Accelerators seem to be the golden ticket for many startup founders. Especially the best-known ones get massive numbers of applicants. Y Combinator is again accepting admissions for its twice-a-year program and is likely to break records again, at least judging by the popularity of the Startup School it ran at Stanford recently.
But do startups really know what they’re in for when they join an accelerator?
Last month, I surveyed 151 accelerator applicants in order to answer that question for my just-released book Speed Up Your Startup. The folks I interviewed had applied to 22 different accelerator programs around the world, including Y Cominator, TechStars, 500 Startups, and Seedcamp. 108 of them had completed or were currently in an accelerator program; the others had not applied or had not yet been accepted to a program.
Four findings from the survey were especially interesting.
1. The experience can be tougher than you think
I didn’t ask this question directly, but in the unprompted comments, many startup founders I surveyed were shocked at how demanding the accelerator experience was. At least 15% of respondents to my online survey spontaneously alluded to this issue, and I heard it further emphasized in my follow-up interviews. The experience challenged not only their product and their business, but also their social lives and self-esteem. One founder wishing to remain anonymous experienced the team at a top-tier accelerator as manipulative and opportunistic and considered quitting the whole program because of this. In retrospect, the founder saw the value in their approach but was still prepared to advise others against joining the program.
Many also developed ways of dealing with this stress. “You’ll get tons of advice, and a key skill is filtering out what is important to you,” said one respondent, Oliver Mooney of GetBulb who participated in Startupbootcamp. This filtering has to be done with your time and resource constraints in mind. Another way to free time and resources for dealing with the requirements of an accelerator is have a team in place to keep the day-to-day work going on. The mentoring times and demo day preparations take a lot of the founder’s time. “That’s less time to code, less time to talk with customers,” said Kellee James, founder of Mercaris. “However, if the founders have a team in place, work can continue on the core business while this goes on.”
2. Finding a mentor with a personal connection is key
Mentorship is the great value driver of startup acceleration. Startups not yet in programs know to expect this, and startups that have been accelerated place much value on it. 95% of startups that completed an accelerator program rated the mentorship received as “very good” or “good.” Startups also expected this prior to joining the programs, with 97% of those not yet in a program reporting mentorship as “very valuable” or “valuable.”
The best mentorship is based on a personal relation. Accelerator programs with a heavy emphasis on mentorship, such as TechStars, tend to let the startups and mentors find each other. Across the board, founders indicated that “connecting with the mentor” or “finding the right person to support you and help you prioritize the mass of feedback you get,” attesting to the fact that a mutual discovery process is the best way to connect startups with their mentors. One founder’s experience was that finding the mentor who had been through a similar life situation – not just in business, but in their personal life – was the key to him getting value out of the accelerator experience. It is this personal connection that comes into play when the times are really tough, and that’s the time you need to be prepared for.
3. You’ll walk away with a lot of connections, but you could still be missing the most important ones
Mentors, advisors, and investors are important groups of people who the accelerators usually take great care to introduce and integrate into their programs. But accelerated startups reported that they wish they’d gotten more introductions to industry contacts – potential partners and customers. 49% of respondents who had not participated in an accelerator reported that customer contacts would be very desirable. However, only 22% of accelerator veterans reported that the industry contacts provided by the accelerator had been “very good.” 46% rated the industry contacts provided as “neutral” or “poor.” The open-ended answers support this, with many founders pointing out that an accelerator would add the most value by providing partner or customer contacts. Indeed “industry fit” was mentioned as an important criteria when selecting an accelerator program in the first place.
This emphasizes the need for accelerators to more closely meet the startup’s business needs and may mean more demand for accelerators that have a clear industry vertical focus. Mentorship, as mentioned above, is done very well. Investor contacts are highly desirable for startups that have not participated in an accelerator program, 93% reporting them as “very” or “somewhat” interesting. Accelerators do seem to deliver value on this front as well, although there is a small discrepancy between expectations and reality. While 56% of accelerator applicants place investor contacts in the highest category of importance, only 45% of accelerator veterans report the investor contacts offered as having been “very good,” while 35% rated them “good.”
One founder from a TechStars company said the social validation accelerators give startups is very real and very valuable. “TechStars provided me and my startup with social proof that investors, business partners, media, and customers respond to. Not all care, but with those that do, the brand association is helpful,” he summarized.
4. The money is relative
Often, accelerators are compared based on the money they invest in a startup. The hard numbers are easy to compare, after all, but the value founders get from the money invested is relative. The real valuation of a startup is a matter of future potential, real or perceived. Some business models require completely different orders of magnitude of capital outlays. And your mileage will vary: The same money can go much further with cheaper teams in cheaper locations.
But there seems to be a goldilocks zone for the accelerator investment size. In accelerator programs where the investment was over $150,000 or under $10,000, some of the startups considered the value of the investment poor. That’s easy to see in the lower end. In the higher end, this can be explained by the accelerators attracting companies requiring higher capital injections. But even the high range of accelerator investment may not be enough.
A surprisingly high 40% of startups that had not joined an accelerator rated the investment as “not important” or “neutral.” And 51% of startups that had gone through an accelerator rated the value of the money invested as “very high” or “high” This is also due to selection bias: Startups that do not join accelerators may make that decision precisely because the money offered is not valuable to them.
