By Robert Gray\ El Paso Inc.
Born to a blue-collar family in an isolated town of 7,000 people in southern Illinois, Cathy Swain is a self-described Midwestern farm girl.
At first blush, Swain might seem an odd pick to lead a technology incubator that aims to turn baby startups into high-growth global companies.
In reality, though, she is probably the perfect pick.
After graduating college, Swain left small-town life for Silicon Valley. Her career has taken her from Wall Street, where she worked in investment banking, to Main Street in Vermont where she worked in economic development.
“I know exactly how it works, and I am not in it anymore,” Swain says of investment banking. “The foxes are all over the chicken coop; there are no chickens left in fact. There will never be the reform there needs to be in that industry.”
In 1999, she withdrew her registration as an investment manager and came to Texas where she watched over the University of Texas System’s endowment and general fund, which amounts to more than $20 billion.
Swain has a fiery personality and radiates optimism.
Since July 18 of last year, she has been imparting her knowledge to entrepreneurs in El Paso as executive director of the Hub of Human Innovation, which opened a year ago.
“I walked into a fire hose,” she says.
Swain started her job with only a business plan in hand and a location in the newly renovated Sotoa Office Lofts in Downtown. She quickly found funding, hired a small staff, obtained non-profit status and approved the Hub’s first clients.
Swain has a bachelor’s degree in economics and a master’s degree in finance from the University of Illinois at Urbana-Champaign. She completed post-graduate studies at the Stanford University Graduate School of Business and is a Chartered Financial Analyst.
She has served as director of portfolio advisory services for Boston Financial Group and chief executive of Northern Community Investment Corporation in Vermont.
Most recently, Swain served as assistant vice chancellor for commercial development and director of investment oversight for the University of Texas System.
Swain sat down with El Paso Inc. in her closet-sized office – there is just enough room for a glass-topped desk, computer and the black exercise ball she uses as a chair – and talked about the Hub’s first year, its future and flying saucers.
Q: What brought you to this city to take the executive director position at an upstart incubator?
It’s a clean sheet of paper. The energy, the collaboration here – you don’t see that very often. The people I work with here, we were completing each other’s sentences in a matter of days. The Hub is not associated with any one individual. One of the things that made me grin the most when I got here was there had to be at least half a dozen people say to me, “Well, you know? The Hub was my idea actually.” And I thought, “This is cool. There are a lot of people here that seem to have taken ownership of it.”
When something is a winner, everybody wants to talk about it and we are going to be. Another thing is Mexico and the Latin culture is a passion of mine. I minored in Spanish lit in college and spent some time in Veracruz.
Q: What has the Hub done in its first year?
We have done a lot. First was to secure the funding commitment from the city – that was life sustaining – and the funding from the Texas State Energy Conservation Office, or SECO, that funds the clean energy incubator program.
Q: How much?
A total of $1.3 million over four years from the city and, from SECO, $200,000 over 18 months that ends Aug. 31. This is a proposal to SECO (flips through a pile of paper on her desk) to continue that funding for the next two years, so pray for us.
Q: I imagine you’ve had some late nights putting that together.
Oh, you don’t want to know. I’ve probably got 250 hours in this thing. I’m not kidding.
Q: You got the initial funding. What next?
I finished staffing the Hub, adding three employees, and we started adding clients. We’ve also launched three key programs; I will save the best one for last. First, we have enlisted roughly a dozen partners who have said they will potentially test and become early adopters of technologies developed by startups here, helping to prove the products in the marketplace. That’s a component of the clean energy incubator program.
The second program is the manufacturing partners program. When I came here, one of the things on my agenda was capturing the manufacturing strength of the region. The Paso del Norte is the gateway from Nova Scotia to Cape Horn. I mean, we really have an opportunity to be a pathway to the Americas. We have a lot of manufacturers in the region and Fortune 1,000 companies.
The problem is that those big companies do their own thing and aren’t interested in developing a production model for startups and new products. But there are contract and shelter manufacturers that do target new products and will work with a startup.
So we have identified more than 20 manufacturers here with all sorts of different skills that will actually work with startups.
Q: All in Juárez?
No. There is a mix in Juárez and El Paso. One of the things that really inspired us to get some momentum going behind the manufacturing partners program was an experience that relates to the third, and my favorite, program. That’s the team mentor program.
Q: Based on a similar program at MIT.
Exactly. So what has that got to do with manufacturing? Five of us went to Cambridge for training. While we were there, we attended a team mentor meeting. We were introduced as guests and told the group a bit about El Paso.
Later, one of the trainers comes up to us and he just said, “Shame on you guys. Every one of our ventures, as soon as they’re ready to go to manufacture, they go straight to China. They don’t know your area exists.”
So we actually have an open door to go back to MIT and tell the region’s story, the goal being to launch some MIT companies from here. And we got the exact same response visiting Silicon Valley.
I’ve been beating on the doors of REDCo, the El Paso Regional Economic Development Corporation, the city, economic development, anybody really, saying let’s get together and tell El Paso’s story.
And with the manufacturing program, now we can say, “MIT, Stanford. We have more than 20 manufactures down here that could work with your ideas and get them to market.”
Q: What is the team mentor program?
It’s a game changer for us and for El Paso. I see the power of it already. The approach is team mentoring. Sounds obvious, boring, “OK, whatever.” But, suddenly, the startups here have a team to help them. The mentors are volunteers – entrepreneurs, intellectual property lawyers, a venture capitalist from Austin, the head of a hospital group here, some very high powered, very quality, successful people showing up just for them.
