Why it may be time to pull the brakes on some start-up accelerators

Steve Gatfield, group chairman of Elmwood and a former global executive at Leo Burnett and Interpublic Group, argues many accelerator programmes lack vital ingredients.

Whenever something is approaching universal acceptance it is never a bad time to be a little contrarian.

Accelerators are fast approaching the status of an essential ingredient in the primordial soup of innovation in the new economy. After all, who wouldn’t like some help with velocity in their enterprise? Accelerators provide some of the critical elements that all new ventures require: funding, knowledge, networks, facilities. But they aren’t free. The price of accelerator participation is equity and for a venture that succeeds this will be their most valuable currency.

The industrial infrastructure of the new economy is evolving at warp speed. Accelerators have mushroomed, become segmented and more thematically focused. The emergence of well-organised angel syndicates and crowdfunding platforms has made access to early stage seed finance easier than ever. Early stage venture funds have increased in average fund size and now look to play more often in the later stages of funding up to series A and beyond.

Building a portfolio of compelling early-stage ventures without significant capital invested upfront is becoming more expensive because crowd and angel funding allow entrepreneurs to enter the professional risk capital investment space later: enter the accelerator.

It appears to offer what every entrepreneur wants and it has an option to take equity in return usually at a valuation that is compelling and below the likely valuation of the business in their next funding round. In return for organising resources, support, limited funding and networks the accelerator garners equity positions often with the option to invest further in a range of ventures. This is a virtuous circle, if the accelerator delivers on its promise.

Entrepreneurial heaven

A business that I am a director of recently participated in the Alexa accelerator run by Techstars in Seattle. If you have a business looking to innovate in the voice interface world then there really wasn’t a better place to be. Not only were you involved with other ambitious prime movers in a rapidly emerging sector every, but participant was adjacent Amazon and the Alexa team - it about as close to heaven as any entrepreneur gets.

This type of experience is unequalled but it more often the exception than the rule. As more accelerators emerge, it important to kick the tires you jump in and step on the gas.

The decision to participate in an accelerator is a considerable commitment of time, energy and future value on the part of a new venture. The quality of the accelerator experience is critical. Apart from an eject button, and sometimes an equity back guarantee, there isn’t too much a new venture can do to recover from an accelerator that didn’t deliver on the promise.

Players like Techstars and YCombinator excel in helping accelerate start-ups. Some corporate accelerators do a fine job at providing entrepreneurs with proximity and insight to the markets that they seek to serve. However, there is reason for caution.

Accelerators become decelerators

Excellence is distributed on a bell curve. An average or sub-par accelerator may result in the exact opposite of its intent. Corporate accelerators that do not connect to a wider and open innovation architecture will make the gradient of realising the venture potential very challenging. Start-ups challenged by cash burn and fundraising do not have the luxury of enrolling in institutionalised corporate behaviour of countless meetings and reviews. Sadly, some accelerator experiences fast become decelerators despite best intent.

As accelerators abound, it is time to really examine what they do and how they do - and expect that the middle of the road variety will suffer entropy. Over time they won’t find it easy to attract the quality of participants and nor will they enjoy much value creation from their equity positions.

Peer group interaction in an accelerator matters: you want to be playing alongside other entrepreneurial teams that inspire and impress you. Corporate accelerators that do not find a way to redesign their innovation architecture and process will lose appetite for first look consideration because it seldom bears fruit in their own business.

There are missing ingredients in the accelerator recipe. MIT attribute 40% of the success of a venture to the quality of the management team, yet many accelerators applications are preoccupied with the technology and the product idea. Design thinking is a common constituent of the accelerator curriculum but systems thinking isn’t.

This is a handicap, especially if you are trying to innovate in complex environments like healthcare. Accelerators are a vital and vibrant ingredient of the new economy but they aren’t all powering a virtuous circle. It’s time to take a closer look before you speed into the next bend.

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