Editor’s note: Ashwin Ramasamy is the founder of ContractIQ, a free service for enterprises and entrepreneurs to find curated outsourcing partners for their mobile initiatives.
Hari, a smart and very savvy early-stage entrepreneur, emailed me to ask if it was worth joining a well-known accelerator. I texted an emphatic “No!” We then spoke to each other for over 30 minutes and I don’t recall having made such an impassioned argument. I almost felt like it was my duty to save an entrepreneur.
Accelerators emerged to help (mostly) first-time entrepreneurs learn “Starting Up 101″ under the watchful eyes of mentors who’ve been there before. It was about doing a few things right, up front, so that your startup survives and thrives till a tipping point.
That tipping point, in the opening words of Y Combinator, reads like this:
In 2005, Y Combinator developed a new model of startup funding….The startups move to Silicon Valley for 3 months, during which we work intensively with them to get the company into the best possible shape and refine their pitch to investors. Each cycle culminates in Demo Day, when the startups present their business plans to a carefully selected, invite-only audience.
So a top accelerator states that it is a new form of funding. That begets a question “What are they not?”
If the goal of an accelerator is to get a startup funded, then the irony is telling. The goal of a startup is to grow rapidly from an idea to a sustainable business that solves a problem at scale while making money or building usage base. Funding does help in the “grow” part and/or the “rapidly” part. However many startups don’t grow. Here’s where accelerators could and should play a role and most don’t.
Most accelerators are variants of n months of intense programs with x interactions every one of those months — with n being often fewer than six months.
The ‘faux’ sense of a-ha
That there is a demo day might be a logistical convenience and even a business imperative for all accelerators. However, when all participating startups are forced to demo or fall out within a date within an accelerator’s practical constraints, it results in strong disincentives for the startup and in some cases puts the startup on a wrong path of faking it.
The irony I mentioned above is that every startup views being in an accelerator as a fast-track to funding, while only a fraction get funded (27 percent to be precise). Even within the quarter of startups that get funded, depending on the accelerator you belong to, your chances vary to dramatic extremes (72 percent of YC startups got funded in 2012). I know several accelerators that had no demo day and “zero” funding within a year after a batch graduated.
The illusion of reaching milestones
The sense of closure and the urgency toward it incentivizes startups that just cross each milestone and not necessarily the ones that cross them discovering or achieving what that milestone is meant for. Even if weekly growth is a metric, there is no way to predict that a startup that hasn’t grown well in the first few weeks will not figure the Holy Grail one year into it.
Remember, in a startup you have to hit the home run just once to turn fortunes. That’s the minimum bar.
The disincentives don’t merely temporarily put the startup on the back foot. In many cases, they actually cause irreparable harm. Below are some common misconceptions that accelerators inadvertently ingrain into a startup.
- Anecdotes are somehow good enough to come to conclusion, when it comes to product-market fit.
- Building is somehow better than researching – I don’t know how writing code is about ‘product-market’ fit while researching about prospects is a less productive activity. Let’s do a face off between crappy MVP and well-administered research.
- “Crushing it” is more important than “plugging at it incrementally till it happens.”
So hurried up demos, unprepared exposure to investors and strong signaling of not having funded after acceleration all loom large and startups crumble at that weight. So what do several startups do? They pivot with the remaining money that they got invested by the accelerator.
The hazy cloud of mentors
I am both an accelerator grad and a mentor in a globally renowned accelerator. I’ve received two emails in the last year from the accelerator, updating me about the status of startups that I mentored. I don’t remember their names or their startups. None of them approached me after three months of my getting together with them on a class. I may be really bad or that’s how connected the mentors feel with the mentees. Guess what? I never reached out to any mentor in the network after two attempts that resulted in five-minute slots each.
Mentors — however illustrious they are, however forthcoming they are to help — don’t find a compelling reason to stay in touch with the network. The same goes for graduates. Being in an international accelerator with global network often means being on a global mailing list — one more place to throw the darts at, rather than a private platform that’s familiar and brimming with bonhomie.
The dazzle of funding
If you think you might get funding on demo day, you’re wrong. Christine Tsai, a partner at 500 Startups, has this to say on the matter:
You’re mistaken if you think you’ll actually raise money at demo day. Sure, there are times when someone may commit on the spot, but that’s rare. The point of demo day is to meet investors and get their contact info, get that first meeting.
So if your motivation was to get funded, why not take the four months to call every VC firm’s associate or attend their events and network your way to meet those investors that would be interested in your space and stage?
The seed money
The color and value of the money is same, irrespective of who you take it from. One of the best entrepreneurs who advised me said, “It’s you who grant a premium to an investor. Till then his money had no premium to that of the next investor you meet.” Compare money that comes with no demo day pressures, no relocations, no signalling (in the event of you not getting funded after demo day) with one that has all these caveats. Choose wisely. Besides, you don’t need external money to build a prototype these days.
So why are accelerators considered good for startups?
- If there is one place I can go and meet all my customers and the qualified ones at that, will I not like it? That’s why VCs like accelerators. One place to go establish their brands and much lesser effort to spot horses to bet on.
- Like education, accelerators are businesses where it’s easy to appreciate the value of the best ones but hard to quantify ‘the impact or the lack of it’ of the average ones. So one that gives (questionable) advice, (replaceable) money, (uncertain) future funding and (mis-managed) sense of prioritization of startup tasks will look attractive, till the adjectives within the brackets are critically reviewed.
- We all like to win. So getting into an accelerator is somehow seen as a verdict on the founder’s quality. With nothing else to prove, the first wins are hard to resist. Remember the meaningless gamification that you plan to subject your users to. Karma is a more sophisticated and pre-paid bitch now. With acceptance percentages that make it look ridiculously tough, it just feels like it’s worth playing the game just to get admitted.
For all these being said, accelerators need not be beneficial for you in all counts, they just need to vastly outperform on one measurement variable: incredible customer network, one good mentor that likes you, great insider network of investors that will just bet for the name that referred you, etc. and that’s why it’s hard to pass them off so easily.
So if you are choosing to go the accelerator route, choose the one that gives you an unfair advantage that is not often not tangible. Everything else has a better and cheaper alternative.Featured Image: 1000 Words/Shutterstock