Most people starting a company need help.
The need is so strong, in fact, that a multi-million dollar industry has taken shape in the form of accelerators and incubators. According to the Global Accelerator Report 2015, over $191 million was invested into more than 8,800 startups across the globe this past year and that number is only getting bigger.
But like any business that capitalizes on people's needs, there are players that don’t have your best interest in mind.
“The viewpoint that is emerging about accelerators is somewhat the same viewpoint of law schools — if you can get into the top ones, it's worth it.” said Jose Ancer, a Senior Attorney at Miller Egan Molter & Nelson. “Very few people who come out of the top accelerators would say it wasn’t worth it. But then you have the rest of the accelerators that are a couple of rich people putting together a portfolio of companies and there is no indication that going through [their accelerators] does anything for the companies.”
Top-tier accelerators like Techstars and Y Combinator make a majority of their money from a small number of successful startups (i.e. AirBnb, Dropbox) but their failure rate still floats around 10% percent. Therefore, a less notable accelerator, who is accumulating a lower-tier batch of startups, can potentially see failure rates more than twice as high. And with that high of a failure rate, struggling accelerators may try to take too big of a piece of the pie.
“If you’re a B player accelerator, you inherently have an adverse selection problem,” said Ancer. “You therefore need to get a much larger stake to account for all your loses and that potentially hurts those companies.”
So how do you determine if an accelerator or incubator is the right fit for your company? Let’s break it down:
- Do your research. Talk to companies in their portfolio that aren’t the one’s provided to you or listed on their website.
- Treat it like a purchase. If your business does well, you are essentially paying the accelerator or incubator for their resources. Make sure it is worth the money.
- Make sure you need it. The biggest perk accelerators and incubators can give is their guidance and their connections to big names within the tech industry. If you feel as though you can attain those on your own, then stay autonomous.
“It’s not surprising that people have found ways to decouple [accelerator’s] resources and find different ways to attain them without giving up 8%,” said Ancer. “It’s an issue for accelerators. They need to be aware that they need to keep delivering and innovating. They’re working with entrepreneurs. Entrepreneurs are entrepreneurial. If they see a way to deliver something cheaper, someone’s going to do it.”
To learn more about how to protect your growing business, visit MEMN's website or check out Jose Ancer's blog here.
