Hang around certain corners of the New York startup scene long enough and you’ll start to hear the whispers.
Dogpatch Labs, the free office-space-for-startups program sponsored by VC firm Polaris Ventures, is “evil.”
You wouldn’t think a program designed to give new startups free desk space, coffee, snacks, phone lines, and Internet would have to deal with any negativity, but there are some self-described pro-entrepreneur people out there who will adamantly advise other startup people away from Dogpatch’s programs in Boston, San Francisco and New York.
- Joining Dogpatch will make it harder for your startup to raise money.
- Dogpatch will expose the ideas and tactics behind your startup to your competition.
- After promising you six months of free office space, Dogpatch will yank the rug out from under you at any moment?
We decided to get to the bottom of these chargers and find out if Polaris is actually up to something nefarious and unethical with Dogpatch – or if we were just hearing gripes from competitors, malcontents, and people with failed startups.
We talked to people with friends at Dogpatch companies, people with Dogpatch companies, and with Polaris’s Dogpatch front man, Peter Flint.
Let’s take the charges one-by-one and deliver a verdict.
Does joining Dogpatch make it harder for your startup to raise money?
Short answer: No. But there will be extra headaches in an already painful process.
Long answer: The main worry here is that VCs and other startup investors are basically herd animals – and that if Polaris, which has presumably gotten a long look at a Dogpatch startup, decides not to invest in said startup, other VCs will also turn up their noses. This theory is called “signaling.” New York angel investor Chris Dixon talks a lot about it on his blog. We talked about it with some Dogpatch startups. One CEO who didn’t get investment from Polaris, but did get it from other VCs, told us signaling issues were never a huge threat, but that he always felt compelled to explain why Polaris did not invest in conversations with other startups. Another Dogpatch CEO told us that one issue he had with fund-raising was a simple one: Dogpatch Labs may feel like your office – but you can’t hold a meeting with a non-Polaris VC there without it being very awkward. To counter all charges, Flint points out GroupCommerce and Postling – two startups that didn’t get Polaris funding but found plenty elsewhere.
Verdict – evil or not?: Polaris’s behaviour here isn’t evil, but startups should go into Dogpatch with their head screwed on straight. There will be fund-raising ramifications.
Will working at Dogpatch expose your startup’s ideas and tactics to rivals?
Short answer: It can.
Long answer: All the Dogpatch CEOs we interviewed on this question told the story of Scoop St and Zozi. Last January, Scoop St was the only Groupon-clone in the New York Dogpatch office. But then, during the spring, a startup called EkoVentures changed its name to Zozi and “pivoted” into the group-buying space. Soon after, Scoop St left Dogpatch. People close to the company tell us it was pretty clear Zozi was using some of Scoop St’s sales tactics. Another Dogpatch alumnus rightly points out that lots of startups in the last year pivoted into the group-buying space – and that Groupon’s HUGE success probably was a much bigger reason than anything Scoop St was doing. “But,” says this CEO, “it is also possible that while there, [Zozi] saw that Scoop St. was getting some traction [and] that further verified the model for them.” Zozi disputes all of these details. Honestly, we have no way of judging these allegations. The point is that a startup at Dogpatch came away feeling that some its ideas and tactics were picked up by another startup. Our advice for startups is to expect that kind of thing going in. Flint says, ” We ask you to be wildly collaborative and be comfortable to share what you are doing with others.” Flint also says that when startups reach a stage where they have full time sales people making sales calls all the time, it’s probably time for them to move out of Dogpatch – even if their six months aren’t up.
Verdict – evil or not?: Not evil. But any startup going into a collaborative startup space should know that these kinds of things can and do happen.
Will Dogpatch kick you out before your six months are up?
Short answer: Yes, but for reasons Polaris warned you about.
Long answer: We’ve heard about a couple Dogpatch startups getting booted. According to Flint, Polaris has only kicked startups out of Dogpatch for two reasons – they’ve gotten too big, or they are in telephone sales mode.
Verdict – evil or not?: Not evil. But Polaris could be clearer with Dogpatch CEOs that if they grow too big or enter sales mode, their free office space will be gone.
FINAL VERDICT: Dogpatch isn’t evil, but entrepreneurs can’t be naive about what they’re getting into.
They’ll need to…
- Craft their funding pitches to handle the question of signaling.
- Be aware that other startups are always looking to use ideas that work (even if they didn’t come up with them).
- Know that if their company gets too big or starts making lots of phone sales the free ride will come to an end.