How to know if an accelerator is any good?
Finally, a question that 70% of the startups who hadn’t yet joined an accelerator raised was how to gauge whether the programs they were considering would add any value. Twelve startups that had completed accelerator programs certainly indicated that’s a question worth asking: They added unprompted comments to the survey along the lines of “avoid the s****y programs” and “do it [join a program], but only if it’s top tier.”
An accelerator is only as good as the startups it produces. And as founders should know, it’s not a sprint but a marathon they are in. Results are not instantaneous, and success does not come overnight. Similarly, it takes time for accelerator programs to prove themselves. Today’s most highly regarded accelerators have also been around the longest. Their track record is, in great part, due to the fact that their portfolio has had the time to mature.
To this most-raised concern, I would like to offer the strongest recommendation that came out of my research and indeed from my personal experience as well: Choose an accelerator program that has the best fit for your startup. If there are vertical accelerators that specialize in your industry, look for those. I predict that as the market matures, we will see more specialized, vertical accelerators. If you can’t find one yet, look for programs where the core teams or investors have experience with the kind of product you are creating or the market you are trying to address. Who has the most relevant contacts for you? Apply there.
Finally, if you feel you can’t find an accelerator that meets your needs, or don’t want to join one, check out my book for compiled learnings from accelerators and accelerate yourself instead.
COMMENTARY: Creating a new company is an incredibly difficult endeavor. It takes perseverance, stamina, and stubbornness, to push through the tens of thousands of decisions, and the repeated bouts of pushback, negativity and angst. Despite the difficulty, many thousands of people each year begin their efforts and launch multiple thousands of new ventures.
Most of these people find help along the way, in a vast variety of forms, from support by friends and family, to classes at schools and institutions, or formal help at business incubators. This help, along with investors, mentors, and others comprise a startup incubator “ecosystem”.
Startup Incubator Ecosystem
Creating a thriving startup ecosystem requires at least six components.
- Talent - This pool of talent needs to extend well beyond the entrepreneurs starting the companies, including others with a variety of talent and experience in product, design, marketing, sales, etc. who are willing to join new startups and help them grow and thrive.
- Education - This talent pool is ideally created and augmented locally, at universities and other learning institutions. Better still if these institutions themselves draw in talent, to seed the ecosystem with the latest knowledge.
- Locations and Events - Ecosystem flourish when ideas are shared. Ideas are more readily shared when startups and their staff are co-located in a single neighborhood, when startups physically meet up at events, when there are common physical locations where people often gather.
- Mentorship - When these shared ideas include lessons from experienced mentors, fewer mistakes are made by the new entrepreneurs, leading to more successes. This sharing from “generation” to generation can kick off a virtuous cycle turning a community into a true ecosystem.
- Incubators and Accelerators - A tool which combines talent, education, location, and mentorship is a business incubator/accelerator. These institutions provide a centralized program to draw in talent, to bring the talent together in a single location, and to provide the necessary education and mentorship to help first-time entrepreneurs speed their way into the market.
- Funding - Most new ventures require funding to reach profitability. While it is possible to import the necessary funding from elsewhere, the final component of a thriving startup ecosystem is local funding, ideally recycled from the successes of the previous generations of entrepreneurs, who truly understand the complexity and difficulty of creating successful startups.
A Virtuous Cycle
When these six components are combined, a virtuous cycle begins wherein new entrepreneurs find the training, help, and funding required to get started. They in turn help their peers and the next generations of entrepreneurs, who continue the cycle forward.
None of this is new. Ecosystems of craftsmen date back to the antiquities. Ecosystem in the last 500 years include Venetian glassmakers of the 14th Century, Swiss watchmakers of the 16thCentury, and British steam engines of the 18th Century.
In more modern times, we have the “tech” ecosystem centered in and around San Francisco (a.k.a. Silicon Valley). The talent pool began with Hewlett Packard (1939) and Fairchild Semiconductor (1957) and includes Stanford University and UC Berkeley as key educational institutions. Today this is a multi-billion dollar ecosystem, containing companies like Apple, Google, and Facebook, and the virtuous cycle of “The Valley” is unmatched anywhere in the world. But one should remember that this cycle began over sixty decades ago, when most of the valley was orchards and farmland, and that no one person or small group of people set out to create this center of excellence.
However, with the hindsight of these historic examples, many people today are consciously organizing to purposefully create ecosystems in their cities. For example, in Seattle, all six components now exist to create an ecosystem for “sustainable” business, a.k.a. social enterprises, a.k.a. high-impact ventures, a.k.a. “conscious” companies. In October, four organizations are co-locating into a single building, The Center for Impact and Innovation: Bainbridge Graduate Institute, HUB Seattle, Fledge, and Social Venture Partners. The expectation is that such a concentration of social and environmental consciousness will draw in yet-more talent, more mentors, and more funding, setting off a virtuous cycle to create not only a business ecosystem, but to help the planet’s biological ecosystem as well.
Top 10 Startup Incubators
Having trouble choosing between the myriad of startup incubators and accelerators. Well, this list from Forbes should help. Y Combinator Tops the list with $7.8 billion In value. Next comes TechStars, DreamIt Ventures, AngelPad, Launchpad LA, Excelerator Labs, Kicklabs, 500 Startups, TechNexus, and Tech Wildcatters.