Starting a business is a bitch. Becoming part of an accelerator has become a popular buzzword amongst startup founders, especially in the last 2-3 years. Getting involved with an accelerator can be the best or worst choice for your business.
Have you have wondered what accelerator founders think about accelerators? I’m going to tell you why accelerators are broken and how they can be fixed.
Still in a relative period of infancy, the accelerator model is designed to springboard the business models of startups into fertile plots of investment and development. While incubator programs have been around for many years, intensive three-month programs that define startup accelerators have only been around for about a decade.
Startups receive $20k to $100k for a small equity stake in the company, get surrounded by amazing mentors that have been there and done that, and get a wide variety of perks that help get the startup off the ground. With greater financial backing and business mentorship facilitating a catalyst for growth, what more could startup businesses ask for? Well, it turns out quite a bit, and it all starts to show after accelerator program graduation. While startup founders have help getting their feet on the ground, we have found that they typically struggle once they leave the nest.
Last year I stated in my Venture Beat article, 10 ways the accelerator model will change this year, that such advancements would include a decrease in the number of smaller accelerators who lack quality deal flow; an increase in vertical market accelerators; a shift of focus from funding towards the viability of business models; more accelerators going global; and broader funding to multiple top-tier accelerators.
Let me start with a story: Have you ever tried to plant a seed? A seed essentially needs three basic things to grow: water, sunlight and dirt. Throwing a peach pit on the kitchen table before bedtime won’t leave you with a budding sprout in the morning. If you provide the right environment for your seed, it grows. Similarly, joining an accelerator isn't enough to grow a business.
Entrepreneurs today face the same obstacle in finding the right environment to grow their respective startup. Having a great idea isn't enough. Having great mentors isn't enough. Even getting millions in funding isn't enough to see an idea through to marketplace acceptance.
To break analogies, we see that the time in an accelerator is kind of like the 1st few steps of bowling. We bring in the professionals to help you throw the ball down the lane, but in a startup, the lane is 2 miles long, full of potholes, and takes a lot of unexpected curves before reaching the pins. The broken part of accelerators is what happens after a team leaves demo day.
But is it fair to judge an accelerator program on what happens after the startups leave? In a sense, yes, especially if the program has resources to help them continue to grow.
Lets say a business graduates an accelerator program in three months, and they have a minimum viable product and reached the spiritual zen of product/market fit. The real success of the accelerator model is to be seen not in the initial period of development and mentorship, but in the overall ability of businesses to keep up the pace on their own merits. There are several success stories involving the promoting influence of the accelerator model, but there is also much room for improvement, leading many to ask, “Are accelerators really working?”
One challenge with startup founders is that they are started by people who have never ran a business. And while startups have little in common with more traditional businesses, basic business principles like leadership, marketing, finance, and operations are needed to succeed in any endeavor.
But what do you do when most founders have never previously ran a business, managed people, spent capital to grow, raised money, negotiated contracts, or provided customer service? Generally speaking, nearly every business or startup team is missing something crucial, whether it’s a grasp on marketplace development, an efficient programmer, or even basic interactions with the consumer. Needless to say, there is no shortage of avoidable reasons why startups fail. This is where the accelerator model needs to evolve.
When asked about the room for innovation in the accelerator model, David Cohen, co-founder and managing partner of Techstars, said, “I suppose it depends on your definition of ""working."" Most accelerators aren't working economically, just like most startups don't work economically. Isn't that to be expected? However, many accelerators might have tremendous impact even if they're not financially successful. Perhaps they have other goals, such as supporting their local ecosystems or creating cultures of mentorship and early stage investment. In our case, Techstars is working very well economically! We've been sustainably profitable since the beginning and our funds have very strong performance. We are now about 150 employees globally, and are managing more than $300M in our own venture capital now. The accelerator portfolio companies have raised >$2B from the VC/angel market to date, averaging more than $3M per company across time (this is growing fast as well). There have been nearly 80 exits via M&A from the accelerator portfolio. We believe we are differentiated based upon our results and track record, as well as by our global footprint and ecosystem. Our business is more than just accelerators today - the accelerators are simply part of an overall model that provides a global ecosystem for entrepreneurs and supports them from inspiration to IPO.”
So how can we improve the Accelerator?
Vertical Market Accelerators - Distribution is key for any startup, and the more vertical focused accelerators become the better. The accelerator gets better deals, the best minds in that vertical want to be involved, the sponsorships make sense, and the doors being opened are real.
Shift of Focus - As of now, it seems as though the key metric most startup accelerators are focused on is the amount of funding their startups are getting. What about the strength of their business model? While arguably harder to define, it is easy to pick funding as a vanity metric instead of finding a focus that highlights true business success.
Growth Services - Marketplace development is the biggest issue most startups run into after leaving an accelerator and before they hit Series A. This is where a lot of amazing business models get flushed out for the simple reasons that they do not understand how to grow. We believe that adding marketplace growth services to either funds or accelerators will equip these startups to succeed.
John Ramey, Founder CEO of isocket, pointed out the need for quality mentorship and teaching from accelerators in his article, Improving Startup Accelerators. Ramey states, “The traditional model of “We’re an accelerator! Apply to us, we’ll pick the top 10, then 90 days later you’ll launch and get funding!” is broken. The true purpose of an accelerator is to teach the method of entrepreneurship, so that on graduation day the founders have the knowledge and tools to keep improving. Funding, launching, weekly growth, etc is all a bonus.” Ramey further specifies the need for quality guidance, stating, “Mentors must be relevantly qualified (‘been there, done that’), appropriately timed in the lifecycle (don’t push VCs on founders in their third week), quality over quantity, and be Socratic rather than prescriptive. Teach your mentors what you want from them and hold them accountable.”
The accelerator model is alive and well, and is still improving. Success cannot be measured in the initial funding and growth period alone. Each graduating business needs continued mentorship, evaluation, adjustment and even business model revolution to ensure success for the long road.
With the success of accelerators ultimately being tied to startup business’ perception of accelerator effectiveness, it then becomes imperative that accelerators work to ensure a tradition of longevity and efficiency in their clients.