No! Accelerators Hinder Critical Factors of Your Startup’s Success (Part 2)

By Duy Tran

Last week, in Part 1 of this 2-part series on accelerator programs, contributor Emily Savage highlighted a number of the most frequently used arguments for why they are worth the value, for new venture founders. In this post, I’ll argue how that value can be elusive, with accelerators often hindering success as much as aiding new ventures.

According to Angel List, there are now over 100 programs in the US that graduate thousands of different startups. Sure, when the model first started, each graduate had the aura of a fine-tuned startup, but now accelerator graduates are a dime a dozen.startup maps

The accelerator model is eerily similar to our current university model where students are led to believe that a college degree – any degree, really – is a necessary component to their future success. Universities (and accelerators) ostensibly impart invaluable knowledge to their recipients to gird them for the long road ahead.

Of course, what we’re finding out is that , according to The Economist, the value of degrees are being diluted while the costs of higher education continues to rises; all the while this myth is sold to students nationwide in the form of PR campaigns and aggressive marketing to high schoolers.

This pitfall can easily be mapped onto accelerators as the number of programs are quickly proliferating and dangling the tantalizing dream of entrepreneurial success. Of course, universities certainly do benefits students: The Atlantic claims that college-educated folks make more than their non-college educated peers, on average.

The Myth of Uniqueness

That’s the catch, however: on average. Startups, by definition, are trying to beat the average – trying to demonstrate their “uniqueness” – oftentimes in spectacular ways. Thus, the advantages of universities that offsets its disadvantages cannot be applied to accelerators.

The way that accelerators are structured can be homogenizing because demo days are heavily emphasized in the program. Alon Lichtenstein, CEO and founder of Hangar 49, believes that this means startups are groomed to bedazzle potential investors on ideas that usually aren’t even fully formed.

This shifts the focus of accelerator programs away from teaching startups on how to build a business model – via providing legal advice, business structuring, and marketing strategies – around their unique ideas and towards a grandiose presentation of their “product” using the same buzzwords and tropes.

mySuperLamePic_9618ad7ac349a586e490e0e8be412f07Unless your startup company’s revenue is literally based on the amount of time someone says the words “synergy,” “innovation,” or “consumer-centric,” this focus on demo day ought to make you skeptical of whether or not the accelerator is truly trying to further your startup or further their program, a skepticism Chris Lynch of Atlas Ventures raises in a Venture Beat opinion piece.

Investors, like Nathaniel Barookhian of TechU Angels and at least 15 others according to Erin Griffith of Pando, are also catching on to this trend with many of them feeling more and more disgruntled or bored at these demo days.

The Loss of Independence

Another pitfall with accelerators is the loss of control…the loss of independence that comes with it. The most noticeable loss of independence when joining an accelerator is the equity loss. This is obvious and understandable; after all, accelerator programs are providing services to your company with the hopes that if you succeed, they get a return on their investment.

There’s really no tricks to evaluating this tradeoff: the startup is giving up (hopefully) future control and gains from its product in exchange for (again hopefully) the gains the program can offer in achieving that future payoff. Heavy emphasis on the possible future payoff.follow_on_funds

This is not a unique pitfall inherent in accelerators, but it is certainly something to be cognizant of in the context of possible pitfalls related to accelerators. Obviously if there are disadvantages that are uniquely associated with accelerators then that only compounds the disadvantage of giving up equity to accelerators.

The Trouble with Mentors

One of the biggest touted benefits of accelerator programs is their mentorship; however, it can also very well be their biggest pitfalls. Accelerators are going to hype up their roster of reputable mentors, but that roster ought to be viewed critically.

For one thing, there are many stories of accelerators promising mentors that never make an appearance in the programs, such as the notorious story that David Cohen published on the behalf of an anonymous startup founder; or if they do, it’s more of a token gesture that isn’t enough to benefit the startup, according to Peter Relan, founder of YouWeb incubator.

