This is the second part of a two part series on the Excelerate Labs application process. The first part was written by Ethan Austin of GiveForward about his experience as a startup that got accepted.    

Excelerate Labs is “an intensive summer accelerator for startups driven by proven entrepreneurs and investors.” The labs are led by top entrepreneurs Sam Yagan of OKCupid and Sparknotes and midVenturesLAUNCH panelist Troy Henikoff of SurePayroll.  Excelerate brings over a hundred mentors and investors from around the country to work 1 on 1 with ten startups each summer. The ten companies are selected to take part in a 13-week intensive course, ended by a Demo Day where they present to the investors about their progress and plans.  

Despite his busy schedule looking through applications, teaching Entrepreneurship at Northwestern, being an Advisor to Hyde Park Angels, serving as a coach at Booth’s New Venture Challenge and being a board member for Chicagoland Entrepreneurial Center, Troy Henikoff answered some pressing questions about the Excelerate program. (If you wish to read a more in-depth article about Troy and his background, check out Technori’s interview here.)

midVentures: You said in a recent interview with Kathryn Born: “We are looking for companies with solid business models and clear paths to revenue.” Has there ever been a situation when the idea won you over more so than the business model? Ethan of GiveForward commented that part of GiveForward’s success with Excelerate was pure luck. One of you (the directors) saw an article about GiveForward and the importance of raising money for medical expenses earlier that month.  How much luck do you feel comes from being able to succeed with Excelerate? 

Troy Henikoff: We try to be as objective and rational as possible in the selection process, but the reality is that there are hundreds of applications and only a couple of weeks to review them all, meet with the finalists and make offers. I am sure there were some companies that we did not make offers to that could have been better than the 10 that we did bring into the program so there must be some element of luck in the process.  Certainly being able to demonstrate traction is something we look for, and getting press is one element of traction, so seeing a write up of an applicant may impact our decision making process…  

mV: In your opinion, what makes a solid business team? You mention perhaps having preference over a team rather than an individual who applies – is this merely the opinion that there is strength in numbers, or is there more to it than that? 

TH: It is so difficult to get a new business off the ground, there is a seemingly endless list of tasks to get done, and each takes different personality types and skills.  To be effective at Marketing, Business Development, Software Development, User Testing, Customer Service, etc., it almost requires more than one person.  Drawing from our own personal experiences, we all agree that teams have a greater likelihood of success than a single individual.   

And don’t forget that having a group of people that thinks the idea is great as opposed to just a single person indicates that it may be a stronger idea too…   

mV: Describe a typical day in the life of an Excelerate Director post February 1st through April 1st.    

Photo by Seth Kravitz, Technori

TH: There is no typical.  Since Excelerate is a summer program, I am still focusing part of my time on other things right now.  By May it will be full time on Excelerate, but for now I am juggling teaching, consulting, giving seminars, meeting with entrepreneurs, helping existing portfolio companies, and working on getting things ready for the 2011 class all at the same time.  It is a good thing that I am a multi-tasker with a little bit of ADD in me, otherwise I would never get it all done!    

mV: Obviously you’re a man of a high work ethic with beginning your paper route at the age of 9. Do you look for this same kind of work ethic in teams that you pick?   

TH: We do look for work ethic, and believe that a lot can be overcome with enough persistence.  With that said, we prefer people who “work smart” over “work hard” and believe that you need to have some work-life balance to survive in the long run.  Entrepreneurship is a marathon, not a sprint.    

mV: What advice would you give to a young person who is unsure as to whether or not they can compete with someone older and wiser? Or the flip side, what advice do you give to someone who has a great idea, but believes they are too old?    

TH: I do not believe that there is any such thing as “too old” to start a business.  You may have other priorities that you feel are more important and you are not willing to make some of the compromises that are required to start and run a business, but you are never too old.  It was much easier for me to focus on just my business when I was 21 years old, and did not have any other responsibilities other than building my business.  Today I have to be smarter and more strategic about using my time so that I can juggle multiple things.    

mV: Have you had any pushback on the 6% ownership that you require?     

