Austin Technology Incubator Creating Clean Energy Jobs Through Innovation

Posted on April 18th, 2011 by
   

Mitch Jacobson, Co-Director of ATI Clean Energy, discusses the role ATI plays in helping create jobs for the city of Austin.

Ben Lack: I’m with Mitch Jacobson from the Austin Technology Incubator. Thanks so much for being with us today.
Mitch Jacobson: Absolutely.
Ben Lack: Can you talk to us a little bit about what the Austin Technology Incubator does?
Mitch Jacobson: The Austin Technology Incubator has been around for over twenty years. It is actually part of the University of Texas. We are under the umbrella of UT, but we are non-profit. We actually get our funding from the City of Austin, the Austin Energy, which is our local utility here, and the State of Texas. We also get some grants out of the Department of Energy and Department of Commerce. That’s how we are funded. All of these folks like to fund us because we are really an economic development engine. We help companies grow, and they create jobs. People would want jobs these days, and it’s more important than ever. We help these companies. We have four different incubators: clean energy; bio-science; wireless telecommunications; and IT, which is sort of a block for software and hardware, semi-conductors, etc. These companies come to us and some of the technology comes out of the University of Texas. Some of the technology just comes out of the local community here, which is a very active technology community. Others come out of other cities and states and countries that want to move to Austin because Austin is a great place to do business. We get these companies. They find us on our website, or we meet them at a networking event or what-have-you; and they need assistance. They need assistance in terms of getting their technology from point A to point B faster than they would have on their own.
Ben Lack: Are they right in the very beginning stages of forming a company or have they gotten to a point where they got a little bit of the proof of concept for their technology, and then you guys come in?
Mitch Jacobson: There’s sort of this space that says in some cases these companies are a little too early for us, and in some cases they are actually too late. There’s this sweet spot. And this sweet spot is companies that have a technology that has… it should be off of the paper, hopefully somewhere in prototype stage, that they come to us. They’ve actually raised money. They use their own money. They raise money from friends and family, maybe some angel money. And they’ve come to us to help them raise more money. We can help them raise money through angels; angel networks; venture capital companies; the fund here in Texas called Emerging Technology Fund; money that comes out of the deal; SPRR, brands, etc. We help them do all that. We also help them get connected to the city. Our role deck is pretty deep and wide. That means introductions to the academia world, researchers, faculty, interns, not only in the University of Texas but other universities, as well. The city and the state in terms of political connections, government connections, Austin Energy, etc.; and business connections: attorneys, accountants. All the things that you need to run the establishment. In some cases, they’ve already filed for IP; if not, we help them get connected to IP attorneys. It’s this sweet spot where they have not raised a series A and they need to get to that point to get to that series A. And to get to that point where they can get in front of venture capital folks, they need assistance in putting a business wrapper around this technology. That’s where we help them. We help them put the business plans together, financial models together. We hire interns from the University of Texas who are brilliant students, who are in the MBA program, a graduate in the Engineering program, usually graduate students who love to work for us because they get to work with a myriad of companies that do a number of different things. And they can help do a lot of these business plan writing and marketing research, and competitive analysis, and those type of things that these companies need. And these folks are technologists. A lot of the folks that come to us are engineers, who think of these things. They are very creative in terms of technology but don’t have the business prowess. And that’s where we help them with.
Ben Lack: It’s typically, I’m assuming, just a couple of people that are coming to you with this concept.
Mitch Jacobson: In many cases, it is two guys out of rush.
Ben Lack: Yes. They come to you. How long does the relationship last between these guys and your group?
Mitch Jacobson: Typically at around 18 months, give or take. We say that they graduate from the Austin Technology Incubator when they have raised money up to a series A. We have connected them to every connection we’ve got that is going to help them get to the next level. We’ve helped them find talent for their teams– that’s the fourth thing I forgot to mention, which is we get two guys come in, they get some money, and the next thing they need to do is to hire some folks for their team. Usually it’s engineers, design folks, what-have-you. And then at some point, they need to hire a CFO, possibly at some point even a CEO that takes the place of the technologist that has come in, who is not the CEO that’s going to take them to the next level. We help them find that. We’ve rounded up that management team. We’ve put together Board of Directors, Board of Advisers, and we’ve gotten to the point where that product is about to be or is manufacturable.
