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Capital Factory founder responds to criticism of unpaid internships

(BUSINESS NEWS) Capital Factory founder, Joshua Baer responds to criticism of their recent blog post featuring participating companies’ internship opportunities.

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capital factory

The center of gravity

Capital Factory is the self-proclaimed “center of gravity” of the tech and entrepreneurial community in Austin, soon to celebrate a decade in operation as an accelerator, incubator, coworking space, and guide for the industry. If you’re in the Austin tech world, you’ve been to one of the many events in their space, from Ignite speaker series, the Austin Diversity Hackathon, Women Epic Office Hours (kind of like speed mentoring), to the Nonprofit Tech Club, or [name any coding language] networking meetup.

In fact, according to founder Joshua Baer, the 40 person team that operates Capital Factory is 75 percent women and is comprised of two lone white males. The opposite of what most tech startups internationally can say.

The scrappy company has endlessly made something out of nothing, so to speak. “We lead by example,” Baer asserts.

Why then is the company currently under fire?

They recently asked all of the companies participating in their program if they had any internships opening up that they could promote for them. Then, they posted the openings, most of which are less than part time. Here is the original internship posting that ignited the debate.

Sounds innocent enough. But some in the Austin community rejected the fact that some of these internships are unpaid.

Ironically, two positions have been commonly taken, both on and off the record. The first is that unpaid internships anywhere exploit people and benefit the company with free labor. The second is that the wealthy are disproportionately advantaged because mommy and daddy can pay their bills while they pad their resume by working for free at a startup.

Baer calls accusations of exploitation “ridiculous” and favoring the rich oxymoronic. He responds by challenging anyone to find an unpaid intern from any of these startups that feels exploited.

Whichever opposing viewpoint you may subscribe to (it exploits people or favors the rich), the ethics are subjective.

What is not subjective is the law

Lawyers tell us the internship postings aren’t clearly illegal, nor are they clearly legal. Baer said that they did not review the listings for legality, but that Capital Factory pays their interns, again, leading by example.

When asked if the tone of the job postings could be the source of the ire, given that they failed to focus on what an intern would learn, rather on what their required skills and duties at the company would be, Baer called this a “learning moment.” As their role is to guide, not operate these companies, he said that perhaps they can help guide their entrepreneurs to write better job descriptions in the future.

What the federal law boils down to is that unpaid interns may not benefit the company financially, and that it cannot be unpaid unless it passes the stringent Department of Labor test of six criteria:

  1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
  2. The internship experience is for the benefit of the intern;
  3. The intern does not displace regular employees, but works under close supervision of existing staff;
  4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
  5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

The DoL goes on to say, “If all of the factors listed above are met, an employment relationship does not exist under the FLSA, and the Act’s minimum wage and overtime provisions do not apply to the intern.” Meanwhile, unpaid internships are pretty kosher in Texas, but they point back to the restrictive federal laws.

Baer calls the whole exercise a “waste of time,” noting that “the Department of Labor isn’t going to enforce this, it’s a waste of their time, they have bigger fish to fry, so it’s not going to change,” several times alluding to the DoL’s focus being on larger companies like IBM, not such tiny early stage startups.

CF also under fire for not enough melanin

Also part of the internship posting are pictures of the teams, most of which are two to 10 people large. Although not exclusively all white males, many complained that the pictures were revealing of the startups present in the Capital Factory ecosystem.

In response, Baer reiterated that they lead by example by being one of the most diverse teams in town, working hard to “combat brogrammer culture.”

Some believe the negative response about diversity is a knee-jerk reaction that every event host is familiar with (there are more men on the panels than women, you sexists!), and every startup has heard (there are no black people on the team, you racists!). Others believe pointing out a lack of diversity is critical in impacting change.

“The Austin startup scene is becoming a parody of itself,” Redditor Travis_Williamson commented. “All of the upper middle class white guys in those photos are just creating shit for themselves at this point.”

Skin and pay aside, what’s the real issue?

The troubling undertone of public and private conversations surrounds the nature of Capital Factory. Since their inception, they’ve been an unquestionable force in the Austin tech world, unavoidable even. Success breeds jealousy and they’re often the victim of vague criticism for that reason.

But this line of conversation is different, more venomous. More substantial.

The legitimacy of the startups in the internship posting is under heavy fire. Mean-spirited comments about their model permeate communities like Reddit where Baer is accuse of being “less of a keen startup motivator and more of a rent queen,” with others saying that if the CF ecosystem is so hot, the companies should be able to at least afford minimum wage, not just an honor badge.

Baer, used to being a target, says the online commenters are “complainers” and brushes off the entire critique.

Baer insists they teach entrepreneurs how to be “resourceful,” and “scrappy,” reiterating that an unpaid intern won’t be the only unpaid person on some of these teams that are being guided to make something out of nothing. It is also important to remember here that Capital Factory doesn’t own or operate these companies, they’re an incubator/accelerator designed to incubate/accelerate.

