NEWS: EvoNexus Incubators Switch to Equity Model
An Irvine tech incubator that has received most of its space and operating expenses for free from the Irvine Company – and was accepting startups with “no strings attached” – has started taking equity stakes in the startups it incubates, so it can become economically self-sufficient and not rely so heavily on its landlord.
EvoNexus – which originally started in San Diego, and has an outpost in Irvine – recently began taking equity stakes in the new startups it’s accepted in both locations. Both incubators are housed in Irvine Company buildings. The Irvine location is in UCI Research Park.
The percentage taken varies depending on how far along the early-stage startups are and how long they expect to be incubated. It’s typically between 1% and 5%, said Marco Thompson, EvoNexus’ senior executive mentor-in-residence.
Thompson shared this info Wednesday during a meeting at EvoNexus Irvine.
He was quick to point out that the Irvine Company has not given EvoNexus a totally free pass in the eight years since the first incubator opened in San Diego. (The Irvine incubator opened in 2015).
EvoNexus does pay some of its bills, Thompson said. But the Irvine Company pays the lion’s share, at $1.5 million per year, he added.
“We could not do this without the Irvine Company,” Thompson said. “But it’s not sustainable the way it has been.”
How It Differentiates Itself
EvoNexus was co-founded by Rory Moore, (CEO) and retired Navy Vice Adm. Walter Davis, (VP of organizational development). It started out as the San Diego Telecom Council and ultimately evolved into an incubator.
It differentiates itself on the length of its incubation period and the quality of its mentors, which include Steve Poizner, who sold three tech companies (two to Qualcomm) and managed a portfolio of a dozen startups as an SVP for a Fortune 200 company. Qualcomm, with HQ in San Diego, is a multi-national semiconductor and telecom company that designs wireless telecom products and services.
Poizner also led the charge for the Alliance for SoCal innovation, which is working to unify the OC, LA and SD innovation ecosystems and attract more capital to this area.
Typical incubators provide space and services from four to six months. EvoNexus incubates startups over a period of 12 to 24 months, with an average of 18. Every six months, EvoNexus’ team examines the startups to see if they’ve met their recent milestones. If they haven’t, they cannot stay any longer, although they remain part of the EvoNexus graduate family. The incubator typically dismisses 20% of its startups every six months, Thompson said.
What is EvoNexus is looking for specifically in a startup?
The capacity to get to a Series A raise within 18 months; a two-person full-time team; and having enough funds to last at least six months.
Services offered include mentorship, introduction to capital and collaboration with other entrepreneurs.
– EvoNexus is currently incubating 31 companies
– 168 companies have graduated to date
– The selection process is rigorous. EvoNexus typically takes one out of every 15 companies that apply.
– Startups that have gone through EvoNexus’ incubators have raised money from 160 different VC organizations, including K5 Ventures in Newport Beach. Some even raise money while they’re still being incubated — from EvoNexus’ strategic funding partners: Qualcomm and Viasat, a communications company with HQ in Carlsbad.
– In addition to the Irvine Company, EvoNexus also receives financial support from sponsors. It’s supported by more than 50 companies, mostly those that are interested in potentially acquiring the vetted and incubated startups down the line. 70% of the sponsors are publicly-traded tech and life science companies; the rest are the service providers that support them.
– 22 startups have been acquired, including one from the Irvine incubator. In November, Lextrum, a communications tech company, focused on antennas, became a wholly owned subsidiary of Transform-X, a communications company that acquires disruptive technologies for the 5G network and beyond. (5G is the fifth-generation and latest version of cellular technology, engineered to exponentially increase the speed and responsiveness of wireless networks.) Transform-X’s HQ is in Tucson, AZ.
– EvoNexus’ entire portfolio has amassed $1.4 billion in funding and acquisitions. Thompson expects another $1.5 billion in acquisitions in the next two years.
Thompson co-founded and ran CommNexus San Diego, an iteration of the San Diego Telecom Council. He describes himself as a serial entrepreneur and startup financing “junkie.” Before EvoNexus, he was the managing partner of Express Ventures, with HQ in San Diego, which invests in pre-Series A companies there.
– An average of $25 million – in debt and equity financing – is received by EvoNexus’ portfolio companies every quarter. Typically, the first investment is in the form of convertible notes from angel investors. The most recent quarter – Q2 of 2018 – saw $11 million in money raised. The highest recent quarter was $44 million in Q4 of 2017.
– More than 2,500 jobs have been created from companies within its portfolio.
Irvine Success Stories
One of the recent success stories from the Irvine incubator is Swift Health Systems, the company that created the orthodontic product, Inbrace.
“Inbrace is a new approach that leverages the latest advanced digital imaging technology and advanced manufacturing to create a next generation orthodontic (product) that improves on the aesthetics of Invisalign with (its) patented Smartwire technology,” CBO Vijay Dhaka told OC Startups Now.
The company touts its product as being more convenient and comfortable than Invisalign or traditional braces. Inbrace is hidden behind the teeth, whereas the other methods use braces and trays that are positioned in front of the teeth.
Swift Health Systems closed a $20 million Series B round in January. That followed its $5 million Series A raise that it closed in mid-2016 And it just moved out of EvoNexus to a new location within UCI Research Park that occupies 17,000 square feet.
Inbrace is currently available from some providers in OC, as well as some other markets. A nationwide roll-out is planned for the future.
“EvoNexus was invaluable in bringing to life our vision for Inbrace to investors, future hires and to our own team,” Dhaka said. “We all dream big in the startup world. Being a part of EvoNexus helped us turn that dream into a reality.”
Orthodontists John Pham, (CEO), and Hongsheng Tong, (CTO/CMO), co-founded the company.
Since Swift had already been at EvoNexus before the incubator started taking equity stakes, the company recently wrote EvoNexus a check, to pay it forward. In doing so, it essentially became one of the incubator’s sponsors, Thompson said.