30 West 3rd

Very Early Stage Technology Investing

Accelerator Envy

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Twenty years ago there were no accelerators, no place where good ideas got hands-on attention from mentors and investors. That was not ideal, but I think we are going to sail past the optimal number of accelerators pretty soon. Accelerators are as good as their networks of mentors and investors, feeding in early deal flow and providing the in-school and post-graduate support that every start-up needs. We are fortunate to have worked with The Brandery since they got started two years back.  The founders had great networks, brought a novel theme that matched our region and their expertise, and took the time to study and join the Tech Stars network.  By focusing on consumer digital companies they were able to bring real value to applicants selected for the program.

They have built a Top 10 accelerator that serves a distinct national audience in their sweet spot.  Much like Y-combinator and TechStars, geography is not the dominant driver for participants, but rather the quality of the network.  A lot of new accelerators are on this path as well, like Rock Health in San Francisco.  Again, another great network and focus.  I think these accelerators in the end will produce the most value for selected companies.  Other accelerators that have a geographic focus – these are sprouting up all over – are serving an important role in their communities, but I don’t know how many we need before the system is extracting deal flow for the sake of filling accelerators.

Let’s run some simple numbers.  A few years ago there were a handful accelerators producing fewer than 50 graduates per year.  Now there is at least one per state on average.  In Ohio we will have 4 or 5 of these by 2013, so we’ve got Wyoming and Alaska covered.  That means Ohio alone will produce as many graduates in 2013 as the system did a few years ago.  Our experience working hands-on with graduates is that there is some abandonment, some funding activity and some companies that enter “not funded/not giving up” stage.  I’m pretty sure the system will produce more than 500 total graduates in 2013. What do we do with all of these graduates? While seed stage funding efficiencies are improving, the system is not geared to absorb that many new entrants. Some accelerators are now building a funding path for graduates that is more secure, but I think they should be careful not fund everyone at selection. Some of the ideas won’t survive the program and remain worthy.  Some teams will break up or punch out. Not everything that comes in the front door is fundable.  Regardless, the benefits of high value accelerators – scrutiny strengthens ideas like nothing else – for seed stage investors are clear.  We benefit from aggregated deal flow, a growing pool of mentors and co-investors to help condition and steward companies, and graduating companies that are much smarter and better connected from the experience.  There might be some that don’t make the journey, but the ones that do are in far better shape for the experience.

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Written by Mike Venerable

February 23, 2012 at 9:27 am

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