I started 2 companies through YC and Techstars and strongly disagree with this. Both were incredibly valuable and well worth the equity for us.
Edit: I didn't mean to say that all accelerators are worth it, but I disagree with the sweeping generalization that all accelerators are screwing their companies.
I would have thought twice in the first place to join an accelerator. What do you get in return for these $40K ? Will your startup get this money back at least 4 to 5 times with what they offer ?
A startup should earn money ASAP and any investment should be strictly limited to what can facilitate or increase money earning. I really doubt an accelerator has much value in that (except YC). Note my opinion is based on the accelerators I saw here where I live.
Add TechStars to the list of accelerators to be avoided at all costs. They make an investment in your company on terms they can claw back the money at any time. Most of these accelerators provide little to no value, in my experience. Unless you need to know what “product market fit” means. Hilarious.
At least the ostensible point was that an accelerator that tells you it can help you get into YC is not telling the truth.
FWIW there's an incubator in my hometown that takes 0 equity that has had an amazing track record of getting companies into other accelerators (including YC) so I'm not sure it's universally true.
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
We're all for companies doing what they need to do to survive.
However, we've seen an increasing number of accelerators getting startups to join them by saying "we can help you get into YC", and then subsequently hurting the company with bad advice or onerous terms.
Companies should never do an accelerator to help them get into YC. Companies should do an accelerator if they need the money to survive or think that they resources of the accelerator will help them be more successful.
So let's say that the hit rate for follow-on investments for a TechStars company is somewhere close to 70% (that's fairly accurate). That doesn't necessarily represent success, but it's a start. Y Combinator is probably better than that. Now let's say that a "lesser" accelerator's hit rate is maybe half that. Still a 35% chance of some measure of success. Now maybe there's a 10% chance by going the pure bootstrap route, maybe less. So taking the money--and the guidance--in whatever form, makes you maybe three times more likely to be able to do what you love for a fairly extended period of time. Not to mention the fact that oftentimes the accelerator provides free or discounted services for being a cohort company. Good legal for a deep discount, legal office hours, design consults, dinners with VCs, etc.
I can't speak for what Oxygen is doing, or whether they're providing these services or not. But many accelerators that aren't called Y Combinator or TechStars are, and though there won't be as many successes to come out of those, there no doubt will be some. There may even be one or two who attend, learn a bit, fail, and then come back to apply at one of the big dogs later down the road.
I agree with this....and I think it is a reflection of the diminishing value that accelerators bring to the table for software startups. Teams great enough to get into YC are great enough to build a product, take it to market, generate revenue and grow just fine without an accelerator.
For a profitable, growing SaaS, with an experienced founder - are accelerators ever worth it? Looks like angel-funding and mediocre info for VC-level terms. Read: what most ask for is not equal to the value they provide. Am I wrong?
I like how the graphic at the top lists the top 15 accelerator programs, with YC first, and then the author goes on to explain how conveniently he doesn't count YC as an accelerator. Not off to a great start on presenting the article.
The author provided no great support for the idea that YC is not an accelerator. YC is clearly an accelerator, in my opinion. And there's absolutely nothing wrong with that. The author had to leave YC out because it would have blown his premise apart. As far and away the most successful accelerator, it has had countless hits. It's not surprising that a few accelerators would dominate when it comes to producing homeruns, it tends to happen in most things (including VC). I think a similarly flawed argument would be to say that Andreessen Horowitz isn't a venture capital company, because they're just too different from the pack and too good.
There is a fundamental disconnect with the concept of an Accelerator and the concept of a Disruptive Startup. If you do the math, honestly, they are a really crappy deal for the Startup. The "acceleration" they provide is little more than standard information, standard anecdote experiences, and standard MBA advice. If what they offered actually had they value they claim, they would be creating a startup themselves. Accelerators are parasites on your ambition and capability. Trust yourself, trust your team, and be adult enough to not sign up for a nanny program that is just going to treat you like children and take a portion of your equity for it.
this is not true. an accelerator can do earlier (before team or product or idea); wider (fund literally anyone who can write five pages in English in a timed setting about their idea); lower (take 0.075% for $2k); faster (an SaaS app that wires you a check within 24 hours, after a human lawyer verifies your details and contract); riskier (billion dollar ideas that don't even have the research paper worked out - like a thesis proposal to a professor, only you're a company); insaner (fund things that are literally insane and would make any investor blush to mention it to another investor), and so forth.
It's not hard to be competitive with YC. The thing is, nobody is even trying to be.
This reminds me of a recent criticism I read about Techstars.
The argument was that if you can get into Techstars, you didn't need Techstars. (The premise there is that Techstars uses accurate, meritocratic criteria for selecting companies, which is obviously false, as it is for all human-based selection processes.)
