Russ: This is The BusinessMakers Show, heard on the radio and seen online at TheBusinessMakers.com. With me now I have Sarah Groen, Cofounder of Surge Accelerator. Sarah, welcome to The BusinessMakers Show.
Sarah: Thanks Russ.
Russ: Tell us about Surge Accelerator.
Sarah: So, Surge Accelerator is something I'm obviously very excited about so I helped cofound it here in Houston. We are a seed stage, mentor driven accelerator, um, based in Houston and focused on energy software companies. So what that really means is that we bring in ten companies per class, uh, through a pretty competitive application process and we give those companies access to fundraising, we invest in them ourselves, we put them through a twelve week sort of business boot camp if you will, um, help them, uh, interact with mentors; we have over a hundred mentors signed up to help with the program, and get them involved with potential customers, get them in front of pilot projects, um, and really help them sort of accelerate their businesses during the time that they're with us. On the backside we really help them raising their series A rounds or their angel investing rounds and, um, and we're in a space that we think is kind of under served in the market and - and really focus on energy software.
Russ: Okay, so sort of give some perspective on the world of accelerators and maybe incubators. I know those - those types of models have been gaining momentum over the last few years.
Sarah: Yeah. Incubators have been around since the 1960s and accelerators are really more of a new asset class that kind of came about in '06, '07. The first one is an accelerator in Silicon Valley called Y Combinator and another one, um, called TechStars that came out the year afterwards that's based in Boulder, Colorado. Now incubators have been around a long time, accelerators are new; they both have similar goals in mind but they're done very differently.
So an incubator, for the most part you'll find is a non-profit entity; an accelerator on the other hand is an investment fund and is a for profit entity. Um, accelerators run twelve to eighteen month program where the company get in, either fail fast, pivot, change, raise money and then get out the door and really create a business. Incubators are set up for more of a longer term, um, run so companies can be in an - in an incubator for two to three years sometimes. Now, um, incubators are also generally charging for the services they provide, so rent, um, services, office space, access to, you know, someone to get your mail for you, someone to answer the phone for you, things like that; where accelerators don't charge, um, in the form of cash. They bring you into the program, they actually invest in you as a company, so they're giving you money as an entrepreneur but they're taking a little bit of common equity in return.
Russ: Okay. Now I know for a fact that Surge Accelerator is not that old at all, right?
Sarah: No it's not. So, we've been around about a year and a half, um, it's kind of a fun story. I mean, a few of us came together in Houston who said you know, we really like this accelerator trend. We think that Houston can be a great place for an accelerator, but we don't want to be another me too accelerator and copy Y Combinator and copy Tech Starts and be focused on the internet - the consumer internet space like those ones are. We said if we're gonna do this we want to be the best in the world at what we're doing so, you know, what should we focus on, what can we do to be different?
Houston is obviously the oil and gas capitol of the world, we make the argument everyday to our partners, investors, etcetera that Houston is also the energy capitol of the world for smart grid, energy efficient, safer, clean energy as well. And, um, a-and there are over five thousand energy companies focused here - or based here. On the other hand there's also a great I/T services economy in Houston - it's one of the largest I/T Services economies in the country - and so from kind of doing a landscape analysis of Houston and looking at those two industries we kind of came across energy software. So what if we did something that really focused on energy software companies?
Now, when our companies come into Surge we force them to go through a process of customer validation and we call it Getting Out of the Building; how many customers did you talk to today? So we did the same process ourselves. We're saying we want to be an accelerator in energy software so let's get out and kind of talk to who our stakeholders would be; companies, energy companies, entrepreneurs, investors across the country.
So I've personally talked to over a hundred and twenty investors in the last six months, um, on the East and West Coast talking about the space and they've all said, you know, it's great, we would love to invest in energy software but we don't know where to go to get this type of deal. Energy companies are looking for new software technologies and so they thought it was great. Entrepreneurs think it's great because there's no one else in the country that's focused on this space, um, very early on for these companies; so there's really no support for entrepreneurs when they're just, you know, coming out of the idea phase or when they have a prototype or when they have a product but they're still new. So they don't know where to go to raise money or where to go to make connections.
Russ: My God, sounds like a win, win, win. So when you were talking, uh, to these people on the East Coast and the West Coast and energy companies and stuff, were you just trying to get their feedback or were you actually raising money for Surge Accelerator?
Sarah: You know, a - a combination of both. For our first fund we raised money here in Houston and so by the time we went out and started talking to all these investors or when we were talking to investors outside of Houston it was really more to learn and to say hey, we're here, um, when you're looking for an energy software investment, you know, we're gonna contact you or you come to Houston for our big Surge Day or Demo Day.
Russ: Okay. So, i-in the context of how long you've been doing this, so how many classes have gone through Surge Accelerator so far?
Sarah: So we've had one class. That class finished last May - towards the end of May. It culminates in a big day that we call Surge Day where the companies, um, present their ideas in almost a TED Talk sort of manner, so they're supposed to be very visionary and, um, really fun - fun talks; I mean, the venue is The House of Blues, so it's supposed to be a fun day in general. And then it's followed up by networking and, um, and an after party with investors. This year we had over four hundred people at that event which, um, we thought was pretty good for our first year Demo Day. So Y Combinator - which has been around seven years - just now had four hundred people at their Demo Day, so.
