Investment Thesis for a University Incubator

Recently I was hired by USC, specifically USC’s Lloyd Greif Center for Entrepreneurial Studies at the Marshall School of Business, to build a USC Incubator program, open to any USC student or alum. As I started to survey needs of potential participants, I wrote an investment thesis.

You might ask why have an investment thesis for a university program that does not take equity positions in its portfolio. Actually, I believe that wherever there is selectivity and time and resources are spent, an investment thesis helps guide selection, granting of resources, setting expectations and measures of success, along with describing how the rest of the market appears in relation. Here are my thoughts, formed after spending about a month speaking to students and groups on campus. This is a work in progress and I welcome comments.

Abstract: There is growing awareness of the importance of entrepreneurship and entrepreneurial thinking, on and off the university campus. There is also massive growth in entrepreneurship programs, from weekend events to bootcamps to longer format accelerators and incubators providing education, mentorship and funding. When I co-founded an accelerator in 2012, there were only an estimated couple hundred of those programs around the world; now there are probably thousands. More universities are also launching accelerators and incubators. But in this market for entrepreneurship, much of the focus is on scalable tech startups, where high-value outliers drive portfolios. In some cases there is misalignment between the program’s business model and the long-term benefit of the participants. A look around shows both good programs and some that produce more PR than results. It is my belief, after the experiences of running an accelerator (where we invested seed capital in exchange for equity), running a for-profit (and expensive) bootcamp and now starting on a university program, that there are activities that we should bring to entrepreneurs and activities from which we should shield entrepreneurs. These activities focus on what serves the entrepreneur regardless of the market they find themselves in, bringing in structure, education and connecting people to talent, domain experts, sources of investment and other resources. Those of you who know me or who have read my blog and book over the years might not be surprised at the direction I describe below. 


Today all students and alumni, at USC or elsewhere, have to learn about and practice entrepreneurship, whether they realize it or not. Entrepreneurship or entrepreneurial thinking is no longer an option. This is unlike my experience when I was in school. Back then, there were still abundant and stable (so we thought) corporate careers that offered long-term growth. The burst dotcom and telecom bubbles were also still fresh in the collective memory. The association of “entrepreneurship” with “dotcom” or “startup” was a dangerous one that neither reflected reality nor helped those that made the association, as young graduates took career steps that reflected the past more than the future or what would serve them better in the following decades.

Over the last ten years, an at first quiet and then deafening rework of thought about how to build new companies took place both within and outside the university. These movements gained popularity in the tech community but were also partly based on work done earlier in manufacturing and scientific exploration.

There are more good resources and content available on entrepreneurship than ever before and yet we still question the results of this output and tools and processes. That’s fine. I question pieces of it myself.

Some programs are built around inexpensively churning through large portfolios of companies with the expectation that the true survivors will identify themselves over time. As long as equity is taken in a large enough portfolio then the long game provides enough upside to run the program. (As long as the program is beneficial and can last long enough.)

Some programs are built around education, trying to give founders the tools to become more successful, faster. The growth in programs like these shows that there is demand for knowledge beyond what many universities currently provide.

There are business models based on selling hope and fun to entrepreneurs. There is a lot of talk and little follow through.

There are many opportunities to learn and practice entrepreneurship at and around USC, from courses to clubs to other programs. There are many students and alumni to serve, many of which are not yet being served.

Entrepreneurship is broader than tech startups.

Sometimes, a great way to thrive is to avoid what everyone else does, as long as there is a reason.

Investment Thesis.

1. Invest in good teams, before they prove their businesses and see how they maintain the pace of learning.

  • Invest in teams that are coachable (who don’t know everything yet), that have the capability to build (this will be different depending on the business), that demonstrate commitment and drive, and that will be engaged members of the Incubator community.
  • Be open to different business types. This Incubator supports entrepreneurs, whether they run scalable tech startups, product companies or even boutique businesses. There is plenty to learn while operating each type of business. The program supports selected entrepreneurial teams regardless of their interest or attractiveness to typical investors.
  • Set milestones to track progress, based on learning objectives (data from running experiments etc) rather than milestones better suited to a stable business (increase sales by 20% etc). Based on achieving learning milestones, bring in more resources to help the teams.

