Episode Summary
Executive Summary: Jason and Josh Baer discuss how Capital Factory has adapted from an in-person Texas accelerator into a largely virtual community during COVID-19, while preserving its core mission of connecting founders to investors, customers, and talent. They also explore South by Southwest’s cancellation, the role of serendipity in startup ecosystems, investment lessons from decades of angel investing, and which startups and founders are most likely to survive or thrive in the downturn.
Main Topics: Capital Factory’s role as Texas startup center: Josh Baer explains Capital Factory as the center of gravity for entrepreneurs in Texas, built to connect startups with mentors, investors, customers, and talent through community, programs, and space. COVID-19 and the shift to virtual community: The conversation focuses on how the accelerator moved office hours, Slack engagement, AMAs, and mentoring online, with virtual participation often exceeding in-person utilization. South by Southwest cancellation and event risk: They unpack the controversial cancellation process, force majeure, insurance implications, liability concerns, and why the shutdown was ultimately inevitable. Startup investing lessons and founder evaluation: Josh reflects on past investment mistakes and emphasizes betting on exceptional people, clarity of communication, and founders who execute on promises. Which startups will survive or win in a downturn: They break companies into survival buckets, arguing that weak businesses will fail, strong ones will struggle but endure, and a small group of special companies will explode due to the crisis. Remote work, distributed teams, and the future of offices: The discussion examines whether remote work will permanently reshape startup culture, real estate, and company structure, while noting that in-person interaction still creates an edge. Austin’s ecosystem, migration, and culture: They cover Austin’s growth, its blend of libertarian and progressive culture, the rising investor base, and why newcomers feel welcomed and plugged in.
Key Arguments: Virtual office hours and community tools can increase participation because they lower friction, even though they cannot fully replace in-person serendipity. In-person relationships create ‘capital’ that makes later virtual interactions more authentic and productive. South by Southwest’s cancellation was a hard but necessary decision driven by public health and liability realities; force majeure and city action mattered. During downturns, startups that were only barely viable often fail quickly, while strong companies still need discipline and will likely cut spending, lower forecasts, and survive. The next wave of winners will include companies serving at-home needs, remote work, education, meditation, and other behavior shifts accelerated by the pandemic. Great investing is less about predicting the exact product and more about backing exceptional founders who learn quickly and execute consistently. Founders should not overstate perfection; they should show what they have learned, be candid about limitations, and do what they say they will do. Remote work may persist in a meaningful minority of companies, potentially changing office strategy, hiring, and geography for startups and larger firms.
Data Points: Capital Factory investments: hundreds; possibly close to 500 - Josh Baer estimates the number of companies he has invested in over his career. Virtual meetings per week: about 200 - Capital Factory’s office-hours style meetings happening remotely during the pandemic. Slack community launch: 2016 - Jason mentions the This Week in Startups Slack instance starting around this time. Capital Factory accelerator equity: 1% common equity - Startups in the accelerator give up one point of common equity into a yearly pool. Capital Factory last fund size: $23 million - Josh describes the most recent fund used to invest alongside startups. Typical investment size: $50,000 to $250,000 - Capital Factory’s bite size across seed to Series B, averaging around $100k to $150k. Average investment size: $100,000 to $150,000 - Josh describes the typical check size across deals. Portfolio companies joining program last year: over 100 - He says more than 100 companies joined the mentor/equity pool in the prior year. Mentor pool exposure: 1% of each company - Each year’s mentors share a pool that effectively gives them a small slice of each company. LinkedIn membership: 675 million members - Mentioned in the LinkedIn Jobs ad read. Startups received over time: 50 companies from Houston in the past year - Capital Factory’s recruiting in Houston and regional expansion. Remote work adoption scenario: 5% - Josh argues even a small shift to remote work would be a tidal wave. Austin housing example: $1,500/month - He cites a one-bedroom apartment in Austin as an affordability comparison. San Francisco housing example: $4,000/month - Used to contrast Austin’s lower cost of living with San Francisco.
Pivotal Quotes: "Capital Factory is the center of gravity for entrepreneurs in Texas." — Josh Baer: Defines the organization’s mission and regional role. "It really easy for me to have a Zoom with anybody that I want to, but it's not easy for me to have a Zoom with somebody I wasn't intending to have a Zoom with." — Josh Baer: Explains what is lost when in-person serendipity disappears. "If you're one of the special ones, you're going to excel. You're going to boom. You're going to explode." — Josh Baer: Describes the small subset of companies likely to outperform in the downturn.
Implications: Founders should expect more virtual fundraising, community-building, and hiring, but still value in-person trust and serendipity. In downturns, execution and resilience matter more than hype, and companies aligned with remote, at-home, and education trends may gain the most.
About This Week in Startups
Jason Calacanis covers startups, tech, markets, media, and all the hottest topics in business and technology. He also interviews the world’s greatest founders, operators, investors, and innovators.