Russ: Cool, cool. You mentioned a while ago that - that companies compete to get in and so how many companies went through this first session?
Sarah: So we had about four hundred and fifteen prospects and that's companies that have been sent to us by mentors, have been on, um, database lists that we've been able to get or have come to us through just SEO through the website. We filtered through those and we encouraged some companies to apply and didn't encourage others to apply and got a hundred and eleven applications. Now from those a hundred and eleven, we called them - we had calls with them, we had them come and pitch in person, we introduced them to our mentors who are experts in their industries, we got a lot of feedback and information on the companies and narrowed those down to ten.
Russ: Okay, so ten went through?
Sarah: So ten went through, mmhm.
Russ: And they've completed the process now?
Sarah: They've completed the process.
Russ: Have any of them done a public offering yet?
Sarah: The have not but they're on their way.
Russ: Okay, cool. Well how did, I mean, did they meet your expectations? Did they exceed you expectations? What was it like?
Sarah: They did, I mean, at this stage, um, I mean - to put it into context - we're investing in these companies that VCs won't yet because they're too early. Maybe at the backside of our - of our process, after they come out, we have a couple that are getting, VC funding right now. But they're bets, right? So all ten of them are bets, which is fun. I mean, it allows us to say let's pick ten companies that we think can change the world, right, or are gonna change the industry that they're working in. That also comes with the risk/reward trade-off that most of them probably - or four to five of them are probably gonna fail two or three of them are going to return the amount that we invested in them or just kind of last and be, you know, going concerns but not be really huge businesses, and hopefully two are gonna be huge hits like the next Dropbox which is a really successful accelerator company from the West Coast.
Russ: Dropbox went through and accelerator?
Sarah: It went through Y Combinator which is generally regarded to be one of the best accelerators in the country. They've also done, um, Airbnb came through Y Combinator and a couple others, so…
Russ: Okay, so describe a typical day in a company that you guys selected; one of the ten, I mean, what do they do?
Sarah: While they're in the program?
Sarah: It's a balancing act. So, because we're focused on energy our companies are a little bit later stage than what you would see going through an internet or social internet accelerator because our entrepreneurs have to be experts in the energy industry to even have an idea in the space in the first place. So their - often times their businesses are going concerns already; yes they're early but they, you know, have pilot projects going on or they're already prototyping their product or maybe they even have customers, we kind of run the gambit. So it's a balancing act between their obligations to the program - what they need to be doing - and also running their business. So aside from the running their business part we you know, we kind of break down the program into three phases.
So the first month of the program is really working heavily with mentors. So I mentioned those hundred mentors that we have signed up are, um, you know, supposed to be available for the companies to really brainstorm, to help them get in front of connections, to help them get pilot projects, etcetera; but in the first month it's really focused on pounding on their business plan. Making sure, you know, it works, it makes sense, have they figured out how they're gonna make money, anything from simple to complicated pricing structures, things like that, anything that companies need help with mentors work with them on.
The second month is really focused on either A, if they haven't completed development of their product, completing that or B, um, selling pilot projects or even getting in front of customers and selling early customers.
Russ: Okay, so how does all this happen? This isn't virtual is it?
Sarah: No. So we actually have all ten of the companies - or, you know, this year maybe we'll have eleven or twelve; it just depends on the applicant pool - relocate to Houston for the twelve weeks of the program. And we're based in a really great facility called The Red House, it's a group of angel investors who own this house in the Montrose area - it's a mansion actually - and the companies are all in a pit together, so they share a lot of information with eats - with each other and it's, um, you know, kind of a boiler room but it's really fun.
Russ: Well, I must tell you Sarah, you sound, uh, somewhat passionate about Surge Accelerator.
Sarah: I am.
Russ: Okay, okay, cool. Well, kind of give me your background. Where did you go to under-grad and how did you get to this point?
Sarah: Yeah. I'm a Longhorn so I did my under-grad at UT. Focused on finance, um, and leaving UT I went to work at a company in Houston called Simmons & Company. It's an energy investment bank I did...
Russ: Probably world-renowned too, right?
Sarah: Yeah, yeah, I would say so. A lot of people have heard of Matt Simmons and…
Russ: Wasn't it kind of hard to get in?
Sarah: Yeah, they have an analyst program where they hire out of college, but it is one of the most competitive jobs that you can get through - for a finance background, so…
Russ: Well in fact, describe what you did when you first went to Simmons & Company.
Sarah: I worked in the M&A desk so that means Mergers and Acquisitions. I did a lot of sell side deals so companies that were interest - that, you know, had made a lot of money maybe wanted to take some chips off the table, wanted to sell their businesses to larger oil and gas companies would come to Simmons and we would help sell.
