This is a high-level, sanitized version of a plan I wrote for a company that wanted to start an accelerator. It’s partially from a corporate and hardware perspective. Parts have been redacted. I hope that it helps you in your own accelerator development. I’ve started and operated three startup accelerators so this is based on my perspective.

1. Proposed Plan – Starting Point

I wrote this based on my experience operating three very different startup accelerators on three continents and from assisting other programs. This is not a research paper. It’s my starting point for [company’s] situation based on what I have learned from our meeting.

Given the above and our meetings, a high-level draft plan from idea stage to operations is presented below. I have taken the approach of filling in some of the document based on my experience and current knowledge of [company’s] goals. This is the start of the discussion, research, and program building.

1.1      Establish Goals and Program Vision

1.1.1      Discussions with involved stakeholders on program options. Formulate goals for program.

1.1.2      Decide on program type relevant for [company]. While other accelerator models include the General, Hardware, Industry-specific, Toolkit-focused, Studio, Corporate, Challenge-based, University, and other types of programs, [company] is doing something different. Have clear program goals in order to construct the program.

1.1.3      Determine how to attract companies and founders in related industries: semiconductors; big data and AI; next-gen displays, AR/VR; energy; digital manufacturing; life sciences, other materials engineering.

1.1.4      Set program lifespan. Assign budget to keep program operational for a minimum number of years (accelerator strength comes partly from program continuity).

1.1.5      Set company investments. What type of financial investment will be made in portfolio companies? Again, there are many options including notes/SAFEs, direct equity investment, equity without investment, future option to invest. What is the best fit for [company]?

1.1.6      Set funding. How is the program funded? Is there a reserve for potential follow-on funding?

1.1.7      Describe and start supporting research. Gather input from partners participating in the program. Perform market research on other comparable examples. Interview customer partners and industry groups.

1.1.8      Determine KPIs. There are no industry-wide accepted KPIs for corporate or other accelerators. In each case corporate accelerators should generate their own KPIs based on what is important to them individually.

KPIs should be developed through an internal process. Relevant KPIs might include financial metrics around market size, potential to help company exit, exit multiples, and more.

1.2      Multiple Founder Models

Founders attracted to a deep tech-focused program can be different than those in a general startup accelerator. Strong candidates in [company’s] program may not want to run their own company (they may be strong researchers but weak entrepreneurs) and they may not know that their capabilities are related to the semiconductor industry. Therefore, accept multiple founder types and work with them differently.

1.2.1      Entrepreneurial founders. Treat these founders as you would other early-stage founders.

1.2.2      Research founders. Few accelerators are successful with research-centric applicants. Related to that, many universities, for example, find it difficult to commercialize technology from their funded labs because excellent researchers are not always excellent entrepreneurs. [company’s] accelerator can benefit by welcoming in research founders differently.

1.2.3      Adjacent founders. As above, pursue those not directly in industry (or who do not think of themselves in industry,

[company] can bring in management teams (internal or external) to handle the business side for research founders. A model for adding management talent is seen in studio accelerators today.

Alternatively, some founders may want to join [company] directly. This is an option to consider where the research itself is of greater value within [company] than outside.

1.3      Avoid likely failure points

Part of improving success is removing likely points of failure. I’ve noticed commonalities in what founders are bad at doing or should not be doing. These failure points are also relatively easy to avoid if identified up front. Remove these likely failure points by doing them for the founders or mandating that they have a solution.

• Founder agreements (just enforcing that one item reduced my programs’ failure rates by 20%).
• Employee agreements.
• Proper corporate entity formation.
• Grant writing support.
• Recruiting support.
• Professional website, logo, and other materials.
• Help with finance and accounting, messaging, operations.
• Professional online presence. Professional bios and photos, etc.

1.4      Staff and Support

Typical accelerator staff and support includes the below list. Managing the staff and support is often challenging. (Experienced people don’t always add value in an accelerator environment.)

• Program director (runs programs, startup advisor, holds office hours, connects teams to investors and talent, builds program awareness).
• Operations (manages mentor schedules, investor visits, workspace, housing/travel, events).
• In-house developers and designers (to aid cohort companies as needed).
• Legal services, patent services.
• Providing access to senior decision-makers / corporate connections.
• Managing training and access to equipment.
• Recruiting and management development.
• Marketing (builds program awareness, helps companies with their marketing).
• Mentor list (can number from the tens to the hundreds, across various backgrounds). Many mentors engage on a voluntary basis. Few are paid or offered equity.
• Support for visa applications, business bank account setup, incorporation, accommodation, post-program support.