Then you might be paired up with mentors whose experience don’t align with your specific product or mentors who aren’t really invested in your idea – this coming from Ashwin Ramasamy who is a mentor himself! This could potentially be a huge waste of your resources as you have to spend an intense month with your mentors, thus trading away time that you could have spent developing your product or business model.

Even if the mentors are well-respected, they can oftentimes give conflicting opinions. A holistic approach to mentorship is certainly appreciated, but when you only have three months to turn these opinions into implementable processes, you might be better off searching for an independent mentor outside of the program. Read this excellent piece by Ciprian Borodescu, co-founder & CEO of Appticles.com, that details pitfalls of mentorship.mentor

Do Your Due Diligence

There are plenty of articles across the internet that details the advantages and disadvantages of accelerators which should help startup founders determine if accelerators are right for them. The main takeaway from them collectively is that do your due diligence! I’ve compiled a list of questions that you should ask yourself in order to avoid the pitfalls of accelerators

1. Are you joining an accelerator primarily for the exclusive exposure?

If you’re trying to get some sweet press and face time with investors, think long and hard about joining an accelerator. The sentiment among investors seem to be that pitches during demo days are all flashy presentations without any real substance. You may get additional exposure, but so will the dozen or so of your fellow startup peers.

This runs the risk of exposure as an X accelerator graduate as opposed to X unique startup. Unless you believe that you can get into  a “brand-name” accelerator program – and even then there’s not guarantee that you’ll gain the PR payoff that you want – you’ll have to decide whether it’s better to be unknown but with the chance for individualized exposure or be known as one of many.

2. Are you doing it for the access to cash?

Most startups are probably more interested in the non-cash aspects of accelerators than they are on the seed funding, but let’s say you really need the cash. How far along with your product or idea are you?

Angel investors at a HITEC 2015 session recommended that waiting until the very last minute before seeking external capital allows for further product development which would give you much more leverage when negotiating how much equity you’re going to be giving up.

The newer or less proven your company is, the more desperately you need cash which translates to more equity taken as insurance. This means that further down the road, if you make it to future rounds of funding, you’ll have less to offer VCs and less to keep for yourself

Some accelerator programs take a flat percentage of equity from all of the startups they accept – which is a bit suspect because that presumes that all startups are created equal – while other programs have a range of equity tradeoff that they decide on a per-startup basis.

The biggest factor for startup failures is lack of capital so definitely seize every opportunity you can but keep in mind that seed funding is useless if you can’t stand out for future rounds of funding (look to pitfall #1)

3. Are the mentors a group people who can really help you?

Evaluating the quality and alignment of the mentors to the needs of your startup is something you should be asking the accelerator program as you apply. Remember, accelerators want you to succeed just as much as you do and they’re not being purely altruistic by accepting you – they’re a business, man. Here’s a quick guide on what constitutes a good mentor program; make sure that the accelerator is providing as many services as possible.

It’s impossible to fully assess the mentorship of an accelerator simply because you never know which mentors you will be matched with nor will mentors be happy to reply to an inquiry before you’re accepted into the program (understandably – they are busy people) but making sure the right programs and frameworks are in place goes a long way of preventing failed mentorships and increasing accountability for accelerator programs

In Closing

Only a Sith (the villains in Star Wars) deals in absolutes, which would probably make them terrible startup founders. In the same vein, this post is not making the absolute claim that all, or even most, accelerators are bad. Instead, this post instead tries to provide a more nuanced look at the possible disadvantages of accelerators writ large so that startups can make more informed decisions about their company’s future.

Full disclosure: I have never participated in an accelerator program; my exposure to accelerators is confined to my own research and surveying members of the startup community, either associated with an accelerator program or as startup founders.

Think of this post as a yelp-esque aggregate of accelerator reviews that is biased towards the lower spectrum of ratings. The point of the blog is to spur a dialectical discussion on the efficacy of accelerators; all criticisms are welcome!

Duy Tran is a contributor to the Appconomist and Nano Global Corp. blogs. He is an intern with Powershift Group and will be a senior at Whitman College in the Fall 2015.

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