So although the internship posting was a simple gesture from the actual Capital Factory team toward the companies in their offices, it triggered numerous online and offline debates about unpaid internships, then about diversity. Baer firmly believes they lead by example with a diverse team and paid interns, but with the postings focused on job duties and not on intern learning opportunities (the core tradoff of unpaid internships), it created a vulnerable moment for CF that the internet jumped on.

The future of unpaid internships at CF companies?

Baer argues that a “three person startup can’t barely even pay payroll and doesn’t really even know what they’re doing and are just trying to figure it out? Yeah, they can have unpaid interns, sorry. I don’t think that’s a problem.”

Will Capital Factory reconsider their position on unpaid internships? Absolutely not.

In fact, Baer doubled down, asserting, “I’m not going to discourage them from doing that. I’m going to encourage them to be creative about finding other ways they can not pay for things, or defer paying for things, and do other things that allow them to create something out of nothing, which is what creates jobs for other people and allows them to eventually pay for them.”

#unpaidinterns

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3 Comments

3 Comments

  1. Paul O'Brien

    April 20, 2017 at 4:59 pm

    Interesting. There is much to be said for why and whether or not we should be having to reinvent the wheel of entrepreneurship. The point that startups are 3 person teams without even enough capital to pay themselves is VERY valid. So too is the point that people need to be paid. Someone not getting paid in a startup is part of the team. An intern is there to learn and further paid to work; what I look to in internships if from whom the intern will be learning and if that’s lacking, one has to wonder how an intern can benefit.

    What I find here (In Austin, relatively speaking to my experiences on the coasts) though is that startups are unwilling, discouraged from, or unfamiliar with how to deal in equity (and more importantly – how to ensure that equity is valuable). Owners are neither interns nor employees unless they are too that. I own a piece of a business, that’s why I work on it; AND I am paid by a business, for my position in it.

    There is a real challenge for us to collectively consider when venture capital isn’t prolifically available, funding rounds are relatively smaller, and outcomes average a fraction in size compared to elsewhere, if exits occur at all: equity is both at once more precious and less valuable. Founders want to retain just a bit more, early investors hesitant to relinquish as much, early supporters seeking their ROI. Likewise, Angels press for a little more ownership to offset the relative rate of return.

    What then is available to build good teams?

    By no means an answer or a way forward for us. Just an observation of reality that relatively less capital, less valuable companies, causes the circumstances with which we need to work. Startups can’t succeed without teams, and young professionals will struggle to get the good experience they want/need, and can provide, if businesses can ill afford them. Let’s solve the challenge.

    Business capitalization, valuation, growth, and establishment is NOT remotely easy. We might be experiencing a lot of a cart before horse situation where we think we need more startups to find their way, to get more capital injected, to get interns and executives paid, to drive further outcomes. Maybe we’re going about it wrong and need to work the other way with more leadership and education to drive outcomes, get more executives and interns involved valuably, injecting more capital into the ecosystem, enabling us to fuel more startups.

  2. Pingback: Summer 2017's best paying internships - The American Genius

  3. Pingback: THE DISRUPTORS: Joshua Baer stamps his brand on the DFW startup scene - Launch DFW

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Business News

Bay Area co-living startup strands hundreds of renters at dire time

(BUSINESS NEWS) They’re blaming COVID for failing as a co-living space, but it looks like trouble was well established even before now.

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Person packed a bag and walking away from co-living space.

Over the last few years, “co-living” startups have become increasingly common in tech-rich cities like San Francisco. These companies lease large houses, then rent individual bedrooms for as much as $2,000 per month in hopes of attracting the young professionals who make up the tech industry. Many offer food, cleaning services, group activities, and hotel-quality accommodations to do so.

But the true value in co-living companies lies in their role as a third party: Smoothing over relations, providing hassle free income to homeowners and improved accountability to tenants… in theory, anyway. The reality has proved the opposite can just as easily be true.

In a September company email, Bay Area co-living startup HubHaus released a statement that claimed they were “unable to pay October rent” on their leased properties. Hubhaus also claimed to have “no funds available to pay any amounts that may be owed landlords, tenants, trade creditors, or contractors.”

This left hundreds of SF Bay Area renters scrambling to arrange shelter with little notice, with the start of a second major COVID-19 outbreak on the horizon.

HubHaus exhibited plenty of red flags leading up to this revelation. Employees complained of insufficient or late payment. The company stopped paying utilities during the spring, and they quietly discontinued cleaning services while tenants continued to pay for them.

Businesses like HubHaus charge prices that could rent a private home in most of the rest of the country, in exchange for a room in a house of 10 or more people. PodShare is a similar example: Another Bay Area-based co-living startup, whose offerings include “$1,200 bunk beds” in a shared, hostel-like environment.