1.5      Access to Equipment

Data to be collected and perspective set.

1.6      Curriculum

Data to be collected and perspective set.

1.7      Mentors / Advisors

I’ve polled many accelerators on the way they use mentors and advisors in their programs. There are two main schools of thought. Determine [company’s] style as part of discovery process.

Opt-in: All mentor meetings are optional. These accelerators want their startup founders to do what they believe is best (including on whether to meet mentors or not) rather than follow orders.

Mandatory: Mentor meetings are mandatory and frequent. In extreme cases, accelerators set up founders with 100 to 200 mandatory mentor meetings in the first month of program involvement. The purpose being to break down founder preconceptions, intentionally let them hear hundreds of opposing views, get connected to potential advisors, customers, and investors.

1.8      Investors

The investment community should see the accelerator as a source of strong deal flow. Investors should be happy to be invited to meet companies, attend demos, and more. Set expected behavior for the way invited investors treat portfolio founders. Develop relevant investor list.

1.9      Demo Day

A good demo day ends with most of the cohort on their way to receiving funding. This means that apart from packing the demo day event with the right attendees, the accelerator has introduced relevant investors to chosen startups, the accelerator sets guidelines for investors and founders, and the accelerator guides the startups through the entire process.

Not every program benefits from a demo day. Determine if [company’s] program would benefit from a demo day or another format.

1.10   Community Building

Encourage networking via periodic events for current and former portfolio companies. I’ve found that something as simple as that online community increases success and keeps founders involved long term.

1.11   Budget Allocation

Data to be collected and perspective set.

1.12   Plan Implementation

For a more complex program, as this one is, a longer multipart rollout makes sense.

1.12.1   Setup: Gain Awareness

Generate upcoming program awareness through company network, news articles, industry publications, outreach to universities, individuals via online profiles and published research, ads, application platforms.

1.12.2   Phase I: Pre-Accelerator launch

To establish the new program and provide time to build it, first host a series of related events, possibly arranged around company themes of advanced display, advanced manufacturing, advanced materials, AI and big data, energy technologies, life sciences, semiconductor technology, etc. For example:

• Conferences where targeted talent attends seminars and meets [company] representatives and others.
• Produce a video series where company researchers talk about their work. Show the facility.
• Build a contact list of relevant university departments, startups, and industry groups internationally. In the past, I kickstarted new programs via direct outreach.

1.12.3   Phase II: First accelerator cohorts

Team selection. Look for coachability, commitment, capabilities, impact on community.

1.12.4   Phase III: Long-run accelerator

Data to be collected and perspective set.

The following is a response to questions from [company] and a plan for exploring and building a semiconductor industry accelerator program. I wrote this following our February 12, 2019 CTO office meeting and my group presentation.

2. [Company’s] questions

2.1      What are the key metrics used by other corporate accelerators?

Key metrics vary wildly in accelerators of any type. When used, key metrics tend to be different based on timing:

Early metrics: awareness, applicant volume, applicant quality, acceptance rate.

Mid-stage metrics: investment size / percent of portfolio raising capital during or shortly after program, founder referrals, percent of cohort selling into the sponsoring corporation, percent of cohort acquired by the sponsoring corporation, grants issued, and above list.

Later-stage metrics: portfolio valuation, company survival rates, investor feedback, company revenue, exits, ROI, and above list.

It is important to remember that program metrics will not be purely quantitative. In the beginning (first couple years or portfolio under 25 companies) performance is often erratic.

2.2      How can we be sure to monitor the progress and performance of the accelerator?

It’s common to set goals for each company during their program involvement. “Standard” non R&D software-centric accelerators often set growth related goals, for example on weekly customer growth. This is an example of business metrics and does not fit with engineering metrics. We should develop a unique set of metrics.

2.3      What are the legal implications to [company] around liabilities and IP?

In past programs I’ve operated we have issued a program agreement to the companies we invest in, noting what investment, terms, and services are provided, as well as the accelerator’s limitation of liability, indemnification, right to terminate the relationship, etc.

