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Looking to grow your Maine-based business? Are you scalable and looking for investment? Ready for your seed round?
If so, then Scratchpad Accelerator may be for you!
In this episode, we talk to Jason Harkins about Scratchpad Accelerator’s role in helping Maine business scale up, and quickly!
Rich: Our guest today is the co-managing director of Scratchpad Accelerator, a seed accelerator running multiple programs each year for scalable investment-oriented companies. He is an associate professor of entrepreneurship at the University of Maine, and also co-owner of CoVort, Bangor’s coworking space. He is on the advisory board of a number of scalable businesses in Maine and is on the board of UpStart Maine, which is building a community that fuels entrepreneurship in the Bangor region. He loves working with startups, with a focus on developing the business side of new ventures. He’s also an active contributor to and consultant for entrepreneurial companies throughout Maine. He has a teaching and research interests related to the intersection of strategy and entrepreneurship. Welcome to the show Jason Harkins.
Jason Harkins: Thanks for having me.
Yury: Jason, the first question, can you tell us more about Scratchpad Accelerator and what your role is there?
Jason Harkins: Absolutely. So Scratchpad Accelerator is a seed accelerator which looks to work with companies, that as Rich just said, are scalable and investment-oriented at the latest stages before they start to scale into their growth. So these are companies that are going to tend to be immediately preceding an investment round, which we would call a seed round, and they have a product, they have some done customer discovery, and they’re basically looking to build on the early traction they have as they move forward. As a co-managing director, I’m responsible for pulling together the program, recruiting companies, raising funds and generally supporting our startups and our mentors, and making sure that the companies that participate get as much value as humanly possible out of the time that they’re a part of Scratchpad.
Yury: And how old is Scratchpad? How many classes or cohorts, or companies that successfully graduated?
Jason Harkins: Sure, so Scratchpad was started in 2015, actually as a sabbatical project of mine, which was the least stressful sabbatical you could possibly participate in. So we’ve run two cohorts. We ran one in 2015, we’ve run one then again in 2016, running into 2018, and are working our way towards running two annual cohorts for the next, for the foreseeable future. We’ve had eight graduates so far and anticipate seeing another 10 to 12 companies this year participate in Scratchpad.
Rich: So how does a business know that they’re ready for you? You talked about the fact that they’re just about to ramp-up. I know a lot of companies must feel like they’re ready for that first run of investment, but how do they know and then how do you connect with them?
Jason Harkins: Right. So there’s a couple of ways that they know. One of the things that we try and do is be very, very active in the statewide ecosystem for entrepreneurship, and so we leverage our partners a lot. We ask MTI who’s come to them, an MTI is the Main Technology Institute, who’s come to them for funding that they see that might be appropriate. We scour every Top Gun graduate that comes out each year from across the state. So we look at the other programs that are running which we would say are earlier in the funnel in terms of developing companies, but the other thing that we looked to do is partner with institutions and academic entities to say, what’s out there where you’ve worked with people and they understand who their customers are, what their customers’ needs are, and they’ve got a team in place that could execute if they had the right business model and the support of mentors.
Yury: Okay, gotcha. So what types of businesses work well with you?
Jason Harkins: That’s a great question. We are focusing this year on two different types of businesses generally speaking. We don’t have an industry focus, but what we do, what we have identified as our focus for our fall cohort is companies that are coming out of academic institutions, medical, or R&D institutions, or spinning off of privately held companies to be able to support, provide them the resources that they need as spin out companies, and then in the spring we will run a cohort based on female-founded companies to help ameliorate some of the well-known concerns that exist in terms of supporting and helping female-founded companies access capital.
Rich: That actually, I want to jump ahead, that brings up a question that you had Yury beforehand. Why don’t you?
Yury: Well actually, I attended Startup Maine Conference and one of the keynote address was around minorities or underrepresented groups that get funded by these seeds.
Jason Harkins: Right.
Yury: So can you speak about that, what’s going on in the state around that topic. Why female? Are there any other categories of people or individuals who you would want to bring into the ecosystem in the state?
Jason Harkins: I would say generally speaking, there are some really great efforts being made to integrate immigrants through the immigrant entrepreneurship work that’s happening, particularly down here in Portland quite deeply. So there are efforts to integrate those disadvantaged or underrepresented populations. Unfortunately I was just at a meeting yesterday where they told us that 93.3% of Maine in white, and so that’s a reality that we’re kind of seeding to. So focused on female founders because female-founded companies receive roughly 3% of all venture capital, which is preposterous frankly, and they are perceived differently and treated differently the whole way through the financing channel, particularly when we’re talking about equity based financing. So we’ve said that that is the biggest population in the State of Maine that has some very specific and idiosyncratic disadvantages that we’re going to try and address. Then we will actively work to support anybody who is looking to support those other disadvantaged populations.
