
Startup Accelerator Fail: Most Graduates Go Nowhere - tltjr
http://www.readwriteweb.com/start/2012/06/startup-accelerator-fail-most-graduates-go-nowhere.php
======
pg
Exits are a stupid test for what they're trying to measure here. By that
standard, Airbnb and Dropbox are failures.

Exits are a reasonable test for investments made, say, 10 years ago. But none
of the incubators are that old yet. So the right way to judge them is by the
valuations of the startups they've funded. Unless the venture business as a
whole loses money, that will be a lower bound on the eventual exit numbers.

Then you don't need to measure fuzzy stuff like "VC perceptions" either. Each
incubator has a single score: average valuation. The last time we calculated
ours (for the Forbes incubator rankings:
[http://www.forbes.com/sites/tomiogeron/2012/04/30/top-
tech-i...](http://www.forbes.com/sites/tomiogeron/2012/04/30/top-tech-
incubators-as-ranked-by-forbes-y-combinator-tops-with-7-billion-in-value/)) it
was $45.2m.

You could still screw up e.g. in the case where a company hasn't raised money
for a long time and whose last post-money valuation is 1/10 of what they could
raise at now. But you won't screw up as badly as if you just measure
acquisitions.

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snambi
If the startup is profitable and self sustain itself, does it count as success
or failure?

~~~
pg
To the algorithm they use in this study, it counts as a failure unless the
company is public, which is my point here.

To investors, whether an investment is a success or a failure is indeterminate
till the company either goes out of business or returns the capital invested.

~~~
snambi
when the company is profitable and has valuation, the investors can sell their
shares. If the investor makes a profit by selling their shares, will it count
still count as failure? It is possible that the investor can lose money, even
if the company goes public, right?

~~~
pg
I don't understand what you're asking. Can you try again?

~~~
snambi
Lets say an investor puts 3M for 30% of the company. 1-2 years later, X is
profitable and valued at 30M. Now, if the investor sells their 30%, they will
make 9M. That is 6M in profits.

Is this considered as success? It is not an IPO or big acquisition. But, the
investor can make money by selling their shares.

Is this something the investors consider doing?

~~~
arockwell
In practice it is very difficult to sell shares of a private company.

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yesimahuman
I think their metrics of success are silly (zero discussion of revenue, only
caring about VC perception, etc.), but the other conclusions don't surprise
me.

What I've noticed from copy-cat incubators and accelerators is that they
incorrectly observe what YC is and apply something very different. Many of
these programs are more like a class, with structured lessons and methods to
success. Attendance might as well be required. YC is more like college: you
get out of it what you put in to it. "office hours" are named that way for a
reason.

Independence is a strong part of being an entrepreneur. Of course
inexperienced entrepreneurs need help, but having no experience at all is an
indicator of probable failure. I can only imagine this is amplified when the
mentors and investors lack real startup experience.

It also needs to be said that the fallout from failed incubators in smaller
cities can be negative. I've heard stories of damaged relationships, investors
picking "favorites" and turning groups against each other. Unfortunate stuff.

~~~
specialist
> ...incorrectly observe what YC is and apply something very different.

Heh.

I once captured an employer's engineering methodology (from memory) thusly:

\- misunderstand the problem

\- exclude domain experts and stakeholders from decision making

\- make decisions

\- don't tell anyone

\- (post mortem) identify nonparticipants to scape goat

\- repeat

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pbharrin
Is it me or was this guy writing to support his investments? He said only
three incubators are worth joining: two that he has a vested interest in, and,
and, and that other famous one.

~~~
chrischen
Yea smells fishy. I've never even heard of that third one excelerate. Sounds
like he's casually trying to bring his two investment accelerators on par with
YC by mentioning them in the same sentence, but without any direct
comparisons.

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DanielRibeiro
Not really a secret[1]:

 _Peter Thiel: Do Y-Combinator companies follow a power law distribution?

Paul Graham: Yes. They’re very power law_

[1] [http://blakemasters.tumblr.com/post/21869934240/peter-
thiels...](http://blakemasters.tumblr.com/post/21869934240/peter-thiels-
cs183-startup-class-7-notes-essay)

~~~
pramanat
Perhaps a corollary could be that incubators also follow a power law
distribution?

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jroseattle
Not sure if others share the same view, but I view many startup accelerators
as startups themselves -- heck, nearly the entire industry is a startup. We
should _assume_ that startup accelerators themselves can fail.

The Y-Combinators and TechStars are the Tier-1 players in this space, but
that's only getting their members to reach funding -- certainly nothing about
exits.