Ben Lack: Are there certain sectors of the industry like in energy efficiency or renewable source or drilling down more to that, that you’re saying that more people are saying “That’s still a problem.” “That’s not yet being tackled.” “We need to jump into that space.”
Mitch Jacobson: Yes. Energy storage is a big one. Everybody calls that if we can figure out energy storage, that’s the Holy Grail of our business. Wind doesn’t always blow, the sun doesn’t always shine. If we can harvest that energy and store it somewhere so we can use it when the wind isn’t blowing or when the sun isn’t shining — that’s the Holy Grail. There’s a company here locally that was in our incubator. They graduated in a company called Extreme Power, which is down in Kyle, Texas, which is a company that does exactly that. It’s a utility storage company that has actually an operation in Hawaii right now in Maui that works with the wind farm, and they are storing wind power. It’s still early but they are doing magnificent things. They’re actually making money and they’ve a great job in terms of the technology.
Ben Lack: Can you give us a couple of examples of some of the companies that are currently in the incubator and what they’re doing, and where they are in the process?
Mitch Jacobson: Sure. The company that we have today is called Idea Power Converters, which is a company that makes inverters for many applications, but in their case they are looking specifically toward the solar rays of today’s market. It’s a big market place and it’s a great opportunity. Their inverters are one tenth the size and the weight, and one half the cost of what’s out there today. They’ve got some really interesting IP that’s going to protect them. They don’t use ultra-capacitors. One of the problems with inverters today is that when the solar ray goes down, it usually inverts the inverter. One of the reasons the inverter goes down is because of these ultra-capacitors– they break. They’ve taken that out of the equation and have manufactured their product in a different manner. Besides being lighter and smaller and half the cost, it’s also going to live a lot longer than most inverters out there do.
Ben Lack: And be more reliable.
Mitch Jacobson: Much more reliable and more efficient, actually. Their market is great. They’ve got a contract with Lockheed Martin to use their product in the military market place. They’ve raised quite a bit of money and I think they’re going to be a home run. And they’re about to graduate out of our clean energy incubator. Another company is a company called Firefly, which is an LED lighting company. Pretty crowded feel, but one that still has a lot of opportunity in terms of taking the cost out of these LED light bulbs and taking the heat out. Their secret sauce is taking the cost out, taking the heat out — so it’s a heat sink that’s taking most of the heat out of these light bulbs–, longer lasting than what’s out there today, and also brighter lights than what are out there today. They are firing on all cylinders as well. They’ve got a nice investment from the Emerging Technology Fund here in Texas plus some angel money. And, they are about to go to manufacturing. We’ve talked to folks like General Electric and Philips, who are interested in what they’re doing and are possible exits at some point in time.
Ben Lack: If these companies ultimately have an exit, does your organization get any of that exit? How does that work out?
Mitch Jacobson: We are, again, non-profit. So, the funds that we have to pay our salaries and to run the operations of ATI come from the places that I talked about. We also take fees from our companies. It’s very, very reasonable versus most consulting companies out there. We do take a small percentage of equity of the company when they first come in, somewhere between 1% to 3%. But that gets diluted along the way. We don’t put more money into the deal. So, ATI has had, over twenty years, four companies that have gone public. We’ve had about fifty companies that have been acquired. And that money over time, for example, we have a company here in ATI last year, a company called Fern Software that was bought by BMC Software for I don’t know the exact amount but this is a lot of money, and we got a check for $40,000 or something like that. So, yes, the money does flow back through the University of Texas, but it’s not a whole lot. That’s not what we do. It’s more of we want skin in the game on both sides, and again, we charge a very inexpensive fee to do what we do. Again, these are real companies that don’t have a lot of money. And again, we are working for the state and the city to help these companies grow and create jobs. All goes back to that.