Yury: Gotcha, and for our listeners I just wanted to put in perspective. In 2016 there were less than 3% of all VC money went to female-founded companies.
Jason Harkins: Right.
Yury: So that’s-
Jason Harkins: And yet the research suggests that female-founded companies actually offer a better ROI.
Yury: Interesting.
Jason Harkins: So when female-founded companies get that investment and they continue to grow and scale, they offer a better ROI than male-founded only companies. The academic in me could posit lots of reasons why that might be the case, but nonetheless, that’s the conclusion we have from the data we have to date.
Rich: Getting back to the earlier question, you talked a lot about how you go out and find these companies, but what if we feel like our business is ready to move forward, like we’re at the cusp, but maybe we haven’t made those connections with the MCED, Top Gun, these other MTI, these other organizations? How do we connect with you or how do we pitch you on helping us to really accelerate our business growth?
Jason Harkins: Right, that’s a great question. So if you go to www.scratchpadaccelerator.com right now, we have an apply here button right on the homepage, and as an organization that is deeply rooted in Maine, that has deeply held Maine values as it relates to encouraging participation. We do everything we can to screen every single applicant and have a conversation with them, whether or not they are appropriate for Scratchpad to point them towards the next resource, and we hope to be the next resource for many of them, but there are, every year we get people that apply that are too early or that are struggling with questions that are not appropriate for Scratchpad, and we actively look to find a partner somewhere else in the ecosystem so say, “Well, you’re not maybe ready now, why don’t you consider Top Gun, or check out the Women’s Business Center, or any of a number of other resource support organizations that exist across the state?”
Rich: What are some of the clues that somebody might be, that they’re not right for you? What are some of the things that I might struggle with where you’re like, “Dude, you got to do some other work before you can come to Scratchpad.”
Jason Harkins: Right. That’s a great question. So one of the things that we see often is somebody who has developed something, whether it’s a product, or a service, or a piece of technology, but they haven’t interfaced with their likely customers at all, a process we would call customer discovery. We would say that’s great, it may be a really amazing product or service, but you really need to go and interface with these potential customers and do some of that customer discovery. Another thing is we focus on organizations that have teams of people. You don’t have to both be co-founders, but you do have to have somebody other than yourself in order to build this business because it’s really, really difficult to build these scalable businesses, and there’s kind of this myth of the heroic entrepreneur, but the reality is that the data doesn’t bear out that that is nearly as prevalent as it could be.
Jason Harkins: Then on the other side, what we see is the we want to see a real ambition to compete on a national or international market in a big market. So we say the minimum scale that we’re interested in and that we think we can serve from a scalable perspective is a $100 million market. So if you have aspirations to go out and conquer Maine or New England, that’s great and we want to support that, but that doesn’t necessarily align with what we are as an organization from a mission perspective. So we would try and find another place to be able to provide those supports.
Rich: Not your sweet spot, that makes a lot of sense.
Jason Harkins: Right, right.
Rich: Yeah, cool.
Yury: A couple of your successful graduates like CourseStorm and Sofia Fima, what made them successful? As an academic and professor at the university, maybe two, five specific categories that helped them achieve their success and become known?
Jason Harkins: Sure, so I’ll start by talking about CourseStorm. So as I said earlier, CourseStorm was founded really by a team, Brian and Matt, and they are a very complementary team. So Brian has significant business experience, built a really successful web development company that CourseStorm really spun out of and then Matt is a very, very technical … Very talented technical co-founder, so that was one of the things that was really salient. Another thing for CourseStorm is that they were, they had done a lot of the pre-work, they had assigned on additional customers and they were working on trying to figure out how to move to scale. Then I would say generally for both CourseStorm and Sofia Fima, all of the participants that have really come out of Scratchpad, they’re curious and they want to find people who can help them be better. They don’t think they know everything, and I’ve met a lot of entrepreneurs who think they know everything, and that’s a real challenge in terms of at least running a program where you’re trying to provide them some support. Then they have a really good, they have their ear to the ground in terms of interfacing with their market and constantly trying to improve and make it easier and easier for customers to find and access the value that they create.
Rich: So what does a relationship with you look like? Whether I find you, you find me, we decide that there’s some scalability, I’m looking beyond New England. Walk me through what our relationship might be like.