TH: If you are concerned about whether the program is worth giving up 6% or not, you should not apply.  The value that having a stamp of approval from something like Excelerate (or TechStars or Y-Combinator) adds is far, far, far more than 6% alone.  That is before you look at the $15k – $20k in cash, free office space, mentoring and connections that we provide.    

Last year there were two companies that were on the fence about participating before the program, at the end of the second week of the program they each pulled me aside and told me their own version of: “I am so glad you convinced us to participate, this was the best decision our company has ever made, and if we get nothing more out of it the entire summer, it was totally worth it!” And, that was just two weeks in!    

Would you rather have 100% ownership of a company that has not been through the program or 94% ownership of one that has been through Excelerate?  I can tell you what the professional investors prefer…    

mV: If you saw that a company needed more than just $15K-$20K to really succeed and do well out of the gates, would there ever be a situation where you would discuss raising the investment?    

TH: No, our investment is standard for the program and there is no negotiating.    

Almost all of our companies will need a lot more than our tiny investment to really grow.  Eight of the companies from last year have raised over $5 million in aggregate so far and the other two will as they grow.  Our role is to provide a platform for accelerating the growth of these companies, not providing financing.  The $15k – $20k we invest is really just enough money that the founders can quit their day jobs and work 18hrs a week on their companies. It is not growth capital.  That comes from the investors we introduce them to at Demo Day.    

mV: Describe your favorite part of a demo day that you have experienced.    

TH: There was nothing like the feeling of seeing Demo Day come together and have the curtain come up and the first team (GiveForward) just hit it out of the park.  That was then followed up with nine more that each exceeded my expectations.  I looked at the expressions on the investors’ faces, saw their engagement with the companies and knew it was all worth it!    

Chicago-based Neutral Tandem, provider of tandem interconnection services principally to competitive carriers, ranks second among the country’s fastest growing technology companies, according to data published by Forbes on Thursday.

This is after Forbes reviewed more than 5,000 total tech companies, eliminating those with significant legal concerns or possible accounting or governance issues and applying certain other subjective barriers like info from third-party sources. “We [were]…looking for minimum sales of $25 million and sales growth of at least 10% over the latest 12 months,” Forbes said. “We also required median long-term (three-to-five year) earnings-per-share growth estimates to be greater than 10%. Finally, we ranked companies on their five-year sales growth, which needed to be in double-digit territory for each year.” The final 25 were ranked on their sales growth rates over the last five years.

With a stellar sales growth rate of 100% every year for the past five years, Neutral Tandem came in second on that list, placing only below First Solar, a semiconductor company based out of Tempe, Arizona.

Neutral Tandem is leading telecom provider, which enables broadband providers to exchange data between their respective networks. According to its website, the company “was founded on the principle that a tandem network must be neutral—meaning, not owned by any one incumbent carrier—and is critical to the type of vigorous competition that ultimately results in lower-cost, higher-value telecommunications services for consumers and enterprises.”

It created the first independent network devoted exclusively to transforming how wireless, cable, CLEC, and broadband telephony companies route local transit traffic to one another. Today, almost every major competitive carrier in the U.S. uses Neutral Tandem to route billions of minutes of traffic each month.

Click here to see the full Forbes list for 2010.

Chicago-based Sprout Social, a social media management startup, just landed a $10 million investment from venture capital firm New Enterprise Associates (NEA). Combined with previous investments from Lightbank (an investment group created by Groupon founders Eric Lefkofsky and Brad Keywell) in November 2010, this brings the company’s value to a total of $50 million.

“Sprout Social is embracing an increasingly powerful segment of the market in online commerce – the local business,” said NEA General Partner Harry Weller in a recent press release. “Sprout Social’s powerful platform will allow those businesses to manage and extend their relationships with customers across a range of social media channels.”

Described by Mashable as offering “more robust management tools” and affordability for the smaller brand or agency, Sprout Social is essentially a tool that helps monitor customers on social networks like Facebook, Twitter, LinkedIn, and location services, all from one central hub. Through its platform, companies have a way to find new, targeted customers; directly foster relationships with current ones; and analyze audience demographics for optimal outreach.