Legal implications depend on the structure of the program. Other general options include:

• Joint Development Agreements.
• [Company] forms a separate entity to invest in the startups and hold equity. Startup founders continue to own their IP. [Company] does not operate the portfolio companies.
• If startups are responding to a challenge, they may be rewarded financially for their IP (challenge prize, acquisition, licensing, etc).
• Legal agreement and training requirements before founders and team employees can access equipment, software, and other resources.
• [Company] may desire for certain research to be submitted to academic journals, or to protect IP through patenting. Portfolio companies typically continue to own their own IP.

2.4      What sort of peripheral support do corporate accelerators require (legal, HR, finance, etc)?

The following roles will be helpful in any program. Also see section 1.4.

• Legal. IP review, patent protection, patent expansion.
• HR. Both for managing personnel issues, talent acquisition for incubated teams.
• Finance. This is typically a weak point for many early-stage tech teams.
• Marketing. New programs require months of lead time to generate awareness and source potential applicants. This can be achieved through targeted press, direct outreach to known startups, universities, relevant PhD programs, and via ads.
• Application review. Review applications, interview team members, form balanced cohorts.
• Business development.
• Next round funding preparation.
• Program management.

2.5      How much does it cost to run an accelerator?

To answer this question we first need to determine goals and the type of program. The following are the major costs to run an accelerator.

• Startup funding, if included. Current benchmark for software and hardware accelerators is approximately $100,000 per company. [Company] may consider a different model, for example, with higher funding over long term involvement, or where funding remains below benchmark but where much of the value-add is in equipment and expert availability.
• Equipment and production costs such as tape out, shuttle service, EDA tools.
• Staff costs. Salary and equity for some participants.
• [Company] team costs.
• Cost of outside consultants. Wide range. I’ve seen outside companies charge in the millions to run a corporate program.
• Promotional costs.
• Workspace, events, travel, and housing. Some programs claw back some of their investment in the form of workspace rent. Events include cohort and mentor dinners, demo days, and investor roadshows. Some programs pay for team travel to and from the program. Same for housing. Variation depending on whether accelerator teams relocate or work remotely.

2.6      What is the best structure to take if the goal for the accelerator is to be a strong magnet for the most innovative and promising startups?

You won’t get there in one step. New programs have similar problems:

• Awareness. New programs must deal with the lack of awareness, proving their benefit to portfolio companies.
• There are many startup accelerators today, so what distinguishes this program from the others? Why should a startup choose this program over another? Why choose this program over working independently?
• Programs tend to get better over time. Programs become known, generate referrals from portfolio founders and others, demonstrate their worth as companies raise money and are acquired
• Building a successful accelerator does not happen in one step. I recommend a multi-stage rollout in this case, see section 1.12.

2.7      How long will it take to develop a plan?

The start of the plan is above in Section 1. I estimate that a fully researched plan could be developed in a couple months. Following the plan, [company] could commence kickoff activities and the multi-part program rollout. The actual timeline can be accommodated based on [company’s] needs.

In the past for smaller software-only programs, I have gone from program approval to opening the doors of the first cohort in as little as three months. That short timeline likely does not work in [company’s] situation.

3. Why Corporate Accelerators Fail

The list of top reasons for corporate accelerator failure, in rough order of commonality:

• The program was not provided enough time to succeed because of misaligned time scales (corporate needs to show results faster than the startups).
• Misaligned risks and rewards. Are multiple failures tolerated? Do incentives for success fit corporate needs?
• Inadequate program and staff resources and capabilities.
• Located where it is difficult to attract talent.
• Lack of internal support for program and startup investments.
• Lack of internal champions to help startups integrate and sell into corporate sponsor.
• The program ends up attracting startups that could not find other options (if corporate accelerator viewed as investor of last resort).
• Using expensive name-brand operators without keeping knowledge in-house.
• Investments viewed as competitors to internal projects.
• Less connected to sources of follow-on funding options for portfolio companies.
• Lack of long-term portfolio company support (program support ends at demo day or cohort graduation).
• Did not build a community between portfolio companies.
• Operating in a winner-take-all market where top talent goes to more established programs.
• Short-term budgeting / misaligned business model (program budget runs out, unable to maintain the program long enough to generate returns).
• Skewed metrics.

