I’m not much of a prognosticator, but recently Sarah Needleman from the Wall Street Journal called me to ask my thoughts about startup accelerators. She had found a blog post I had written (How to Maximize the Value of Mentors in Startup Accelerators), and wanted my input on a story she was writing.
Funnily enough, I had just finished speaking at the Michigan Lean Startup Conference about accelerators, using my experience at Year One Labs and my involvement with others since then, as a case study for the future. It was a great event, tons of fun…
Unfortunately, my comments didn’t make it into Sarah’s article. But that’s OK, it was fun to speak with Sarah just the same. Here’s the story: Start-Ups Crowd ‘Accelerators’.
Since my comments aren’t in the story, I thought I’d share some of my thoughts on accelerators in general, and where I see the future going.
- Accelerators have to make money. I’ve written about this in the past and still believe it should be a fundamental criteria for accelerators. The only caveat may be accelerators/programs that are more focused on education (I’m thinking about programs like The Next 36), where a return on investment (as you would categorize it for a venture fund) is less important.
The problem with many accelerators right now is that they’re not focused primarily on education or making money as the output/result. Instead, they’re focused on “community building” – particularly in non-startup hubs. I see this as a mistake, because you can’t manufacture communities this way; you need to focus on building successful (and big!) companies that exit, and return some of the cash and know-how back into the ecosystem. Silicon Valley was built off the backs of giant successful companies and the entrepreneurs that created those companies.
- Not all accelerators are created equal. I made this point in my post on mentorship, and it was part of what I told Sarah: “Just because an accelerator clones a successful program’s format doesn’t mean it will be successful too.” Every ecosystem is different, and programs have to adapt to their surroundings. A simple analogy is to think about universities or colleges. There are top schools (think: Harvard, Stanford, etc.), middle tier schools, and bottom tier schools. Some of those that rank poorly in science, may be middle tier for arts; some that are in the middle for arts are in the top for something else. The same is true for accelerators. There will be good ones, great ones, so-so ones and bad ones. Some will be good at helping you raise capital, others will be better at other things.
- It’s still very early. Accelerators as we know them haven’t been around very long. Even if you consider the incubators from the dotcom era, that’s still only a decade or so. Things take longer than that to mature and demonstrate quantitative results of any significance. So will we see lots of financially successful accelerators? I don’t know, because we just don’t have enough proof yet. What I do know is that the current metric for success (capital raised after leaving an accelerator) isn’t really a tell-all for actual success. As we know, raising money isn’t success, it’s just something some startups do. It certainly feels like success at the time, but it’s not. For now, it’s the metric everyone is using, but we should really be looking for more exits (over the next 3-5+ years) and measuring success that way. Even exits though are hard to correlate back to an accelerator. Many exits happen 7-10 years after a company starts … can you really draw a straight line back to the beginning?
- Accelerator attrition. The number of accelerators is still growing, but that won’t be the case forever. Over time we will see accelerators drop off. Some won’t succeed financially, and they won’t get continued financial support. Some won’t output high enough quality startups and then future entrepreneurs won’t bother joining. I see it being a slow attrition process; we’re not in a bubble that will explode and every accelerator on the planet disappears over night. Again, think about most businesses: the reality is they fail. Why would accelerators be any different?
- Accelerator specialization. We’re already seeing more specialization of accelerator programs, and I expect this will continue. It makes sense. To succeed, accelerators need all aspects of the local ecosystem to be in place: quality applicants (including lots of entrepreneurially-minded students), angel & seed investors, venture investors, partners, customers and acquirers. If all of those things don’t exist in a geographic area, it makes it that much harder to build a successful accelerator. Some cities have more of the ecosystem in place for specific things; for example, Montreal has a very big game industry. It makes sense to specialize there. On the other hand, building a B2C startup in Montreal is that much harder because the entire “food chain” is much weaker.
- Accelerator differentiation. Beyond specialization (around certain verticals, for example), I think we need to see more differentiation as well. There should be programs of varying lengths, more clearly defined goals (not all accelerators have to be about fundraising), unique opportunities (such as bringing entrepreneurs to the Valley), key partnerships that are put in place, etc. Accelerators need to think about their unique value proposition, so they can differentiate and stand out. Entrepreneurs need to look for the unique value of each accelerator and in turn decide which one is best for them.
Sarah Needleman asked me during our interview about advice I’d have for entrepreneurs looking to join an accelerator. The simplest advice would be to speak with previous attendees and mentors. Find out what the experience was like for them; how the program worked, the value it brought, where it’s strongest and weakest. No accelerator is perfect, and no accelerator guarantees success. I’d say you want two things out of the experience: learning and focus. They’re hard to quantify, but they’re the most important things you can get at an early stage with your startup. Accelerators should be designed to maximize learning and focus (not raising capital).
Learning + focus = acceleration to value creation.
The faster you learn and focus (and continue learning while staying focused), the sooner and more likely you are to win. Accelerators should design their programs and optimize around learning and focus (not raising capital) if they want to build sustainable success for themselves and their startups.