8 ms·

Startup Accelerator Fail: Most Graduates Go Nowhere

161 points by tltjr 14y ago

yesimahuman 14y ago
I think their metrics of success are silly (zero discussion of revenue, only caring about VC perception, etc.), but the other conclusions don't surprise me. What I've noticed from copy-cat incubators and accelerators is that they incorrectly observe what YC is and apply something very different. Many of these programs are more like a class, with structured lessons and methods to success. Attendance might as well be required. YC is more like college: you get out of it what you put in to it. "office hours" are named that way for a reason. Independence is a strong part of being an entrepreneur. Of course inexperienced entrepreneurs need help, but having no experience at all is an indicator of probable failure. I can only imagine this is amplified when the mentors and investors lack real startup experience. It also needs to be said that the fallout from failed incubators in smaller cities can be negative. I've heard stories of damaged relationships, investors picking "favorites" and turning groups against each other. Unfortunate stuff.
- specialist 14y ago
  > ...incorrectly observe what YC is and apply something very different. Heh. I once captured an employer's engineering methodology (from memory) thusly: - misunderstand the problem - exclude domain experts and stakeholders from decision making - make decisions - don't tell anyone - (post mortem) identify nonparticipants to scape goat - repeat
debacle 14y ago
Isn't that kind of the idea? It's a high-risk investment and most startups aren't going to go anywhere.
- maxko87 14y ago
  Sure, but if _none_ of these second tier accelerators are producing _any_ successes, let alone any A rounds, it makes sense to question whether there's really any reward in participating in one at all.
  - jusben1369 14y ago
    Agree with maxko. Basically he outlines the 3 major benefits of joining an accelerator program. He then questions whether many of the accelerators can deliver all or any of those 3 stated benefits with a relatively depressing outcome.
DanielRibeiro 14y ago
Not really a secret[1]: Peter Thiel: Do Y-Combinator companies follow a power law distribution? Paul Graham: Yes. They’re very power law [1] http://blakemasters.tumblr.com/post/21869934240/peter-thiels-cs183-startup-class-7-notes-essay http://blakemasters.tumblr.com/post/21869934240/peter-thiels...
- pramanat 14y ago
  Perhaps a corollary could be that incubators also follow a power law distribution?
ilamont 14y ago
Report author: "It takes years for companies to get traction and get an exit." "There were not enough exits to evaluate" Yet RWW concludes "startup accelerator fail" and "a lot of accelerators are just spinning their wheels." Here's another hypothesis: The lack of exits reflects the fact that most accelerators are themselves only a few years old, and it takes a longer period of time to build a successful venture and achieve an exit.
- mikescar 14y ago
  And the author was somehow able to conclude that YC and the two accelerators his firm invests in are all at the top.
eande 14y ago
using the exits as one criteria to judge the overall startup accelerator program and labeling it as a failing attempt is premature. Even in the article Gilani says "takes years for companies to get traction and get an exit". I think the success of these programs will depend on who the accelerator program is, type, region and other factors, but for sure it is too early to draw conclusions.
tlogan 14y ago
The quality of these incubators is going down but it is still not so low that I can be accepted (I'm half joking). Anyway, the key for successful incubator is that they have strong team - with experience, knowledge, and connections. What I noticed that majority of these second-tier incubators have only connections (ex-Googler, ex-Facebook, ex-bubble-company) but they do lack other two.
taylorbuley 14y ago
Interesting to see a number around the rate of accelerator graduates that go on to raise venture funding (45%) but what would be more interesting is to compare this number to number of new companies overall that go on to raise venture capital. I would imagine this number to be substantially lower than 45%, which would seem to turn 45% into an argument for accelerators and not against them.
pg 14y ago
Exits are a stupid test for what they're trying to measure here. By that standard, Airbnb and Dropbox are failures. Exits are a reasonable test for investments made, say, 10 years ago. But none of the incubators are that old yet. So the right way to judge them is by the valuations of the startups they've funded. Unless the venture business as a whole loses money, that will be a lower bound on the eventual exit numbers. Then you don't need to measure fuzzy stuff like "VC perceptions" either. Each incubator has a single score: average valuation. The last time we calculated ours (for the Forbes incubator rankings: http://www.forbes.com/sites/tomiogeron/2012/04/30/top-tech-incubators-as-ranked-by-forbes-y-combinator-tops-with-7-billion-in-value/ http://www.forbes.com/sites/tomiogeron/2012/04/30/top-tech-i...) it was $45.2m. You could still screw up e.g. in the case where a company hasn't raised money for a long time and whose last post-money valuation is 1/10 of what they could raise at now. But you won't screw up as badly as if you just measure acquisitions.
- kylebrown 14y ago
  How about median valuation?
  - pg 14y ago
    The trouble with median valuation is that even for the most successful incubators it will approach zero, because I doubt any of us are going to have a success rate over 50%.