According to Justyn Howard, founder and chief executive of Sprout Social, today’s consumers are “fairly cemented into social channels.” Even if companies are struggling to monetize social networks, he said, “[W]e still fundamentally need to talk to our customers… and [social networks are] where the customers are readily accessible.”

Regarding the new $10 million in funding, Howard also said, “NEA has a phenomenal team and shares our vision and ambition — it’s an excellent fit…We’ve built a great foundation and a product people love. Our relationship with NEA will allow us to grow and cement our position as a market leader.”

For more information on Sprout Social, visit SproutSocial.com.

Based out of Chicago, new auction site Cityposh offers a unique take on the daily deal model, combining an alternative sales approach with the value and importance of local businesses. Through daily featured auctions of everything from restaurant gift certificates to prime tickets to Chicago sporting events, Cityposh isn’t just another Groupon.

Business partners for the last six years, the founders of Cityposh Adam Siegel and Nate Kontny are the same duo behind Inkling, a company offering prediction market software and services for companies like Proctor & Gamble, Chevron, Ford, and the United States Government.

This week, midVentures caught up with Siegel – panelist from midVenturesLAUNCH - to talk about the second Chicago-based project the team has come up with. He answered our questions via email about what sets his company apart from daily deal sites, how his auction model offers new opportunities for consumers and businesses, and where he sees the company going in the future.

midVentures: Can you tell our readers a little more about Cityposh and what sets it apart from the typical daily deal site?

Adam Siegel: On Cityposh we auction food, fashion, and entertainment items and experiences 4-5 times a week. The items we auction are a mix of national brands like Whole Foods and Banana Republic, and local “experiences.” For example, Monday’s auction was for a $50 gift card on Southwest Airlines. A couple weeks ago, we auctioned two movie tickets at the Davis Theater in Lincoln Square in Chicago followed by a gift certificate for dessert at Cafe Selmarie a block away.

Cityposh is different from daily deal sites like Groupon and Living Social in two ways. First, while we feature one business on our site per day, we pay that business full price for the items we’re auctioning. We’re also only auctioning one thing at a time, vs. asking the business to commit to selling thousands of anything. So while they’re still getting the marketing exposure, they aren’t doing it as a loss leader. Second, we’re free to put together auctions you’d never find on any deal sites. For example, in March we’ll be auctioning Cubs opening day tickets. In April we’ll auction Bulls playoff tickets along with a limo ride to and from the game. When Grant Achatz’s new restaurant “Next” opens up, we’ll try to get a reservation and auction that off. Our ultimate goal with Cityposh is to go beyond what daily deal sites can realistically offer either because the item or venue is too exclusive or because the daily deal business model just doesn’t make sense for a particular local business.

mV: So it sounds like Cityposh is as valuable for businesses as it is for consumers. Can you give us some more examples of auctions on Cityposh and how the process works?

AS: Cityposh works like this: the opening price of an auction is a penny. People buy a pack of bids ($0.50/bid) in order to bid on the item. Each time someone bids, the price of the item goes up $0.01. There is a countdown timer and the last person to bid when time runs out wins the auction. It’s like a game of brinkmanship. Who is going to bid the most times to ensure they end up on top when time runs out? So far the winners have been saving 70-90% on the retail price of the things we’re auctioning. They may bid 20 times on a $50 item and therefore pay between $10-$12 for the item.

mV: Where did the idea for the Cityposh auction model come from? Where did your passion for the concept originate?

AS: It was pretty coincidental. We were meeting with one of our advisers for our other business, Inkling around Thanksgiving, and he was telling us about this auction site he had been playing on. We took a look and certain aspects of it were really appealing. Enough so that we ditched the agenda for the rest of the day and started riffing on how we might change and improve the model.

Nate and I have always been pretty passionate and admiring of local brick and mortar businesses so the opportunity to promote them while creating a game for people to have fun and win things at insanely low prices felt like a great opportunity. We worked nonstop through the holidays and launched to our friends and family a few weeks later.

mV: We know you’re currently looking to build your subscriber base by auctioning off gift certificates for high-end fashion and food. Can you tell us any of the specific auctions you have coming up?

