Start-ups are cool, very ‘now’, the thing for the young and hungry to aspire to live the glamorous life. Popular culture films showcase the extreme case study of ‘what if we quit (studies/jobs) and ‘did’ a start-up’, with memorable catchphrases like the ones Justin Timberlake expertly portrayed in The Social Network. It is akin to a modern day gold rush. And as with any gold rush, the real winner is the guy selling the shovels. Hence why we are seeing more private sector companies trying to cash in on the ‘entrepreneurship’ trend.
Orange and Telefonica (Wayra) are funding ‘accelerator’ programmes in the model of, the now famous and ludicrously successful, Y-Combinator. For those who aren’t familiar with the concept of an accelerator, it is very simple: in one end you put driven teams of talented people, a little bit of money, some mentorship and a period of time (usually 3 months) to come up with ‘the next big thing’. On the other side you get the promise of riches that few companies achieve; AirBnB and Dropbox being two of the more prominent and valuable (at today’s market value, as denominated by their latest investment funding rounds).
There are many such programmes, trying to facilitate creation while retaining equity and therefore enforcing the ability to influence and profit off the potential upside of the few successes. The theory is the application process filters out the dud ideas and the improbable ‘founders’ before the programme itself equips the selected few with the skills, knowledge and a little working capital to ‘win’. Investors hungry for outsize returns await on the other side to take punts on those they feel have the best potential. The problem is, in a competitive world suffering massive information overload, only a few services can win. Looking deeper into what teams in these programmes create, you quickly see a trend overweight in consumer web and mobile applications. Understandably, creating software is now quick and relatively cheap to produce; likely because the easiest and most hyped markets revolve around consumerism. We do, after all, get encouraged by government policies to spend beyond our means and chase capitalist dreams of riches.
Speaking of governments, they are also getting in on the act. Grants, such as those offered by the UK’s Technology Strategy Board (TSB), are essentially governments reallocating capital to areas they feel private enterprise is not paying enough attention. Such mechanisms have traditionally been the domain of Higher Education institutions, but as with everything, there seems to be a need to democratise every aspect of life so that people are overwhelmed with certain choices (but restricted in others, for example by high taxes choking true market effects).
What do entrepreneurs gain from subjecting themselves to such competitive filtering processes? The immediate value is validation from peers. Often, as with all advice, you get conflicting views, but wisdom of crowds and experts should always be aggregated and analysed in context. Often, that is one of the key learnings during an accelerator programme. Seedcamp, Europe’s premier accelerator by virtue of size and attention, focus on intense mentoring to expose entrepreneurs to domain expertise, advice, wisdom and curated knowledge; learning such things as ‘your business relies on land-grab network effects’ (yes, these people know more than you and I).
There are other, less exposed ways to acquire the knowledge and the advice of others. The London Open Coffee mailing list, powered by meetup.com and founded by the now legendary (and off conquering the Israeli start-up scene) Saul Klein, provides access to a forum of people involved in the start-up ‘scene’. Here, I posed the following points to gauge sentiment toward accelerator programmes:
What do people in the list think of accelerators?
Here are my thoughts as to why you are wasting your time by applying:
- If you are good enough to be chosen for the accelerator investment, it was likely Angels and VCs would have invested in you anyway. Just send them an Exec summary. You get the result you wanted, without giving 6-10% to an introducer (which is what Seedcamp effectively are)
- It is time-consuming to apply – spend that time building product instead
- If you are desperate for cash and think you have what it takes, go direct to Angels and VCs.
- If you want PR, write a press release, email it to all the blogs and newspapers, and then tweet.
- If your product isn’t ready, you know that already. You didn’t need an accelerator application process to tell you that. Customers will tell you that (you are talking to potential customers, right?)
- For all those people with an ‘idea’, think about this: Can you execute the idea right now? No? Ok, can you execute the idea FULLY with £50k? Not likely. So your problem is you need to get to the stage where you are ready to execute. Either you need to learn to code, design or convince people who can that you and your idea is right. All things you cannot do in an accelerator (plus the accelerator would not consider you before you do these things anyway…)
My point is, accelerators are a distraction. Y-Combinator in the States is a bit special, but they are an exception that everyone else cannot get close to. Plus you have to be a bit special for them to think you can build some world-beating product 2-3 times over in 3 months.
