A horrifying startup accelerator story
davidgcohen.com
davidgcohen.com
We did YCombinator, which could be described as an "access" play, but apart from that, every time someone has offered us access to something in return for something else, we've always politely declined and then just gone and won the business or relationship on our own merits.
Gatekeepers suck, and doing business with gatekeepers leads startups to doing sucky things and pulls them down as well.
The minute I read him deciding to do a second accelerator so he could get access to "his vertical" I started getting a sinking feeling in my stomach.
But the best "gatekeepers" are not the ones that guard the gate, they are the ones who can show you where the gates even are, it's just very difficult to be able to distinguish the real valuable guys from the "hustlers" without having a lot of experiences yourself.
"never once has anything good happened from paying for access" ... "We did YCombinator"
YC is the prototypical model for this.
I like my comment as it is because you get the second graph and realize even great sounding rules of thumb don't apply to everything perfectly.
You are right though, my point is made considerably murkier by the fact that "paying for access" for YC was a good experience. I could counter by saying we got a whole lot more from YC than that, but I think other folks get what I was trying to say.
This sort of arrangement works pretty well if the person selling the access is actually offering a decent service to both sides. However, it needs to be mutual, pre-arranged, and with plenty of duties all around (in most of the world "duties" end up meaning "kickbacks" but the system won't work if it is limited to that).
http://www.telegraph.co.uk/finance/newsbysector/banksandfina...
First, we must define what is "good". After participating in DreamIt Ventures in 2012, I can say that we extracted immense value by quickly invalidating a B2B software concept. It was taking me months to get one meeting with an enterprise client on my own. With the help of DreamIt's mentors, I secured dozens of meetings in less than six weeks. We learned that the software we were building was ill-fated through those meetings. This was undoubtedly "good" for us, and we paid a mere 6% for that kind of access. In retrospect, I'd do it again in a heartbeat.
But your mileage may vary. The value we obtained was highly correlated to the fact that we were pursuing a B2B venture, a sector where DreamIt's mentors could best leverage their networks. In contrast, I saw some consumer-facing companies extract less value from the accelerator program.
In sum, you have to carefully (and honestly) weigh the value that "paid access" can yield. Feelings of frustration in connection to "paid access" likely stem from a miscalculation of the cost/benefits that the access could provide.
For anyone else who thought the same, here's an article about a russian who got his face caught in a proton beam: https://en.wikipedia.org/wiki/Anatoli_Bugorski#Particle_acce...
Not only me - this is the top comment and there are three more comments about this. This is a good measure of how geek this site is.
"Putting your hand in the Large Hadron Collider..."
https://www.youtube.com/watch?v=_NMqPT6oKJ8&list=TLwUB7ALPnO...
If you have any feedback for me as to what would be useful to you when choosing between accelerators, please let me know. Email is in profile.
Thanks for sharing!
I'm not sure how many startups would do that, though... it's surprising to me how many startups from accelerators don't even have a Crunchbase or an Angellist page. Seed-DB is a nights/weekends project for me and I've already got a backlog of stuff I want to add. :)
This is probably complicated by the fact that many of the smaller acquisitions (<$100m) are for undisclosed sums. Not sure how you can ever account for that unless you make wild guesses.
Also it looks like companies which are very valuable but not formally exited yet (AirBNB, Dropbox etc.) aren't accounted for here... a column for "current portfolio valuation" might be more valuable. Again, if it were ever possible to put such a thing together accurately, which I doubt.
The next list is the list of startups for each accelerator. This is a pretty manual process, though I do give admin permission to accelerators to go in and add their startups themselves. I suspect for the accelerator you're thinking either a) I don't have their full list of startups and/or b) the startups that have exited aren't marked as such on Crunchbase.
You're correct that for many acquisitions I do have to make guesses about exit value; I clearly mark each exit value on Seed-DB with a H/M/L icon to indicate my level of confidence in the value. (Where people have come to me afterward my guesses have been roughly 50/50 over/under.)
I've got some ideas about calculating a valuation, but even if I put that together I would likely not make it public since it's just guesses multiplied by guesses. Plus, there are companies that just buck trends in trying to guess valuation based on funding signals... my favorite example here is Weebly. They went for 4 years on ~$600k of funding before raising a monster $45million round.
The right thing to do here is anonymously expose the managing director.
Later on I also found out that they are already searching volunteers around the world to help them out organizing the 2014 competition... in my opinion all this is pretty shady but we the teams are holding up just in case the demo day brings something good (a.k.a. investors and new contacts).
"I may have also changed the gender of certain people (i.e. he/she), again, with approval of the author."
