All posts filed under “Seed accelerators

comments 2

Startup accelerators in 2011

RenaultF1Wheel

[UPDATE] –

Please see the Seed Accelerator Knowledge Base for the most up-to-date information on seed accelerators world-wide, and the startups that have graduated from them.

 

I’ve long been interested in the seed accelerator model, as started by Y Combinator.  I wrote my master’s thesis on it, and wrote a follow-up post this spring.  Recently, two things have happened that I wanted to write about.  First, I restructured the spreadsheet where I maintained a list of all companies to come out of seed accelerators.  And second, NESTA (National Endowment for Science, Technology and the Arts, a UK investment and research body) recently undertook a significant piece of research into seed accelerators.

Update to Seed Accelerator company list spreadsheet

As a part of my original paper on seed accelerators, I compiled a list of all the companies that have come out of seed accelerators like Y Combinator, TechStars, Seedcamp, et cetera.  Each accelerator had its own tab, with the details of all their companies.  I kept edit rights, mainly so that I could be sure of the details for my paper and follow-up work.

As seed accelerators have exploded in number world-wide, it’s become nearly impossible to keep this working.  There were too many tabs for different accelerators to be found properly, and it really is best if the people that run the different programs can edit the details for their companies.

So there are now individual documents for each seed accelerator program, and the original document now has links to each individual program sheet.  If you run a seed accelerator, please e-mail me and I’ll be sure that 1) I have a separate spreadsheet for your accelerator and 2) you get full edit rights for your program’s spreadsheet.  (jed.christiansen@gmail.com)

Please check the new seed accelerator company directory here.

NESTA research

Kirsten Bound and Paul Miller recently undertook a significant piece of work to define, describe, and analyze seed accelerators on a global basis.  The result of which can be found on the NESTA page: “The Startup Factories“.  [Direct link to their PDF paper.]  I spoke to Kirsten a couple of times prior to and during their research, and they developed a real sense of the opportunities and challenges of startup accelerators.

While I didn’t have time to make NESETA’s half-day conference on seed accelerators last week, a friend of mine (Mark Littlewood of the BLN) did and wrote about it here: “Do we need startup factories?“.  The key element can be found at the bottom of his post, where Mark echo’s something I’ve been saying since my very first paper.  Only the best, top-tier seed accelerators will truly be of value to entrepreneurs. And the followers, the “me-too” seed accelerators that are starting to pop up everywhere, will be of little to negative value.  While in the long run it will be easy to tell between the two, in the short term I am afraid that startup founders may get fleeced.  Startup accelerators need to clearly understand their unique advantages that can allow them to recruit some of the best startups away from the Y Combinators and TechStars of the world.  If they can’t offer that level of value, it might not be worth it for them to exist.

The NESTA report is quite well written and clear.  Some of the data is a little dodgy; in particular I’m not a fan of the Tech cocktail rankings at all, since they have yet to mention what data they’re using to create the rankings.  (I personally believe that it overly weights the accelerators that more freely share data.)  But overall, it’s a great resource.

If you do have comments, please share them with the writers.  The discussion paper is currently in draft form, but they hope to finalize it soon.

comments 9

Looking back – 1.5 years since “Copying Y Combinator”

It’s been nearly one and a half years since I originally wrote my paper on seed accelerators: “Copying Y Combinator: Why and How”, which focused on how other people or organizations could create their own programmes.  I wanted to reflect on what has changed, and what hasn’t changed since, and what that means for the future.

To be clear, my viewpoint is looking at what it takes to make a seed accelerator successful.  Think of the VC business model: not every VC fund is successful.  (In fact, the median net return to VC fund investors has not been positive since 1998.)  To be a continued successful seed accelerator program, you need to have a financial model that works, provide value to the companies that you invest in, and invest in the best possible companies.  That means the best possible companies need to prefer your program to any other.  There are tiers involved, and I’m interested in what makes top-tier results possible.

What has changed:

Y Combinator provides the most money to their funded companies

The deal with The Start Fund was huge news.  There is now an investor that is willing to put $150k into every Y Combinator startup, sight un-seen.  Many commenters have suggested that this will open up YC to older applicants, who will have enough income security to risk quitting a more senior job to do the program.  Though most YC, TechStars and Seedcamp companies raise external funding anyway, having this publicly committed before you even start makes it a nice security blanket.

