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What is the problem accelerators are solving?

There is currently a preoccupation with accelerators in the entrepreneur world resulting in a large increase in programs.  Arguably, the result of this frenzied growth is that ‘entrepreneurship’ is as commoditized as college. Unlike college, it is extremely hard to know which programs are adding value and which ones are wasting everyone’s time. This doesn’t mean investors aren’t in the know and they are favouring the programs they like – example, YC or TechStars.

It could become (or has already become) virtually meaningless to be an accelerator born internet entrepreneur so why would you give up 6-12% of your company to do it? For investors it is really hard to cut through the noise. I think this is because few people actually know why accelerators exist at all. In some cases I fear that the people that are creating new ones aren’t likely clear on why they are creating these programs either.

How does anyone know which ones work? What problem are they solving? What metrics should they be tracking in order to get better at what they are doing?

Defining the problem(s) accelerators solve.

There are three problems I think accelerators are trying to solve:

  1. Investors need to identify talent.
  2. Talent needs to find the right investors and coaches.
  3. Education system failure.

The first is a relatively easy problem to solve. It is hard for investors to identify talent at an early stage, accelerator programs offer a filtering tool for investors as they can take the top talent that applies and narrow it down to those that have the highest potential based the criteria of the particular program. If an investor trusts the filtering job done by the accelerator than that accelerator is providing value.

A suggested metric for this: measure how many alumni of a program receive funding, from what type of investor, and in what time span?

The second problem that talented people and teams have is finding the *right* investors and coaches. By the right investor I mean someone that will give you enough money and coaching that you can slowly de-risk your startup a little more and build momentum as you grow towards being a sustainable business. Founders need coaches to apprentice under while they build their company. The right investor is someone who will put in enough of their own money and time and they can help you get your business through the major milestones it faces. This likely means that party rounds are bad. What I think should be the goal are 4-6 investors and/or an individual (not a VC) has a 1/2 to 1/3 of the total round.

This should result in the person(s) who put in significant capital also have a board seat and have their sleeves rolled up ready/able to help.

A suggested metric: track who put in the most personal money in the round and are they on the board of directors or some other significant role in the company? How much time a week/month do they spend with the founders?

The failure in education is a much harder problem to solve. Is it the traditional silos that are limiting education or is it the expectation that you go to school to be trained for a job or a bit of both or something else? Is the failure the education system (K-12) or is it the students or both? In higher education you have environments that are designed to encourage independent thought that is backed by facts and thinking. You should be exploring and developing your networks.

At no other point in your life will you be surrounding with that much leading edge research and thinking. Just because a school doesn’t hand you your first startup with funding and office space does not mean the education system is failing entrepreneurs!

There is also already a process for very smart people to apprentice under others that have already developed their ability to take massive amounts of information and focus it on an outcome. It also happens to come with a filtering mechanism built right in that improves the likelihood that the person that finishes is relatively in the top few percent. It’s graduate school. The process is not perfect but it is a process that works.

Educating people is hard. Coaching people is harder still. If an accelerator is going to solve the failure of the education system in educating entrepreneurs it should take that part very seriously and not dismiss the education system as having nothing to offer.

A suggested metric: Does the accelerator have qualified educators and coaches that put in a significant amount of time (more than 1 hr a week) with each entrepreneur? Are there measurable outcomes expected on the entrepreneur? Are there consequences for not meeting expectations?

Accelerators should be more than marketing to the entrepreneur and placing them in a zoo for the public to see them in action. Education is serious business and it is about people’s future. Entrepreneurs need to have realistic expectations and enter with a clear idea of what they want out of the opportunity.

Everyone around accelerators is still learning about how to make them work and figure out for whom do they exist. It is an exciting time in education — just be sure to track stuff that matters while you run the experiments!

  • http://www.startupmanagement.org/ William Mougayar

    So are you against demo days?

  • http://whoyoucallingajesse.com/ Jesse Rodgers

    Generally, yes.

  • http://www.Spidvid.com/ Jeremy Campbell

    I’m under the INcubes umbrella and enjoyed my experience with the people there! I continue to get value from them, and although my demo day wasn’t successful in attracting funding from investors I’m going to start pitching again soon to raise a new round and they are going to help connect me to potential investors. Accelerators are great partners in my opinion, I recommend them!

  • http://whoyoucallingajesse.com/ Jesse Rodgers

    That is good to hear. I think INcubes is a great experiment. Excited to see how it evolves.

  • Gil Katz

    I guess the basic understanding of incubators I got so far was that their business model is to get 5-10% of many startups, teach and help them get investment, and then most likely either sell their % to those new investors for real cash, or stay with it until there is a larger valuation to cash out.

    That’s why the goal is always to help the startup raise investment – because they will get to cash out those %s – which is ok as far as a learning environment for inexperienced people, but startups should always watch out for the terms of those investments, which can be more dangerous than a marriage certificate.. ;)

    That’s why it’s good that some incubators are starting to focus on helping startups generate sales from real customers instead of the investment focus.

  • http://www.socialmediawave.com socialmediawave

    The bingo card approach of mentoring, investing. Cover many bases, accept low returns on some, hit a couple out of the park.

    Doesn’t really serve the Entrepreneur community does it?

  • Gil Katz

    The question here is ‘What is the problem accelerators are solving?’ and the first answer should be ‘Accelerators are businesses looking to generate revenue from the opportunity in the market – the gap between education, business, and the hype of generating millions in months through various schemes which almost never happen but are enticing enough to get %s of many early businesses’.

    Accelerator founders are actually amazingly successful entrepreneurs with admirable skills.

    But the logic could follow into strange situations. Maybe university teachers should also become HR recruiters and get a % of the salary of every new graduate who gets a job. Maybe politicians must own municipal bonds. Basically it’s the old question of separating church and state, or not, and the various consequences of each option.

    Does it serve the Entrepreneur community? yes and no.. like everything in life, it’s what you make of it.

  • http://whoyoucallingajesse.com/ Jesse Rodgers

    I don’t think many are making money. I don’t think a lot has changed since i posted this: http://startupnorth.ca/2011/08/21/trying-to-understand-incubator-math/

  • Gil Katz

    Someone should create a chart that summarizes all of the incubators: listing the % they ask (or not), how they are funded, their offerings, their successes so far, etc.

    That would make it very easy to see what’s going on and reduce the amount of conversations about this topic by having a live public summary somewhere (like a wiki that only the incubators could update).

  • http://whoyoucallingajesse.com/ Jesse Rodgers

    I agree. The folks at MaRS have started to pull some of it together but limited the data to what they define as a ‘true accelerator’ – http://datacatalyst.marsdd.com/startupaccelerators/ – it is a start. A big problem is that things like funding and from whom is hard. The folks at TechStars have a done a decent job making data public and once in a while Paul Graham releases some YC numbers.

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  • Gil Katz

    That’s a great report – even has a chart! Beautiful.. time for good laugh about it.. ;) http://www.youtube.com/watch?v=GIRtjsWk6_I

  • Ben Zlotnick

    Thanks Jeremy, as you continue to build a user base and traction through the Spidvid platform, success comes with hard work. Not all business are created overnight.

  • http://www.Spidvid.com/ Jeremy Campbell

    “Overnight successes” usually take 10+ years!