

Waiting for the Accelerator Bubble to Pop - elaineo
http://www.businessweek.com/articles/2013-03-14/waiting-for-the-accelerator-bubble-to-pop#r=hpf-s

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pg
"There are already signs of paring back. In December, Y Combinator’s Graham
wrote about his accelerator’s decision to reduce its class size, from 84
companies in the summer 2012 class to less than 50 in the current session."

This was nothing to do with any overall trend. It was just because YC's then
structure couldn't deal with so many startups.

The other thing this guy doesn't seem to grasp is that we didn't decrease the
size of something homogenous. This is not like a restaurant cutting back from
84 tables to 46. Essentially we picked the best 46 out of 84. And in any group
of 84 startups, the top 46 will have 100% of the success.

There are so many of these things now that I wouldn't be surprised if a lot of
them die off. But if that happened I don't think it would affect us.

~~~
kruipen
This is a pretty bold assumption that the 46 you selected where the top 46.

~~~
pg
We were already claiming we could pick the top 84 out of ~3000. It's not that
much harder to narrow it down to 46.

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ig1
The research behind this article is pretty flakey. Measuring accelerator
success by exits only works when you do cohort analysis, not when you compare
companies created 6-7 years ago (YC and TechStars) against companies created
in the last couple of years (the others accelerators).

YC's scaling back of class sizes wasn't anything to do with the quality of the
cohort dropping, but rather due to YC's ability to handle a cohort of that
size.

First-time startup founders tend to make the same mistakes as each other, and
that's one area in which it's easy for accelerators to add value (some do and
some don't).

Clearly some accelerators are better than others, and some will undoubtedly
fail, but this article doesn't really provide any compelling argument for it.

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elaineo
Why do they call this a bubble? Almost all startups fail, and this has been
true since the beginning of time. If there's suddenly a glut of seed investors
willing to give startups a shot at survival, we're only increasing the chances
of unearthing another dropbox.

<http://www.paulgraham.com/swan.html>

~~~
pedalpete
This isn't about the start-ups in the incubators being a bubble, but rather
the incubators themselves. There are too many incubators supporting too many
companies, and if incubators don't have exists, which many won't, they aren't
making money and therefore will fold. It's a flawed business model for all but
the top few.

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codesuela
I think incubators (except for truly valuable ones) are doomed because have
these options:

a) raise seed money from an angel

b) develop a mvp, show some traction and raise money from VCs

c) bootstrap a profitable product

or d) go to an accelerator

from my expirience almost all accelerators have will present you with a bad
deal (say 10-20k and office space) and claim to provide you with more value by
helping you out with their expertise in other areas. In exchange they want a
20-30% equity cut. BUT the value add through their network (for most
accelerators) will be negligible that's why it is a bad deal. Every other
option is better:

a) Angel -> can be a vocal defender and loyal partner or early adopter of your
product

b) VC -> You get money at a fair valuation

c) Bootstrap -> Keep all the equity and stay hungry

So for what it's worth I think reducing the number of accelerators would not
be a bad thing for the startup eco system.

~~~
barry-cotter
Really? _The_ first accelerator, the most prestigious, exclusive and selective
asks for 6-10% and there are others asking for 30%? No wonder Thiel said
getting into another accelerator was a negative signal.

~~~
codesuela
I was thinking of HackFWD though to be fair after a quick Google check they
offer you about 70k for a one person, 110k for 2 people, 160k for 3 people in
exchange for 30% equity. [1]
[https://hackfwd.s3.amazonaws.com/system/documents/4bd586/e2e...](https://hackfwd.s3.amazonaws.com/system/documents/4bd586/e2e8b66c7c32000034/hackfwd_offering_overview_download_v1.1__3_.pdf)
[2] <http://hackfwd.com/>

~~~
niggler
You should also do the quick calculation:

YC originally gave something like 10K for roughly 6%, giving a rough valuation
in the 180K range. HackFWD is giving, for two people, 110K for 30% which
implies a value of roughly 370K. On the numbers alone the deal isn't as bad as
it sounds.

~~~
codesuela
true, but my point is that YC will add WAY more value then the 190K diff.

