Cassidy: Hackers/Founders' Co-op incubator shows that the unorthodox works for startups

By Mike CassidyMercury News Columnist

POSTED:   01/24/2014 06:30:00 PM PST | UPDATED:   4 DAYS AGO

Portrait of, left to right, Jonathan Nelson, founder of The Coop, with members Christopher Betts, 23, front-end developer; Steven Betts, 18, hacker in training; and Torrance Carroll, 24, who is responsible for media and communication at their office on Tuesday, Jan. 21, 2014. (Josie Lepe/Bay Area News Group) ( Josie Lepe )

I guess we learned a long time ago that in Silicon Valley appearances often give you little to go on.

The company working out of Mom's garage? The next Fortune 500 firm. The guy in cutoffs and bare feet? Founder and CEO. The startup with the goofy name? The developer of technology that will change the world.

So, why shouldn't one of the valley's key startup accelerants be a 6-foot-6, bearded, bear of a man who is the son of missionaries and who was working as an ER nurse when he started his tech incubator in a Sunnyvale tavern. In a land where a company's creation story is almost as important as its business plan, Jonathan Nelson has a doozy.

Jonathan Nelson, left, founder of The Coop, takes a look at work with front-end developer Christopher Betts, 23, right, at their office on Tuesday, Jan. 21, 2014. (Josie Lepe/Bay Area News Group) ( Josie Lepe )

Yes, he's the bearded bear. He's also the founder, with his wife, of the Co-op incubator, a spinoff of the informal Hackers/Founders meetups he hosted in Bay Area bars.

"This wasn't supposed to be a business," Nelson, 40, says. "It was mostly me hanging out in a bar with nerds forming startups. We've kind of bolted a business plan onto it."

Without really trying to, Nelson -- who with his wife, Laura, have nurtured 19 startups in the past few years -- has built something of the people's incubator. It all started when Nelson, a self-described hacker, came up with an idea for a financial news aggregation site. He'd spend three nights a week at El Camino Hospital and four nights a week coding. His passion for his project started to drive his wife nuts.

"I was interested, but he needed to be around people who were more like him," Laura, 47, says. "So, we decided he would start a meetup group, with encouragement from me."

Nelson turned to Meetup.com, the website designed to bring people together in the real world, and invited those with startup ideas to St. John's Bar & Grill in Sunnyvale. "The first one was four dudes in a bar," Jonathan Nelson says. "The next one was eight dudes in a bar, dudes being a gender neutral."

But the crowd grew and over time Nelson noticed a pattern: Entrepreneurs, many of them immigrants, had solid ideas, but no clue as to how to get funding or who to talk to. Nelson knew enough to talk to Naval Ravikant, a founder of AngelList, which connects angel investors with entrepreneurs. Ravikant said he'd love to talk to people with good ideas and he urged Nelson to start an incubator where those with the best ideas could learn from each other.

And so the Nelsons started Co-op, which brings business minds together, sets up meetings with venture capitalists and builds networks in return for a 2 percent stake. The Nelsons are pleased that they've been able to enroll companies with women and Latino founders. They pay no attention to the schools that their companies' founders attended. They're working hard to open a permanent incubator in San Jose, where they see San Jose State, Santa Clara University, UC Santa Cruz and even more distant Cal Poly San Luis Obispo and UC Merced as gold mines for startup talent.

And while social networking, apps and other software plays might be buzzy, Nelson says he's betting on hardware companies, particularly those who plan to manufacture in Silicon Valley.

"I'm very, very bullish," says Nelson, who puts the average valuation of Co-op-incubated companies at $4 million. "San Jose is the second-largest manufacturing center in America. And it's all high-tech manufacturing."

Why should you listen to this guy? Co-op started nearly six years ago with a class of eight companies. Two died almost immediately. Of the other six, Nelson says, two were acquired, three have secured funding beyond their angel rounds and one is turning a profit. Since then, the incubator has helped 13 more companies start up. "Ten out of 13 raised capital; one didn't need to; two might be on the edge of dying."

Jonathan Nelson, left, founder of The Coop, oversees hacker in training Steven Betts, 18, on the computer at their office on Tuesday, Jan. 21, 2014. (Josie Lepe/Bay Area News Group) ( Josie Lepe )

Rob Katcher, founder of hiku, a Co-op company with fewer than 10 employees in downtown San Jose, says Co-op was key to the early success of his company, which makes a high-tech shopping list generator. "We would probably not be here if it weren't for Jonathan," says Katcher, whose hiku device attaches to a refrigerator and reads bar codes and accepts voice notes to create a list that it will then send to your smartphone.

The company had a promising holiday season, says Katcher without offering specific sales figures, and some of that comes from what he learned from others in his incubator class. Then there was Jonathan Nelson's ability to make the kind of match that results in investment.

"It comes down to him just being a genuine guy and that just resonates with people," Katcher says. "He just gets to know people and what they are interested in. Not everyone does that naturally."

And not everyone looks the part. Then again, that's something we learned long ago.

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