Jason Harkins: Right. So we run what we would call a traditional seed accelerator, which means that it is time defined. So our programs run for 13 weeks. What would happen is you would apply, we would go about, do the interview, select your company, and then we would, this year we’re trying something that we think is going to really encourage participation from all parts of the state. We are running our, we’re modeling our accelerator after something that village capital, which is an organization that runs accelerators all over the globe does, which is we provide periodic in-person sessions followed by long stretches of remote interfacing. So we have you come together in Bangor, we pay for your lodging, we put you up in the coworking space at a desk, and we sit down and we do a lot of learning, we do a lot of team building. We really try and address a lot of core issues you can-
Rich: And is this multiple companies all at once? Is that what’s happening?
Jason Harkins: It’s multiple. Yes, absolutely. So we have four to six companies at a time.
Rich: Okay.
Jason Harkins: We feel like we, my business partner Lisa Liberatore and I can’t really provide the best experience if we take on too many companies.
Rich: Sure.
Jason Harkins: We need to really understand them well. So they come together as a cohort, we’d work on some of the common challenges that startups face with sessions led by experts from all over the state and the country, and then you go back and you work at your business for five weeks. We do remote check-in calls, we connect you with mentors, we work with you on developing a business roadmap, come back together again in person, go back and work remotely, and then our last gathering, our last week together is really focused on getting you ready to go out and raise capital. So hopefully the nine, 10, 11 weeks that have led up to this last week have helped you to develop your business and move it forward exponentially so that when we’re coming together the last week, you’re really out there and ready to go lay the groundwork and raise capital.
Rich: And after you’ve kicked me out of the nest.
Jason Harkins: Yes.
Rich: Is there any more follow-up or are you really focused on this one period in time of a company’s growth?
Jason Harkins: There is essentially unlimited follow-up, which at times is its own unique challenge running a program. We do kind of kick you out of the nest in terms of the on-site weeks, but I still get emails from the founders that were participating in 2015, or text, or Facebook messages, or however it is that you reach out to me and say, “Hey, I’m struggling with this. Do we have somebody in the mentor network that can help? Can we get on a phone call and try and understand this thing?” We want to be long-term supports, while recognizing that the intense focus is right there during the time you’re in the program. But if I can do anything to support a startup that I’ve worked with, or frankly that I haven’t in the State of Maine, I go out of my way to try and do that because I think that you have to give first if we’re going to build this scalable startup community in Maine.
Rich: Sounds good.
Yury: Are there any particular programs that you graduate your graduates into? I mean, ultimately we want to see them succeed, and scale, and grow.
Jason Harkins: Right.
Yury: But what if they graduated your program.
Jason Harkins: Right.
Yury: You move them or transition them into somebody’s else.
Jason Harkins: Yes, and actually that has happened each time. So as an accelerator, we are compared to some accelerators that exist in the country and around the world, we’re quite early, and because we don’t have an industry focus per se but are focused on the big gaps that exist in Maine, what we’ve had is CourseStorm graduated at the end of 2015, and in I think late 2016 went down to LearnLaunch in Boston, which is an EdTech focused accelerator where they could take the lessons that they had learned.
Yury: Niche specific.
Jason Harkins: Very, very focused accelerator just for EdTech companies. They could take the things that they had learned in Scratchpad, apply them, execute. Another one of our 2015 grads, Cobbler Technologies went down to AlphaLab Gear in Pittsburgh, and because he’s building a hardware startup, and he needs very, very specific manufacturing supports and other things, and so they’ve got expertise there. So we are finding that there is kind of this pathway that these accelerators go to, and we hope over time to be able to build more of that capacity in the state, but Maine can’t support these organizations alone. I mean, if they do what we hope that they’ll do, they’re going to definitely need to draw in resources that exist outside the state.
Yury: So as a follow-up to the previous question, so what are the problems that startups face that you help them with?
Jason Harkins: That’s a good … It’s a very complex question [crosstalk 00:17:07].
Yury: It’s like show part two, right?
Jason Harkins: Right. So I would say that there’s a few things that we believe that we do particularly well that are not necessarily done in other programs. One is we have a very explicit focus on that investment orientation and equity financing. So there’s a lot of really nuanced learnings that entrepreneurs, especially first time entrepreneurs need to wrap their heads around before they go raise capital or they find themselves at risk of potential being taken advantage of. These are every things from learning how to structure term sheets and negotiate deals with investors, to understanding the way that building boards actually works, because many earlier stage organizations are LLCs and they don’t have boards, or they have a board and it’s me, and I do whatever I want to do. So we spend a lot of time on that kind of equity orientation, and then we spend a lot of time also building systems and roadmaps to be able to get them from the early technical development that they’ve done into some sort of repeatable business model.
Rich: So all of this sounds fantastic. Who foots the bill for all this?