So lets not point fingers based on gender alone.
The real question, of course, is whether we should expect to see a net profit across the incubator/accelerator world at some point in the future, or if we're indeed in the bubble some of us think we are...
On a positive note, The Alley is a way cool co-working space, I miss it dearly. Routine nightly events/speaking engagements were pretty awesome.
I participated as a consultant dev helping out a company there, I own no stake in the company and my view on the experience does not reflect the viewpoint of the company I was there for. I left on my own accord which had nothing to do with participation in the accelerator itself, the rest of the company remained thru the duration.
With that out of the way, the "Yikes" was to the effect of "wow, that ended up in the worst way possible". The "too familiar" was noting some of particulars of the story, some of which 1) female led MP 2) extra month+ before demo day 3) some other particulars I won't care to name, but nothing to the degree as told in the story. Let's just say to point 3 I was expecting it to be more hands on, and from what I've learned since writing this comment it was.
I have no issues/beef with the people involved, other teams, etc. I found everyone pleasant to deal with, and the nature of my involvement was as such that many issues going on behind the scenes weren't in my periphery anyway.
NY, and SF.
"I've emailed @davidcohen and asked him whether he would be willing to share my response. Awaiting word."
1. an edtech accelerator embracing lean startup practices. 2. a collaborative coworking community in NYC dedicated to education entrepreneurship. 3. a campus focused on learning technology. 4. the birthplace of the future of learning.
One thing I do notice is there's a fine line between "We have 60% of the stuff figured out, and will make up the rest of the 40% as we go" and going 40/60 instead. One is an ambitious startup, the other is a scam.
Don't be afraid. Moving on after one month is ok. It won't irrevocably stain your resume. The self-aware hiring managers know this dynamic exists, and won't hold it against you.
There are thousands of amazing, hard-working, kind, creative, interesting people and teams. Find one and cherish it.
You're right, of course. A difference when you're stuck near one is that it's generally easier to switch teams than companies.
Of course the right accelerator/VC/agent/publisher, at the right time, can help. It works best if you see them as a piece of YOUR plan, rather than see yourself as a supplicant to their network/deep pockets.
I've been approached by a few startup-ish projects in the past few years, all wanting to 'partner' up and 'join an accelerator' or 'apply for startup program XYZ'.
I proceed to ask "what are you going to do with the $50k you'd get if you get in?"
There's typically a blank stare.
Now, I get that you get more than just money; hopefully you're getting connections and introductions and press you couldn't get on your own. But not always.
But I'm still shocked that typically there's no answer at the top of their minds. And they're asking me to invest the next 6 months or more of my life with them to 'do a startup'. As a tech/dev, I am an investor, investing my time, knowledge, energy and passion in to something. If they can't convince me to invest, they're not going to convince an accelerator.
We had been talking off and on with an accelerator for about a month. We had pitched them, had a few calls, but lived on the other side of the country. They wanted to meet in person which was really not feasible for us. We worked at full-time jobs while hacking away on the side and scraping together whatever money we had to fund our company.
A little flashback, first: I had dropped out of grad school and taught myself programming to start my first company. After a year of living on my wife's student loans, I got "acquihired" by a startup that was run by one of the accelerator's mentors. They gave me 3% equity, a $10k moving bonus, $15k for the company, and a $75k/year salary. I said yes.
Three months later, I decided to quit. I was the only technical person in a company consisting of the two non-technical co-founder, co-CEOs, a project manager, and myself. They had burned through $700k already and hadn't built anything yet. It was becoming clear that my product was going to be their product. In the best case scenario I would spend the next four years working on my original startup, only now for pennies on the dollar.
The purchase of my assets still hadn't gone through and I hadn't yet been paid, aside from the moving bonus and salary. The co-founders claimed I had acted in bad faith and asked for the moving bonus back. I explained that I wouldn't have moved had the moving bonus not been offered (as I couldn't have afforded it). If they had wanted that money back in case I quit, our contract should have specified as much. They relented, and we went our separate ways.
Fast forward another year, back to our accelerator story. The accelerator decides they want to afford us the opportunity to meet in person. They agree to pay for flights so long as we pay for our own hotels and car rental. We also have to talk up the trip on social media, talking about how they paid for our trip, our meetings with investors, etc. Small price to pay, we think.
We make the trip and have some pretty productive meetings. They seem to like us. We fly back, and after some back and forth, they decide they want to invest. Of course, they still need to do their due diligence, so it's going to take some time. In the meantime, my co-founder and I get fired from our jobs. You see, our boss found out about our trip to the accelerator since it was broadcast over social media. It was cool when we were working on a startup after hours. It wasn't so cool when we were talking openly about actually starting a company.