    - waterlesscloud 14y ago
      Hmm. But isn't that getting at the point they're making here?
      - TimGebhardt 14y ago
        But VC investing is a hit-driven business. One big hit, like a Dropbox, funds all the rest. Unless you're really good at picking horses, you'll have the same median as everyone else.
danielrhodes 14y ago
Given the exponential returns possible from just one big exit, the bar for success is not that most companies do well but just a couple. It would seem odd then that the accelerator would invest in the others, but since there is relatively little information available at the time of funding, it becomes a numbers game. Given that the instincts of the accelerator are good, there is no reason not to invest in as many companies as possible to catch a few stars in the net. To the outside world however, it looks like a bunch of failures.
damoncali 14y ago
Most VC's perform miserably, financially speaking, with the profits piling up at the very top firms. Why, then, would it be surprising to see that most accelerators fail to produce notable results? It's basically the same business, and the same things contribute to success.
jroseattle 14y ago
Not sure if others share the same view, but I view many startup accelerators as startups themselves -- heck, nearly the entire industry is a startup. We should assume that startup accelerators themselves can fail. The Y-Combinators and TechStars are the Tier-1 players in this space, but that's only getting their members to reach funding -- certainly nothing about exits. Evaluating accelerators should be akin to evaluating venture capital firms -- return on investment. Last I checked, I think VC firms were down over the past ten years, yet I don't see anyone calling them failures.
- kjhughes 14y ago
  Idea: Form an accelerator for accelerators. SeedJerk.com is available.
- startupfounder 14y ago
  "I view many startup accelerators as startups themselves" That is why they started the http://incubatorincubator.com/ http://incubatorincubator.com/ Incubate your incubator...
Porter_423 14y ago
This is very interesting. I mentor at both 500 Startups and i/o Ventures who have accelerator programs. I know a high percentage have gone on to funding, and a number of happy exits. (Not Instagram exits, but great first experiences for the founders). I can't speak if these are still the exception and not the norm though.
deleted 14y ago
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deleted 14y ago
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pbharrin 14y ago
Is it me or was this guy writing to support his investments? He said only three incubators are worth joining: two that he has a vested interest in, and, and, and that other famous one.
- chrischen 14y ago
  Yea smells fishy. I've never even heard of that third one excelerate. Sounds like he's casually trying to bring his two investment accelerators on par with YC by mentioning them in the same sentence, but without any direct comparisons.
delinquentme 14y ago
Something about "throwing spaghetti against the wall" where its not ideas but instead engineers. I mean its not the accelerator doing the hard work.
kingkawn 14y ago
If they get there faster then the acceleration is a success.
soundlab 14y ago
I have such a hard time with these studies that view everything through the lens of venture capital. What a horrible metric for sustainable business creation. How many accelerator companies are breakeven, steadily growing businesses? Isn't there something to be said for stable ground? Cash positive, lateral expansion into markets and positions leveraged on traditional debt sources? The richest guys I know started out 30 years ago and built on strong fundamentals, not on "demo day funding requests" and "exits". Too many young entrepreneurs are clouding their judgement by aligning their decisions with those of VCs and articles like this.
michaelpinto 14y ago
a seasoned pro once told me that the natural fate of startups was failure -- the idea being is that if you can fail quickly you can go on to the next thing and apply your wisdom. and not for nothing the guy who said this was paul graham...
gersh 14y ago
Are incubators the new investment banks? How will this play out when crowdfunding becomes legal?
robryan 14y ago
This is a tough one, some of the second string accelerators could be failing because of the applications they are getting. It becomes and chicken and egg problem, to get good mentors and attract investors they need to get good founders involved. To attract the good founders to an extent you are going to need good mentors and access to a strong investor network that the founders benefit from accessing in conjunction with the accelerator. Or alternatively a far better equity deal.
nerd_in_rage 14y ago
Most companies go nowhere. How is this surprising?
colinplamondon 14y ago
There's only two great accelerators- YC and Techstars. The falloff after that is ENORMOUS, even just going to #3, #4, and #5. If you go out of the top 5 accelerators, you're dealing with everyone who wasn't good enough to get into a respected accelerator. Doing an accelerator that isn't in the top 5 is a mark of incompetence- it filter for the desperate who couldn't a) Get into YC/TechStars or b) Build the business on their own
jonmwords 14y ago
RWW has just posted a stark counterpoint to this article from another guest contributor. http://www.readwriteweb.com/start/2012/06/is-there-a-better-way-to-evaluate-startup-accelerators.php http://www.readwriteweb.com/start/2012/06/is-there-a-better-...

