projects, four are in the market, and two have moved into product development.

In that way, Hatch is like a co-founder and investor. The 18-person company is intensely focused on talent: It hasn't lost an employee, since it began 17 months ago and plans to grow that to 30 people as two of its ventures take on additional capital. When employees join, they get equity in Hatch and in their venture. It's a different type of entrepreneurship, Moorjani says. "We take more risk up front and put in more capital -- we'll take more than 10 percent depending on the venture," he says.

The high equity stake hasn't turned off entrepreneurial applicants -- Hatch gets 100 resumes a week but only hires one employee per two months. Perhaps its the appeal of working for a big company with full benefits. "Startups can only draw from three things -- people, time, and money," he says. "Time and money are finite. People are the resource you need." For that reason, Hatch seeks outcome-obsessed, collaborative developers with integrity and a "nothing is impossible" attitude.