It doesn't matter, though. We made it into the accelerator. They send over the paperwork. It's a convertible note with pretty standard terms, fully signed by all the partners. We sign and send it back. We can't believe it's happening. I sign a lease on an apartment in the new city and my wife and I pack up our apartment. My co-founder does the same.
Suddenly the music changes. They go dark for a couple days. I'm nervous because I have a U-Haul scheduled. I finally get a call with one of the partners; I'm supposed to start a 3,000 mile move the next day. He explains that they can't do the deal. A check isn't coming. He can't explain why.
My mind races and I think: it couldn't have been that mentor, could it? My resume was fully transparent. They should've seen the connection. And they did their due diligence before they made the deal. How could that have slipped by?
I ask for an explanation but to no avail. They can't explain it. Not even a little bit.
Now I have to try to reorder my life. My job is gone. My apartment is already rented out to someone else. Luckily the landlord at the new place lets me out of my lease. I reschedule the U-Haul to take us to my wife's parents' house instead.
My co-founder was devastated. He wasn't used to startups. In fact, to this day he's been bouncing around trying to find a similarly stable job. I can't help but feel responsible. I recovered better. I decided to start consulting for other startups and have made a pretty good go of it.
That's my accelerator horror story. Anyone else have others?
In that case, they just needed better due diligence. They shouldn't have had us upend our lives because of that simple failure.
> They agree to pay for flights so long as we pay for our own hotels and car rental.
This seems crazy to me. In my head, if a few hundred bucks for flights & lodging is too much to ask, how much dough could they really have to invest? Is this standard?
> It's a convertible note with pretty standard terms, fully signed by all the partners. We sign and send it back. [...] He explains that they can't do the deal. A check isn't coming. He can't explain why.
Is there any legal recourse available in this situation?
> My mind races and I think: it couldn't have been that mentor, could it?
Which mentor are you talking about here?
> Now I have to try to reorder my life. My job is gone. My apartment is already rented out to someone else.
You know, I've seen deals fall apart so often that until cash is in the bank I don't change my life. Maybe it's from my time as a car salesman in college - until the bank funds the loan, I wasn't counting my commission. Deals fall apart in all sorts of crazy and ridiculous ways.
There's no real legal recourse. I asked my lawyer the instant it happened. And even if there were, what's the best outcome you could get? Work at the accelerator with investors who hate you?
The mentor was the co-founder of the startup who "acquihired" me from my first startup.
And totally agreed on your last point. For me, it was definitely a lesson learned. The even better lesson was that I was spending a lot of time hustling for the wrong things. Why should I be working so hard just to get $40k? What would an accelerator do for me that I couldn't do for myself? Now I'm bootstrapping while consulting, a much more sensible choice for most businesses.
1) Fund a bunch of companies with the expectation that maybe 1 in 10 will succeed.
2) When the other 9 fail, you have a bunch of talented developers all in one place. And guess what? The really successful company is hiring.
It's pretty brilliant, if not Machiavellian.
if you're in sales, this is EXTREMELY important, doubly so if you sell for a startup. the deal isn't real until the money shows up.
customers will take advantage of your kindness, lie to you, manipulate you, appeal to your vanity, and they can smell desperation from a mile away. "give an inch and they'll take a mile" - these folksy old timey sayings don't come from nowhere.
there are all sorts of shitty people out there that will play napoleon for a day just because they feel they have power over you. it's sickening.
do not start work until you get the money. do not ship product until you get the money. do not pay your suppliers until you get the money. do not pay your sales people commission until you get the money - money didn't show up? well that wasn't a sale, now was it?
if they don't want to pay at LEAST a deposit, they're not serious. END OF STORY.
very simple in concept - very difficult in practice because there are some people who are just plain naive out there. one of the most important skills you learn as a startup is how to say no.
You need to have a sense for your customers, how much power they have over the money, and how much they'll suffer if you're inflexible.
I've spent years working with teachers, who (as patio11 will tell you) are not a great target market for ready cash, but who are very honest. I used to have an informal policy where a teacher would just tell me they were working on getting a purchase order, and I'd credit their subscription. I changed that to only crediting them a month at a time (after one situation where I realized towards the end of the year that one PO had never arrived.. it was stressful for the teacher, but all resolved amicably), but still, there's trust involved.
If I didn't trust them, a lot of these teachers would just be stuck without access for weeks -- the site would be far less useful to them.
- Edit: "until the cash is in the bank, don't change your life" still applies in my situation; payment was slow and unreliable (though paid in the long run), and that does affect planning.
