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The great mall of incubators
There may be no better example of the new breed of incubators than Divine Interventures. Founded by Andrew "Flip" Filipowski, the onetime CEO of Platinum Technology, Divine aspires to build nothing less than the Great Mall of Incubation, with everything an entrepreneur could want under one roof.
The brash Mr. Filipowski -- who sold Platinum to Computer Associates (NYSE: CA) last year for $3.5 billion -- has had no trouble getting investors to buy into his concept. Divine raised $425 million through a private placement, and it has filed for a February IPO to raise another $250 million. Among the company's preferred shareholders are Microsoft (Nasdaq: MSFT) and Dell Computer (Nasdaq: DELL).
Divine's pitch is that entrepreneurs can come in and get all the services they need to be successful without ever leaving their "habitat." It has set up a formal structure to deliver those services. There is Habitat Divine, a collection of buildings that house startups; Buzz Divine, which provides public relations expertise; Web Divine, a Web design shop; Sales Divine, a sales consultant; Justice Divine, which offers legal advice and services; and several more service providers. Divine startups aren't required to use its services, which they must pay for, but most do because of the convenience of having them next door.
FROM POINT A TO POINT B
One of the mega-hatchery's biggest cheerleaders is Rich Earley, cofounder and chief executive of Whiplash, a business-to-business (B2B) site for the travel industry. Mr. Earley says he and his cofounders, including Louis Borders, founder of Webvan (Nasdaq: WBVN), had their choice of top-drawer VCs, but they went with Divine to get to market faster. Divine has performed "better than Louis or I could have ever imagined," he gushes.
By joining Divine -- which cost Whiplash a 22.8 percent stake for $6 million -- Whiplash has reduced the time it will take to launch by at least two quarters, says Mr. Earley, who started two information technology (IT) services companies prior to founding Whiplash. "They really adopt your sense of urgency, and that's the key," he says.
Before he arrived at Divine, Mr. Earley says, all he had was technology -- an engine that he and his team spent three years developing. He tapped every one of Divine's service providers and was happy with all the results. The incubator drew up nondisclosure agreements (NDAs) and employment contracts, found his vice president of sales, developed a sales strategy, built his Web site, and is helping him raise his second round of funding -- about $30 million -- from corporate investors. It even came up with a catchier name for his company, originally called Travel Expert.
The incubator's PR arm, Buzz Divine, even located the hard-to-find chiropractor who owned the domain name whiplash.com; the husband of a Buzz Divine staffer tracked down the owner in Texas with the aid of only an outdated address. To top it off, Buzz Divine convinced the bone cracker to sell the name for $125,000 instead of the "millions" he originally asked for, Mr. Earley says.
WORTH DOING WELL
Not just anyone can get into the Divine incubation network. In its S1 statement, the company describes a tough screening process, noting that it expects "only a small percentage" of applicants to make it through. If they get into Divine, they should expect to give up significant equity -- anywhere from 25 to 65 percent. Like Idealab, Divine wants to be the majority owner in the companies it backs and incubates.
The demanding approach hasn't put off companies from joining the massive incubator. Besides Whiplash, the companies in Divine include i-Street, a B2B Internet community network for entrepreneurs, of which Divine owns 57.4 percent; LiveOnTheNet.com, a Webcaster of live events and advertising (69.5 percent ownership); and Opinionware, which makes software for Web sites to gather and analyze opinions from their users (29 percent ownership).
Mr. Filipowski says about 90 percent of Divine's investments will be in companies focused on B2B, with about three-quarters of them located in or around Chicago. About 60 percent of the investments will be in Net startups spun out of brick-and-mortar companies. The remaining 40 percent will be in pure Net startups in the greater Chicago area.
While Divine is new, the venture fund behind it isn't. To give his new firm a jumpstart, Mr. Filipowski rolled Platinum Technology's seven-year-old corporate venture firm, Platinum Venture Partners (PVP), into Divine. In its seven years, PVP raised three funds totaling about $100 million and invested in 36 companies, including Liquid Audio (Nasdaq: LQID), Starmedia Network (Nasdaq: STRM), and Yesmail.com (Nasdaq: YESM), which has agreed to be acquired by CMGI (Nasdaq: CMGI).
If Mr. Filipowski has as many hits with his new incubator as he did with Platinum Venture Partners, he will be truly divine. |
