Dear awesome startups, don’t join an accelerator, unless…
pandodaily.com
pandodaily.com
It's a mistake to think getting into an accelerator is about getting access to VC. VCs are probably the most connected people in the startup industry, pretty much anyone with a good startup can get an intro to any VC they want within two degrees of separation.
The point about pivoting is particularly wrong, a substantial number of YC funded startups have pivoted during their YC period and raised successfully on or before demoday.
Someone who argues mentors are no use while you're in the process of building your startup has obviously never built a startup.
(Although depending on your criteria you might want to include Hulu, Vancl, Rovio and Wonga in that list too taking it to 16)
Pinterest founder Ben Silbermann previously founded MightyQuiz (YC W08).
Also, many of the 400 companies who have been through YC are very recent, and simply haven't had a chance to grow as much as Dropbox has.
Other than these questions, I think the article does make a few valid points - it does seem to me that there are a lot of programs around, and I'm not sure they are worth the time for most people. I'd be interested to know if the prevailing sentiment among VCs really is that most seed accelerators don't matter (discluding YC).
2) Yes, you basically need to do cohort analysis for meaningful results.
3) It depends what you mean by "most seed accelerators don't matter", certainly there's a big drop-off in quality in startups as you go further down the rankings of seed accelerators and VCs pay less attention to them. That doesn't mean that the accelerators aren't adding value to the startups though.
Follow-up question/observation: the article makes it see like only Dropbox and AirBNB were "winners", which I understood to mean they were the only 2 that gave YC a return. Here's the quote from the article:
'And even though most YC companies have no problems raising additional capital, the program has only produced two big “winners.” Dropbox and Airbnb make up three quarters of the value of Y Combinator’s $10 billion portfolio. That’s two huge successes out of something like 400 companies.'
Is this only true because Dropbox and Airbnb are spectacularly successful? E.g., if another YC company became the next Google next year, would the article have said "YC has produced only 1 success", and Drobpox/Airbnb would be relegated to "not as good as the Google-sized success"?
OMGPOP
> And even though most YC companies have no problems raising additional capital, the program has only produced two big “winners.”
The word 'only' has no place in that sentence, it is a pretty good record for early stage investing, and it does not take into account stripe, heroku and others.
So, if you're comparing to a traditional VC model, compare YC to one that has made e.g. 10 investments. And to have Dropbox, AirBNB as two of your ten (regardless of all others), is something every VC would envy.
A program like YC or 500Startups has a solid name because of the quality of its guides, support system, value system, knowledge, experience and pretty much everything else that one can think of.
Keep the money aside, tell me one VC that compares on those metrics?
(Disclosure: I am not a part of any accelerator program.)
For a VC 2 out of 400 would be spectacularly bad, for an incubator to have 2 winners of that magnitude is actually really good and there are a few others that have already exited (Heroku, YC08 iirc for instance) that increase that even further.
Add in stripe and the current crop of 'hot' stuff and YC is looking pretty good.
But you still can't compare it with a VC, it's a different model, different risk/reward.
A traditional VC, compared to an incubator, was able to offer access to bigger money in the next rounds (whether the VC's own, or other funds it co-invests in), and networking.
But YC (and other accelerators) actually give you everything a traditional VC does. The main difference is bureaucracy & first round size: A traditional VC spends 2-3 whole months trying to decide if to take a deal or not; therefore it makes no sense to invest anything less than $500K (and often no less than $2M), and you have 1-2 investments/year/partner.
YC and other accelerators invest ~$20K, with (comparatively) no overhead, but otherwise give the same access to networking and future money.
It's apples to oranges only in the sense that when you're hungry, either one will help you get through the hunger. For one of them, you have to wait much longer in line, and it keeps your hunger at bay for longer.
If there’s a chance you’ll pivot halfway through the program and demo a one-month-old idea to a crowd of investors and media, you’re not going to win.
This is just flat-out wrong... Greplin, Codeacademy, Meteor all come to mind. Most companies don't pivot, but the ones that do, often end up doing the best (at least in YC history).
Given the massive difference in funding between an accelerator seed (tens of thousands) and the first raised round (millions) it seems like the accelerators disproportionately gain from having these self selected success stories.
Accelerators, more recently, really seem to provide business direction and a stream of well documented CEO advice which, for a lot of these startups, solves zero of their engineering or customer problems. It's not that the mentorship provided at the labs is not useful but rather that it seems to solve a less important part of the overall problems early companies have.
And to top it off, like the article mentions, the effort rewarded during an accelerator is often related to pizzaz, flash, and cool demos rather than core product. I hope the accelerators look to strengthen their offerings to seed companies and really incubate them rather than slip further towards the "gateway to VCs" which, at times, seems like the predominant movement.
I don't think that YC invests in guys who want to draw cats for you (no offense to Mr. Cuban). That's the first layer.
I've been to pitch events where within the first 11.3 words you know that it is going to go nowhere. And then you learn that someone threw money at them.
What percentage of startups have a chance --purely on the nature of the business they propose to attack-- to reach a billion dollars. Is it 1%, 2%, 10% or 0.1%?
I would venture to guess that, YC or not, if you took all startups launching in the US, a very small number of them have a shot at a billion dollars.
No, not because there might be execution problems or anything like that.
Markets with billion dollar potential are relatively scarce when compared to, say, $25MM, $50MM or even $100MM markets.
And, even if you found one, there's the very real possibility of it being a displacement market rather than virgin territory ready for the taking. In other words, you have to share the cake with n players. More accurately, you have to STEAL cake from others. Chances are you are going to get poked in the eyes and kicked out of the room before that happens.
If the market is only good for a billion dollars total and there are ten players already in it, what are the chances of you capturing 100% of it? Right.
This means that, in order to even have a shot at a billion dollars you have to look for a market that is large. Huge large. If, for easy numbers, you identify a $100bn market, now you only have to steal 1% of the cake. And, while I am not saying that this is easy, it would be far more plausible than capturing 100% of a billion dollar market.
(A) Lot of accelerators are readily accepting foreign companies and entrepreneurs. Helping provide them a base and also help with visa issues. Which would be very tough on their own.
(B) Many of these ideas are not well polished and need to refined further and converted into a viable business. And accelerators also help founders hyper-focus on the product.
With that said if you have a little cash for a few months time, have already started to work on your MVP and have decent connections in the industry. Then working in a co-working space and hacking your product is the best thing to do.
But each case is unique IMHO.