In my opinion, the best possible scenario for accelerators is to identify/fund companies that have the following 3 characteristics:
1) Few social advantages (lacking experience, connections, etc.)
2) Will require VC because it's impossible or counterproductive for them to reach profitability quickly (Facebooks and Ubers of the world)
I like accelerators for two reasons:
1) Having a same-time-founded cohort of companies. Moral support, entertainment, and when ~80% of them fail, you can pick and choose assets (great developers) having great visibility into them.
2) I like the idea of accelerators for people with $0 and just out of college or high school, or who need structure. If I could give 5% of my company to give an accelerator a win (both in money upside and reputation), I'd do it, especially if I were in a third-tier city like Vancouver which deserves a second tier startup population.
If you have zero experience running a business from an operational standpoint, i.e., incorporation, accounting, taxes, contracts, then an accelerator can offer valuable help so that you can have "one less thing" to worry about.
Apart from that, the most important thing is the terms of the deal they'll make with you. For example and as a general rule of thumb, more than 10% of your company for less than $100k is something you should reconsider, especially if you are in the US.
The reputation of the accelerator is also important. YC, 500, Techstars, AngelPad are all renowned brands. Study their portfolio companies to understand what their investment thesis and success rate are.
In general, my opinion is that getting into an accelerator can be very valuable for first time founders and if the deal they offer is good, and their track record compelling, I would do it.
One possible defense of incubators could be that their value increases with time.
The first class of companies may not benefit much, but as time goes on, some of those companies will certainly succeed. And those those successful companies will offer value to the current/future batches.
Of course, YC has the advantage of already having several successful alumni. And like the Matthew Principle says, those who have will be given more.
I won't suggest ignoring accelerators only because they give so little equity. At an early stage, it's wrong to think first about equity and then decide who you want to fund you.
However, I don't have enough info to say if you're at an early stage or not. If you aren't at an early stage, accelerators won't give you the bang-for-buck that they would for someone else.
You should first think about what you need (a certain amount of cash? industry connections? technical people? scaling expertise?) and then contact investors who seem to fit. If you're profitable and you have a take-over-the-world kind of idea, you could get money from pretty much anyone. The problem is that sometimes (not always) being post-revenue hurts your valuation, because it brings take-over-the-world conversations back down to earth. That may be changing these days for all I know, though.
Anyway, I'm sorry that none of that is very helpful. When, how, and from whom to get investment is more art/luck than science, and you'll get a different answer from pretty much everyone.
You should apply to YC if you think they can help. Couldn't hurt, right? TechStars seems to care less about founders being technical, so that's another route.
Edit: One more thing. Raising money takes a minimum of 6 months, and if it's not full-time work, it's pretty close. It may also involve travel. Make sure you budget time/money for the whole process.
The research behind this article is pretty flakey. Measuring accelerator success by exits only works when you do cohort analysis, not when you compare companies created 6-7 years ago (YC and TechStars) against companies created in the last couple of years (the others accelerators).
YC's scaling back of class sizes wasn't anything to do with the quality of the cohort dropping, but rather due to YC's ability to handle a cohort of that size.
First-time startup founders tend to make the same mistakes as each other, and that's one area in which it's easy for accelerators to add value (some do and some don't).
Clearly some accelerators are better than others, and some will undoubtedly fail, but this article doesn't really provide any compelling argument for it.
Although I agree with many points of the article, let's review YCombinator funded projects and we'll see they are no joke.
It all depends on the needs of the project.
The promotion that some projects may get from being in an accelerator can be enough for some. For other it will be the little or big seed money they receive. Other will learn things that wouldn't have learnt otherwise.
And for the majority, as it always happen in business, it will be useless even if they happen to have the best mentors.
I think the biggest problem is not so much the equity that you can lose, but also the time startups lose, especially in many of the newly created accelerators.
I have seen founders being obligated to attend 9-5 in poorly designed co-working office-spaces when their own arrangements are much more efficient, having to pitch daily to people that have no impact on your success and having to attend day-long workshops on subjects they already master or are irrelevant to their challenges.
In that way I have seen startups join accelerators and wasting a lot of time boosting the accelerators themselves (especially if they are corporate-driven) but decelerating themselves.
When it comes to Demoday, there suddenly are few investors and even fewer press.
The key thing that new accelerators don't realize is that YC did this for many, many years until their current status quo. Many accelerators think that just by calling a demo-day and showing ten startups that they pumped a total of $500K in, they will be the next YC. If they don't have the track-record yet, they better have 200K of followup cash ready for each startup to show that they really mean it and that their curation process resulted in a meaningful selection.
Edit: I didn't mean to say that all accelerators are worth it, but I disagree with the sweeping generalization that all accelerators are screwing their companies.
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