
Dear awesome startups, don’t join an accelerator, unless… - yesplorer
http://pandodaily.com/2013/02/16/dear-awesome-startups-dont-join-an-accelerator-unless-y-combinator/
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ig1
Of the twelve startups founded since 2007 that have reached a billion dollar
valuation, two of them were funded by YC and another of them was founded by a
YC alumni. It's crazy to say that's a bad outcome.

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.

~~~
vidar
Can you list these 12 companies? (Which one was founded by a YC alumni?)

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ig1
Instagram, Pinterest, Square, Dropbox, Evernote, Yammer, Groupon, AirBnB,
Gilt, LivingSocial, Nicira and Zynga

(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).

~~~
mchusma
I noticed that we were missing some b2b companies, Yammer being one. Not sure
how many more there are.

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edanm
Is it true that Dropbox/AirBNB make up most of YC's (monetary) value? I know
they're the big ones, but it still sounds fishy. What about Reddit, for
example? Heroku? The company that built Draw Something? (I forget their name).

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).

~~~
ig1
1) Yes. It's true of angel investments generally too, the top companies form a
disproportionately large percentage of the value.

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.

~~~
edanm
Yes, it turns out the article is correct (see also frankdenbow's helpful
comment below).

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"?

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jacquesm
What is telling to me is that nobody, not PG or anybody else could have
predicted which of the 400 ended up to be billion dollar companies. But for
those two that made it to that magical marker being in YC made all the
difference.

> 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.

~~~
paulgb
The nature of power-law distributions is that there will be a few exceptional
outliers. If you set your definition of what a "big winner" is on those
outliers, of course you will only have a few.

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beagle3
The article mentions that most of YC's value is in just two companies
(Dropbox, AirBNB) out of some 400 funded. That would be awful performance for
a traditional VC, but the amount of time and money put in by YC into each of
those 400 companies is between 1/100 and 1/1000 of how much a traditional VC
would put into a deal.

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.

~~~
jacquesm
Apples (VCs) to oranges (seed investors / incubators).

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.

~~~
beagle3
Incubators and VCs may be oranges and apples, but YC started a new kind of
incubation system, to which the name "accelerator" (which is in common use) is
more fitting than "incubator".

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.

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tferris
"Accelerators need the good companies more than the good companies need the
accelerators."

~~~
netrus
I remember a talk by Joi Ito, where he reasoned all his pro bono activities in
a similar way: You want to be in the room when the next Google takes the stage
- because they will chose their investors, not the other way round.

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swampthing
I don't think anyone who hasn't started a company is qualified to write an
article like this.

 _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).

~~~
johnrob
The OP's point is that the major benefits of accelerators don't always align
with the needs of a given company. It's probably a fair point - Demo Day
happens on Demo Day, not on the one day that happens to be ideal for all the
companies.

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cwharland
"So don’t join an accelerator unless you can win it." So we're basically in a
situation in which self-selection rules now. In the future, if you made it
through an accelerator and "won" it you were already in a position to do so.
That means that the benefit of actually winning the round from the accelerator
was minimal since you most likely would have succeeded anyway.

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.

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julianpye
I think the biggest problem is not so much the equity that you can lose, but
also the time startups lose, especially in many of the newly created
accelerators. I have seen founders being obligated to attend 9-5 in poorly
designed co-working office-spaces when their own arrangements are much more
efficient, having to pitch daily to people that have no impact on your success
and having to attend day-long workshops on subjects they already master or are
irrelevant to their challenges. In that way I have seen startups join
accelerators and wasting a lot of time boosting the accelerators themselves
(especially if they are corporate-driven) but decelerating themselves. When it
comes to Demoday, there suddenly are few investors and even fewer press. The
key thing that new accelerators don't realize is that YC did this for many,
many years until their current status quo. Many accelerators think that just
by calling a demo-day and showing ten startups that they pumped a total of
$500K in, they will be the next YC. If they don't have the track-record yet,
they better have 200K of followup cash ready for each startup to show that
they really mean it and that their curation process resulted in a meaningful
selection.

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robomartin
I'll call hogwash. This article, I think, is missing the point by a thousand
miles.

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.

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healthenclave
This is a insightful and interesting article but for a lot of folks I think
accelerators are Extremely helpful.

(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.

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bsenftner
There is a fundamental disconnect with the concept of an Accelerator and the
concept of a Disruptive Startup. If you do the math, honestly, they are a
really crappy deal for the Startup. The "acceleration" they provide is little
more than standard information, standard anecdote experiences, and standard
MBA advice. If what they offered actually had they value they claim, they
would be creating a startup themselves. Accelerators are parasites on your
ambition and capability. Trust yourself, trust your team, and be adult enough
to not sign up for a nanny program that is just going to treat you like
children and take a portion of your equity for it.

~~~
JimWillTri
It the beginning, yc had much more interaction with their startups and it's
clear that they wanted the startup to survive at any cost. Once the model grew
larger there were just too many startups to mentor. Then, pg wanted them to
fail as quickly as they could if they could not make something of their
company quickly. That way yc would only have to mentor what he considered the
strong companies.

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jrogers65
healthenclave: your comments are dead, looks like you've been hellbanned.
Can't quite tell why since you literally only have that one comment.

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healthenclave
I have no idea :( and it's my 1st comment

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jrockway
This is the ultimate linkbait title: "Sentence that is completed only if you
...".

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phogster
I actually read the entire article and still not sure how to finish that
sentence. Her main conclusion is "hustle", which has nothing to do with
joining an accelerator.

~~~
vicbrooker
I thought it was "don't join an accelerator unless... you can be the best
company there" which is also a bit silly in my opinion (I think she said "win
it" at one stage).

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andyakb
it sounds like this is an interesting article, but on my android this website
was barely usable. the feed on the right took up more space than the actual
article and the header was huge. maybe it renders better on other phones, but
for a site of the size of pando, they really should address a broader base for
usability

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gcatalfamo
this was a great read.