Perhaps more importantly on a tactical level is that it gives YC startups more breathing room in the fundraising race.  Tommy at CarWoo wrote a great post about this.  As he wrote:

[Fundraising] was a huge issue on the minds of all the YC companies and I know for a fact that it was a distraction. I know it was for us.

Finally, this is a deal for Y Combinator startups alone, and puts them at a significant advantage compared to other seed accelerators in attracting the best companies to the program.  (The highest-ranked factor startups think about when it comes to seed accelerators, per my original post.)  The existance of The Start Fund signals that YC acceptance is a high bar, and it’s worth having an option on every company that comes out of it.

Y Combinator has the largest alumni network

According to my spreadsheet tracker, Y Combinator has funded just about 250 startups.  Combined with an ethos of helping each other out, this is a huge advantage to potential applicants.  I’ve spoken to a number of YC startups, and all of them mention this as a significant benefit.  (This is the second-highest-ranked factor startups think about.)

The secondary effect of all this is that Y Combinator has seen 4x-20x the number of startups that other accelerators have seen.  That means 4x-20x the applications, 4x-20x the founder problems, 4x-20x the customer acquisition problems, etc.  They have more experience with pretty much everything.  That extra experience is valuable for entrepreneurs.

TechStars has developed into a world-wide network

TechStars has recently announced a world-wide network of 17 seed accelerators, the TechStars Network.  What’s interesting with this is that it spreads the business model of seed accelerators more widely, and starts to standardize on best practices.  When I spoke with David Cohen nearly two years ago, helping other entrepreneurs and accelerators get started was clearly something he felt strongly about.  (Which is different to the go-it-alone approach of YC.)  While I believe my original thesis is correct, making each and every one of the accelerators that are popping up better is a great thing for entrepreneurs and startups.

What hasn’t changed:

Y Combinator is still the only seed accelerator in the Silicon Valley area.

There are new seed accelerators opening in what feels like every city, state, and university campus… except Silicon Valley.  (More about this below.)  I find this really strange, to be honest.  The Bay Area is pretty much the richest source of technology startup resources, and most of the programs dedicated to the most fledgling companies don’t exist here?  I can think of two reasons for it.

One, the people interested in starting seed accelerators want to do them in their own hometowns, no matter how suitable those cities are for these programs.  This would explain why so many are started in other cities, but wouldn’t necessarily explain why no additional accelerators have been founded in Silicon Valley.

Two, Y Combinator is seen as an 800-pound gorilla in the seed accelerator world, and no one wants to get in a pissing match with them.  This seems plausible, but I think there are so many resources in SV that any new program wouldn’t intersect with YC.  Perhaps this is more reflective of an ego issue; that no one wants to start a separate program and then be compared to YC?

Y Combinator, particularly through Hacker News, is more directly engaged with startup culture

I’ve grown to think that Hacker News is a key differentiator between the different accelerators.  It provides a strong conduit between the YC partners, the YC alumni, YC applicants, and general entrepreneurial people.  These communities always have existed before (ie, Slashdot), but Hacker News has centralized the audience around internet startups, and more importantly around the Y Combinator experience, philosophy, and brand.

Hacker News helps feed the virtuous circle that makes Y Combinator a top-tier seed accelerator.

Most seed accelerators are just local copies of Y Combinator

I’m disappointed when I see a program that’s simply a clone of Y Combinator in a different city.  Differentiate yourself! Though there are some notable exceptions:

TechStars has definitely taken a different tack with their program, developing into a network of international programs.  Their core programs in Boulder, Boston and Seattle together have a higher level of experience and engagement, with more startups funded and close coordination between the different locations.  TechStars has a mentorship process where each of their startups is matched with 1-2 mentors, and the mentors don’t work with any other TechStars company in that batch.  (They also provide centralized office space for the startups.)  All in all, it’s one of the most developed programs outside YC.

Fundamentally, results are what matter.  TechStars actually publishes their results online, and they’re solid.

Seedcamp has a radically different approach, but probably befitting their non-US location.  (Which means they can easily attract non-US startups that wouldn’t easily be able to live/work in the US.)  They host numerous mini-Seedcamp events across Europe, and then cap it off with their final decision around the handful of startups they put more resources into.  So while they’ve seen a lot of European startups, they’ve only invested in a fairly limited number, about 40.

