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Show me the money: Boston-based companies help startups start up

With world-class institutions, thousands of students and a large pool of investors, Boston proves itself to be a fertile ground for startups to develop and grow.

As the barriers to entry into the startup world decrease, entrepreneurship is becoming an increasingly popular phenomenon. And with the market for growing innovation, organizations specifically geared toward propelling ideas into businesses and nonprofits have emerged in major urban centers such as Boston to meet the demand.

Startup accelerators now take a variety of forms — gone are the days of entrepreneurs feverishly working in the basement or garage and gravitated toward angel investors and venture capitalists for funding. These new accelerators can be industry-specific, or large-scale corporations. Some startups benefit from less traditional benefactors though, such as equity crowd funding platforms.

Heralded as an education capitol, it is no surprise that Boston has attracted education technology entrepreneurs. Take Jean Hammond, cofounder of education technology startup accelerator LearnLaunchX, as an example.

“Teachers in K-through-12 need new ways in delivering content that will engage,” Hammond said. “They utilize technology and deliver electronic versions of testing and assessment in conjunction with how they deliver the content. And so that’s a growing market. Professors and other parts of the college and university education system and also career services or something like that — all of those people are looking for new tools.”

Hammond estimates about 200 education technology startups exist in Boston, but LearnLaunchX is the sole education technology startup accelerator in the region. Burgeoning companies are offered $18,000 of funding and free space for six months with LearnLaunchX. In return, LearnLaunchX gets a 6 percent equity stake in the new company. The equity means LearnLaunchX is an owner of the new company and shares in its profits, hopefully earning back some of its investment.

Education isn’t the only market growing. Boston is a hotbed for health care and health care technology. Recognizing the high growth potential, Healthbox, a health care startup accelerator with a 5 percent acceptance rate, operates in Boston.

“Our largest anchor strategic partner in Boston is Blue Cross Blue Shield of Massachusetts and they are one of the most innovative plans in the country,” said Ateet Adhikari, director of Healthbox Boston. “So whenever they are thinking about innovation and ways in which the health care system can work more efficiently for the population, they need new solutions and historically, once a large organization like this struggles to work with innovation, to be cutting edge, to work with startups and entrepreneurs who are doing cool work, our job is really to help connect them.”

Healthbox offers $50,000 in funding to each of the selected startups and takes a 7 percent equity stake, though the stake may vary depending on the stage of the startup, Adhikari said.

LearnLaunchX and HealthBox accepted six and 10 startups for their most recent cohorts, respectively, but they look uncharitable compared to the big funder in Boston: MassChallenge. Working with up to 128 startups at a time, MassChallenge is a major influencer in Boston’s innovation community (although its startups do not need to be Boston — or even Massachusetts-based — to be considered). Unlike LearnLaunchX and HealthBox, MassChallenge, which boasts a pool of over 300 mentors, does not take equity in startups, said Robby Bitting, director of marketing for MassChallenge.

“MassChallenge is different in that we don’t take any equity so we don’t place any restrictions on the entrepreneurs that take part in our programs,” Bitting said. “So we still provide all the resources, free office space, mentorship and a four-month program and curriculum. We provide over a million dollars in cash awards every year to top entrepreneurs, but we never take any equity. We never place restrictions on the startups, no geographical restrictions or equity exchange. It’s no strings attached.”

According to Bitting, the 489 entrepreneurs that have been through the program since its inception in 2010 have collectively raised more than $470 million in outside funding, generated nearly $200 million in revenue and spurred roughly 4,000 jobs.

But not all money comes from major programs. When Title III of the Jumpstart Our Business Startups Act comes this spring, investing in startups will no longer be limited to accredited investors.

“We are not talking about something that people are going to put 50 percent of their net worth into or anything on that scale of investing size. It’s going to be much, much smaller,” said Mike Norman, cofounder and president of Wefunder, an equity crowd funding platform. “With that being said, there will be a huge market. People are going to want to invest in something they would like to use. They would like to have around.”

Equity crowd funding is essentially a kick-start for companies, Norman said. After founding a few startups, Norman and his business partners, Nick Tommarello and Greg Belote, started to grow frustrated with the inability to individually invest in companies they believed in because of a lack of accreditation. This frustration inspired the entrepreneurs to found Wefunder in 2012. Accredited investors need to have either $200,000 in income or $1 million in assets to invest in startups, making backing startups only a rich man’s game.

“We saw an opportunity to really have an impact when Congress started dealing with this issue and making some significant changes and we launched a petition where people actually helped write the law of the JOBS Act, which is allowing anyone to invest,” Norman said.

By allowing lower income households to invest in companies, the JOBS Act has the potential to change the way people interact with new products, Norman said.

“People that know and love a startup most in its early days are the users, the early customers that really understand that this is something they need, but the majority of those people can’t invest in companies right now. They don’t meet the wealth threshold,” he said. “When Title III comes, we are going to see a shift in funding. We are going to see these early customers and users starting to invest in companies and they’re starting to evangelize and really promote these companies from a different place of motivation.”

CORRECTION: A previous version of this article mistakenly said Healthbox offers startups $60,000. The article has been updated to reflect this change.

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