What is the problem accelerators are solving?

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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:

Investors need to identify talent.
Talent needs to find the right investors and coaches.
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!

Fireside Chat with Albert Wenger – Oct. 23rd

We’re very excited to host Albert Wenger of Union Square Ventures on Wednesday October 23rd 2013 in Toronto, at the spanking new OneEleven Accelerator, from 5:30pm to 8:00pm.

William Mougayar, founder of Startup Management will interview Albert on stage, and there will be a Q&A period with the audience. We will talk Network Effects, the changing landscape in venture capital, advice to entrepreneurs, government and technology, privacy and security, raising money from U.S. VCs, and anything you’ll be asking him. This is a unique event, not to be missed by any one involved in a Tech Startup or ecosystem.

Albert Wenger is a partner at Union Square Ventures (USV), a New York-based early stage VC firm focused on investing in disruptive networks. USV portfolio companies include:Twitter, Tumblr, Foursquare, Etsy, Kickstarter, Wattpad,Kik and Shapeways
Before joining USV, Albert was the president of del.icio.us through the company’s sale to Yahoo. He previously founded or co-founded five companies, including a management consulting firm (in Germany), a hosted data analytics company, a technology subsidiary for Telebanc (now E*Tradebank), an early stage investment firm, and most recently (with his wife), DailyLit, a service for reading books by email or RSS. His wife is also the co-founder of Ziggeo.

Albert is on the Board of Edmodo, Shapeways, Heyzap, Twillio, Foursquare, AMEE, Covestor, 10gen, Wattpad,
Firebase, Sift Science and Tumblr (prior to its sale to Yahoo). Albert graduated summa cum laude from Harvard College in economics and computer science, and holds a Ph.D. in Information Technology from MIT.

Location

OneEleven, 111 Richmond Street West, 5th Floor, Toronto. OneEleven is Toronto’s newest accelerator. It’s your chance to visit this brand new 15,000 square feet facility, dedicated to accelerate the commercialization of cutting edge research and development for the economic prosperity of the region.

Buy your ticket

This event is organized by Startup Management and hosted by OneEleven. It was made possible due to the generous Patronage of Wattpad, Sponsorship of OMERS Ventures, and Support of Ryerson Futures.

Startup Management is a knowledge resource for growing, scaling-up and managing startups.

Wattpad is the world’s largest community for reading and sharing stories.

OMERS Ventures invests in companies with significant growth potential and market opportunities, seeking partners with a shared vision of building a vibrant knowledge economy.

Ryerson Futures is an accelerator for early stage companies connected to the Digital Media Zone at Ryerson University, and manages a seed fund.

OneEleven is a unique centre for commercialization that will create the talent and technologies that shape our future in ‘Big Data’.

Startup “ecosystems” in Canada are doing well but…

Editor’s note: This is a guest post by Jesse Rodgers. Follow Jesse on Twitter Follow @jrodgers. This post was originally published on November 21, 2012 on WhoYouCallingAJesse.com.

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The Startup Genome released another report mapping top startup cities but this time a bit more specific than it’s heat map from April of this year. Canada did well depending on how you interpret it with Toronto at #8, Vancouver at #9, and Waterloo at #16. In its previous report, Startup Genome ranked Toronto at #4, Vancouver at #16, and Montreal made the list at #25. Oddly Waterloo wasn’t listed in the previous ranking but made it into the top 20 in the new report while Montreal remained outside of it.

Focusing on my Ontario centric nitpick – the separation of the Toronto and Waterloo “ecosystems” when they are anything but separate is not going to give an accurate picture of Canada’s awesome startup communities. They are unique communities but their strength comes from how they work together in the same ecosystem. The emotional energy (and money) burned in defining how they are different is holding Canada back from an even better and sustainable growth curve. That energy is in the report.

In the report:

“Toronto competes for startups with regional competitors such as NYC, Boston and nearby Waterloo.”

Then in the Waterloo profile:

“In the near future, it will be interesting to see whether Waterloo is able to hold on to its talent base or whether it will be sucked into Toronto.”

Would you say that about Palto Alto sucking talent to San Francisco and vice versa? No. It’s the valley. A huge area that is far more developed but very similar to the Toronto – Hamilton – Waterloo. The problem, I think, is that at some point in the past when local economic development groups were competing on a similar scale for tax dollars (and manufacturing plants) they narrowly defined regions (Golden Triangle, Golden Horseshoe, etc) where everything above the escarpment is barbarians and the urban modern folk live below next to the cold blue lake.

There can be (and there are) distinct communities inside the larger Toronto – Hamilton – Waterloo ecosystem. Each community has its strength. Each success in the larger ecosystem helps the entire ecosystem.

The big problem the ecosystem faces (in Toronto):

Startups in Toronto receive 71% less funding than SV startups. The capital deficiency exists both before and after product market fit. Toronto startups receive 70% less capital in Stage 2 (Validation) and 65% in Stage 4 (Scale).

The ecosystem most likely lacks a sufficient quantity of all kinds of startup capital sources: angels, super angels, accelerators, micro VCs, VCs etc. As a result Toronto startups rely more on self-funding, or rounds from family/friends.

The other big problem (in Waterloo):

Waterloo has a funding gap (96% less in the second stage) for early stage startups before product market fit, probably due to a lack of super angels and micro VCs. There are high numbers of accelerators and much lower numbers of super angels and VCs than SV.

Solving the funding problem in Toronto also solves the problem in Waterloo, more companies that able to find the money and the talent to scale in either or both communities helps both or am I missing something?

Building a strong economy, community, and ecosystem isn’t a zero sum game.