Incubator polishes gem of an idea

Summer program aims to keep start-ups in area

Matt Lauzon (left) and Jason Reuben gained contacts and experience through their session at the Summer@Highland program. (Joanne Rathe/Globe Staff)

Matt Lauzon and Jason Reuben devoted the winter break of their senior year to scouting. They found places to live in Los Angeles and picked out office space in the city's jewelry district, the largest one in the United States. Their plan was to head west after graduating from Babson College last spring, to set up an e-commerce business that would connect consumers with makers of custom jewelry.

The pair were clearly rising stars: BusinessWeek included them in a list of "America's Best Young Entrepreneurs," and they won Babson's annual business plan competition.

A few weeks before graduation and their planned westward migration, they got a call from Bob Davis, a general partner at the venture capital firm Highland Capital Partners. Davis offered them a spot in the firm's inaugural Summer@Highland program, geared to helping students get start-ups off the ground.

The proposal: a $7,500 allowance for the summer, office space, and the ability to tap Highland's network of contacts. Without giving it too much thought, Lauzon and Reuben, who are both 23, canceled their plans to move to LA and spent the summer soaking up fluorescent lighting on the first floor of Highland's Lexington headquarters, working on their business.

Highland's summer program is one of just a handful of initiatives in the Boston area aimed at helping student entrepreneurs launch businesses.

To stay competitive with California and other parts of the planet that attract ambitious young people, Boston needs more like it. Given how many smart teens and 20-somethings come here to get degrees from our educational institutions, we have a woefully small number of "on ramps" that help them merge into the local business community.

"If you were to look in the history of the greatest venture capital wins of all time - companies like Oracle, Apple, Facebook, Microsoft - you'd see a lot of young entrepreneurs who've just gone off and done it," says Michael Gaiss, the senior vice president at Highland who started the summer program. "They're not tied to things, or stuck in a certain mind-set."

Lauzon and Reuben got connected to Davis - who served as the founding chief executive of the search portal Lycos - by one of their Babson professors.

As part of the program, they attended weekly lunches with various partners at the firm, attorneys, and executives from Highland's portfolio companies, like Stan Lapidus of Helicos BioSciences Corp. They received advice from Davis on determining the size of the market for custom-designed jewelry, and figuring out how they could test their offering. Their site, Paragon Lake, would generate new business for jewelry makers, help manage the design process, and take a cut of every transaction.

Lauzon also befriended an entrepreneur starting his third company with some seed funding from Highland, Pano Anthos. Anthos, founder of Hangout.net, a new kind of social network, was based in some nearby offices.

"It was a big help to be able to watch another start-up in motion as it grew, understanding how you build a culture," says Lauzon.

When the summer program ended, Highland allowed Lauzon and Reuben to keep using office space. Davis was bullish enough on the idea that he offered to provide some seed funding, but Lauzon thought it was time to raise a larger round to accelerate the company's progress.

"I didn't think it was a fundable idea at the time, and Matt felt differently," says Davis. "The team wasn't well-rounded, and it wasn't totally clear who the customer was, how the market was segmented."

Lauzon and Reuben tried to raise money from other firms last fall, with no luck.

"Matt came back a little deflated," Davis says, "but they continued to work."

They signed a term sheet with Highland in December, which gave the company the $500,000 in seed funding that Davis had dangled earlier. One key objective was to hire a chief technology officer to oversee the website's architecture. Lauzon demonstrated some entrepreneurial wiliness there, by making a list of once-promising start-ups that had hit the rocks, and sending messages to their top technology executives via the networking site LinkedIn. One who responded was Murali Menon, who worked at an e-commerce company called N2N Commerce that ceased operations earlier this year. Menon signed on, and also helped rope in some engineers he worked with previously.

Lauzon and Reuben kept signing up jewelers to work with the site, and in the spring they started talking to investors again. Highland helped make an introduction to Dan Ciporin, former chief executive of Shopping.com who is now a partner at Canaan Partners in Connecticut. (Ciporin also serves on the board of a publicly traded company, VistaPrint, that Highland backed.)

Lauzon met with Ciporin during a conference in April at the Four Seasons Hotel in Boston, and talked about the similarities between Paragon Lake and VistaPrint, both of which help old-school businesses connect with digital consumers. VistaPrint works with printers and makers of promotional giveaways.

"So much of being an entrepreneur is keeping an even keel," Lauzon says. "With the fund-raising and company-building process, there are the highest of highs and the lowest of lows. You've just got to wake up every morning ready to face what comes at you."

In his second attempt at raising venture capital, Lauzon says he found that West Coast investors "may have more tolerance for a younger team." But in the end, it was two East Coast firms, Highland and Canaan, that agreed to give Paragon Lake $5.8 million in funding.

With nine employees, Paragon Lake is still honing its strategies for acquiring customers, and still operating out of Highland's first-floor incubator space. Lauzon expects they'll move out by the end of the year, to other office space nearby.

Another company from last year's summer program is still in the building, too. Like Paragon Lake, Affine Systems, which analyzes video content on the Internet to target ads more intelligently, also received a seed round from Highland. Their newest roomies are the 2008 crop of student-run companies. It's a smaller group this year - two teams in Lexington, and one in Highland's West Coast office, down from eight teams in 2007.

"We view the program as an experiment still," says Gaiss. We could use more experiments like it.

Scott Kirsner can be reached at kirsner@pobox.com.