The Brandery looked very interested when it got started.  They’re located in Cincinnati, Ohio, which seems like it’s off the beaten track for startups… until you remember that it’s the world headquarters for Proctor & Gamble, a company that is incredibly focused on consumer brands.  There’s a huge resource of talent for companies that need strong consumer brands.

I was hoping that this would open The Brandery up to startups that weren’t just consumer internet startups, but it looks like the list of their 2010 companies were just that.  I’ve now become more dubious; at the early stage of these startups they need a product more than they need a brand, so the accelerator won’t be able to offer as much value.  Perhaps there’s a place for a slightly later-stage startup: one that has a solid product but needs a brand finishing school to take them to the next level?

Credit

Andrew Parker (formerly of Union Square Ventures, now at Spark Capital) made an interesting comment on my original post:

If you’re going to copy YCombinator, then you should really give credit where credit is due: thank YCombinator. I went to the demo days for LaunchBox, TechStars, SeedCamp, fbFund REV and YCombinator in the past year. The only YC clone that even acknowledged that they were a YC clone and, furthermore, thanked YCombinator for their pioneering efforts was Dave McClure at fbFund REV. All the other programs never even mentioned YCombinator at the demo day.

Now I’m not convinced that every other accelerator should genuflect upon Y Combinator at each of their Demo Days, but what Andrew pointed out was interesting.

Y Combinator appears to be the least structured of all accelerators

TechStars was the second major seed accelerator out of the gate after Y Combinator, and they’ve started the trend of what appears to be much more structure in the TechStars program, and the programs TechStars has influenced.  In addition to periodic meetings for everyone, they have all the startups work in the same physical office, and have a structured mentorship system.  (As I understand it, each startup in a batch is matched with a small number of mentors, and those mentors work only with that specific startup.)  This is quite a bit different from the YC model, where the major structure is a weekly dinner and then open office hours with the YC staff which you can take or leave.

What this means for seed accelerators:

You need to be unique, where unique is not just a seed accelerator in a different city

I am still absolutely convinced that if you’re a Y Combinator clone, just located in a different city, you will never be a top-tier program.  Why?  Because if you’re just doing exactly what YC does, but you provide less money and less expertise, you’ll never have the top startups wanting to work with you.

What I’m waiting to see is a program that does something else entirely.  For example, what about an accelerator that works with companies building actual, physical products?  Companies like Wakemate (from YC) have struggled as they work out production issues, find and develop relationships with factories, etc.  If there was an accelerator that had a group of mentors that could help guide startups through this journey, with contacts a low- and higher-rate production facilities, and in a financial structure that made sense, I think it could be tremendously successful.  (Again, defining success as being the top-choice of any startup working in that field.)

This is simply one example; you could do a dramatically different approach any number of ways.  (After reading Roger Ehrenberg’s blog, couldn’t NYC start one around a theme of big data, data visualization and finance?)  But so far, everyone just wants to have an accelerator for internet software startups, generally consumer focused, with the same model as YC.  There’s more potential out there, people!

There’s room for another seed accelerator in Silicon Valley

Who’s going to start it?

(Dave McClure seems to have made a stab at this with the 500 Startups Accelerator; the main difference from others being that there’s no open application, startups have to be referred in.)

You need to be a program that everyone you’re focused on badly wants to attend

As one famous Google executive says, “Repetition doesn’t spoil the prayer,” and thus I want to keep repeating myself here.  To be a truly successful seed accelerator, you need to be highly desired by the best companies you want to help.  There needs to be a strong match between what you offer, and what the startup wants and needs to be successful.  There will always be companies looking for investors, and if your pool isn’t that big some of them will certainly look good, if only by comparison.  But your accelerator needs to be the preferred program for the best startups.  Those best startups have the best chance of being successful and generating the results and returns that enable the program to continue sustainably.

Summary

I still feel like we’re in the very early days of seeing the successes and failures of seed accelerators.  The startup world, and specifically the funding world, appears to have a number of discontinuities.  (Particularly once you start getting away from consumer internet startups.)  Seed accelerators have a great opportunity to start filling in the existing gaps, and helping companies go from idea to polished execution much more cleanly.

Going back to a link I shared near the top, Bryce Roberts has some great comments about VC funds that I believe also apply to seed accelerators:

a handful of them have been delivering outsized returns for decades now. They don’t call Sequoia, Accel, Benchmark, KP, Matrix, Greylock “top tier” for nothing. They’ve figured out a few things related to building enduring companies and consistently delivering returns for their investors.

