The role of Canada’s Startup Accelerators

The National Post published two articles (here and here) this week questioning the role / impact of Canada’s startup accelerator programs. In the first article The Post asks “Is Canada’s Accelerator Model Broken?”. In the next it goes on to say that “accelerators are failing to produce the next Hootsuite or Shopify“.

Having been deeply involved in FounderFuel, one of Canada’s leading accelerator programs, I’ve got some thoughts on this.

First, it’s important to understand the role of accelerators, especially in geographic markets outside of places like Silicon Valley. In my view, these programs are not meant to help investors discover the next giant. They are there to help investors and mentors identify, nurture and develop talent. In smaller markets like Canada’s, we are sorely lacking in proven, been there, got the t-shirt talent. This is why historically many of our more successful startups have moved to the US – making the talent shortage a self-fulfilling and perpetual issue.

In that context, accelerators are performing well. We have had 30 companies and well over 100 entrepreneurs cycle through FounderFuel since inception. Regardless of whether the companies / projects that they came in with are still running every single one of those people has a better appreciation of what it takes to build and ship great products and what it takes to get funded. And every one of them is more fundable as a result.

What we are lacking here in Canada is density. We need more founders, companies, big companies, investors, exits, the list goes on. Accelerators are not the cure all for these shortcomings, but they help fill the top of the startup ecosystem funnel. They help get more founders in a place where they can build more and better companies.

Even the mother of all Accelerators, YCombinator, is not a producer of tech giants. They have funded over 400 companies, and by Paul Grahams’s own admission, two of them – Airbnb and Dropbox – account for 75% of the portfolio value.  According to Graham, the entire portfolio was worth $ 10B last year. If you remove the two giants, then the average portfolio company was worth just under $ 6M.

The other thing to remember is that good (and by that I mean BIG) things take time. Our company FreshBooks is 10 years old and is just getting started. Hootsuite and Shopify have also been around far longer than any of our accelerators.

The whole notion that in 3 months you can figure out your path towards building a market leader is crazy. And anyone who thinks that will only be disappointed. Acceleration is great, but there’s no substitute for being in the market day in day out trying to find and delight customers.

My final thought is that there are far too many accelerators out there. So, I’m in full agreement with the Post on this point. Entrepreneurs should only choose to work with the top few if they hope to go on to raise venture capital. Being part of the lower tiers is a negative signal.

It’s a stereotypical Canadian reaction to question and doubt what we are doing. Let’s not pass judgment on Canada’s accelerators yet. It’s way too early! And let’s remember why they exist and measure them accordingly.

  • Christian Lassonde

    I agree with your point in that what we are missing here in Canada is density, but if accelerators don’t try and create one or two big companies, how else do we plan on generating that density?

  • Chris Carder

    Now this is a good debate to put on the table, thanks Mark for doing so! My view is that it is healthy and essential to critique the nature of the individual programs and/or the themes that run through the majority of them (that detailed discussion is much more valuable than debating the existence of Accelerators themselves). I would argue that when/if Accelerators fail to produce sustainable companies in significant numbers, we need to diligently examine why that is taking place and attack these problems…because there is a great deal of public money being poured into these programs (with more on the way).

    We need to challenge ourselves as a startup community, investors and government funders to evolve the model and ensure the programs in place are capable of driving job creation and building a steadily growing pool of great young companies who have a chance to make it in the world (regardless of whether they qualify as a future home-run transaction company).

    Is the three month cohort program the right model? Is focusing on developing a great pitch deck to raise funds with v.s. driving sales acceleration where they should be spending their time? Are we too focused on the three companies entering the programs who are the *early quick-win favourites * v.s. working with companies who need longer to make it happen? Are we focused on generating home run deal flow for VC funds or that one monster-company v.s. developing a massive string of job creating mid-sized firms? Have we truly explored the opportunity of vertical expertise programs paired with vertical mentors/enterprise partners? Have we created the right active partnerships between acceleration and incubation programs across the country? Have we sourced mentors who sit in towers and speak in theory, or mentors who are ready to get their hands dirty, roll up their sleeves and join the startup companies they work with in the trenches (actively joining them in the board room and helping them drive sales)? Have we created a startup ecosystem that can actually answer the question — where do our startups go after those three months are done?

    As a Canadian taxpayer and a startup investor (who has invested in groups going through the programs) I want much much more than great PPT decks and a well scripted demo day.

    I want Accelerators to thrive. I want angel, government and VC funding to continue to flow into the startup community on many levels. But for that to happen long-term we need to have a more open and active dialogue on how to challenge conventional accelerator wisdom and ensure we’re building an ecosystem that can grow, thrive and evolve many decades beyond the opening days of hype.

    Thanks again Mark for continue the dialogue from the Post articles.

    – chris #mindsbeatmoney

    • http://startupcfo.ca/ Mark MacLeod

      Great comments Chris. I can tell you that at FounderFuel we are focused on the substance over the sizzle. Yes, we make sure the pitches are great come demo day, but most of our feedback is focused on making better companies – not just better pitches.

  • http://wmougayar.com/ William Mougayar

    Yup. The FP should stop writing misleading articles & instead should rather write more positive articles about startups on a DAILY basis.