2. Teach skills that will serve the entrepreneurs well in any economic climate or business stage they may find themselves.

  • If you are a current student building a business that depends on raising a large amount of financing but the market tanks by the time you graduate, that’s beyond your control but also a risk that you could have defended yourself against.
  • Teach skills and give repeated practice in bootstrapping, how to do customer interviews (and get good at them), develop and test business models, understand customer segments, get distribution, generate revenue and present the opportunity. The word “teach” is probably misleading given that the founders apply these skills directly to their work. We really look for change in behavior. This is workshopping plus time plus business application, coming together to equal experiential learning.

3. Do not judge potential Incubatees by perceived market size, at least not too soon.

  • There is a lack of awareness of how markets could develop. Often founders are told both to have niche focus and to also build massive companies. When you look at the historical assessments of Facebook or Uber, the two companies originally seemed like small opportunities because by looking at original market sizes we ignore growing past university students and changing passenger behavior, resulting in markets larger than anticipated.
  • The explanation that there is a baseline market size ($100M or $1B) below which a business is too constricted is an investor-centric worldview and one in which companies are only either highly scalable with good ROI or “lifestyle businesses” (profitable for the entrepreneur, not for the investor). I once heard a judge tell a student founder that his $8M business was too small to be interesting. If I were 20 years old, like the founder, I’d really like to run an $8M business.

4. Shorten cycle time, especially in these key areas.

  • Shorten the discovery cycle. Connect entrepreneurs to potential customers and train them (see point 2) in how to interview and learn from these potential customers, use metrics to learn from data and learn to assess what they need to build. Make connections to alumni and others in the community who may guide this process.
  • Shorten the development cycle. Connect entrepreneurs to developers, designers and business talent for specific project work or to team members who can deliver on these functions full-time. Connect throughout the university.
  • Shorten the operational cycle. Provide legal, corporate structuring, tax and other resources. Help entrepreneurs do the things that they don’t need to be good at personally, but which if ignored lead to problems later on.

5. Bring in mentors selectively.

  • Where there is specific domain expertise needed, bring mentors in to meet teams one-on-one. I find that the level of communication that takes place when mentors dive deeply into business issues outweighs the benefits that the group gets from shared general advice.
  • Where there is common needed business knowledge, bring people in, but sparingly.
  • Avoid building a long list of mentors unless they are actively involved with the program. There are long published mentor lists at many programs, yet these lists are often there more to attract entrepreneurs rather than to show the activity of (often rarely engaged) mentors.

6. Avoid activities that are quick, easy and which attract a lot of attention if they do not produce stronger founders and businesses.

  • Getting (and measuring) results requires time but parading Hollywood versions of a new business is relatively easy. That means that the market often defaults to doing the things that get attention — events that may attract big crowds, but which do not do that much for the entrepreneurs they are there to serve.
  • As an entrepreneur with a limited number of hours in the day, I believe that you should spend your time with customers and working on your business, rather than attending many gatherings (unless the events are packed with your customers).
  • Avoid feel-good celebrity visits that produce no lasting effects. If you need inspiration, I suggest you get it from looking at how delighted your customers become when you deliver and make their lives better. Or, find local heroes that will still be around and invested in your success.

7. Build around the strengths and needs of USC and Los Angeles.

  • Develop a program that benefits from the strengths of the area, eventually tying in with local industry and problems / opportunities.
  • Build for what will strengthen USC and Los Angeles even more.
  • In the future, add a “looking for people building solutions to —” component of the application to fast track certain types of businesses.

To apply for the incubator program, fill out the application here. The first intense, core program meets Fridays at 3pm, starting in the spring semester (from January 16th, 2015 for three months). There is also a parallel less intense track (same application). Any questions, email Paul at porlando at

If you don’t know Paul yet, here’s a bio.

(Published November 2014.)

Filed in: startup programs