2 years back I wrote that India has a premature incubation model. Things have changed now – Accelerators / Incubators is the new trend here. Simply too many and too much buzz around it, its all smoke without fire. I had a unfortunate encounter with one of organizers of an accelerator who claimed that its program is more beneficial for startups than YC or 500 Startups. That incident still makes me laugh, wrote about it last year.
This post are suggestions to Accelerators and is based on my personal interactions with many startup entrepreneurs, investors and enablers in ecosystem.
1. Stop looking for startups with traction.
Accelerators start by looking for startups with traction. Its puzzling, because startups with traction are looking for investors, not accelerators. Wouldn’t it be simply awesome if accelerators start saying – ‘Join us and we will ‘help’ you gain / build traction!’.
Unfortunately, since there are too many startups, the competition and market dynamics will not make this real. But seriously, can some accelerator stand up and say – ‘Join us and we will ‘help’ you gain / build traction!’. Entrepreneurs will have more faith & trust in you.
2. Be a little transparent.
Your metric for success is simple – success of the startups that have graduated from accelerator. Tell us that story, maybe you could learn a bit from TechStars that lists detailed performance of its portfolio companies.
No matter how flashy personal brand you manage to build for yourself, all that any entrepreneur really cares about is his / her own startup. So let startups that are applying to your program judge you ‘only’ by performance of your earlier startups.
And if your startup performance report is bad, here is some ‘free’ advice for you – pivot!
3. Prove your worth before asking too much.
With exception of few top accelerators, most startups end up applying at other accelerators after they have failed to raise investment from angels or failed to get through the top accelerators (yup, I am being practical – this is the reality!).
The top accelerators take between 5% to 8% stake in a startup for $20K to $50K. You be the judge how much equity should a startup give you, in my opinion it should definitely not be more than 5%. Don’t act too pricey, you will have to prove your worth before you ask for anything more. There are also bootcamps and acceleration programs that offer similar benefits for startups at no investments / no equity.
Also from perspective of founders, 8% to 15% dilution at accelerator (some startups go through 2 accelerators), 15% to 25% dilution at seed / angel-round, 20% dilution at Series A. By this time with a 10% ESOP pool, entrepreneurs are just left with their skin-in-the-game.
PS: And if you are adding clauses like permanent non-dilution; offering your (little) cash in tranches or after several ‘gentle reminders’ from founders – there is a special place reserved for you in hell.
4. Startups are not one night stands.
No matter how much accelerators would like to think they can change the fate of startups in matter of few weeks – they are wrong. Startups take years to grow, they are not overnight successes as many people perceive them to be and most of the growth comes once they face the real world (which is after the demo day). It takes time to find the product-market fit and it comes with multiple iterations on product.
Your so called focus on batch after batch, this sounds like one-night stand with startups. Founders have trusted you, please get into a long term relationships with the startups. Be there when they need you (and even when they don’t).
5. Your partnerships with Investors means nothing to startups.
Many accelerators ‘flaunt’ their partnerships with venture capital firms to startups and also occasionally drop names of influential angel investors. First time entrepreneurs are often misled by such talks and tend to think it as an assurance that they might be funded on graduation day / demo day or their chance of getting funded is higher through a accelerator.
Honestly – these partnerships mean nothing. Venture Capital firms are always on a lookout for their deal-flow; the word ‘deal flow’ explains almost everything in this industry. Any partnership that any VC has with any accelerator is only for the purpose of deal flow, they do not want to miss out on any hot startup but this partnership is definitely not a investment commitment (unless it is on lines of YC – $80K on convertible notes).
6. Be more transparent on utilization of time (and funds).
Not many accelerators (and also many entrepreneurs) realize that the biggest resource startups should be worried about is not money, its time. Time runs out fast, for everyone.
While there are programs and activities that directly add value in building product, any time that is gone outside of that (relocation, attending events, visiting places and so on) means staying away from building product which decelerates the start-up. Make founders aware of that well in advance – so that they can make their plans accordingly or alternate plans like one of the founder stays back and manages day-to-day tasks.
Same with funds, if there are any programs, costs (legal, travel, etc) that will require startups to pay the accelerators – please be transparent about them and mention that to founders well before they join the program.
