Tech investors used to prefer startups like Facebook and Twitter -- companies that offered a product to the consumers of the world. These scrappy startups had low overhead, and investors saw them as the easiest way to strike it rich. But that's changing. Early-stage investors are now throwing their weight behind companies that sell stuff to the business world -- companies intent on challenging enterprise giants like IBM, Oracle, and Microsoft.
Allen Gannett -- co-founder of a startup incubator called Acceleprise -- says that the money men have finally realized that the same concepts and ideas that made consumer-focused companies so easy to get off the ground can also apply to enterprise startups.
Last year, Microsoft paid $1.2 billion for Yammer, a startup that makes a Facebook clone for businesses. Then Andreessen-Horowitz made one of the largest venture capital deals in history when it invested $100 million in GitHub. Meanwhile, enterprise startups like Jive, Splunk and Workday have launched successful IPOs, and according to CB Insights, business-to-business companies account for 80 percent of the tech startups most likely to go public in the future.
All this interest in B2B startups has led to a second trend: the rise of the enterprise accelerators, including the Washington, DC-based Acceleprise; The Alchemist Accelerator, in the San Francisco Bay Area; and Tech Wildcatters of Dallas, Texas.
Accelerators are a type of startup incubator, an outfit that charges a fee in exchange for training, mentorship, and office space. Accelerators work in much the same way, but they also provide companies with seed funding. In exchange, they receive a small amount of equity these companies. Y Combinator -- which incubated companies like AirBnB, Dropbox and Reddit -- is the best known tech accelerator, but there are many others, including TechStars and 500 Startups.
In the past, these accelerators typically backed consumer-oriented startups, says Mike Miller, co-founder and chief scientist at Cloudant, an enterprise database company incubated by Y Combinator in the spring of 2007. "They thought we were crazy for not doing something consumer-focused," he says. "Even the other B2B companies were focused exclusively on other startups."
This new crop of enterprise accelerators offers mentorship and training tailored specifically to B2B and "business to business to consumer" companies. Miller says that although Cloudant learned a lot at Y Combinator -- and the accelerator made it much easier to raise money -- but there were things that could have been better. He says Cloudant didn't have the rigor needed to win over enterprise customers until it hired former Vertica executive Derek Schoettle as CEO.
"We didn't have a great sense about our performance and what our metrics ought to be," Miller says. "We were building the product and we waited a long time to start thinking about the business side of it. If we'd gotten more exposed to that early on we could have gone a lot faster."
Those are the reasons Credii -- a startup that helps businesses select software and services -- joined Tech Wild Catters last year. "The program had complete focus on nurturing B2B companies, and generating revenues from Day One," says Credii co-founder Ayan Barua.
"We were paired with several veterans of the industry who worked with us closely in refining our pitch, improving our product and the shaping up our business model," he says. "Also, there were reality checks that every first-time entrepreneur needs."
Dallas may seem like a far cry from the tech hubs like the Bay Area, Boston, and Austin. But the city has one of the largest concentrations of Fortune 500 headquarters in the world, making it an ideal place to land large corporate customers. Tech Wildcatters has connected Credii with several large companies, including AT&T and 7-11.
Acceleprise is also strategically located: the federal government is the largest buyer of IT products and services in the country.
But there are some pretty big advantages to being in the Bay Area, says Barua. "Compared to Silicon Valley, raising capital is much harder in Dallas because of the lower number of venture and angel deals happening overall," he says. "The speed at which these deals are happening are also slower."
The Bay Area is also filled with existing enterprise startups that can mentor newer companies. That's the angle Alchemist Accelerator is taking. Its companies are mentored by the likes of Yammer CTO Adam Pisoni, Xensource CEO Peter Levine, and Sean Ellis of Dropbox.
Y Combinator is also a big part of the new trend. Daniel Palacio, founder of the security startup Authy, says he was quite happy with his experience there. "It might be true that Y Combinator has a bit more experience on the consumer side, but at the stage companies are during YC it wouldn't make a difference," he says. "Plus there's a huge amount of B2B companies in the YC network."
More established accelerators have more clout when it comes to landing customers and investors because they have a longer track record, says Barua. While Y Combinator and TechStars have several successful exits to their name, the newer accelerators are still proving themselves. Tech Wildcatters saw one of its first exits last year when newspaper chain Gannett (not to be confused with the co-founder of Acceleprise) acquired customer rewards company Key Ring. But Alchemist and Acceleprise just launched last year, and their portfolios of companies are still early stage.
Although Barua was happy with his Tech Wildcatters experience, the Credii team has decided to go through a second accelerator. The company joined 500 Startups in the Bay Area, and it will maintain a presence in both Dallas and the Bay Area.
The end result? More -- and more healthy -- enterprise startups. The next Facebook may look nothing like Facebook.
