October 12, 2020
Startup accelerators are still a fresh concept to many. The history of the seed accelerator began in 2005 with Y Combinator, a Cambridge, Mass-native, that later relocated to Silicon Valley. Y Combinator started the accelerator wave, with TechStars following shortly behind in 2006. In Europe, the craze began in Denmark in 2009 with the accelerator program Accelerance. But what exactly did this craze do for young entrepreneurs?
Y Combinator broke down the barrier-to-entry of the startup community by making it global, educational, and accessible. By uniquely providing access to Venture Capital through these programs, the door of opportunity opened to young companies that needed funding to get their idea off the ground. With more accelerator programs popping up around the world, the startup dream became within reach to anyone outside of the Bay Area.
What else about these competitive programs do the world's aspiring tech leaders find so alluring? Most would agree it’s the promise of connections. Accelerators provide a community that is beneficial to new entrepreneurial teams. The peer support and feedback the programs provide is an important advantage, but is networking enough to drive value for the companies and products trying to get off the ground?
Most experts would agree it’s not. While it’s true that most startups fail, lack of networking is only one of many reasons. From not having the proper founding team to lack of market need to making a pivot too late, the list of startup success challenges goes on.
The peer support and feedback accelerators provide is an important advantage, but is networking enough to drive value for companies and products trying to get off the ground?
The tech world has grown substantially since the accelerator boom in 2005—and business models and strategies are changing. While accelerators are great for funding and access to mentorship, these time-sensitive engagements leave little room to validate the product or idea. The need for validation is urgent in the startup world. This allows for the accelerator’s cousin, the Startup Studio, a chance to thrive as it pushes the needle in ways the accelerator has failed to in the past. Why else is the accelerator trend on a decline? Here are 5 reasons to back up the claim.
Misalignment is one of the top reasons that startups fail. Accelerators are great at providing access to mentors, but that doesn’t mean the business model tactics you are told to apply will be the right ones. Often, the goal of the accelerator is different than those of the startups they are mentoring. Gearing up for Pitch Events is great, but what these companies need — and seldom leave with — is a proven and sustainable business model that will earn them revenue.
You don’t need to join an accelerator to understand that SaaS models with recurring revenue are a nice idea. However, that seems to be the majority of advice to come out of these programs. Business model innovation takes grit, creative problem solving, and tons of trial-and-error. The way accelerators are structured, each company goes through the same process, that while great for some, hinders on exploration and real-world experimentation of their idea and product for the long-term.
Not all accelerators are created equal, and if the accelerator that a company chooses doesn’t have a good track record of producing successful companies—beware. Gearing up for pitch events only provides value for the short-term; however, learning both hard and soft skills is what is critical for a pathway to long-term success. It’s not enough to attend leadership seminars or participate in pitch practices, but to obtain no well-rounded value. Do they provide legal support? Financial modeling? Help build a low-cost, low-risk MVP? If not, an accelerator might not be the wisest investment.
It’s common for top accelerators to require startup teams to relocate to the location of the accelerator. While there is value in in-person connection and access to resources, it’s not always the most sustainable solution. Relocation is expensive, time-consuming, and often impractical for those with families at home. It’s important for accelerators to be as flexible as they are helpful, especially in unpredictable times.
Pre-seed investment in exchange for equity sounds like a decent trade off—at first. However, about 7-10% of your startup equity will be in the hands of the accelerator, and if they aren’t helping to deliver clear, sustainable results, it’s not an investment worth making.
“The startup studio model is a natural progression of pushing investment, process, and networks upstream toward the inception of startups.”
—Global Startup Studio Network
Unlike startup accelerators, Startup Studios work with a diverse group of executives and entrepreneurs who have a seasoned history in leadership and building companies. They provide value to the entities that join them by providing the tools needed to validate, execute, and iterate on their business model in a way that is low-risk, but high-reward. Startup Studios produce far fewer companies than accelerator programs, which means the resources from the studios are less likely to be stretched thin, giving each company the proper attention, guidance, and assistance they need to be successful.
It takes a powerhouse to build a great company, and it’s not enough to have mentorship and a pre-seed investment. You need a team of experts, access to emerging technology, a clear roadmap, and a business model that has been challenged and tested—that’s where the Startup Studio comes in.
It’s an exciting time to be in the startup world—let’s build a better future together.
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