All posts filed under “Seed accelerators

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$10 Billion

Ten years after the seed accelerator model was pioneered, Seed-DB has now identified over $10 billion that has been invested in accelerator graduates.  Over 200 seed accelerator programs around the world have funded nearly 5000 companies, and over 300 companies have already exited for a total of over $3.5billion.  The total valuation of companies that have come through accelerators reaches in the tens of billions of dollars.  If you don’t believe that accelerators are a relevant way for early-stage technology companies to get funding and started… you’re sadly mistaken.

How has this happened?

To quote Ernest Hemingway (via Chris Dixon’s great post): “Two ways. Gradually, then suddenly.”

The first accelerator, Y Combinator, only started ten years ago.  Techstars’ first class was in 2007, DreamIT Ventures in 2008, AngelPad in 2010, and 500startups in 2011.  Most of these only funded handfuls of companies to start.  Those early starts have compounded to create a juggernaut of high-quality startups getting funding.  And as mature growing companies are able to find plentiful later-stage capital in the current environment, large funding rounds are becoming commonplace.  Here’s what’s happened over time:

10yearsacceleratordata

Top accelerators are now brands themselves, and their stamp of acceptance and access to their networks is self-reinforcing.  While $10billion in total funding is an impressive milestone, companies that have gone through accelerators comprise only a small portion of the total venture funded startup scene.  There is a lot of space for their influence to grow.

Top tier programs

76% of all venture capital funding of seed accelerators go to graduates of just five accelerator programs: Y Combinator, Techstars, 500startups, Angelpad, and DreamIT Ventures.  But there are three parts to this: quality, quantity, and longevity.

An accelerator needs to be of a sufficient quality in order to help their companies become investable.  That accelerator needs to fund a relatively high number of startups in order to have a meaningful impact in aggregate.  (Either by funding more per year, or steadily accumulating a portfolio over time.)  The longer a program has been in operation the bigger their companies can grow.

This is not to say that new programs won’t break into this top tier… just that they need more time.

Funding – a Power Law in action

If you search for [venture capital] and [power law], you’ll see that venture capital is an industry known to follow a power law… and power laws encompass the phenomenons of the “long tail” and the Pareto principle (aka 80-20 rule).  This holds true for the world of seed accelerators, too.  The following is a chart of the funding that the 939 companies that have raised the most venture capital after going through an accelerator (so ~20% of all accelerated companies).

Acceleratorfunding normal

This is a pretty extreme power law; Dropbox has raised over $1billion in funding alone, but hundreds of companies have raised between $1million and $10million in funding.  (And thousands have raised seed rounds of <$1million).  Let’s see what happens when we check for a real power-law relationship by plotting both axes on log scales.

Log log acceleratorfunding

The result is a straight(-ish) line, which means venture funding of accelerator companies is a power law relationship.  (The math to prove it is fairly complicated and outside the scope of this post.)

But… do accelerators accelerate?

This is a very difficult question to answer.  Luckily there are some very smart researchers trying to quantify this.  Ben Hallen, Chris Bingham, and Susan Cohen have done some great work in trying to answer this question.  Essentially they’re trying to determine if companies that have gone through accelerators reach key milestones faster than companies that haven’t gone through accelerators.

They haven’t yet published their paper, so I’m not going to steal their thunder.  But their work should put the analytical horsepower to confirm (and disprove) various theories on accelerators.

I want to note that Yael Hochberg is another researcher in this field to watch; she and Susan Cohen lead the Seed Accelerator Rankings project.

Data Disclaimer

All data on company funding comes from Crunchbase.  Some companies don’t enter funding information in Crunchbase, and others don’t even have Crunchbase pages; in those cases the total funding would be even larger.  Additionally, I know a number of accelerators have funded companies that aren’t yet listed on Seed-DB; I continually work with programs to help make sure data is accurate but inevitably the data for many companies will be missing.

Also, I pulled the data above earlier this week in order to write this post; it’s already out of date with the funding rounds raised this week.  (Three Techstars companies announced over >$100million in funding within 48 hours this week, for example.)

Personal Disclaimer

I did my first research into accelerators in the summer of 2009, and created Seed-DB in the summer of 2012.  One year ago I started working for Techstars as a Product Manager.  This post represents my personal views, and not those of Techstars.  All data comes from Seed-DB alone.

[Check out the discussion on Hacker News]

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Trending on Product Hunt during YC’s Demo Day – the Seed-DB experience

I had a bit of a weird experience on August 19th this year.

And the circle of self-promotion closed, as Seed-DB was promoted on Product Hunt, driving people to see the YC listing on Seed-DB, which showed users that YC’s class had Product Hunt in it.

What does this mean for stats?  Well, let’s go to Google Analytics.  Here are the hourly pageview stats for the week on either side of trending on Product Hunt:

Analytics hourlyAug

I think the first spike came after initially trending on Product Hunt, and the second spike came after the Product Hunt daily e-mail was sent.  How does this compare to Seed-DB’s traffic across the year?  Well, it was by far the biggest spike:

Analytics dailyYear

And here are the stats from the “referral” acquisition channel for a week on either side of August 19th.  Product Hunt drove over 2000 people to Seed-DB:

Sources Aug

Since then…

Product Hunt has grown massively since then, and would now probably drive an order of magnitude more traffic for the top trending products.  For me, August 19th was a bit of a surreal day but was pleased about the coincidence in the timing.

