Startup general interestVenture Capital

Not all accelerators are worth it

By June 29, 2012 7 Comments

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.