Jason Harkins: That’s a great question. It’s basically our partners. So Bangor Savings Bank is our founding corporate partner. We have found repeated success over time with the Maine Technology Institute as a funding entity and are partnering with a number of other for-profit kind of corporate sponsors. Eaton Peabody is our current sponsor and we’re talking to a number of others, but we really foot the bill essentially on the backs of people who have that long-term vision and the capacity to support us, because we know that startups can’t pay for this. They can never pay, find those resources, and even if they have those resources, we want them deploying them into their business. So we’ve gone out and we’ve talked to really forward thinking corporate partners like those that I’ve mentioned who are actively able to say, “If we put money into this now, that’s going to really shift the landscape and that rising tide truly lifts all boats.”
Rich: So along those lines, do the companies ever have to pay back any of the work they’ve done or do they have to say, “We’re going to keep this business in Maine, or hire Maine employees.” Or is it basically like, we’re just hoping that the goodwill of you and these supporters, these sponsors, are enough to keep them in the state?
Jason Harkins: Right. So there is some early evidence, at Scratchpad we’re part of the Global Accelerator Network, which is a network of a 115 accelerators across the globe. It’s kind of an exclusive network, and they have some evidence that suggests that somewhere between 60 and 70% of companies that participate in an accelerator end up place bound, whether it’s a headquarters or in an offshoot in that place because that’s where their support network is, but we don’t make it a requirement. What we do is we ask the companies to recognize the contribution of the organizations. There’s a couple of ways we ask them to do that. We do ask them to sign what is called a founder’s pledge, which essentially says, “If I own this company, I pledge a certain percent of my stock at some point in the future when I become fabulously wealthy, will flow back to Scratchpad to make the program evergreen to ultimately hopefully reduce the amount of corporate sponsorship we need.” 10 years from now. That’s one of the things.
Jason Harkins: Then our corporate partners, particularly Bangor Savings Bank and Eaton Peabody who have been supporters from 2015 until today. Those organizations have found that by building these relationships while they’re in the program, it doesn’t mean that you end up with the business, but uncompromisingly they build good relationships and it has led to a lot of business relationships.
Yury: And I think it’s not just about helping companies, it’s about letting the founders feel supported because usually it’s they’re a second or a third venture that they’re trying to launch.
Jason Harkins: Yeah, and one of the things that we have to be very careful when we talk to people like MTI or others who are kind of grant funding us is we say, we obviously want them to go out and be phenomenally successful the first time and raise gobs of money, and hire tons of people, and all of those things, but if they learn a ton in this program and this startup blows up, but they stay in Maine and they start another one, and the second one, or the third one, or the fourth one is really successful, we’re all better off for that because they’ve received that training and that support, and they will stay here and I think that that’s important.
Rich: Absolutely.
Yury: So speaking about staying in Maine and helping Maine grow and succeed. So if you could change one thing to improve the business ecosystem in the State of Maine, what would it be?
Jason Harkins: I think that the biggest gap that I perceive for the population of companies that I work for is access to two different tranches of capital, right? So our companies are all investment oriented, and what’s happened as the Maine Angels and the Bangor Angels, and Maine Venture Fund, and all of these different entities that fund organizations have gotten bigger, and they’ve aggregated larger pools of capital, their willingness to participate in those early stage capital investments has diminished, because if I want to put $200,000 into a company and you only want to raise $250,000, that puts basically me at risk.
Jason Harkins: So I think that there is very, very little seed funding in the state. There’s a bunch of individuals who you might be able to tap, but there’s not a really systematic way of accessing it, and then also once you get north of maybe one and a half to two million dollars and you need to raise between two million and five million dollars, you’ve practically have to leave the state, because those capital pools exist in Boston, or New York, or Silicon Valley, but they don’t exist here. I think if Maine could build some institutional support for investments in those levels, we would see as a state that those returns flow back as these companies are successful. I mean, we’ve seen in Portland, I mean the exits in the last four years have been absolutely remarkable, and to the degree that we can capture a lot of that wealth both within the company for the founders, but then also for the investors. If there’s more investment coming in Maine, that’s just more dollars returning to Maine when that success happens.
Rich: All right, this has been very helpful, and I’m sure a lot of people want to check you out. You mentioned the website before, but where can people find you online?
Jason Harkins: So I’m on LinkedIn at Jason Harkins. You can connect with Scratchpad, we have a Twitter and a Facebook page, both Scratchpad Accelerator, and then you can always shoot me an email at [email protected].
Rich: Awesome, Jason, thanks so much for stopping by today. It’s been great.
Jason Harkins: Yeah, thanks for having me.
Yury: Thank you.
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