Startup Accelerators

Startup Accelerators seem to be all the rage these days. Highly visible programs like YCombinator, Techstars and Launchbox Digital have really shone a spotlight on this space. I recently came across a series of interesting posts on accelerators (see bottom of this post for links).

In some respects, these accelerator programs are just incubators under a different name. If you were around 10 years ago, you'll remember that incubators like Idealab were all the rage but failed to really deliver or prove the model. The term "incubator" quickly became a bad word.

As a concept, I think accelerators or whatever you want to call them are good - especially for web and mobile web startups that don't need lots of capital. Startups need lots of love to succeed, and these programs deliver that in the form of strong mentorship and preparation for follow-on funding.

Ultimately, these programs will be judged by the success of their investments - i.e. the returns they deliver. There have been some big exits out of these programs already, the most notable being Reddit which exited for $ 12M. Most of the exits are too small to be publicly reported so its hard to really measure returns.

The fact that these exits are small is not a bad thing. By their very nature, accelerators cannot afford to produce companies that then feed into the normal VC ecosystem. These programs take 6 - 10% of your startup and most do not make additional investments. So, their ownership can only go down.

For these accelerators to work many of their startups need to avoid raising lots of capital and settling in for a long ride, and instead work towards a near term early exit.

For young, unproven web entrepreneurs these programs are probably one of your best paths to funding. Getting in validates you. And you will emerge better and more prepared to make a go of your startup and get in front of investors. However, with VCs and Angels being more conservative and looking for more traction before they invest their will still be a big gap between what accelerators provide and what they're looking for. How do we fill that gap? That's a post for another time...


New VC Business Models - the rise of Business Accelerator Seed Funds

Part 1
Part 2
Part 3