Not all accelerators are worth it

Earlier this week ReadWriteWeb reported on a study into the 29 North American accelerator programmes by Aziz Gilani, a director at DFJ Mercury, one of our sister funds in the DFJ network. They found that 14 of those programmes hadn’t produced a single graduate that went on to raise venture funding.

There are a number of problems with this statistic, probably the most important of which is that raising venture capital is not the only measure of success, but it is still indicative of something I have felt for some time – that there are many startup accelerators which offer a bad deal to their companies. To be clear, I think the best accelerators offer tremendous value, Paul Graham and Y Combinator have practically re-invented very early stage financing and here in Europe Springboard, Seedcamp, StartupBootcamp and maybe now Wayra are doing a great job (let me know in the comments if I’ve missed any) – but there is only space for so many accelerators.

There are two finite resources which limit the number of quality accelerators the market can bear:

  • Inspirational founders for the accelerator programme
  • Availability of quality mentors

Accelerator programmes can only help companies accelerate if they provide good guidance and/or access to investors yet there aren’t many people like Paul Graham with the experience, coaching skills and networks required to really help startups. Access to mentors is even more problematic – I know that the folk here at DFJ Esprit have to turn down more opportunities to mentor than they can say yes to, and I’m sure the same is true for other mentors in the startup ecosystem. We choose to mentor at the programmes with the best companies and I’m left wondering what life is like for startups at the other programmes.

The ReadWriteWeb article advises that for first time entrepreneurs participating in a top programme is a no-brainer, always assuming they can get in. For the second tier they say the following:

But what about a second-tier or third-tier accelerator? “When you’re a young startup and you don’t have a lot of cash, you have one currency, your equity,” Gilani says. “So treat an accelerator like any other service provider. Be rigorous in your diligence. Or make the decision not to join one.”

Ask three questions of your accelerator:

  1. Will it help you get follow-on funding?
  2. Will it help you form partnerships with other companies or accelerate your growth?
  3. Does it have proven mentors who will help you get traction?

If the answers are no, it’s probably best to steer your startup in another direction.

I think their advice is on the money.

  • http://www.facebook.com/james.bluemink James Bluemink

    There are plenty of advantages to accelerators that go beyond attracting investment off the back of an accelerator . And equally there are plenty of reasons not to over capitalise early on – loss of agility been a big one. The important aspect about raising capital is to obtain it from a company/individual that understands your industry and can add value through their networks and experience. This is the ‘Smart’ money you need! 

    Organic growth is always going offer the best results in my opinion  . Giving your start-up breathing space and listening to you market takes time. Been wrapped and packaged in an accelerator is not always the best market entry strategy.

    Another good article though!! I’m enjoying the content. Keep it flowing!

  • http://www.facebook.com/people/Sharky-Rechinas/100003609817993 Sharky Rechinas

    Do you think see Bill Gates, Steve Jobs or any other disruptive entreprenur would have applied if they got the chance or they were just so busy doing stuff that they skipped that part.

    More important – do you think it would have been a good match with their personality and life philosophy – after all they were not really very interested in going to school either ?
    (I am just exagerating to make a point 🙂 ).
    Are real entreprenuers “DO IT” type guys rather than going to schooling and menthoring for 3 months or MBA or whatever?
    (of course such an accelerator is much more valuable than an MBA).

    Second, what do you think of the following:
    Additionally, WAYRA and the other firms in its group of companies will
    sign preferential rights agreements with you to market and/or acquire
    the products, services and/or innovations registered or registrable
    resulting from your company?
    (is it an option for the upside limiting your sale price or not really an issue usually ?).

    Thank you,
    Andrei

  • http://www.facebook.com/people/Sharky-Rechinas/100003609817993 Sharky Rechinas

     Good points. How do yu think organic growth affects your valuation?
    Example – you get 100k seed money from a professional Angel Investor whcih values your ideea at 500k or whatever. in 6 months you get to Beta Stage and he will work with you to introduce you to otehr investors or VC’s etc – will use his/her network to help you get a good valuation as he/she is in the same boat – and get a 2-3 mil valuation.

    Second case:
    You get to Beta stage you go to the same Angel Investor and guess what? You get a valuation of 500K .. ok maybe 1 mil.. as you are not an “official startup” with official funding – you are out of the “Investment Circle”.

    So I think it depends.. I see your point too however I also believe there is a correlation between higher valuation and existing external investment. Or it could be just the existing external investment network which gives you power – hence if you are well networked organic growth is indeed the way to go ?

  • http://www.theequitykicker.com brisbourne

    Yes, or to put it the other way, one of the benefits of accelerators is access to investors meaning they have more value to poorly networked entrepreneurs.

  • http://www.theequitykicker.com brisbourne

    1) Accelerators are a way to ‘do’ more quickly – i.e. accelerate ☺
    2) Preferential rights for accelerators make me nervous, but whilst I have heard stories I haven’t yet seen a problem first hand
    Hard to say what Jobs et al would have done ☺

  • Andrei Kovacs

    Good advice :-). Refreshing to find such VC’s ..
    BTW – I am in London from 12th of July onwards for a few days..
    Not looking for VC money.. at least not yet.. just meeting with some Angels however if your Office Admin can spare 5 minutes and drops me an email at  andrei (at) finmouse (dot) com  I would be happy to send over some stuff just FYI.
    It is in a field where VC’s do invest heavily nowadays however I am more interested to see if we are crazy working 80 hour weeks or not :-P.
    I will keep posting questions here even if they might be out of the box – some readers migth have the same isues.
    I know filtering is a problem however at least we are Alpha stage.

    P.S. I don’t think they would have applied. Some people just do it .. others just do do MBA’s. I am applying for Seedcamp London anyway as I am not Steve Jobs and I do not live in San Francisco area 🙂 .. almost have… lived I mean. Life has strange paths.

  • http://www.theequitykicker.com brisbourne