Evaluating accelerators should be akin to evaluating venture capital firms --
return on investment. Last I checked, I think VC firms were down over the past
ten years, yet I don't see anyone calling them failures.

~~~
startupfounder
"I view many startup accelerators as startups themselves"

That is why they started the <http://incubatorincubator.com/> Incubate your
incubator...

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ilamont
Report author:

 _"It takes years for companies to get traction and get an exit."_

 _"There were not enough exits to evaluate"_

Yet RWW concludes "startup accelerator fail" and "a lot of accelerators are
just spinning their wheels."

Here's another hypothesis: The lack of exits reflects the fact that most
accelerators are themselves only a few years old, and it takes a longer period
of time to build a successful venture and achieve an exit.

~~~
mikescar
And the author was somehow able to conclude that YC and the two accelerators
his firm invests in are all at the top.

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debacle
Isn't that kind of the idea? It's a high-risk investment and most startups
aren't going to go anywhere.

~~~
maxko87
Sure, but if _none_ of these second tier accelerators are producing _any_
successes, let alone any A rounds, it makes sense to question whether there's
really any reward in participating in one at all.

~~~
jusben1369
Agree with maxko. Basically he outlines the 3 major benefits of joining an
accelerator program. He then questions whether many of the accelerators can
deliver all or any of those 3 stated benefits with a relatively depressing
outcome.

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tlogan
The quality of these incubators is going down but it is still not so low that
I can be accepted (I'm half joking).

Anyway, the key for successful incubator is that they have strong team - with
experience, knowledge, and connections.

What I noticed that majority of these second-tier incubators have only
connections (ex-Googler, ex-Facebook, ex-bubble-company) but they do lack
other two.

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damoncali
Most VC's perform miserably, financially speaking, with the profits piling up
at the very top firms. Why, then, would it be surprising to see that most
accelerators fail to produce notable results? It's basically the same
business, and the same things contribute to success.

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soundlab
I have such a hard time with these studies that view everything through the
lens of venture capital. What a horrible metric for sustainable business
creation.

How many accelerator companies are breakeven, steadily growing businesses?
Isn't there something to be said for stable ground? Cash positive, lateral
expansion into markets and positions leveraged on traditional debt sources?

The richest guys I know started out 30 years ago and built on strong
fundamentals, not on "demo day funding requests" and "exits".

Too many young entrepreneurs are clouding their judgement by aligning their
decisions with those of VCs and articles like this.

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danielrhodes
Given the exponential returns possible from just one big exit, the bar for
success is not that most companies do well but just a couple. It would seem
odd then that the accelerator would invest in the others, but since there is
relatively little information available at the time of funding, it becomes a
numbers game. Given that the instincts of the accelerator are good, there is
no reason not to invest in as many companies as possible to catch a few stars
in the net. To the outside world however, it looks like a bunch of failures.

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robryan
This is a tough one, some of the second string accelerators could be failing
because of the applications they are getting.

It becomes and chicken and egg problem, to get good mentors and attract
investors they need to get good founders involved. To attract the good
founders to an extent you are going to need good mentors and access to a
strong investor network that the founders benefit from accessing in
conjunction with the accelerator. Or alternatively a far better equity deal.

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taylorbuley
Interesting to see a number around the rate of accelerator graduates that go
on to raise venture funding (45%) but what would be more interesting is to
compare this number to number of new companies overall that go on to raise
venture capital.

I would imagine this number to be substantially lower than 45%, which would
seem to turn 45% into an argument for accelerators and not against them.

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colinplamondon
There's only two great accelerators- YC and Techstars. The falloff after that
is ENORMOUS, even just going to #3, #4, and #5.

If you go out of the top 5 accelerators, you're dealing with everyone who
wasn't good enough to get into a respected accelerator. Doing an accelerator
that isn't in the top 5 is a mark of incompetence- it filter for the desperate
who couldn't

a) Get into YC/TechStars

or

b) Build the business on their own

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eande
using the exits as one criteria to judge the overall startup accelerator
program and labeling it as a failing attempt is premature.

Even in the article Gilani says "takes years for companies to get traction and
get an exit".

I think the success of these programs will depend on who the accelerator
program is, type, region and other factors, but for sure it is too early to
draw conclusions.

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delinquentme
Something about "throwing spaghetti against the wall" where its not ideas but
instead engineers.

I mean its not the accelerator doing the hard work.

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jonmwords
RWW has just posted a stark counterpoint to this article from another guest
contributor. [http://www.readwriteweb.com/start/2012/06/is-there-a-
better-...](http://www.readwriteweb.com/start/2012/06/is-there-a-better-way-
to-evaluate-startup-accelerators.php)

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gersh
Are incubators the new investment banks? How will this play out when
crowdfunding becomes legal?

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michaelpinto
a seasoned pro once told me that the natural fate of startups was failure --
the idea being is that if you can fail quickly you can go on to the next thing
and apply your wisdom. and not for nothing the guy who said this was paul
graham...

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kingkawn
If they get there faster then the acceleration is a success.

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nerd_in_rage
Most companies go nowhere.

How is this surprising?

