Y Combinator reignited the conversation about the role of accelerator programs after publishing some interesting findings about how applicants that have previously participated in another accelerator are less successful when applying to YC’s programs.
Ten years in since YC popularized the concept, you’d think that the sheer abundance of “What I learned” post-mortems published on Medium would have been enough to put all but the most effective accelerators out of business. In fact, the opposite has happened: today, it feels as if every university program, every backwoods local chamber of commerce, and every corporate entity is racing to avoid being the last one in on the accelerator game. I used to run an accelerator and spent many sleepless nights trying to figure out how to help each and every one of its portfolio companies equally well (I couldn’t) — I have a major soft spot for these programs and the well meaning people behind them. Still, I worry about the damage many of these newer programs might incur on the greater startup ecosystem.
By now, all of the information on how to navigate the early hurdles of starting up is available online. All of this information can be found, answered over and over again, on Quora. All of the advice that you could ever seek out can be found on is being given freely on Medium, or blogs from veteran VC operators like Fred Wilson’s MBA Mondays series, and anything Mark Suster has to say on Both Sides of the Table. So what the hell are you doing paying these accelerator and pre-accelerator programs for basic startup information you can find literally anywhere, for free?
Never mind antidilution and polluted cap tables. It’s hard to see straight when you’re eating top ramen for the second month in a row because you’re worth nothing and your company is worth nothing, so let me spell it out for you: even one percent of your company, if you exit at a respectable $200M, is a lot of money. $2M can buy you a lot of nicer ramen. Do you really want to hand that over for, as Andrew Lockley so eloquently put it, “cheering and a little desk, and little more”?
With so many accelerators of varying quality competing for startups’ attention and equity, it’s time to take a clear eyed survey of the landscape. Below is a decision tree I hope all founders will use while evaluating whether that startup accelerator program truly makes sense for them.
Be most wary of the mediocre actors with good intentions
1) Does it actually offer what you need?
Chris Lynch at Accomplice VC caused quite a stir last year when he warned founders to beware of accelerators as wolves in sheep’s clothing. The problem isn’t that these accelerators are intentionally harmful — for every predatory program, there are at least twenty well intentioned others out there taking applications. Unfortunately, as well meaning as they may be, many of the people who run these programs aren’t qualified to do so, whether it’s because they have a limited VC feeder network, have limited entrepreneurial experience, or are out of their depth when it comes to your specific vertical. Have they run their own startup before, cradle to exit? Do they actually have the investor network for you to plug into, once they help you polish that pitch? Don’t be that startup that gets all dressed up with nowhere to go.
2) If yes, are you actually going to get it from the program?
Many accelerators are time-constrained by design — each cohort gets about eight to twelve weeks of attention, then it’s onto the next shiny batch. Each batch has anywhere from a dozen to even fifty companies. How are you going to guarantee that your 7% will give you access to that top mentor? Would the second- and third- best options even be qualified to effectively help you? They might be if you’re an enterprise SaaS company, but what if you’re in space aquaponics and there’s only one mentor knowledgeable in that space — and he gets assigned to someone else? For how to evaluate promises of strategic introductions to customers and distribution partners, see point 4 below.
3) If yes, does it make sense right now?
We hear the word “accelerator” so often now that we seem to have forgotten the root meaning: accelerators help you move faster. As Paul Graham said in the Hacker News thread about the recent YC findings, “A simple way of thinking about this is that acceleration only helps if you are pointed in the right direction!” Don’t get pushed 100 mph forward only to find yourself having to double back.
Most accelerators I’ve seen focus on refining the pitch and pushing you out to investors. I want to see more teach companies how to give investors a strong return on their investment — it seems like beyond coaching pitch and sales tactics, the accelerators leave the lessons on corporate strategy and scaling to the institutional investors. The motivation behind the accelerators’ approach makes sense — for them: you’re paying them money to learn how to get more money, which will make them more money. This is what accelerators are designed to do, and what they’re best at doing. If you want to take advantage of that, have an MVP and be ready to sell before you go in.
What about no equity programs? Read beyond the fine print
4) Follow the money: who do they have to answer to? Does that conflict with what you need?
Even if they’re not getting it from you, the accelerator has to find money somewhere to keep its lights on and pay its staff. Some of them are sponsored piecemeal by service firms and are thinly veiled attempts to sell you recruiting, tax, legal, and other services. The ones that aren’t are still limited in many ways. Dig into their Form 990s and anything else you can find to follow the money and see where it leads.
Local economic development plays
Some accelerators rely on government grants and are designed to attract innovation and entrepreneurial talent to an economically blighted area, requiring you to move to a certain city for a specified (and sometimes too long) number of years. They’re often run by former members of chambers of commerce, or local talent with no previous startup experience or startup investor network. (Don’t get me wrong, there are still some fantastic ones that fit this profile but are executed very well, too). And if the region is still recovering economically, will you be able to attract the talent that you need to move quickly? How much time are you going to have to give up to shake hands with visiting politicians and dignitaries? Does it really make sense for your team to stay in Madison, WI for another six months? Or move to Detroit, MI for a year to get that $200,000 grant? As always, it depends.
Emerging sector, vertical-specific programs
Startup fever is catching on in many creaky old sectors ripe for disruption (fintech) and others that previously crashed and burned but seem primed for a reboot (cleantech, anyone?). Think about it: for sectors with emerging startup activity, the number of people who both know the space well and know how to run a startup is likely small. These people are almost certainly not running your accelerator program — they’re probably chasing startup dreams of their own. For re-emerging sectors that previously experienced a massive flameout like cleantech, the number of people who know what they’re doing is even smaller — otherwise, there would not have been such a massive collapse in the first place. It’s an structural ecosystem problem. Leverage these programs to cut through the noise and grab those strategic partnerships, pilots and customers, but don’t expect much more from most of them.
Corporate accelerators
Even more are backed by corporations looking for competitive information or to get ahead on the M&A game — would your participation hamper you strategically in the future? Are you locked into using a specific cloud storage service, or certain data visualization platform? Are you prevented from working with certain entities in the future as strategic partners? If so, would it matter to your product development roadmap and growth plans?
Look to these above programs for introductions to sources of non-dilutive capital, including cheap loans, free or reduced rent, and grants from governmental and nonprofit agencies. It’s very hard to find and get accepted into a good program. If you don’t get in, don’t waste your time settling for one that isn’t good enough.
But what if I’m not in a hot VC market?
I count on one hand the number of general-purpose accelerators, and no more than a dozen vertical specific ones, that I’d recommend. I understand the allure of a built-in network of investors when you’re outside one of the current startup hotspots. NewGen recognizes this, and we invest everywhere across the U.S., as do an increasingly large number of VC firms. Trawl Crunchbase and figure out who they are, then reach out. I second Chris Lynch’s declaration: any startup who gets in touch with me will have at least 15 minutes to convince me if I should spend more time learning about them. Seriously — email me with your pitch deck and a 3–4 sentence blurb at [email protected].
There’s still room for good accelerator programs to be useful. And if your startup is ready for it, knows what you want out of it, and is prepared to fight for it, it can truly accelerate (there’s that word again!) your growth. But just because there’s a wealth of “opportunities” beckoning and offered by the second and worse tier programs, doesn’t mean you have to take it. As an early stage startup, every second of your time and every sub-percentage of your equity counts, because that’s all you have to give. Use it wisely.
EDIT: Thanks for the awesome response! Still not sure whether you need an accelerator or should join one right now? Email me with 1) your deck 2) where you’re located, 3) a 2–3 sentence blurb on what you do 4) where you are in your company development, and I’ll help you find an answer. [email protected]