Yesterday, I was up at Detroit Startup Week. I was listening to a panel of Fin Tech entrepreneurs and stayed for the Q+A. One of the questions was on accelerators/incubators.
I think this is an excellent topic. Lately, a lot of entrepreneurs have asked me about them.
Dan Gilbert moderated the panel. He said something interesting that I totally agree with. Back in the 80’s, you never heard about “entrepreneurship”. No one was an entrepreneur-and if someone said they were it was probably because they were unemployed-or unemployable. I admire what Dan has done in downtown Detroit. If you haven’t been there, you should check it out.
You didn’t go to an accelerator back in the 1980’s when you started a company. You just did it.
Today, entrepreneurship is the rage. Engineers looked at the “startup problem” (failure) and tried to de-risk it with structure. The result is two pretty darn good accelerators in TechStars and Y Combinator. At Chicago Booth, The Polsky Center is a very good accelerator too. But, I believe they are rare.
Not all accelerators are worth it. The trick is how to decide whether to go through one or not. There is a cost to your business. Time, and usually equity. Sometimes even money. There is a diffusion of focus because you work on what the accelerator tells you to work on-which might not align to what your business needs at that particular time.
I think there is one question an entrepreneur needs to ask themselves. Are you looking to go through the accelerator because you are fearful? Because you lack confidence? Because you are looking to de-risk what you are attempting to do?
I have been there. I know what it’s like to feel all that stuff.
If you are feeling that sort of emotion, there are no easy answers. It all depends on you. I will tell you that even after the accelerator at times you will be fearful, and at times you will lack confidence. There is always risk in entrepreneurial ventures until you cash the check at exit.
In many cases, the entrepreneur will know more about their business than anyone in the accelerator. This is especially true within vertical silos like finance, agriculture, and medicine. As an entrepreneur, search inside yourself to see what is driving the decision to go to an accelerator.
Building a startup business doesn’t follow a predictable linear line. Don’t do it because everyone says to do it. Don’t do it because others followed that path. By definition, entrepreneurs go against convention and blaze new trails.
That being said, I still think for startups accelerators can be valuable. Here is some questions I would answer before I parted with my company equity, time and money.
Has the person running the accelerator successfully built and exited a company?
For example, I have been asked to run accelerators. I have never built a scalable startup company. I have done a lot of things in my life that are very entrepreneurial, but running a company is a lot different than the things I have done. I declined to do it because when a startup asks me a question I need to have the answer in my head, not my fingertips
Who are the mentors? Have they been entrepreneurs? What are their networks like? Do the mentors have the things I need? Do you get one meeting with them so the mentor puts face time in or is it the start of a long relationship?
Often times, people do things for community. They put face time in to try and show that they are “giving before they are getting” but, it’s really about them. Sort of like the volunteer that photobombs a photo but doesn’t do any of the work.
Can you talk to mentors prior to the program to get their opinion on it?
Sometimes mentors will be very candid and you will learn things about the program that you won’t learn from organizers.
Can you talk to companies that have been through the program to get their opinion?
I love that TechStars has a money back option. The onus is on them to provide a good program. Not all accelerators are like that. They are cash machines for the organizers, and not the companies.
Most importantly, can you talk to companies that failed to find out if the program hurt their business. Or, if they felt the program was good for them despite failing.
Failure happens a lot with startups. If you go through an accelerator, you still have a high probability of failing. But, there are relationships and other things you can learn that will help you in your next business.
Have companies raised capital coming out of the accelerator? How much and from whom? Is their any guaranteed money? What is the structure on that money, and does it affect your company valuation?
After all, at the end of the day it’s about the Benjamin’s. If you go through a huge program, give away time and equity, and can’t raise capital it’s not worth it
Does the accelerator show you all of their statistics? How many applied? How many they took? From where? How many companies are still operating? What cities are they in? How many exited (and at what valuation or multiple) How many failed?
If they don’t, they probably aren’t being transparent with a lot of things.
Are there a lot of politicians involved? Are their a lot of “names”? Are there a lot of great sounding biographies but no real meat to them?
If a lot of politicos are involved (either party) run. Odds are good they are there for them and they don’t give two cares about you. Name people are nice, but how much day to day involvement do they have? People that haven’t done anything in their lives can string together a lot of MBA speak to make themselves look really credible-but the reality is they aren’t. Investigate-don’t accept things at face value.
I don’t want anyone to get the impression that I am down on accelerators. I think they can be great. But, at the same time I want every entrepreneur to look at the cold hard facts. Often times cities or communities think that if they start an accelerator, they will generate a startup community. The accelerator becomes more about them, and not the startup company.
One of the reasons I helped Raman Chadha out with his idea was because Raman saw a slew of accelerators out there, but no real difference in the amount of failure. The startups success or failure is going to be about managing and growing a company. It’s going to be measured by the bottom line. It’s not going to be about which accelerator you went through any more than a person’s success is measured by the college they went to.