Based on the OP and your story, I guess tech start ups have truly "arrived".
I don't know that there's a good solution to this. I wish pud's fuckedcompany still existed, and there were a place for investors, too.
anonymous rating & reviews are a good way to go, even if the reviews have to be vague to avoid a backlash
I hear that the VCs are flummoxed -- they have pots of money but they are not finding good prospects. The latest fad is to sprinkle little amounts of money around and hope they can pluck a promising seedling.
The important point is that there are VCs out there willing to write little 5 and 6 figure checks, for the hope of a real deal in the future. That has attracted professional deal makers, and this career looks especially attractive to people with weak technical chops for this industry but fancy they can make up for it with schmoozing.
Deal makers have a chicken and egg problem. They cannot get non-small checks without eggs in the basket. They cannot show any person with real money the eggs in the basket without promising future non-small checks to the future chicks. And sometimes people with money decide to not write the big checks until they see pretty chicks. Oops.
You were an egg. The deal maker here cajoled you to rolled into their basket with small amounts of money. And you were never given enough money to crack out of your shell.
I would point out that the deal maker is not screwing you over on purpose. But they may be telling you wildly overoptimistic things, while they are scrambling to see if any of a dozen different people will write a real check. When they refuse to explain, it is because they do not want to own up to making promises which they were not sure they could deliver.
As for Los Angeles, I may not have the best ear to the ground, but it does not sound like a top 5 location for recruiting tech talent. (I know you moved there, but the point still stands.) I would guess that those are third string deal makers who happen to believe they can rub elbows with unsophisticated money in the Hollywood area. (If they were really good, they would in SF Bay, Boston, Austin, NY, where the real VC connections can be found.)
I think these kind of stories need to include name and not be anonymous, I hate when people get away with this kind of behavior because no one is interested in calling them out on this shitty behavior.
No offense, I'm sure you have your reasons.
I wish it weren't so.
Would you be willing to disclose this information in private? I'm not affiliated with any accelerator but do have my share of experience with them and this kind of information is very interesting to me.
If you do - then you know how to reach me (email is in my profile)
So accelanon your deal was in LA for $40K. There's only a handful of them. Hmm. My situation was pretty bad and I drove 3200 miles and rented a place for 4 expensive months. It was stressful, fun but not what I thought I was getting myself into. BUT the whole ordeal fired me up and I haven't lost a bit of focus. I am much better off now. If anyone wants info on what LA is all about hit me up.
Short short version: a guy with no money pretended to be a deep-pocketed investor, talked me into leaving my day job. At least that's how the story begins. Then it gets progressively more insane.
I recommend demanding excellence from your investors and expect them to demand excellence from you. Strong relationships improve when tested, others buckle and fade away. That's been my experience anyway.
But the broader point is: if you need investment and can't find anyone else, it's very easy to convince yourself that it won't be as bad as it will.
Having been approached by 3 different accelerators, the story is always the same:
1. They offer a very nice chunk of funding
2. Declare how fantastic their team of mentors and legal connections are
3. They say they have some very low equity requirements
... fast forward ... about to sign an agreement ...
4. Funding is suddenly limited, or is now a range, with the upper figure as what they originaly offered... but with additional caveats
5. The equity requirements are now greater, since they 'forgot' to mention that additional equity is required at the end of the program
6. There is also suddenly an 'entry fee' to cover various expences that they also conveniently 'forgot' to mention
7. Many of their so called mentors/connections have not even agreed to be part of the program
There are certainly many good accelerators out there, but there are many more two-bit players out there willing to screw over early stage startups just to get themselves some funding (and equity, on the off-chance one of the startups actually become successful despite their 'help').
I want to say that this fact should have been obvious long before, but I have the benefit of third-person hindsight.
How did the founders of companies in her accelerator not see the same thing I did in our first meeting?
http://www.replyall.me/zach-talks/to-accelerate-or-not-to-ac...
One issue I haven't brought up yet (but will) is whether a young company wants that kind of "access" or whether having to crawl before you walk makes companies iterate and get it right and get the "access" the old fashioned way. Sometimes think accelerators give companies access a little too quickly for the company's own good.
Well that doesn't seem too bad, it even feels like the story had a happy ending as it sounds like they've been able to get investors and the startup is working.
There have been a few stories over the passed couple of years where someone name drops and schmoozes to elevate their own profile. In the end, they are found out to be frauds or worse.
Any area that gets a lot of hype will have those that want to cling on.
I wouldn't be surprised if "she" demanded something if she even knew of an investor OP's company ended up taking on.