161 points by tltjr 14y ago

I think their metrics of success are silly (zero discussion of revenue, only caring about VC perception, etc.), but the other conclusions don't surprise me. What I've noticed from copy-cat incubators and accelerators is that they incorrectly observe what YC is and apply something very different. Many of these programs are more like a class, with structured lessons and methods to success. Attendance might as well be required. YC is more like college: you get out of it what you put in to it. "office hours" are named that way for a reason. Independence is a strong part of being an entrepreneur. Of course inexperienced entrepreneurs need help, but having no experience at all is an indicator of probable failure. I can only imagine this is amplified when the mentors and investors lack real startup experience. It also needs to be said that the fallout from failed incubators in smaller cities can be negative. I've heard stories of damaged relationships, investors picking "favorites" and turning groups against each other. Unfortunate stuff.

specialist 14y ago
> ...incorrectly observe what YC is and apply something very different. Heh. I once captured an employer's engineering methodology (from memory) thusly: - misunderstand the problem - exclude domain experts and stakeholders from decision making - make decisions - don't tell anyone - (post mortem) identify nonparticipants to scape goat - repeat

debacle 14y ago

Isn't that kind of the idea? It's a high-risk investment and most startups aren't going to go anywhere.

maxko87 14y ago
Sure, but if _none_ of these second tier accelerators are producing _any_ successes, let alone any A rounds, it makes sense to question whether there's really any reward in participating in one at all.
- jusben1369 14y ago
  Agree with maxko. Basically he outlines the 3 major benefits of joining an accelerator program. He then questions whether many of the accelerators can deliver all or any of those 3 stated benefits with a relatively depressing outcome.

DanielRibeiro 14y ago

Not really a secret[1]: Peter Thiel: Do Y-Combinator companies follow a power law distribution? Paul Graham: Yes. They’re very power law [1] http://blakemasters.tumblr.com/post/21869934240/peter-thiels-cs183-startup-class-7-notes-essay http://blakemasters.tumblr.com/post/21869934240/peter-thiels...

pramanat 14y ago
Perhaps a corollary could be that incubators also follow a power law distribution?

ilamont 14y ago

Report author: "It takes years for companies to get traction and get an exit." "There were not enough exits to evaluate" Yet RWW concludes "startup accelerator fail" and "a lot of accelerators are just spinning their wheels." Here's another hypothesis: The lack of exits reflects the fact that most accelerators are themselves only a few years old, and it takes a longer period of time to build a successful venture and achieve an exit.

mikescar 14y ago
And the author was somehow able to conclude that YC and the two accelerators his firm invests in are all at the top.

eande 14y ago

using the exits as one criteria to judge the overall startup accelerator program and labeling it as a failing attempt is premature. Even in the article Gilani says "takes years for companies to get traction and get an exit". I think the success of these programs will depend on who the accelerator program is, type, region and other factors, but for sure it is too early to draw conclusions.

tlogan 14y ago

The quality of these incubators is going down but it is still not so low that I can be accepted (I'm half joking). Anyway, the key for successful incubator is that they have strong team - with experience, knowledge, and connections. What I noticed that majority of these second-tier incubators have only connections (ex-Googler, ex-Facebook, ex-bubble-company) but they do lack other two.

taylorbuley 14y ago

Interesting to see a number around the rate of accelerator graduates that go on to raise venture funding (45%) but what would be more interesting is to compare this number to number of new companies overall that go on to raise venture capital. I would imagine this number to be substantially lower than 45%, which would seem to turn 45% into an argument for accelerators and not against them.

pg 14y ago

Exits are a stupid test for what they're trying to measure here. By that standard, Airbnb and Dropbox are failures. Exits are a reasonable test for investments made, say, 10 years ago. But none of the incubators are that old yet. So the right way to judge them is by the valuations of the startups they've funded. Unless the venture business as a whole loses money, that will be a lower bound on the eventual exit numbers. Then you don't need to measure fuzzy stuff like "VC perceptions" either. Each incubator has a single score: average valuation. The last time we calculated ours (for the Forbes incubator rankings: http://www.forbes.com/sites/tomiogeron/2012/04/30/top-tech-incubators-as-ranked-by-forbes-y-combinator-tops-with-7-billion-in-value/ http://www.forbes.com/sites/tomiogeron/2012/04/30/top-tech-i...) it was $45.2m. You could still screw up e.g. in the case where a company hasn't raised money for a long time and whose last post-money valuation is 1/10 of what they could raise at now. But you won't screw up as badly as if you just measure acquisitions.