Work on your product, talk to potential customers, don’t distract yourself by offering an introducer a chunk of your product/business.
There is one other aspect that is interesting to me: how many of these are truly seed level accelerators, and how many are just an elaborate filter system for investors?
HackFwd are one accelerator programme that express interest in hearing truly seed stage ideas. However, ideas are only a part of the equation as HackFwd Founder, Lars Hinrich, professes a bias toward developer: “It is easier to teach a coder business, than a business person to code.”
The ideation piece is done quite well across the start-up scene. General Assembly are blowing Flagons Den to pieces on this front, for example (which is why I am trying to steer FD into more shallow waters to provide relevant and fun events).
The bit that is missing is this: support to get ideas from an idea to something that has been tested and would be of interest to users (and therefore investors). Where are the real advisors/experts who underpin the community (like Iqbal Ghandaml) amongst all the ‘agencies’ and ‘consultants’?
Some responses to the above criticism was posted and certainly adds balance:
The only reason I’ve considered accelerators is the opportunity to meet and even get to know angel investors; an intro is worth a lot when it comes to getting your proposal properly looked at; plus angels in particular are hard to locate, or at least I’ve found that to be the case. Beyond the small pool of high profile “professional” investors finding an angel is mostly about who you know – so if the accelerator gets you access to angels, it’s worth something
And then there were the long rebuttals by those who had attended an accelerator:
Here is why you should apply to accelerator program this year:
- In 3 months at an accelerator program, you will be able to achieve more work than you ever thought you can (around 3 times more than what you achieve regularly).
- Accelerator is a due diligence for investors, they will more probably invest in your company and give higher valuation for accelerator graduates.
- You have a brand behind your startup – it makes it easy to open doors in the future.
- The heavy mentorship allow you to shape your product in the right way, instead of failing over and over again till you reach the right product or give up.
- It’s not about the money, it’s about creating a better product and becoming a better entrepreneur.
- The equity given is not an issue. The valuation is what really matters. So if the for example the accelerator doubled the valuation of your company, you can now give away half the equity for the same amount of capital.
- Networking – you create a huge network of supporters and of connections that want you to succeed (mentors and other startups that participated). Your success is their success. So therefore they will work to make you successful.
Simon Jenner (who runs the Oxygen Accelerator which is doing great things in the midlands) responded with:
Sure accelerators are not for everyone but they do some amazing things and the proof is out there, on average 6 out of 10 teams get funded coming out of accelerators. Without an accelerator that figure is less than 1 – 10, so you improve your odd massively by going through one.
If you know anything about Angels and VC’s very few will take notice of a business plan emailed to them but if it’s recommended to them from a 3rd party like an accelerator it has much more credibility. Also show me a start up on their own that can get mentors from Amazon, PayPal, Google and other tech heavyweights to spend hours helping them with their business – Oxygen Accelerator and other do this.
In summary you get pre-seed funding, amazing mentors money could not buy, introductions to customers you could never get on your own, PR Coverage and the opportunity to pitch for investment in front of a who’s who list of tech investors. You could not achieve this on your own it’s just not possible – an accelerator does all this and more for you while you concentrate on what your best at – building world changing products/services.
Supporting the theorists who band about the word ‘bubble’, co-working places and incubators, like Innovation Warehouse in The City and White Bear Yard close by, are growing in number. Some may say these spaces are needed to form community, but it is worth noting the economics of such spaces are very attractive to progressive landlords. They do, however, provide one very solid function: the creation of a physical, local community that brings geeks out from behind their screens. Imagine the social implications for hackerdom.
On a serious and final note, the start-up scene, especially within London, is very small and the spheres of influence all increasingly converge and overlap. Is this why such a similar approach to accelerators is being taken across the board? Or are accelerators the current most efficient mechanism for quickly filtering people and focusing relatively small amounts of capital on kick-starting solutions to life’s big problems? Like endless sharing of photos.
For a fairly comprehensive list of Accelerators and other similar programmes – check angel.co