The Startup Factory, which has plowed about $3.5 million into 35 startups since it was founded nearly five years ago, is no longer making new investments.
But the Durham business accelerator’s co-founders, Chris Heivly and Dave Neal, will continue to manage the investments made since Startup Factory was launched in late 2011. It can take a decade or more for startups to generate a return to investors through an “exit event,” which is typically through a sale of the business or by going public.
Heivly said that the plan pitched to Startup Factory’s investors from the beginning was that the investments would halt at the end of this year. Heivly said he’s confident that those backers ultimately will be pleased with their returns.
More than half of the companies that Startup Factory invested in remain active, he said, as opposed to “zombie companies” that haven’t shut down but are among the walking dead.
Considering that the startups the accelerator invested in typically consisted of two or three founders and an idea, “we are extremely happy and proud with what we have been able to accomplish,” Heivly said.
Neal said the two co-founders tried to raise money from investors for a second fund. But they set “a very challenging” goal of raising a minimum of $15 million – well more than twice the $6.6 million they raised for the first fund – “because we wanted to do something that was impactful.”
But during the course of their fund-raising, Neal said, it became clear that they weren’t going to achieve that goal. So they suspended the effort.
“The marketplace was not ready to support our investment model for that amount,” Heivly said. He has been exploring new models in the startup realm that would appeal to investors in the current environment.
“I don’t really know what’s going to happen next,” he said, adding that he and Neal “have individual ideas about what we want to do” and most likely will embark on separate ventures going forward.
Neal, who noted that the two of them will continue to work together managing Startup Factory’s existing portfolio, also said he has no definite plans but expects to “do something in the entrepreneurial sector here in the Triangle.”
Startup Factory invested $50,000 in startups that were accepted into a 12-week mentoring program in exchange for a 7.5 percent ownership stake. After completing the program startups received a loan convertible to equity ranging from $20,000 to $150,000.
Although Startup Factory raised a commitment of $6.6 million from investors, the accelerator ended up using about two-thirds of that, including investing $3.5 million in startups, an average of roughly $100,000 per company.
Two-thirds of the companies that Startup Factory invested in were based in the Triangle, including ArchiveSocial and Arcametrics Systems, which was acquired.