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Why Most Accelerators Fail…and Why Yours Doesn’t Have To

Earlier this year, we asked top early stage investors for their opinions on the future of accelerators and their answers stood in stark contrast to their views on the rest of the market. While they were optimistic on the general state and future of the early stage market (although the Series A crunch worried many), their outlook on accelerators was overwhelmingly bearish.

Accelerator Success

Image via Q1 2015 Sentiment Index Report – Download for Free Here

 

After receiving funding from accelerators, companies often receive their next round of funding from seed stage firms, the so called “Micro VCs”. Firms of this type had a record year of fundraising in 2014, meaning that plenty of capital is available in the market for companies at the stage.

However, this doesn’t mean that the fundraising process is any easier for accelerator backed companies than it is for ones that haven’t gone through a program. In fact, because of the way perceptions are forming among later stage investors, it may be getting harder

“There are too many incubators and that has hurt them all. Too many entrepreneurs think if they get into an incubator they have accomplished something. They haven’t. It’s a false sense of confidence. Call it incubator inflation.” – Mark Cuban in a 2014 Triangle Business Journal interview

Last week in Montreal, our team attended AcceleratorFest, held a day before the well known StartupFest that draws in top entrepreneurs and investors from across the globe. Sustainability seemed to be on the minds of many at the event, with a panel focused on the topic as well as separate breakouts intended to help facilitate discussion among industry leaders around what approaches and platforms can help contribute to the long term success of a nascent accelerator.

1. Understand what value you are adding to the companies entering your program

The world and it’s high growth companies don’t need another one size fits all accelerator. This is something that was clear in our earlier survey of investors and also to conference attendees. Without a world class brand behind it (see: YCombinator) an accelerator with too wide of a focus will only end up getting second tier companies in their respective industries and verticals.

500Startups, whose Elizabeth Yin was a speaker at the conference, has carved out a successful niche by helping companies focus on product distribution and growth. They have done this by developing a strong set of subject matter experts and a quantifiable framework that companies follow throughout the program. (AARRR) Companies enter the 500Startups program knowing that they are going learn how to more effectively acquire customers and the firm delivers on it promise.

Another example of this targeted approach is the Fashion Technology Accelerator. With offices in San Francisco, Milan, and Seoul, they are able to expose companies to the world’s hubs of high technology and high fashion, helping form valuable connections with suppliers, distributers, and technical talent.

 

2. Prioritize alignment among all of your key stakeholders

One thing that is not often discussed is the importance of understanding the motivations (and performance) of everyone involved in your program – companies, LPs, mentors and your own team.

Successful alignment comes from being able to successfully tell the story around the purpose of your firm as well as the performance of the companies in your programs. Your goals as an accelerator leader dictate the story you tell to the LPs funding your accelerator as well as to the companies you are targeting.

Once companies are in your program, the focus shifts to empowering the founding teams to understand and tell the story around their key data. This helps increase the odds of success in post-program fundraising and supplies you with the information you need to keep your own backers engaged in your progress. Alignment from top to bottom (and bottom to top) drives sustainability.

 

3. Build a “Startup Compost”

In the aforementioned panel on sustainability in the accelerator market, Sylvain Carle of Montreal-based accelerator Founder’s Fuel coined a new term to help program leaders understand how they should work most effectively with the companies in their programs that will inevitably fail. He calls it “Startup Composting”.

Accelerators spend a lot of time (and money) educating founding teams and setting them up for future success. Unfortunately, that success often comes too far in the future for the accelerator to see much benefit.

To run an effective “Startup Composting” program, it is crucial to understand exactly how all of your companies are performing (both while in the program and after) so that you can help teams understand when it may be time to pivot to a new business model or think about blowing things up and either starting fresh or joining forces with one of your other teams whose company is on a more likely path to success.

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