This guest post comes in response to Tim Devaney and Tom Stein’s ReadWriteStart post, “Startup Accelerator Fail: Most Graduates Go Nowhere,” one of our most buzzworthy stories this week.
The emergence of accelerators has been vital to spurring innovation and entrepreneurship over the last several years, and their continued expansion is essential to creating companies, jobs and market competitiveness. In evaluating the “success” of accelerators, it’s important to consider a range of variables and not focus solely on the number of exits or whether their graduates raise money.
Guest author Arie Abecassis is co-founder of AppStori, a crowdfunding startup for entrepreneurs of mobile apps, and a Venture Partner at DreamIt Ventures. He’s been actively involved in the New York tech community as an entrepreneur and investor, and currently sits on the boards of SeatGeek, Adaptly and BiznessApps.
As the capital markets have evolved in the last several years, accelerators have taken on an important role in attracting, qualifying and supporting innovative startups that may otherwise have a difficult time getting noticed by potential users, partners and investors. One can readily make the argument that the rapid expansion of these programs has been appropriate, as market disruptions caused by technology are creating real opportunities to better serve businesses and consumers.
“Startup Accelerator Fail: Most Graduates Go Nowhere” argues that most startup accelerators are failures because very few of their graduates go on to raise venture capital or stage successful exits. But those metrics don’t tell the whole story.
Startup Exits Are Great, but There Are Other Positive Outcomes
Many ventures that work their way through accelerator programs create value in other ways. They can serve as a stepping stone to the next venture, they can lead to finding jobs at other organizations that can exploit the same product knowledge or expertise, or they can remain bootstrapped until they get the value proposition or business model right (what, no funding?). Furthermore, most accelerators have cropped up in the last couple of years, which makes exits a questionable metric, given that it takes four to six years for the average M&A exit, and eight to 10 years for the average IPO.
Is the “Quality Gap” of Accelerators Reality or Perception?
Top-tier accelerator programs such as YCombinator, TechStars and DreamIt (disclaimer: I’m a venture partner) have done an incredible job of building an impressive group of portfolio companies. They have been great role models for the industry at large, but a bit more perspective is required to fully appreciate how broadly value creation is, and will be, playing out. Older programs have the benefit of having more companies in their portfolio as well as greater maturation for these companies. Since the majority of programs have surfaced in the last 24 months, it’s a bit like comparing apples to oranges. In addition, as accelerators build their brands and market themselves more effectively, they will be able to attract their share of the talent pool. How awesome is it that we’ve seen programs like the Ark Challenge pop up, where the focus is to retain the local talent and leverage competence in areas such as logistics and retail?
Given the Objectives of Accelerators, How Do We Measure ROI?
While achieving ROI is certainly an objective for accelerators and is important in assuring sustainability, there are other objectives that drive their formation as well. Typically, local entrepreneurs are catalysts in funding and operating a program, in large part because of their community ties, as well as their interest in “giving back.” So the ROI is not purely economic. That said, there’s increased interest on the part of institutions – including corporations, venture firms and hedge funds – to explore how they can get more involved with these startups on the ground floor.
The next several years will be very exciting for accelerator programs, and they are likely to be standard fare across many more geographies and industries. Like the gold rush of the 1800s, the early settlers have seen early returns. But make no mistake about it, there’s lots more gold in them hills.
Join in on the great conversation around these issues that the original post sparked on Hacker News.