Ben Lack: You have mentioned earlier that sometimes some of these companies that you guys end up working with are trying to establish roots in the state of Texas so they work with you guys to really kind of help do that. What’s the argument that you give to them? What’s the sales pitch that you give them to say, “You need to be working with us.” “We’re going to be able to take you to the next step and our differentiating factor is X compared to some of the other incubation organizations that are around the country.” Or some of the other avenues that some of these companies can take to get themselves to the next level. Give us that sales pitch.
Mitch Jacobson: Austin is a great place to be an entrepreneur. The resources here in Austin are plentiful. We are one of those resources. The city does a great job. The Chamber of Commerce does a great job. There are for-profit and other non-profit incubators and accelerators in town. The great thing about Austin in this area is we’re not competitors. We are very much cooperating with each other. So, if we see a deal that doesn’t fit our sweet spot, then we’ll pass it along to TechRanch, which is a for-profit organization or Bootstrap Austin, or Capital Factory, which is a whole different model. And we get the same. So, we have a niche and it doesn’t take much of the sales pitch to do anything. We work with literally thousands of companies a year and we only pick a very few because, number one, we don’t have the resources to handle thousands; number two, we want to work with folks that we know that we’re going to add the most value to and that there’s a good fit for. We are not begging folks to come in because we need the money or we need the flow. The deal flow is there. There’s lots of it. There are lots of companies out there. It’s more of let’s make sure the value that we have is what you need and we’re going to help you the most down the road. And so, those take much for a sales pitch, quite honestly.
Ben Lack: Talk to us briefly a little bit about your background and why you’re ultimately playing in the energy space, and why you are ultimately doing what you’re doing.
Mitch Jacobson: I actually came to Austin twenty plus years ago to work for Dell computers. When Dell was a much smaller company, I ran one of Dell’s sales organizations for quite some time. I went to Europe with Dell for three years then I came back. I was with Dell for eight years before I left. And then, I worked for another company and came back to Austin in ‘99 and, actually, I founded my own investment company. I invested in with my group small emerging technology companies mainly in the hardware and software areas because that’s what I know for about seven or eight years. And I met Isaac Barchas, who is the Director of the Austin Technology Incubator, and he was looking for somebody to run the clean energy incubator. And I didn’t know that much about clean energy, but I knew something about running big businesses and small businesses and working with these emerging technology companies, and how to raise money and how to run these companies. Jumping in to the clean energy business has been fascinating. As I say to a lot of people, I feel like I’m back in the early ’80s when I started working in the computer business. It has that feel to it. It has that vibe that is just very exciting. There’s a lot of money potentially going into these companies and hopefully a lot of money coming out of these companies. And it’s something we need to do as a society, as a population, is to get off of foreign oil and use clean energy and be more energy efficient, etc. So, it’s all good quite frankly and I’m having a ball out of it. I love working with these companies. I love learning more about what’s going on. One of the things I should mention is that I have a partner in this clean energy organization. His name is Dr. Michael Webber. Michael is an assistant professor at the University of Texas for Mechanical Engineering and Michael was my co-Director and he is somewhat of a guru in clean energy in Austin, in Texas, and now somewhat in the United States. So, I’ve learned quite a bit in the last two years in terms of what’s going on in the clean energy business. If I got the technology questions, I go to Michael and we find somebody in the university who really knows about bio-fuels, or really knows about some of the more technical things that we need to do due diligence on when companies come to us and say, “Hey, can you help us?” So, we get a lot of resources to lean on and that helps quite a bit.
Ben Lack: Well, Mitch thanks so much for being with us today. I really appreciate the time and good luck with the nine companies that are currently in the portfolio. I look forward to staying in touch.
Mitch Jacobson: Thank you.

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