I was recently going over the statistics, and Seed-DB has grown virtually every metric by 30-40% compared to 2013.  While I could look at that in startup terms and say “meh”, because I don’t do any marketing of the site I’m pleased that more and more people are finding it and finding it useful.  I’m going to be adding a few key features in the coming months, so please stay tuned!

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Accelerators and the focus on Demo Day

If you check out seed accelerators for long enough, you’ll come across one relatively consistent criticism.  (Particularly for the lower quality programs, I have to say.)  That criticism is that accelerators focus way too much on Demo Day.  I believe that founders that say this don’t understand the real “why” behind the preparation.

I joined Techstars at the beginning of June this year, and in that time have seen the preparations for the Demo Days of the Techstars London 2014 batch of companies, as well as the first Barclays Accelerator batch of companies.  So I’ve already seen, up-close-and-personal, two cycles of companies spending time and getting ready to pitch at Demo Day.  And Demo Day is important: there are hundreds of angels and institutional investors there and it’s a once-in-a-lifetime opportunity for most companies.  They need to work hard to make the most of the opportunity.

But the subtle secret about preparing for Demo Day is that it’s not just about one 5-minute pitch, it’s a month of deep critical-thinking about how to communicate a product, a company, a market, a team, and an opportunity.  Sure, the direct output is that 5-minute pitch, but founders learn how to give a one-line description of what they do, an elevator pitch about their company, and how to talk about the company in ways that really resonate with a particular audience.  This process, and particularly the feedback from experienced entrepreneurs and mentors, is critical to founders.  (And while it involves the whole team, it should only be the day-to-day job of the CEO, leaving everyone else to continue working on the company.)

Let me give two examples from the Barclays program:

ClauseMatch – Evgeny from ClauseMatch was not a natural speaker, and his company (a platform for contract negotiation) is in the legal world, which tends to make peoples’ eyes glaze over.  And at times, he struggled to communicate how revolutionary their product is.  But he cracked it with a simple (and amusing) anecdote to start his Demo Day pitch.  He took the audience back to 1995, when Microsoft Word introduced “Track changes” and e-mail started to become widely introduced.  For the first time, instead of faxing manually annotated contracts back-and-forth, lawyers could e-mail Word files back and forth… it was a revolution.  Then he made a simple statement: after twenty years of internet and cloud technology development, lawyers are still working the exact same way.  It was a massive “a-ha” moment for the audience that grabbed their attention for the rest of his pitch.

GustPay – Werner from GustPay actually spent a bit of time at the start of his pitch talking about Disney… specifically about the NFC wristbands that Disney has developed for their theme parks.  He talked about the “magic” of the experience, in that the wristband becomes their ticket and their wallet and their room key, and everything they need for their stay.  Then he told the audience that Disney spent >$1billion in developing this technology, but GustPay provides the same experience for venues and events for just $1/wristband.  Again, it was an “a-ha” moment that got people to recognise what they did, and why it was important.

Being able to communicate your startup to a wide variety of audiences (investors, early adopters, sales prospects, press) takes a lot of hard work.  And while it may seem all that hard work is just in service of a 5-minute pitch, the real benefit is far, far beyond that.

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Frustration with a taxonomy for startups

tax·on·o·my – noun – the branch of science concerned with classification, especially of organisms; systematics

I’m frustrated with the current lack of any standard taxonomy for early stage startups.  Chalk it up to a little bit of obsessive/compulsive behaviour, the desire to better compare like-for-like amongst startups, my years of experience in industries where these taxonomies existed, and also trying to make better connections between the corporate partners and friends of Techstars to the Techstars portfolio companies.  Startups are messy and change ridiculously fast, so a taxonomy will never be as rigorous as what exists in the world of biology.  But it doesn’t mean we shouldn’t try!

Angellist probably has the best structure of markets that I’ve seen so far, but the way Angellist structures these markets behind the scenes is actually a fairly deep web of interconnected markets.  While that makes sense in that a graph represents how markets are related to each other, the way they’ve built the graph can make it difficult to analyse startups and markets more broadly.

Not only that, but I think startups are complex enough that there should really be multiple dimensions in building a taxonomy for them.  These are the dimensions I’ve been pondering recently:

  • Market (ie, FinTech, HealthTech, Advertising, Infrastructure, etc.)
    • This is where there needs to be multiple layers of “markets”
  • Revenue model (Advertising, commerce, subscription, etc.)
  • Platforms (desktop, mobile/iOS, mobile/Android, hardware)
  • Orientation (consumer, enterprise, marketplace)

Why am I posting this?  Frankly, I’d love any and all feedback.  I’d like to get to a point where there’s a taxonomy that helps people like me understand and directly compare and contrast startups that are doing similar things (in different markets), or different things (in similar markets), or any combination thereof.

If you’re interested in this project, or would like to help, please comment below or get in touch with me directly.