I spent all of one minute describing this to the James Madison Surplus Property Committee, and figured I should expand a bit on it.
There are lots of ways to start companies, and no “One True Way” among them. In the software world, one model that’s becoming particularly popular is the “Y Combinator” model. Basically, a venture capital firm takes a few very small companies who have the beginnings of an idea, gives them enough money for a couple of months of work, and tells them to “go for it.” It’s aimed at younger entrepreneurs – it’s assumed that you can continue to live like an undergrad and just build a great product, and since you don’t have kids or a mortgage or really any other obligations, you can take 6 months and just see where it goes. If it fails, whatever. Move on.
Y Combinator picks a couple of these companies every few months, gives them $15,000 or so for a few months of work, and takes a small percentage ownership of the company. So far, they’ve funded about 150 companies – at least a few of them look like they’re going to be fairly big hits (dropbox, posterous, scribd – any one of which could sell out or go public for more than enough to recover the costs of all 150 companies.)
The point of a Y Combinator company is you have to be cheap for the beginning year or two of the company. Most “companies” live together as roommates at the beginning, or certainly don’t work out of offices, but instead work out of the dining room or the garage. As a local example, the bulk of recently-funded PerBlue spent its first year or two with most of the company all sharing a big apartment, and simply working together. In a more famous example, id Software (creators of games like Quake, Doom, and Wolfenstein 3D) got their start in Madison, but as they were mostly from the south, couldn’t handle the winter and headed back to Texas.
My idea for the Collins House is let’s use it as free lodging for a company or two that want to start under this model. Here’s how it’d work.
The city would sell the Collins House to the CDA, or WARF, or the UW Research Park, or Madison Development Corp, or CommonWealth, or something similar for $1. Maybe they’d put some money into repairing it before-hand, maybe they’d expect the purchaser to do so. I don’t care. Or maybe the city retains ownership. Again, I don’t care. Of course, if we sell it, we’re careful to include language that the city keeps the land or has some way to get the land back. The new owners or the city fixes it up and make it habitable, which shouldn’t be that much work. Also, we get it a really really great Internet connection – ideally, we connect it to something like MUFN and give it a 100Mbps or better fiber connection. Maybe we throw in utilities, too. Additionally, the city squashes any zoning laws that might make working out of the Collins House a problem.
The new owner or the city partners with a local venture firm to help select a startup or two, and the firm ponies up a bit of money to fund the new venture ala Y Combinator. It’s important that we include this step – not only for the money, but for the connections and advice that come from it. Kegonsa seems like it’d be up to the task, or I’m sure we could find someone through MerlinMentors. (The Madison Entrepreneur Resource, Learning and Innovation Network). This can’t just be free rent if we want it to work.
So we somehow pick the startups and make a deal: anyone who works for the company can live and work there for free for up to two years. At the end of a year or two, the company needs to either have made it or gives up. Then we pick new companies and repeat. If all goes well, we’ve bootstrapped some new companies and created good jobs.
Maybe it’s tied in with something larger: Research Park’s Metro Innovation Center or MG&E’s Madison Enterprise Center are just a few minutes away, as is Sector67 and Network 222.
This isn’t just for Madison startups, or for people we can talk into spinning out of Epic. While it’d be easiest just to recruit out of the UW-Madison, we could and should recruit nation-wide or even world-wide.* If you’re fresh out of college at from say the University of Nebraska and just turned 23, Madison, WI is a pretty great place to live. If you’ve got a great idea for a web startup, and you can go out to California just as well as anywhere else, free rent in an amazing house on the lake in a jewel of a park with easy access to the downtown entertainment district for the first two years – that’s a hell of a way for Madison to sweeten the deal.
There’s technically nothing special about Collins House – we could do this anywhere in the city. However, if you’re looking to attract the Y Combinator Crowd, you need to pick something with character – a boring cookie-cutter house in some suburban tract development, 15 miles away from anything that stays open past 9pm isn’t going to do it. We could get started with Collins House and in a year or two bring a few more online elsewhere around the downtown. If we’re serious about revitalizing East Wash, let’s put one or two of these there.
Collins House has sat empty for a few years now. It brings in $0 in revenue, and contributes nothing to the neighborhood. This doesn’t need millions of dollars in TIF money to get started. There is no single silver bullet for economic development, and we need every trick we can find in our toolbox. There are things that in our region that really only Madison can pull off, and this is one of them. For virtually no cost, let’s give it a try.
* As an example of thinking world-wide, Madison last month (hopefully only temporarily) lost a startup to Santiago, Chile. Chile went out and recruited 25 startups to come down for 6 months with $40,000 and free office space. For $1 Million, if just two or three stay and do well, that was a great investment.
Erik, very nice post and a cool idea. And don’t worry, we’ll be back in Madison in a few months once Madison warms up again.
Nathan Lustig
cofounder, entrustet.com
wow that is a very cool idea, and thanks for suggesting common wealth development. i am a huge huge fan of that organization. they would be perfect for a role in a project like this.
Commonwealth could do it; Madison Community Cooperative would be an even better fit. MCC has stewarded large downtown multi-family properties since 1968, while supporting cooperative governance within.