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IAC Has Shut Down Hatch Labs, Its Incubator for Mobile Apps

"IAC stopped investing in the company, and their operations were subsequently discontinued."

329736 164796420263544 7463290 o IAC Has Shut Down Hatch Labs, Its Incubator for Mobile Apps

Multiple sources have told Betabeat that IAC shuttered Hatch Labs–its incubator for building mobile tools, apps, and platforms–on December 31st. Hatch Labs closed both its fifth floor offices in the IAC building on 18th street and in Los Angeles.

“After exploring several strategic options for Hatch Labs, IAC stopped investing in the company, and their operations were subsequently discontinued,” IAC said in response to questions. “IAC is still funding and exploring options for a few of the assets that came out of Hatch Labs.”

Hatch Labs’ New York space is already occupied by other IAC entities. (The only exception is Blu Trumpet, which was spun out as an independent company in 2011, but remains in the Frank Gehry building.) When we stopped by the office last May, it had all the accoutrements of your standard startup accelerator, including a ping pong table and drawers full of free snacks.

“It didn’t make sense in the corporate entity of IAC,” said one source familiar with Hatch Labs. “These businesses should have a more diverse set of funds from VCs, who can support them in a way that a corporation can’t.” Considering that successful startups from Hatch were permitted to seek outside funding–if they could raise it–that may not have been the full story behind its demise.

As the accelerator bubble begins to deflate, even prominent venture-backed outfits like Y Combinator are trimming the fat. As we reported last September, AOL Ventures also sunset QLabs, its Soho think tank of hackers that failed to get traction.

Hatch Labs, which invested in proven entrepreneurs rather than concepts, lists ten startups on its website. (When we spoke with CEO Dinesh Moorjani last May, he said Hatch Labs had built seven business and wound down one.) Tinder, a recently launched casual dating app cofounded by serial entrepreneur Sean Rad, the former head of Hatch Labs’ L.A. development team, has been gaining popularity with “normal, non-geeky people,” on college campuses and is still operating. We hear Cash Island (sometimes referred to as CashPlay), a “real money” slot machine app that lets users win gift cards and get extra turns for taking surveys is also continuing on, although its website is currently offline.

Other Hatch Labs startups have taken the opportunity to shut down efforts that weren’t paying off, par for the course of an experimental incubator. The websites for BroDown, an app that lets you challenge people around the world to a push-up contest, and Cardify, a customer loyalty app, are both down. A source called the transition “really smooth.”

When Hatch Labs was unveiled in March, 2011, IAC billed it as an “innovation sandbox” designed to rapidly prototype and launch technology related to the emergence of mobile. (In that respect, IAC had a head start on Mark Zuckerberg, who didn’t recognize the shift towards mobile until late 2011.)

Mr. Moorjani, a Harvard MBA who started IAC’s mobile group back in 2007, quietly founded Hatch Labs in 2010. But in 2011, the incubator formally debuted as a joint venture between IAC and Xtreme Labs, a successful Toronto-based mobile development shop, which recently opened up offices in New York City. Reports differ, but Hatch teams were given three months and capital from “well into the $100Ks” up to $1 million.

The amount of funding Hatch Labs received from IAC and Xtreme Labs wasn’t publicly disclosed. However, in a 10-K filing from February 2012, IAC reported that operating income before amortization loss increased from $500,000 in 2010 to $12.1 million in 2011. That was due in part to Hatch Labs, as well as operating expenses at its production studio Electus and lower revenue at Pronto, its comparison shopping engine. In a 10-Q filing from November 2012, IAC reported product development expenses of $2.7 million “primarily due to increased investment in Hatch Labs.” It’s also unclear whether Xtreme Labs continued to invest after 2011.

In interviews, Mr. Moorjani consistently stressed how Hatch Labs was different from traditional incubators or bootstrapping a startup because of its emphasis on helping proven founders with product building and marketing, which he pegged as particularly difficult. A recent report from the ad network Adeven predicted that the iOS App Store would see 435,000 new apps this year, but that most would go unnoticed. IAC’s networks, data and experts could help with that, he argued. He also said Hatch Labs benefitted from investing in entrepreneurs with skin in the game. Startups had equity in their own product and in Hatch Labs overall.

On LinkedIn, Mr. Moorjani lists his tenure at Hatch Labs as ending in January. He is also the cofounder of Kleverbeast, a mobile publishing platform still in beta. In an astute op-ed last month in the Huffington Post, he name-checked Kleverbeast for its ease of building iOS and Android apps “without typing a single line of code,” as a sign of the democratization of app development. He also mentioned CashPlay when he predicted mobile gaming would return to its casino roots.

In the piece, Mr. Moorjani also delved into a return to rationality in funding, writing:

“Mobile is no different. Many startups will unravel, unable to secure additional financing, because some of these deals should never have been seeded at inception. The dearth of capital leads to funneling investment dollars into quality startups, and consequently, carnage among companies that lack sustainable competitive advantages, talented teams or noteworthy market traction.”

UPDATE 2/2/2013: A representative for Mr. Moorjani offered the following statement about Hatch Labs by email:

“Hatch finished deploying the capital from the first Hatch fund over the past two years and IAC is now managing the portfolio of ventures that were built, including Tinder, Blu Trumpet, etc.  Dinesh is raising his second Hatch fund outside of IAC with their support, and Xtreme Labs who has expressed interest in participating in the fund.  As a co-founder, he is currently focused on building Kleverbeast, a NY startup, into a world-class mobile SaaS company, and advising various companies, whose Boards he serves on as a director and/or advisor.”

We have reached out to Xtreme Labs and we will update the post when they respond.

Follow Nitasha Tiku on Twitter or via RSS. ntiku@observer.com