Acclerators, Incubators; Are They Worth It?

Jeff  Carter
Posted: Mar 12, 2012 12:01 AM

It seems like every day there is a new accelerator starting somewhere in the United States. Entrepreneurship is hot, and because accelerators like Tech Stars and Y Combinator have been successful, other places think this is the path to prosperity. But is it?

At the Angel Capital Association (ACA) conference I was at I solicited the opinions of several angels. It’s a hot topic. My own angel organization, Hyde Park Angels is hugely supportive of our local accelerator, Excelerate Labs. We also will have an office at 1871, which is not an accelerator but a co-working space.

Many of the angels I spoke with grumbled about accelerators. They see them as plain vanilla. They turn out the same product in variations of industries over and over. It’s an assembly line model in their view. Other angels love them. They appreciate the stream of businesses they allow them to look at and invest in. They like that the accelerators tweak the businesses at relatively low cost and turn the company in the right direction. They also appreciate the network of support the company graduates with. So, opinions are as diverse as the angels.

Right now, there are 1200 accelerators/incubators in the US. Tech Stars is considered the “Ivy League” of accelerators, and operates four across the country. If you read David Cohen and Brad Feld‘s book “Do More Faster” (and I think you should), even they will say that coming through an accelerator isn’t nirvana that guarantees success. But, it can help.

One thing that seems pretty vanilla about accelerators to me is the type of companies many of them invest in. They invest in teams of hackers that create companies that require a lower level of investment. Those companies will hit home runs, or blow out. But, the talent level at them is so good they might recoup some of their investment on an acquisition for the talent only. Because there are 1200 of them across the country, they get a lot of “shots on goal”. One sign of success is that 60-70% of companies that come out of accelerators get follow on funding.

However, not all accelerators are run correctly. Tech Stars and Excelerate do a fantastic job. They kick companies out and they have to fend for themselves at the end. Many operations are simply real estate plays. As long as a company can survive and pay rent, they stay in the accelerator space. These companies often are businesses that couldn’t scale and become lifestyle or consulting businesses. Nothing wrong with that except that is not what you want in an accelerator. Many angels refer to these kinds of businesses as “zombie businesses”, that don’t create any value for investors but may or may not for the employees of the business.

One understated topic that a company should really delve into before they choose whether to go into an accelerator or not is the quality of the mentors that have signed up to work with that accelerator. If a company is exposed to entrepreneurs, academics and thought leaders that have helped companies in the past and can cite even a short track record of doing it, companies will know that they are getting real help. If the mentors there are schmucks, it’s going to be a waste of time.

It is also critical to constantly refresh the companies coming through the process. Unless you kick them out, the play isn’t about creating great companies and growing an entrepreneurial ecosystem. It’s about making money off square footage and having a facade of scalable entrepreneurship when the reality is different.

Most angels also agree that we need to keep government funding out of accelerators. They should be run only with private money and private sponsorship. Even good hearted governments will screw the process up. Government money never comes without strings, and the best thing all governments can do is make sure the roads, rails and buses work to get to and from the work site. Oh, and deregulate so there are plenty of food trucks and fast food places nearby.

It’s very difficult to measure the success or failure of an accelerator/incubator. Even if the accelerator’s process is perfect, there is a lot of randomness affecting the outcomes of the companies they graduate they can’t control. Perhaps the easiest way to measure is ask the companies if they can point to any part of the process that changed their company and put it on the road to scalable success. Seeing how many companies make it to Series B, C, D rounds of capital injection is also something that can be measured. Then of course, you can check out exits. How many companies go in, and how many exit profitably. Measuring that against the standard statistics on entrepreneurship put out by the ACA and Kauffman Foundation will give you a good sense at whether an accelerator is doing a good job, or not.

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