This week’s article is by Alan Clayton, Business Coach @ SOSVentures. Follow Alan on Twitter @thealanclayton.
In 3 weeks, across 3 continents, and at 4 accelerator programmes I met 40 start up companies this month, all in pursuit of the lean, mean, capitalist dream. Or are they?
In case you didn’t know, accelerator programs or (Axlr8rs) are the new MBA. Ever since Paul Graham gave birth to YCombinator in Silicon Valley in 2005, the idea of getting a group of start up companies in a room together, fueling them for 100 days with the best mentorship money can’t buy (the mentorship is free!), and then presenting them on stage in front of a herd of greedy investors to plead for funding, has become a global phenomenon. It’s now at the point where too many start up teams see winning the investment funding as the main purpose of the exercise. (It isn’t).
Accelerators like Techstars, and StartUpBootcamp in Ireland, work like mini-investment funds. The accelerator provides small amounts of funding, usually between $10k – $30k per company, a cool work space, a roster of impressive mentors, decent coffee and a fridge stocked with beer, in exchange for a 5-10% stake in each company. Accelerators are generally funded by a consortium of venture capitalists and angel investors.
More recently, public bodies and multinationals such as Nike, GE and Ireland’s own PCH, have spawned their own accelerators, having woken up to the idea that accelerators are a great way to identify the next Facebook at the earliest signs of life, with less cost than traditional approaches to R&D and innovation.
At this point a distinction should be made between incubators and accelerators. And the clue is in the language. An Accelerator is something used to dramatically increase speed and may result in crashing into a wall. An Incubator is something used to nurture very delicate and immature objects for an open ended period of time. It can often have a sad outcome. Incubators are more-or-less a real-estate play, and are often run by government authorities or real-estate companies. In the start-up world, Incubators are now completely out of fashion, as successful entrepreneurs don’t like to be mollycoddled by people who aren’t even entrepreneurs themselves.
What’s in it for investors ?
For newbie tech investors an accelerator provides a chance to buy a meaningful stake in a company for a relatively small amount of cash ($15k-$25k). For more seasoned investors, the main benefit is the chance it gives to see the best new startups at the earliest possible stage, and to work with these start-ups over a several month period to determine if the entrepreneur is capable of delivering their promises. Many investors also become mentors, as they tend to be exactly the individuals who have already proven themselves as successful entrepreneurs, and really do care about those who come after.
What’s in it for a startup ?
One definition of a startup says a startup is not just an early stage version of a regular business, but rather a venture focussed on massive and sustained growth from the outset. Startups ‘pivot’ when data provides evidence that growth will come faster by changing some aspect of the business model. In an accelerator, exposure to self-imposed pressure and awareness of competitive and co-operative teams stuck with the same tight deadlines, plus the prodding and challenging advice by a stream of mentors, allows the startup team to grow and pivot multiple times in a shockingly short period of time.
Above all, an accelerator program provides a set of relationships. Relationships with technical and business development experts, relationships with peers in the accelerator class, and relationships to potential investors.
Accelerators have also evolved from the general – software (Launchpad) or hardware (HAXLR8R) to more industry specific. Health (Health XL – Dublin, Rock Health – USA), education (Socratic Labs – USA, MindCET – Israel) to name a few.
At SOSventures, we have been heavily involved in Accelerators from 2008 onward, creating and running China’s first accelerator, Chinaccelerator, in 2010, and the world’s first hardware accelerator, Haxlr8r, in 2011.
A most recent innovation in accelerators is SOSventures’ introduction of a new type of accelerator, a “sales” accelerator. Like most accelerators, it brings the founders of the company together with mentors in a tightly time-boxed, intense program. But unlike other accelerators, which generally develop concept and prototypes up to the point of product/market fit, Selr8r takes companies who are shipping product already and helps them gain market traction with thousands of conversations with customers and prospects in a tight 50-day fast-track to sales growth.
Selr8r aims to help companies with a working MVP (minimum viable product), perhaps with only a few hundred thousand in sales, scale their sales to a million or more run-rate.
Ultimately, the goal of any accelerator is in matching a team with a business model and a market. Geography can play a significant part when choosing an accelerator. Example: Israeli education startups aim at the US market, avoiding the inefficiency of the limited local market which demands everything in 3 languages. Another example is Haxlr8r, which takes companies from around the world, but operates for 100 days out of a workspace and factories in Shenzhen, because that’s where the world’s electronic component makers, prototypers, and factories are. Haxlr8r finishes with a demo day in San Francisco, because that’s where the investors are. Where do you go if you want to sell your idea to the worlds best car makers? In that case, Mobility XL in Copenhagen is for you.
Accelerators may be the 21st century equivalent of an MBA, but remarkably, even though perhaps only 1 in 20 teams that apply get into these highly competitive programs, hundreds of companies every year are being created through accelerators already. And that will likely be growing to thousands of companies annually in the years ahead, as technology and entrepreneurship and venture capital continue use the process of innovation and lean startups to continuously reinvent themselves.
Thanks to Alan for a great article!
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