We also did a little bit on the buy side, but for the most part, um, I was on the sale sell and it was, you know, '05 to '07, '05 to '08, that time frame where oil and gas prices were really high I guess back then gas prices were up around eight dollars, oil was rising and we did a lot of deals. So at the time I had done more deals than any other analyst in my class or the class above me or the class beneath me so I worked a lot, didn't have much of a life but I got a great education and the firm is great; the people who run it are amazing.
Russ: How long were you at Simmons?
Sarah: I was there for a couple years. They wanted me to stay on but I was really interested in getting onto the investing side so I ended up going over and working in private equity investing at a lower, middle market firm, um, that would buy controlling stake in companies and help to improve operations, etcetera. So, I got - from that piece I got the investing experience but I also got to work really closely with my portfolio companies and help in terms of management and operations, etcetera and sometimes even officing within some companies; so I got some operations experience when I was there.
Russ: And how long were you there?
Sarah: I was there for two years as well.
Russ: And what was the name of that company?
Sarah: It's called The Cap Street Group.
Russ: Okay, all right. So two years, and then what?
Sarah: And then I applied to business school. It was during the recession so it was one of those times, uh, one of those years it was really difficult to get into business school but I said, you know, again, I want to do something that's the best in the world, I'm only gonna apply to the top five schools. I was lucky enough to get into Stanford. So I was, you know, really excited and honored to get into a school like Stanford and really excited to kind of be on the West Coast and learn from, uh, different industry, different, you know, mind sets, etcetera.
Russ: Sure. Well I'm sure it's just real dynamic there. I mean, you're meeting people that you know are gonna turn into future Steve Jobs and that sort of thing, are companies and VCs hanging around Stanford as well?
Sarah: Yes. Stanford is a stones throw away from Sandhill Road which is where all the VC firms are so they're on campus all the time.
Russ: Right, right. So, I mean, but you just go to school, you meet these people and then you leave or what's going on while you're there?
Sarah: Yeah, I mean, um, it depends. Everybody has their own path that they're interested in going down so, you know, I - at the time - had a couple job offers from prestigious consulting firms, I was able to go back into.
Russ: While you were still there? While you were still going; you hadn't finished your MBA?
Sarah: I hadn't finished yet. Well, you know, for when I finished to, you know, to go work at some of those firms or maybe go back into private equity. But I was really interested in, uh, you know, getting off the beaten path and really kind of forging my own path which a lot of people looked at me like I was crazy at the time; like, you turned down an offer with XYZ, very prestigious consulting firm and you don't have anything else lined up? And it was, you know, 2009, 2010 and...
Russ: So you're okay with that today though, right?
Sarah: Yeah, I mean it worked out great but I knew that that's what I wanted to do - that I wanted to do something entrepreneurial and that in order to do that I was gonna have to kind of get rid of - you know, put blinders on and get rid of these distractions if you will that are things that kind of keep you from doing what you really want to do. And to be an entrepreneur, to kind of take that path, you need to be a risk taker and you need to be willing to fail.
Russ: Okay. Now, I know you're an entrepreneur right now cause you're the Cofounder of Surge Accelerator, but Surge Accelerator's a little bit different you know, I mean, you're like an entrepreneur amongst entrepreneurs. Do you ever see yourself starting your own company that's by itself and it's not an accelerator/incubator?
Sarah: Yeah, of course. I mean, I'm surrounded by brilliant people all day, everyday, so I get to work with these mentors who are energy CEO - energy company CEOs and executives and I work with entrepreneurs who are coming up with new technology, I work with investors who are seeing companies all the time so it's a great space to be in; I could be inspired by one of those people any day, you know.
Russ: Is it possible even that a client company as part of Surge Accelerator could grab you and get your interest and run off with you?
Sarah: It's possible (laughs).
Russ: But not likely.
Sarah: No, it's possible in the future, for sure. Yeah. I want to see Surge through cause it's my baby as well.
Russ: All right, so before I let you go Sarah, let's imagine that we have a young, aspiring entrepreneur, tuned in, watching right now, impressed by you, what kind of general advice would you give him or her?
Sarah: Based on my own experience I have to kind of go back to, um, to really forging your own path. The more you can think about what you want to do and what you want in the future, the better you can go down that road. I would say don't get caught up in what's the best job to have out of college. Don't get caught up in what everybody else is doing, which is sort of what I did right out of under-grad and I had to get off that path to get into something that I really wanted to do. And then on top of that, um, you know, take advantage of the resources around you. Whether it's at your university and, you know, some great speaker is coming on campus and you want to get in front of them and talk to them and just network with them or it's, um, at your first job and a client is coming in who you've always admired; get in front of that person. It doesn't ever hurt to ask, um, and the more people that you can talk to and more people you can interact with, the - the more you'll learn and the better you'll be.
Russ: Really cool, thanks for sharing that.
Russ: All right, so I would like to stay in touch and maybe hear how Surge Accelerator develops. Maybe we even have some of the client companies come in on the show.
Sarah: I think they'd be really excited about that.
Russ: Really cool, well thanks a lot Sarah for coming in and sharing the story.
Sarah: Thank you
Russ: All right, that's Sarah Groen, Cofounder of Surge Accelerator and this is The BusinessMakers Show, heard on the radio and seen online at TheBusinessMakers.com.