AS: Until we have enough of a subscriber base, we need to stick to brands everyone knows and that means mostly regional and national chains. As soon as we hit critical mass though, we’ll start to move towards more local auctions. Theoretically, anything is on the table, from private dinners at your home cooked by a world-class chef to purse-making at Lill to cocktails and box seats at the symphony.

mV: What do you see as the ultimate goal(s) for Cityposh? Where are you hoping to go with it?

AS: The daily deal sites have obviously been quite successful and this is where we hope to mimic their success and business strategy by starting in Chicago but quickly moving in to other cities, following a similar path we’ve begun locally.

mV: What makes Chicago a good location for launching your company? What have you found in working in this community so far?

AS: We’ve always taken a lot of pride in having our companies be in Chicago and staying in the Midwest. Most of our friends and family are local, so the biggest benefit has been the ability to test Cityposh locally and get immediate feedback. Chicago, led by Groupon and many before it, also obviously gets alternative ecommerce models, so it’s not a stretch for people to understand and appreciate what we’re doing.

mV: Any upcoming developments in the works?

AS: We’ll be continuing to iterate on the application itself, but the biggest things we’ll be working on are building up our subscriber base, increasing the number of auctions we’re conducting, and creating a formal customer relationship management program.

We’re also working on some deals with companies locally who want to expose this new auction model to their existing customer-base, so we’ll hope those are successful in building new partnership opportunities.

mV: Excellent. We’ll be rooting for you at midVentures. Anything else you’d like to share with our readers?

AS: One thing we’ve been trying out that I think we’ll end up making permanent has been to donate part of our profits in these auctions to charities. So far we’ve donated to a Chicago homeless shelter and Jane Addams Hull House. This week we’re donating to the Organic School Project. Given we’ve just started, we’re not talking about thousands of dollars yet, but we’re looking forward to figuring out how we can support the community beyond providing the winners large cost savings on our auctions.

mV: Thanks for taking the time to talk, Adam! We’re excited to watch Cityposh as it grows and develops! To our readers, you can sign up for Cityposh online here.

The Chicagoland Entrepreneurial Center (CEC) announced yesterday the companies selected for its second “CAP 20″ class of high-growth entrepreneurs, a division of its Cluster Acceleration Program (CAP) to foster startups. Included among the eleven businesses it chose were midVenturesLAUNCH companies PV Power and School Town.

Through the CAP program, Illinois startups in key industry clusters (alternative energy, consumer products and services, and information technology for the new media, financial services and healthcare markets) receive access to critical resources and relationships. Each is matched with a CEC advisor who provides guidance on a plan for growth as well as three volunteer mentors—a seasoned entrepreneur, an industry expert, and a business development professional. The mentoring helps the startups project one- and two-year goals for growth, moving them forward as businesses.

“The CAP 20 program connects entrepreneurs with the critical resources and mentor relationships they need to be successful,” said John Roberson, Executive Vice President of the CEC, in a recent press release.

Plus, not only does the program offer opportunities for brand exposure but also the chance to win up to $8,000 in grants.

PV Power, a virtual distributor of solar components, was among three companies chosen from the Alternative Energy sector, and ELearning and collaboration platform School Town was one the four IT/New Media startups selected, along with Innovative Exams, Rover Enterprises, and Shift Worldwide.

Also picked were alternative energy businesses Peoria-based tankless water heater manufacturer Intellihot and Chicago-based Power2Switch; consumer products and services companies Mata Traders and Solixir; and IT/financial services businesses Balanced IT Solutions and FinanceSeer.

Serving companies from five regions—Chicagoland, Rockford, Quad Cities, Peoria, and Carbondale—CAP was made possible by seed funding from a two-year grant from the US Department of Commerce, Economic Development Administration (EDA) with funds awarded under the American Recovery and Reinvestment Act of 2009. Other sponsors include the US Department of Commerce, Economic Development Administration and PNC.