As a former Bay Area resident, it’s hard not to be angry about these stories. But they have been the unfortunate reality since long before the pandemic. Many urbanites across the country cannot afford to opt out of a shared living situation, and these business models only exacerbate the race to the bottom of city living standards.

HubHaus capitalized on this situation and took advantage of their tenants, who were simply looking for an affordable place to live in a market where that’s increasingly hard to find.

They’ve tried to place the blame for their failure on COVID-19 — but all signs seem to indicate that they had it coming.

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Business News

Las Vegas’ largest dispensary gets massive Infinity Wall expansion

(BUSINESS NEWS) Las Vegas’s largest dispensary is getting a big, expensive makeover, thriving while other brick-and-mortar shops are struggling.

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Planet 13, Las Vegas's largest dispensary, set to get a huge expansion.

Have you ever heard of an Infinity Wall? If I were you, I’d check it out right now because it’s utterly mesmerizing.

An 80-foot version of this wall is just one of the new features that Planet 13 (or The Company) announced it will be implementing in Las Vegas’ largest dispensary, The SuperStore, this past Monday. In addition to the futuristic entertainment feature (I honestly can’t get over that thing), they will be doubling the sales floor and expanding the dispensary to ~23,000 sq. ft. For reference, the entire Planet 13 SuperStore complex is 112,000 sq.ft.

Why expand an already massive dispensary during a pandemic, when most brick and mortar stores are suffering? Well, according to Larry Scheffler, Co-CEO of Planet 13, The Superstore is actually thriving beyond belief.

“We are achieving record sales even with Las Vegas at ~50% tourist occupancy. As Las Vegas returns to normal and this industry continues to grow, we anticipate that this will be first of many expansions we will undertake to keep up with demand.”

The expansion adds 40 points of sale to uphold the outstanding customer service reputation Planet 13 has. If you do have to wait, you have a state-of-the-art entertainment system to enjoy. It’s win-win for any and all visitors.

The CapEx cost of the expansion between is $1.5 – $2.5 million. The project is expected come to completion by the end of Q1 2021.

Las Vegas has become a sort of cannabis mecca. After all, it’s home to MJBizCon, the industry’s largest networking event attended by thousands from around the world. And the popularity and overall acceptance makes it an easy choice for any cannabis aficionados. The SuperStore, like most things in Las Vegas, is huge, glamorous, and caters to tourists.

I have no doubt that when the city bounces back from the pandemic, this new-and-improved dispensary will be a must-visit destination.

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Business News

The future of work from home will be a hybrid, says Google CEO

(BUSINESS NEWS) Google is looking to adapt a more flexible, long-term hybrid work model for their employees, which includes partially working from home and partially being on-site.

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Work from home woman at a laptop.

Google, the world’s largest search engine company (yes I know they do other things), is positing that the corporate office will look completely different post-COVID-19.

In September Google’s CEO, Sundar Pichai said that the organization was making changes to its offices that would better support employees in the future. This includes “reconfiguring” office spaces to accommodate “on-sites”, days when employees who regularly work from home will come into the workplace. The move comes after Google was one of the first major tech companies to announce that employees could possibly work from home through next summer.

“I see the future as definitely being more flexible,” Pichai said during a video interview for Time 100, “We firmly believe that in-person, being together, having that sense of community, is super important for whenever you have to solve hard problems, you have to create something new,” he said. “So we don’t see that changing, so we don’t think the future is just 100% remote or something.”

It was reported that Google’s decision to work remotely into mid-2021 was originally in part to help employees whose children might be learning remotely during the coronavirus pandemic. Pichai said that several factors went into the decision, stating that improving productivity was a major concern.

“Early on as this started, I realized it was going to be a period of tremendous uncertainty, so we wanted to lean in and give certainty where we could,” Pichai said. “The reason we made the decision to do work from home until mid of next year is we realized people were trying hard to plan… and it was affecting productivity.”

Pichai also mentioned that the decision would help the firm embrace the reality that remote working wasn’t going anywhere once things returned to normal. A recent survey at Google found that 62% of employees felt they only need to be in the office on occasion, while 20% felt they didn’t need to be in the office whatsoever. While the work from home trend had already been growing over the past several years, the pandemic accelerated that movement greatly.

With housing costs surging in the San Francisco area, where Google headquarters resides, many employees have been forced to move outside of the city to afford a mortgage. This caused many to commute long hours into the office, something Pichai realized was a problem.

“It’s always made me wonder, when I see people commuting two hours and away from their families and friends, on a Friday, you realize they can’t have plans,” Pichai said. “So I think we can do better.”

It’s too early to tell whether or not Pichai’s vision of a “hybrid model” will be adopted by other companies when the pandemic ends. One thing is for certain though—work will never be what is pre-COVID-19.

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