Is There a Start-Up Accelerator Bubble in Today's Business World?
As a Tow-Knight Entrepreneurial Journalism Fellow at the CUNY Graduate School of Journalism, I am one of 16 lucky new media entrepreneurs who have access to world class mentors, financial opportunities, industry leaders, venture capitalists and like-minded thinkers. It is difficult to classify the program as a seed accelerator (because no seed funding is provided from the get-go), an incubator (because of the aforementioned relationships and opportunities that go beyond free office space), or an intrapreneurship for in-house academic experiments (because we have no obligations to continue our relationship with the university after the program ends).
What I had not considered before embarking on this adventure was that a major benefit of having the Tow-Knight Center housed at CUNY is that all intellectual property that my colleagues and I create is our own. We don't have to fork over any percentage of future revenues that we may derive from our forthcoming ventures to the institution or our advisers. I consider us lucky and rare to have this combination of resources without the potential of buyer's remorse if a project grew but some equity was already distributed.
This morning, I read an interesting INC article that provides an insider's look into TechStars, the popular and fast-growing startup accelerator. While TechStars and YCombinator are generally considered the Harvard and Princeton equivalents of the accelerator world, I wonder whether the rest of the pack, essentially startups themselves, has equal value. While I enjoyed the INC piece, I was disappointed to learn that some TechStars applicants are accepted because of their relationships with the organization's leaders despite having severely underdeveloped or non-existent products. But on the other hand, I recognize that this is the way the world works. In private business, democracy has a very limited role. And merit may have even less. In the startup world, a frequently heard maxim is that venture capitalists invest in personalities and founders, not companies.
With seed accelerators proliferating all over the world, one wonders if the talent pool at each individual accelerator will become severely diluted. Though it is impossible to gain data about the success of companies grown from seed accelerators that have not yet had the opportunity to flourish or flop, one can surmise that more startup accelerators will mean fewer success stories from each specific program. When YCombinator had less competition, it meant that they got their pick of the litter. Nowadays, founders may not want to schlep to Silicon Valley if they are confident that they can still make it in their home cities or countries.
The following are required to be a “seed accelerator” Open application process; anyone with an idea can apply Accelerator invests in companies, typically in exchange for equity, at pre-seed or seed stage Cohorts or ‘classes’ of startups; not an on-demand resource Programme of support for the cohorts, including events and company mentoring Focus on teams, and not individual mentoring Examples of what isn’t a seed accelerator: Programme where the startup pays for mentoring Incubator where the startup pays (discounted) rent in return for equity and/or discounted business services Programme where applications are restricted to certain groups (like students from a particular university)
Because of the rapid growth of seed accelerators, now would be an ideal time for someone (an academic, perhaps, hint, hint) to create a more comprehensive database that keeps track of the success to failure ratio at each of these accelerators. I can already guess that firms that are only given $20K in seed funding in exchange for 7% of their company won't have the same advantages that firms who are given $100k for an equal stake. In this sense, it will also be important for entrepreneurs to report back on any seed accelerators that are disorganized, don't deliver on what they promise, or steal intellectual property -- all issues that I foresee arising in the near future.
But at the end of the day, one must think about Facebook, YouTube, Groupon and countless other uber-scalable companies that weren't working within any set of rules at a seed accelerator when they launched. The investors flocked to them when their products were proven to have true growth potential and superb execution.
So while some people wonder, what comes first -- the chicken or the egg -- I wonder what comes first -- the seed or the flower that creates its own seeds to spread.