If you’re going to start a new fund, be different. Proprietary dealflow, investment stage, operating experience or deep network of industry contacts are meaningless buzzwords that aren’t going to set you apart from the pack. As SuperLP says “to do something outstanding takes audacity.  And indeed, private equity should be all about audacity”. Being the 10th seed fund, or 5th “opportunity” fund isn’t going to set you apart from the pack. Be different.

To create a top-tier seed accelerator, you need to be a top-tier choice for startups the world over in your niche.  Just like a VC firm, seed accelerators need to have the best possible startups (deal flow), in order to fund the best teams and ideas.  If your seed accelerator can achieve this, you will have a sustainable program.

Appendix – Data

If you haven’t seen it already, I’ve maintained a list of companies that have been funded through these seed accelerators.  Click here for the Google Docs link, or check out the embedded doc below:

comment 0

Recap of feedback on “Copying Y Combinator”

[UPDATE]– I’ve written an update 1.5 years later on the original post: “Looking back – 1.5 years since ‘Copying Y Combinator'”

Last week I finally posted my Cambridge MBA dissertation/individual project on the web. I was amazed at the traffic it brought! But I also wanted to address some of the things that people brought up in the discussions.

Traffic

According to Google Analytics, that post alone received over 2600 pageviews. Over 1200 of those came from Hacker News alone. Though the link was tweeted and re-tweeted all over (just check out the comments section to see the list), I got less than 200 page views from Twitter. It also got bookmarked 45 times on Delicious.

I’m honestly just really happy that people found it interesting! I post the stats above because I think it’s useful to have some data points about where traffic does & can come from.

Strategic Level vs. Tactical Level

In hindsight, I didn’t distinguish as much as I could have between the strategic choices in starting a new seed accelerator program and the tactical choices. This is where perhaps some of the comments/criticism/mis-understanding came from.

The Strategic choice has to do with the most basic analysis of what resources you have available, and how you can structure the program to take advantage of them. Your goal should be a program that is strong enough to be essentially independent of location; it should instead be dependent on the people and resources (connections to appropriate investors, customers, advisors) available. Startups working in your defined niche should want to come to your program above all others, no matter where it’s located.

Now while I’m not saying that a pure Y Combinator clone in Wyoming will never work, just that it will never be competitive with the real Y Combinator unless the resources provided to entrepreneurs are better than they could get through Y Combinator. Now the goal may not be financial success, but building an ecosystem. But even if that’s the goal, local startups have an incentive to go where they have the greatest chance of success. If that’s not your program, then you’ll only be helping a lesser quality company.

The Tactical choices are pretty much everything else. Once a seed accelerator founders have identified a focus where they have a true competitive advantage, then they can decide elements such as program length, investment and equity size, office space, etc. It’s important to recognize these as tactical decisions, versus the strategic focus decisions.

Thanks to everyone that read, linked to and commented on my paper and post. I really appreciate it!

comments 46

Copying Y Combinator – WHY and HOW

[UPDATE]– I’ve written an update 1.5 years later on the original post: “Looking back – 1.5 years since ‘Copying Y Combinator'”

Have you thought about starting a program like Y Combinator in your city? That doing so would not only build a startup ecosystem but would also bring a good financial return? I studied Y Combinator, TechStars, Seedcamp, and many more programs to develop a framework for “Copying Y Combinator”.

(With apologies to Chuck Palahniuk…)

  • The first rule of copying Y Combinator is: Do Not copy Y Combinator.
  • The second rule of copying Y Combinator is: DO NOT COPY Y COMBINATOR.

The key to copying Y Combinator is to figure out how you can be just as good, but in a different way, than Y Combinator.


Background

This last year I’ve been an MBA student at Cambridge University. In order to complete the degree we had to do a substantial piece of research, and I chose to do it on the rise of Y Combinator and similar “seed accelerator” programs. My hypothesis was that a lot of people/organizations are starting seed accelerators without really examining the full scope of innovations they need to think about in order to achieve their goals.

I wanted to take the opportunity to look into why entrepreneurs choose to go into a seed accelerator, why individuals choose to start a seed accelerator, and then propose a framework for designing new programs.

Key results are described in this post, and the full paper is embedded via Scribd (a Y Combinator company) below.

