Should You Apply To An Accelerator?

Accelerators and incubators are hot.  There is a difference in what they do.  Accelerators are focused three month programs that are designed to spin out a focused company and get them going faster.  Incubators are where a company comes in and works out their problems and figures out where to go.

The accelerators/incubators typically take equity in the company.  Entrepreneurs need to be very careful who they give equity to.

A recent BusinessWeek article postulated there is an accelerator bubble.  There might be.  Once an entrepreneur asked me about a particular accelerator.  I hadn’t heard of it-but that didn’t mean it wasn’t a good accelerator.

One study, conducted by Houston’s VC Aziz Gilani last year, showed that only two accelerators—Y Combinator and TechStars—had produced meaningful exits for company founders. Forty-five percent of the programs he included failed to produce a single graduate who raised venture funding. That squares with Kedrosky’s investing approach to accelerator companies: “If they’ve gone through a top program, it’s interesting,” he says. “If it’s not one of the top ones, it just tells me you’re alive.”

Excelerate Labs in Chicago which is now TechStars Chicago has had meaningful exits and has had companies raise VC funding.  I am invested in a few of them-so I know.  I also know the guys that run it, and they do an outstanding job.  Companies get real value from their exposure to the Chicago accelerator.

Ironically, the operations behind a good accelerator are not a trade secret.  Brad Feld, David Cohen and Troy Henikoff will share their blueprint with anyone.  As with buildings, it’s not the blueprints that matter.  It’s what’s inside that counts.

A while ago, I looked at the Excelerate Labs classes in Chicago to see the data on how they were doing.  To measure them by exits is incorrect-they are too new to be measured by that yardstick.  But, many of the firms were still operating and receiving venture money.  Huge success.

For entrepreneurs that don’t get into one of the TechStars or YCombinator programs, what should they look for?

A reputable accelerator will be an open book. They ought to introduce you to companies that went through the program and have good data on how those companies are doing.  They should be unafraid to talk about what they do, why they do it, what they have learned, and what value they add to your company.

First, data.  See how many companies have gone through and what happened to them.  Did they raise meaningful next rounds of capital?  Did any successfully exit?  How many companies are still in operation?

Second, interview companies that went through.  Did the accelerator provide value for them?  What did they learn?  What would they change about the program?  Did any of the mentors stay with them, become a part of their organization in some way?  Did they raise capital?  If they pivoted, how, why and was it successful?

Third, ask to see a list of mentors.  Find out what those mentors did.  There should be a good percentage of actual entrepreneurs in the mentorship program that built companies and successfully exited.  If you see a list of service providers, don’t apply.

Fourth, find out if any meaningful connections were made.  Do they give connections for free?  Or is there a charge?  Do they charge you extra for raising equity?  Make sure every cost is upfront and not hidden.

Fifth, don’t succumb to community peer pressure.  A lot of times people are afraid of ticking other people off so they won’t talk badly about anyone or thing.  They might say, “I have heard it’s a good program”,  and leave it at that-without saying what they really know.  Find someone that you can trust that will be a straight shooter with you.

Sixth, you may not need an accelerator at all. There is a lot in the blogosphere to help you out.  The entrepreneur community is incredibly helpful.  Ask your fellow entrepreneurs.  Instead of working out of your house, or in a coffee shop, work out of a good co-working space.

That all being said, I think there is value in a good accelerator.  If you think it’s right for your company’s growth trajectory, and you find a good one-apply.  If you are in Chicago, I’ll see you this summer.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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