    There is also this wsj article which takes a positive spin on the value of accelerators. It’s the old half-full vs. half-empty argument.
    http://stream.wsj.com/story/latest-headlines/SS-2-63399/

  • Pingback: Day 23: Canada’s Startup Accelerators | FounderFuel()

  • ex-vc and entrepreneur

    We should measure accelerators by the return to shareholders. Period. If they don’t bring a return, they will eventually be gone anyway. Continuing to reinvest in a poorly run accelerator is putting money into a black hole. Three years, even two years, is ample time to judge an accelerator. The ones that don’t produce VC-funded companies in their first cohort should be shut down. Sorry, but that’s the truth.

    • http://startupcfo.ca/ Mark MacLeod

      Really hate anonymous comments. Anyway…

      If your framework was applied to the whole funding ecosystem there would be no funding available here in Canada. Very few fund managers would pass your bar.

      What I’m talking about is policy leadership and taking the steps now to build a self sustaining ecosystem. In the long run, yes, investors should be drawn in for returns. But we’re not there yet.

      And to be clear, I don’t expect investors to back a money-losing accelerator. We fully expect to make money at FounderFuel. But we have larger goals in mind.

      • ex-vc and entrepreneur

        Hey, it’s great to have larger goals than ROI. But, I’m a believer in pure returns. I just don’t buy the “we’re not there”, defeatist, Canadian attitude. Funds that don’t pass the bar in the short term should be KO-ed…and that money should go to a new fund or manager or accelerator, or whatever. Something different.

        • http://startupcfo.ca/ Mark MacLeod

          I’m sorry but this is naive coming from an ex-VC. Who will those new fund managers be? If you’ve spent any time with the LP community you know that brand new managers have a very hard time raising. It’s nowhere near as black and white as you would like it to be

        • ex-vc and entrepreneur

          Not many call my perspective naive, certainly black/white and hardass. Either way, I do agree with you that it is very tough raising money. It should be. If there is one thing I learned from economics and my own investments; there is no free lunch.

  • http://twitter.com/kevingibbon Kevin Gibbon

    Great post Mark.

    The role of accelerators in Canada should only be to identify, nurture and develop top talent to stay in Canada. There are chances of a home-run but the sad fact is that most entrepreneurs that are capable of one go to YC or no accelerator at all. Canadian accelerators need to face this reality and set expectations accordingly. Instead of focusing on “demo day” or the 3 month acceleration rate, the focus should be put on identifying and mentoring the best founders for not only their current business but also future ones.

    The draw to the US will only withstand amazing, proven mentors/investors that nurture these founders to keep their businesses/careers in Canada.

    My Background: I participated in FounderFuel last year. I’ve since shut down the company and moved to the SF to start my next venture.

    • http://startupcfo.ca/ Mark MacLeod

      No question that the best folks will goto the best accelerators. That’s a tough reality that just takes time and track record to change. Just like founders, the best Canadian accelerators need to prove themselves

      • http://twitter.com/kevingibbon Kevin Gibbon

        I think Canada in general needs to prove itself. Did you know that Waterloo grads outnumber any single school for founders in recent YC batches. More than Harvard, Standford or MIT. The smartest founders in Canada are quietly leaving for the US.

  • http://whoyoucallingajesse.com/ Jesse Rodgers

    I think the article missed a lot and focused on the wrong things. I agree with you on most your points 😉 A challenge is going to be figuring out which accelerator models are working and which aren’t when you have ‘company x’ that has come from accelerator a and b with group c, d, e, f, g having a mention. Those exist now.

    What’s worse, their mentor polls have so many cross appointments its crazy. Who is actually helping? Do they have time to actually coach a company?

    I think higher education needs to and can step up… and that’s why I am doing what I am doing.

    • http://startupcfo.ca/ Mark MacLeod

      Higher education is the top of the talent funnel. So yes, huge role to play. Would love to see computer science grads cranking out apps vs. reading C++ text books.

  • http://twitter.com/MikeJMahon Michael Mahon

    Great post, Mark. Accelerators in Canada have only been around for 2-3 years. Company building takes time and there are some good accelerator grads to watch out for. Accelerate to success, or accelerate to failure… both are acceptable outcomes when the asset you are building is a pool of entrepreneurial talent. Yes, there are likely too many accelerators… and some of our best talent will go to YC and TechStars. But there are great accelerators here and they will also attract great talent, from Canada and around the world.

    • http://startupcfo.ca/ Mark MacLeod

      Thanks Michael. Yep, good things take time. And BDC is a big player in making these accelerators work!

  • http://twitter.com/fungmoney Derrick Fung

    Great post on this. I think that Accelerators have been a great addition to the start-up ecosystem in Canada. I think what we need more of though are more entrepreneurs/founders (this could come from the University/College level) and also an investor base with a bigger risk appetite. I also think that the accelerators here aren’t as great for B2C companies, but know B2B quite well (especially given their ties with the VC firms here that are very B2B centric). We need one of the accelerators here to pump out a big “win” which will give us more creditability from our US counterparts…

    • http://startupcfo.ca/ Mark MacLeod

      Hey Derrick, definitely up for more risk. I can tell you that at FounderFuel we tried to find more B2C things that will either be big or worth nothing.