7. Mentoring the Startups
The kind of startups entrepreneurs are building today did not even exist few years back. The skills startups required today are – design, data, distribution, product and technology. Unfortunately, we do not have great talent for these verticals in India.
So accelerators are getting investors to mentor startups, this is where the model starts falling apart. 99% of time the investor will be advising / mentoring the startup without using their product or experiencing its service! I don’t mean to offend anyone here, but the fact is – Investors should be investing, not mentoring! (unless they have skin in the game).
Take a break, read this post – Great Entrepreneurs will listen to you but will follow their own instincts.
Be valuable to the startups in your accelerator and get mentors who can really help them grow. Get Entrepreneurs or Senior Executives (who are entrepreneurial or proven achievers) and have skill sets that startup needs to mentor them. Alternative suggestion – get founders or executives from known Silicon Valley startups to mentor!
Mark Suster said few days back at PreMoney conference – ‘Networks of entrepreneurs helping each other are significantly better than board meetings for learning.’
8. Your over-extensive focus on demo day kills few of your startups.
If I were a part of any accelerator, I would have opted out of the demo day. Simply too much focus on demo day! Of the 12 week acceleration program, 3-4 weeks (effectively 33% of time) goes in its preparation, that is not all since you get in to meetings, introductions and so on, the chances are you will spend next 4 weeks on those follow-up meetings.
Mark Suster says it best – Demo days are showcase of who is best at on-stage presentations ~ coached and polished. They produce too much hype and too little value. Also in another post (more from a VC perspective), Mark explains the importance of proprietary deal flow for investors.
If you are observing this space – you would realize that even the startups graduating out of top accelerators are struggling to raise investments. Not all of them are getting funded or are able to close their investments quickly. Probable reason – too many startups? too much hype? could be anything else.
Elad Gill wrote a brilliant post on VC Signaling last year. I believe similar sort of signaling happens with startups in any accelerator too. In a batch of 20 – 40 startups, investors are bound to choose the best – the top 20%, or the best 4-6 startups that stand out on demo day, rest 80% startups will not find it easy to raise investment.
Worst is negative signaling effect, if any of the startups from that batch are unable to close investment in next 4-12 weeks post the demo day, it will be bit tough for them to close it going forward unless they get some significant traction.
So instead of flashy demo days, accelerators should focus on getting one-on-one interaction between startups and investors. Although it is apparent that from every batch there will be few standout startups., as an accelerator you need to give a fair and equal chance to every startup in your batch. For raising funds demo day works for few startups, but makes it difficult for many startups and unknowingly kills few.
Treat demo days as a demo day – show what product you have built! Not just to investors, but also to influential early adopters and potential partners.
9. Help startups with distribution. Not pitches.
Because of these demo day pitches, there is a certain glorification of startups – even before they are worth glorifying. Companies need to be glorified by their traction, revenue, customers etc not because of a nice punchline and a great deck. Demo days are setting a wrong precedent in the very first place. Pitching has its own importance but most founders today believe that’s the only thing to do.
I have said this multiple times – the easiest thing a startup can do is to build a product or pitch to investors. Toughest thing is – finding product market fit & distribution. Unfortunately, most accelerators are trying to help startups with easier tasks, not the critical ones. Startups don’t fail because of lack of money, they fail because of lack of product adoption.
If it is a consumer startup – accelerator should help it achieve its first 25K-50K users. If it is a enterprise startup – accelerators should make introductions to potential clients and help them get their first 25-50 paying customers. When a startup succeeds on this – they will not require to pitch any investor at all!
Most accelerators ask startups on what they are innovating on, while they are trying to replicate the success of YC. The intention of this post is not to criticize accelerators, but a feedback for them on how they can start being more valuable to their customers – the startups!
Credits: Thanks to Kulin Shah (Co-founder at Wishberg) & Avlesh Singh (Co-founder at WebEngage) for reading the draft and their suggestions on this post.
This post was originally published here.
About the author: Pravin is an entrepreneur and blogs infrequently about Product Management, Startups, Entrepreneurship & Digital Media Trends on beingpractical.com. He is the founder of social discovery platform – Wishberg. Follow Pravin on @beingpractical.