You would have to be a hermit not to have noticed one of the fastest growing industries around – the business accelerator. If you Google “business accelerator,” you’ll get about 16 million results. 16 million!!! It seems that every city worth its salt is launching an accelerator in hopes of generating new businesses and job growth in their community. So does it work and should you find an accelerator for your new venture?
Let me first distinguish an accelerator from an incubator. In general, business incubators are physical facilities that house many early stage companies that share things like conference rooms and equipment. Some incubators like the LA Business Technology Center also offer mentoring and workshops that help entrepreneurs learn new skills. By contrast, accelerators are often structured as bootcamps or programs that may last a few months—just enough time to gestate an idea into a prototype and secure some funding. They are frequently started by investors. Some recent examples of accelerators are TechStars, which is based in Boulder, CO; Dreamit Ventures, based in Philadelphia, PA; and Santa Monica based Launchpad LA. Accelerators typically invest $25,000 – $50,000 in a venture for a 6 percent ownership stake. They provide lots of advice and guide the team toward their final pitch for larger amounts of money.
So where did the idea of an accelerator come from? It’s a term borrowed from physics. You’ve probably heard about particle accelerators. Particles are molecules, atoms, and ions, and they behave like waves. An accelerator speeds up the momentum of a particle so the physicist can bash it into a target or into other particles. Why? So they can study it. Likewise, investors, through their accelerators, increase the speed of startup so they can quickly deduce if they’ve made a good bet or not and kill off the startups that aren’t viable. It’s a portfolio approach to the old trick of throwing spaghetti at the wall and seeing what sticks. But it seems to be a model that is working for investors and entrepreneurs alike.
How successful are these accelerators? David Cohen, co-founder of TechStars
, claims that of 39 startups it seeded in 3 years, 6 were acquired and 27 remain active. Launchpad LA has mentored
23 companies in the past 2.5 years. Of those, 19 received funding and 5 have been acquired. The entrepreneurs who participate in these accelerators say that the mentoring and networking are worth far more than the money. Bill Gross, arguably the father of the incubator/accelerator concept with his very successful IdeaLab
(he has created and operated more than 75 companies with 30 IPOs and acquisitions since it was founded in 1996), believes that this accelerator frenzy is a good thing
. But Cohen is more cautious, saying in a Business Week
article that “Those that look at it as a pure financial play, are going to be in for a rude surprise.”
He believes that the sustainable accelerators will be those that focus on building communities of entrepreneurs. And he’s put his money where his mouth is by forming a network
of affiliated accelerators that share a common platform in partnership with Startup America
Only time will tell if the accelerator craze will continue. Like any new industry, eventually there will be a shakeout and only the best will survive. As for whether you should consider an accelerator for your new business idea, that’s a very personal decision. There is comfort in being associated with a bunch of entrepreneurs and having access to investors and industry experts. But it can also give you a false sense of confidence or, worse yet, a belief that you’re really an entrepreneur just by hanging out with entrepreneurs and entrepreneur supporters. My sense is that if you really have come up with a concept that solves a compelling and really big problem and you have some serious competitive advantages, you won’t need an accelerator to attract attention – investors will be beating down your door because, frankly, there just aren’t a lot of great concepts out there that can disrupt a market and grow big.
And, if you don’t live in a big city with a deep bench of investors and entrepreneurs, chances are your accelerator won’t make a big difference. If that’s you, my next post will talk about what my partner Tim Stearns and I have been doing to accelerate technology startups in rural America.