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MBAs Hatch Big Ideas at Austin Technology Incubator
by Pam Bixby Losefsky
AUSTIN, TX. -- "Other entrepreneurs have told us that luck, luck, luck, and hard work are the four things it takes to be successful," recalls Erin Defossé from conversations with his entrepreneurial peers. "You definitely need a lot of luck, but you also need to be smart enough to take advantage of the apparently lucky situations that arise," qualifies Defossé’s partner Aruni Gunasegaram.
Gunasegaram and Defossé started Isochron Data Corporation last year while they were still MBA students. They won the Texas MOOT CORP® Business Plan competition in December 1997 and entered the Austin Technology Incubator (ATI) the following spring—the same month they graduated from the MBA program.
The two count their ATI residence among their lucky breaks: a free year’s stay in the Incubator came as part of their MOOT CORP win.
Since its inception in 1989 by George Kozmetsky and Laura Kilcrease, ATI has given that opportunity to many, facilitating the growth of nearly 75 companies, graduating 50 of them, and creating over 1,500 direct, value-added jobs to the Austin area. Over $180 million in seed and venture capital has poured into ATI companies, and by 1998, ATI-launched company revenues had exceeded $700 million.
ATI’s model is a winning one, earning it several prestigious awards, including the National Business Incubator Association’s award as Incubator of the Year and the Technology Transfer Society’s Justin Morrill Award. It’s new director, Dr. Norman Kaderlan, is currently launching an Incubator Without Walls program to build a world-class global network for new technology-based ventures.
University of Texas business students with big ideas have been among the primary beneficiaries of ATI’s presence in Austin, home to the state’s flagship educational institution and a top-ranked entrepreneurship program. In addition to providing a nurturing space for start-ups, ATI is a learning laboratory for students who intern there and a resource for entrepreneurship instructors who tap the residents and directors for class input."
I was asked to speak to classes while I was hanging off a cliff by my fingernails," recalled Eric Hills at his ATI graduation ceremony in January. Hills is President and CEO of Partnerware Technologies, an International MOOT CORP winner, and a 1996 UT business grad. That kind of interaction between struggling entrepreneurs and students considering the same sort of leap provides a realistic perspective that would be sorely lacking in the classroom without ATI.
The Texas MOOT CORP competition provides an annual vehicle for UT student businesses to enter the facility, in addition to putting them in front of some important venture capitalists. Isochron—whose inaugural product, Vendcast, employs a wireless technology and the Internet to manage remote vending machines—has raised $1 million in seed capital since moving into ATI. They’re in the beta phase of the development of their proprietary technology and will soon be conducting training and installation. If they continue at this breakneck pace, they expect to be moving out of the Incubator before their three-year tenure is up.
Following in the footsteps of Isochron, Vusion, a company founded by four current Texas MBA students, will enter ATI after the students graduate this year. Vusion plans to bring to market a technology developed by UT chemistry and engineering professors called the ‘electronic tongue.’ The tongue is a sensor chip capable of remitting real-time data to control the quality of a liquid process. "Although the MOOT CORP program and the quality of the graduate business school in general were my primary reasons for attending UT," says Jason Levin, Vusion’s team leader, "I never thought that creating a venture in Austin would be an opportunity right out of graduate school." ATI can be an important component of an early company’s success, as the free rent and facilities offered to MOOT CORP winners relieves a tremendous cash burden on fledgling companies."
What you get is the instant ‘out-of-the-garage’ experience," says Defossé, who, prior to entering UT’s MBA program had started two companies in the garage environment. "Here we have an established infrastructure, like a phone system, internet access, and conference space." And, most important, he adds, "Being here gives you instant credibility. The building is impressive and I think that has a psychological impact, especially since investing in and depending on a start-up company is a scary prospect to begin with." ATI is housed in a portion of the MCC building in Northwest Austin."
One of the fundamental challenges of a start-up," agrees Partnerware’s Hills, "is getting people to believe in you. I’ve found that one of the most motivating forces is trust: it’s amazing what you can do when you know someone trusts you." And that may be the most valuable contribution that ATI makes to these companies.
Hills’ company has certainly earned the trust of its partners and customers since entering the Incubator in 1996. By the time of its graduation from ATI earlier this year, Partnerware Technologies had become a leading provider of extranet software applications designed to enable indirect sales. Its flagship product, Partnerware Extended Enterprise (EE), enables manufacturers, channel partners, and end-customers to share and leverage information across the extended selling enterprise. Its strategic partners include Hewlett-Packard, Sybase, Scient., and Mindshare Associates.
Hills credits mentors from the Business School, ATI and IC2, such as Dr. George Kozmetsky and Dr. Robert Sullivan, with giving him hands-on advice from the very beginning, including the red-lining of his original business plan. Gunasegaram and Defossé’s group of mentors and investors includes Marc Seriff (co-founder of AOL), Lee Walker (former president of Dell), Jim Armb (idealab Capital Partners, UT MBA 1996), and Gene Lowenthal (MRI, MCC, World.hire). "It’s the people you surround yourself with who are critical to your success," says Gunasegaram. "You’d better have high quality employees, advisors, and board members."
Part of the ATI experience is both exposure to such high-caliber mentors and the camaraderie that takes place among the young entrepreneurs residing there. Just being in close proximity to companies who are at the same stage of development allows for easy advice swapping and the building of a b support system of like-minded people.
The founders of Partnerware, Isochron, and Vusion all say that determination and vision, or the desire to create something bigger than yourself, are key traits that they believe entrepreneurs share. While those qualities are decidedly intrinsic, ATI can and does provide focus for those driven entrepreneurs fortunate enough to be brought into the fold.
But with space for only 23 companies, ATI disappoints a lot of applicants. On average, the Incubator receives 100 executive summaries a year, and requests full business plans from about half of that pool. In the end, the Incubator admits about eight companies a year. Because of this tremendous demand, ATI plans to double its 50,000 square-foot capacity by the year 2004, and include several off-site companies, as well.
Isochron’s string of good fortune began when the co-founders sat next to each other on the first day of class and started talking about their entrepreneurial aspirations. When later they discovered they had the same birthdate, they knew fate had stepped in and they decided to start a business together. Their hard work began shortly thereafter. In spite of the piles of unpaid school debts, the long hours, and the rollercoaster of emotional highs and lows that come with the territory, Gunasegaram and Defossé wouldn’t have it any other way. "I’m either really determined or really stupid," jokes Defossé. "But I don’t think I could ever go back to a desk job after this. We’re just enjoying the freedom to take this company wherever we can."
For more information on the companies discussed above or about ATI, visit their respective websites: www.isochron.com, www.partnerware.com, www.utexas.edu/depts/ic2
For information on specific programs at the McCombs School, consult our contacts page. For media information, contact the Communications Director by phone at 512-471-3314 or by email at CommunicationsDirector@mccombs.utexas.edu.