Data

The very first step in examining these programs is to get data; it’s almost all posted somewhere, but isn’t consolidated. Between the data that each program publishes on their website, press on the various programme Demo Days, and Crunchbase, I built a list of virtually every startup funded by every seed accelerator.

Click this link to see the spreadsheet on Google Docs.

The only accelerator where this data isn’t as comprehensive is for Y Combinator; I’ve put in placeholders where known (ie, 8 companies in cohort X but only 5 have launched). That said, it should only be missing a handful of companies at most. And please note that nearly all exit values are purely speculation, though educated speculation based on exits of similar companies.

I also surveyed the founders of companies that have either been funded by accelerators or are looking to be funded by accelerators (Y Combinator and others). Specifically, I wanted to find out what they cared about when choosing a seed accelerator. The results are as follows:

  • Connections to future capital: 8.51
  • Brand/Alumni connections: 7.83
  • Business support: 7.42
  • Product support: 7.13
  • Pre-money valuation: 5.25
  • Level of funding: 4.14

These numbers did vary somewhat between different programs and non-funded companies. (For example, the average Y Combinator founder valued Brand/Alumni connections much higher than the average respondent.) But the trends show that entrepreneurs value the elements of programs that give them long-term chances for success: connections to investors, other connections, and product/business support.

Financial Results

Since seed accelerators are still in their early days, it’s too early to make a definitive verdict on their success. But the early data is promising.

Y Combinator and TechStars are two of the oldest seed accelerators, and are the only two to have had substantial exits. The TechStars exits have likely already generated a profit, and there are several companies that may still exit at some point in the future. The Y Combinator company exits have likely already brought Y Combinator to break-even, even after having funded over 100 companies. More impressive is that there are a good number of companies in the portfolio that could reach substantial exits at some point in the future. (And potentially a handful that could reach the vaunted $1billion+ exit.)

Recommendations – How to Copy Y Combinator

The bulk of my paper goes through the elements that are involved in a seed accelerator program. But the fundamental decisions that can define the potential success of a program are simple.

Success derives from the program’s founders and focus; together they must create a distinctive and compelling reason for entrepreneurs to join them.

There will always be entrepreneurs looking for funding; what a seed accelerator should provide is the right match of resources for those entrepreneurs. If the resources that entrepreneurs get by participating aren’t compelling, the program simply won’t get the highest quality applicants, and thus will not achieve maximum success.

This is why there has been little true competition for Y Combinator thus far: they simply have truly compelling resources to offer through PG and the other Y Combinator founders, the YC alumni network, and the combined program network. Until another program can be more compelling than Y Combinator, they will attract the best startups. (See rules 1 & 2 at top about copying Y Combinator.)

The key when constructing a seed accelerator is to look critically (and honestly) about the resources a founder has available; the founders’ experience and the expertise available to the entrepreneurs. Find the focus point that is different from Y Combinator that makes it distinctive and compelling. For example, FbFund REV accelerates companies building applications on Facebook. The new Springboard program in Cambridge (UK) is focused on B2B software applications.

Maybe your expertise is in mobile technology, maybe it’s in medical devices or maybe its in enterprise software. The key is that the founders and the mentors they assemble for a program in that focus area are a distinctive and compelling reason for entrepreneurs to apply and attend. Once the founders and focus are decided, many other decisions fall into place. For example, the program length and funding level will need to be adjusted so that companies can reach a significant development milestone during the program. Just because Y Combinator is three months long doesn’t mean that your program can’t be 9 months long, provided that’s right for the companies involved.

The full paper has far more detail, the point to take away is that the founders and focus must align, and must align to create a programme where an entrepreneur would travel from around the world in order to participate. (Even if there was an accelerator in their own backyard.) The potential to do this in the field of web applications is diminishing quickly.

Final Thanks

I want to say a specific thank you to the program founders that agreed to be interviewed: Paul Graham, David Cohen and Reshma Sohoni. And a huge thank you to the people that commented on my blog posts and Hacker News posts over the summer and took the survey I described above; your feedback was invaluable!


The Documents

Copying Y Combinator

 

Appendix A – List of Seed Accelerators

Click here to view the list of seed accelerators. Only seed accelerator programs are listed; see main paper for details.

 

Appendix B – Example Seed Accelerator financial model

 

Appendix C – List of all companies founded by Seed Accelerators

 

OR

Click here to view the list via Google Docs.