kylebrown 14y ago
How about median valuation?
- pg 14y ago
  The trouble with median valuation is that even for the most successful incubators it will approach zero, because I doubt any of us are going to have a success rate over 50%.
  - waterlesscloud 14y ago
    Hmm. But isn't that getting at the point they're making here?
    - TimGebhardt 14y ago
      But VC investing is a hit-driven business. One big hit, like a Dropbox, funds all the rest. Unless you're really good at picking horses, you'll have the same median as everyone else.

danielrhodes 14y ago

Given the exponential returns possible from just one big exit, the bar for success is not that most companies do well but just a couple. It would seem odd then that the accelerator would invest in the others, but since there is relatively little information available at the time of funding, it becomes a numbers game. Given that the instincts of the accelerator are good, there is no reason not to invest in as many companies as possible to catch a few stars in the net. To the outside world however, it looks like a bunch of failures.

damoncali 14y ago

Most VC's perform miserably, financially speaking, with the profits piling up at the very top firms. Why, then, would it be surprising to see that most accelerators fail to produce notable results? It's basically the same business, and the same things contribute to success.

jroseattle 14y ago

Not sure if others share the same view, but I view many startup accelerators as startups themselves -- heck, nearly the entire industry is a startup. We should assume that startup accelerators themselves can fail. The Y-Combinators and TechStars are the Tier-1 players in this space, but that's only getting their members to reach funding -- certainly nothing about exits. Evaluating accelerators should be akin to evaluating venture capital firms -- return on investment. Last I checked, I think VC firms were down over the past ten years, yet I don't see anyone calling them failures.

kjhughes 14y ago
Idea: Form an accelerator for accelerators. SeedJerk.com is available.
startupfounder 14y ago
"I view many startup accelerators as startups themselves" That is why they started the http://incubatorincubator.com/ http://incubatorincubator.com/ Incubate your incubator...

Porter_423 14y ago

This is very interesting. I mentor at both 500 Startups and i/o Ventures who have accelerator programs. I know a high percentage have gone on to funding, and a number of happy exits. (Not Instagram exits, but great first experiences for the founders). I can't speak if these are still the exception and not the norm though.

deleted 14y ago

[deleted]

deleted 14y ago

[deleted]

pbharrin 14y ago

Is it me or was this guy writing to support his investments? He said only three incubators are worth joining: two that he has a vested interest in, and, and, and that other famous one.

chrischen 14y ago
Yea smells fishy. I've never even heard of that third one excelerate. Sounds like he's casually trying to bring his two investment accelerators on par with YC by mentioning them in the same sentence, but without any direct comparisons.

delinquentme 14y ago

Something about "throwing spaghetti against the wall" where its not ideas but instead engineers. I mean its not the accelerator doing the hard work.

kingkawn 14y ago

If they get there faster then the acceleration is a success.

soundlab 14y ago

I have such a hard time with these studies that view everything through the lens of venture capital. What a horrible metric for sustainable business creation. How many accelerator companies are breakeven, steadily growing businesses? Isn't there something to be said for stable ground? Cash positive, lateral expansion into markets and positions leveraged on traditional debt sources? The richest guys I know started out 30 years ago and built on strong fundamentals, not on "demo day funding requests" and "exits". Too many young entrepreneurs are clouding their judgement by aligning their decisions with those of VCs and articles like this.

michaelpinto 14y ago

a seasoned pro once told me that the natural fate of startups was failure -- the idea being is that if you can fail quickly you can go on to the next thing and apply your wisdom. and not for nothing the guy who said this was paul graham...

gersh 14y ago

Are incubators the new investment banks? How will this play out when crowdfunding becomes legal?

robryan 14y ago

This is a tough one, some of the second string accelerators could be failing because of the applications they are getting. It becomes and chicken and egg problem, to get good mentors and attract investors they need to get good founders involved. To attract the good founders to an extent you are going to need good mentors and access to a strong investor network that the founders benefit from accessing in conjunction with the accelerator. Or alternatively a far better equity deal.

nerd_in_rage 14y ago

Most companies go nowhere. How is this surprising?

colinplamondon 14y ago

There's only two great accelerators- YC and Techstars. The falloff after that is ENORMOUS, even just going to #3, #4, and #5. If you go out of the top 5 accelerators, you're dealing with everyone who wasn't good enough to get into a respected accelerator. Doing an accelerator that isn't in the top 5 is a mark of incompetence- it filter for the desperate who couldn't a) Get into YC/TechStars or b) Build the business on their own

jonmwords 14y ago

RWW has just posted a stark counterpoint to this article from another guest contributor. http://www.readwriteweb.com/start/2012/06/is-there-a-better-way-to-evaluate-startup-accelerators.php http://www.readwriteweb.com/start/2012/06/is-there-a-better-...