I watched two or three of our clients that I would describe as stuck, despite everything the staff might do for them here, and they walk in that room and they rise to a whole new level. The mentors have to sign a document that they will live by a list of principals.
There are strict confidentiality agreements and, if any conflict arises, they have to resign from that team.
Q: So they can’t be an investor in a startup and mentor that startup at the same time.
Correct; they can’t sell their services to it in any way shape or form.
Q: So why do they volunteer?
They want to give back and they actually get a lot out of it. For example, some of the mentors are angel investors and if they decide, “Wow, I think I want to invest in this,” they just have to withdraw from that team. So they get to see an opportunity from the inside they may not have seen before.
It’s social. It’s exciting. Mentors get to meet with their peers and share their knowledge.
Q: How many have volunteered as mentors?
We have 22 already.
Q: You mentioned grants, but how else is the Hub funded?
Fees from clients, which right now are somewhere around 8 percent of our budget. Ultimately, the monthly fees might get up to 10 or 15 percent.
Q: What are the fees?
It’s the cheapest thrill you’ll ever get in your life. We have two types of memberships – resident and affiliate. Affiliate members have access to all of our programs anytime we are open – without a key or dedicated space. Residents have dedicated space, 24/7 secure access and their own phone line.
Affiliate members pay $295 a month. Residents pay $640 a month for an office and $575 a month for a cubicle.
Q: El Paso is not really known as a place for high-growth startups, but is there a startup culture emerging here?
It is a cultural shift that is going to take a long time, but the seeds are there. There actually is an entrepreneurial spirit already here in El Paso, but you’ve got to get people to raise up their heads and look at what is possible. I see that as part of our mission – to wake up the culture to what’s possible in terms of global market opportunities.
The local businesses who want to just serve El Paso County have many, many, many resources. But that’s not what we are about. We are trying to focus our energy on what I call technology-enabled, scalable businesses.
Q: How many clients does the Hub have?
We have 11 right now.
Q: Is there funding available in El Paso for startups?
That’s my world, so I’m like, “Give me that problem, give me good deals and I will find the money.” We have quite a lot of access to capital, everything from angel investors to SBA loans. Two of our companies have partnered with each other and one has money and is helping to fund the other. Good management teams, good jockeys with good products find money.
Q: So far, El Paso’s first venture capital firm, Cottonwood Capital Partners, hasn’t invested in an El Paso startup. While it has invested in other startups in the Southwest, the partners say El Paso startups that have applied just aren’t quite ready. Is that going to change soon?
Yes. That’s part of what our work is – to get the financials ready, to get the pitch ready, to get the management team together. I am going to predict that two or three of our clients will be ready to look for funding over the next year, and we will find it.
Q: Say I’ve got an idea for a startup and want the Hub’s help. What do I do?
Step one, you would call us. Actually, most people come in and we talk, and I’m going to have a feeling right away if you’re a fit or not. Believe me, I’ve turned people away. There is an application process and background check.
Q: How many applications have you reviewed?
I know we’ve reviewed at least 25 companies for the clean energy program. It’s a two way street; some have said they aren’t really ready or aren’t interested. We are looking for companies or ideas that represent some sort of scalable opportunity and entrepreneurs who are really dedicated.
Q: I know it’s only been a year, but can you give me a couple examples of successful Hub startups? Any failures?
I don’t want to name them, but I did have to terminate one contract. It was a lot worse than this but I’ll summarize it this way. The partners were not really being honest with one another.
As for successes, we have a company here called El Paso Roof Care that is a gazelle company, increasing their revenue by at least 20 percent every year for four years.
Q: One doesn’t usually think of a roofing company as a high-growth startup.
Well, they are going to hate hearing you call them a roofing company. I like to say they actually save the lives of roofs. Instead of replacing roofs, they find ways to extend the life of roofs and they do that with green materials.
Another one of our companies is Team Technologies. They have some very interesting technologies that are ready to be commercialized basically in three categories: life science, clean energy and advanced manufacturing processes.
We’ve got LeFran. They are going to take off like a rocket after they get their first products on the shelf, and that is within sight.
We have a brand new client that is going to make flying saucers. They are going to be showing their prototype at Spaceport America, and that is one reason why they’re here with us. They are going to be fundraising over the next year as well.
Q: Wait. Flying saucers?
Jerome Smith, co-founder of MIT’s Venture Mentoring Service, gave a presentation here recently and he showed a video of a flying car as an example of why they don’t try to pick winners.
When the flying car came in the door there everyone went, “Oh boy, here we go,” and five years later the company has a five-year waiting list for the car. That’s a bit like how I view the flying saucer. It’s very futuristic, but I think it is going to go.
Q: Any new startups coming in?
We have one coming in August. It’s awesome. They make prosthetics. I’ll tell you more about them once they are here. They are a non-profit and they make prosthetics for Third World countries.
Q: What has been the greatest challenge for startups in El Paso?
Before Jerome left to go back to MIT, after leading three team meetings for us, he told me, “Cathy, those could be MIT companies. You are seeing the same kinds of things we are seeing every day.” The challenges here are the same as they are everywhere. What I see everyday are people who come with great ideas and no business skills.
Q: What’s your target for the number of successful Hub graduates, say, in five years?
We don’t have any sort of graduation. I’m less concerned about graduating people than I am about continuing to meet their needs while they scale – even when they do an IPO. There are people in this town who have been through an Initial Public Offering who could really help some of the companies here eventually.
Q: I imagine we are a long way from having a Hub startup that goes public.
I would say we are five years away from that.
Q: Really? Five years.
It could happen – five years.