~~~
niggler
Do you have numbers / proof of that claim?

~~~
rdl
The only first-hand data I have is seeing the valuations YC companies raise on
their notes, vs. what I consider to be fairly comparable teams (if not
companies) from 500 Startups and no incubator. The YC companies are maybe 2x
500 Startups, and 3-4x people from outside the Bay Area. Given that a lot of
YC teams weren't bay area insiders when they joined YC, it's a no-brainer.
(and I'd consider 500 Startups worthwhile in general as well; I just think YC
is better)

I think a top FB/Google tech lead who knows investors who leaves to go do a
related startup probably doesn't see as much of a bump in valuation from YC as
someone who just dropped out of U of Michigan and is living in Ann Arbor, but
there are plenty of other reasons why giving up 2-10% to YC is more than
worthwhile.

~~~
niggler
"I think a top FB/Google tech lead who knows investors who leaves to go do a
related startup "

I suspect there's a strong selection bias in YC and other incubators (take
dropbox, for which Drew is an MIT grad), which probably makes my request for
numbers somewhat foolhardy.

~~~
rdl
I believe the YC application process is an effective filter, but I don't think
it particularly needs to be -- I'd be willing to bet that the marginal admit
and marginal reject are close enough in quality that YC and its benefits are a
major difference in outcome. (It might be a harder problem than elite college
admissions, since while you can pretty readily identify top credentials and
signs of failure, successful startups are more frequently hidden behind
cosmetic flaws (or personal biases) than successful students are hidden in
with C/D students with a bad GPA.)

YC has gotten pretty big now relative to a certain part of the startup
ecosystem, but look back in 2005-2008 for when YC was smaller, and the success
rate of YC companies vs. non-YC companies of that time. It seems pretty good,
which warrants the valuations.

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pixcell
Then you also have companies like Scion using the incubator concept as a
marketing campaign where they do provide a small amount of seed funding, and
mentoring to young entreprenuers, but dont take any equity in return. So
instead of selecting the business most likely to gain a return on their
investment, they select companies that best represent their brand and the
image they are trying to create.

~~~
stevewilhelm
Nike+ Accelerator program, "powered by TechStars," is another example
<http://nikeaccelerator.com/>

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shaneeb
I don't have any counter-evidence to show if the incubator trend is a bubble
or not so I am not going to argue along those lines.

I have a very different perspective to offer. I live in Pakistan where there
is an energy crisis so serious we don't have electric power half the day. It
is in these challenging conditions that we are trying to establish ourselves
as a tech startup. Perhaps this is not such an issue in SV but incubators can
play a very crucial role in places where the conditions are not so ideal .

For example the incubator we have here, apart from providing seed money and
mentoring, provides 24/7 power supply, connects us with businesses abroad
(huge benefit, because no one wants to do business with a Pakistani startup,
right?), is _trying_ to get some foreign investors on board, etc. In effect,
an ecosystem is being built and I dont see how it could have been possible
without an incubator at its center.

Perhaps in SV these things dont even matter but they can be the difference
between survival and failure in lesser developed ecosystems.

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rdl
I'd never heard of "Unreasonable at Sea" -- this seems like a really
interesting concept.

Another thing I've been thinking about is renting some houses in Hawaii,
Thailand, etc., where teams could work for ~3-4 weeks on a new project
(1983-Apple-Mac-team style), and then bring their friends/families for a week
or so at the end.

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juskrey
Failure is not the reason of blow up. Fragility is. That is pretty simple for
those who are familiar:

Mathematical Definition, Mapping, and Detection of (Anti)Fragility Nassim N.
Taleb, Raphael Douady

<http://arxiv.org/pdf/1208.1189v1.pdf>

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blindblom
Unrelated note... On first load of the page in Chrome, could not scroll.
Reloaded. Several times. Scrolling finally works. Decided tl;dr as the story
is of little interest to me. Back button redirects back through a huge array
of page elements that you have to go through before returning to the actual
previous page. How did this garbage make it out of testing? I'll be avoiding
bloomberg news links in the future.