I’m running an experimental workshop on applying entrepreneurial startup principles in a corporate environment.

Over the past 6 years I’ve led 3 startup accelerators around the world, advised hundreds of companies, and helped them test new products, improve customer retention, raise capital, and more. For the last 4 years I’ve also been a professor at a major university with a top entrepreneurship program (USC).

In a couple months I’ll run an experiment. I’ll choose a small group of people to test how my work with company founders applies in enterprises. The location will be in Los Angeles. I’ll also include valuable materials for attendees before, during, and after the workshop. This workshop will be held in summer 2018 and will be offered without cost this first time.

However, I am looking for a specific profile of attendee. The target is corporate leaders who include one or more of the following: work at mid-size to larger corporations, manage a team, have P&L responsibility, analyze data, and work on new products. This could include people in Product Development, Marketing, Business Development, Engineering, Design, and more. You can apply here.

If this isn’t for you but might be for someone you know, please share with them. Thanks!

Video of a recent talk I gave on how building multiple startup accelerators changed the way I work with companies.

Five years, multiple program formats, 100+ companies, tens of millions in funding, lots of customers, exits, all across three continents…

This past July (2017) marked five years I’ve “formally” led various startup programs with hundreds of startups.

Here’s a synopsis of those five years and an intro to what I learned along the way. Read more here…

Pope Francis drives an old Ford Focus. He wears cheap orthopedic shoes. He took the bulletproof glass off the famous popemobile, saying it was better to be close to the people and take his chances. He never moved into the official Papal quarters in the Vatican and instead lives in a small apartment. The pontiff, as the kids would say, is legit.

Religion and business operate in different worlds. I admit that I really never thought of combining them before.

And while the words “startup” and “Vatican” don’t often appear together in the same sentence, The Laudato Si’ Challenge is the new startup accelerator just announced at the Pontifical Academy of Sciences at the Vatican.

When I realized that this was an ambitious project in line with my own ideal of entrepreneurship I was intrigued and humbled to be asked to be the Program Director…. READ MORE

Recently I was hired by USC, specifically USC’s Lloyd Greif Center for Entrepreneurial Studies at the Marshall School of Business, to build a USC Incubator program, open to any USC student or alum. As I started to survey needs of potential participants, I wrote an investment thesis.

You might ask why have an investment thesis for a university program that does not take equity positions in its portfolio. Actually, I believe that wherever there is selectivity and time and resources are spent, an investment thesis helps guide selection, granting of resources, setting expectations and measures of success, along with describing how the rest of the market appears in relation. Here are my thoughts, formed after spending about a month speaking to students and groups on campus. This is a work in progress and I welcome comments.

Abstract: There is growing awareness of the importance of entrepreneurship and entrepreneurial thinking, on and off the university campus. There is also massive growth in entrepreneurship programs, from weekend events to bootcamps to longer format accelerators and incubators providing education, mentorship and funding. When I co-founded an accelerator in 2012, there were only an estimated couple hundred of those programs around the world; now there are probably thousands. More universities are also launching accelerators and incubators. But in this market for entrepreneurship, much of the focus is on scalable tech startups, where high-value outliers drive portfolios. In some cases there is misalignment between the program’s business model and the long-term benefit of the participants. A look around shows both good programs and some that produce more PR than results. It is my belief, after the experiences of running an accelerator (where we invested seed capital in exchange for equity), running a for-profit (and expensive) bootcamp and now starting on a university program, that there are activities that we should bring to entrepreneurs and activities from which we should shield entrepreneurs. These activities focus on what serves the entrepreneur regardless of the market they find themselves in, bringing in structure, education and connecting people to talent, domain experts, sources of investment and other resources. Those of you who know me or who have read my blog and book over the years might not be surprised at the direction I describe below. 

Observations.

Today all students and alumni, at USC or elsewhere, have to learn about and practice entrepreneurship, whether they realize it or not. Entrepreneurship or entrepreneurial thinking is no longer an option. This is unlike my experience when I was in school. Back then, there were still abundant and stable (so we thought) corporate careers that offered long-term growth. The burst dotcom and telecom bubbles were also still fresh in the collective memory. The association of “entrepreneurship” with “dotcom” or “startup” was a dangerous one that neither reflected reality nor helped those that made the association, as young graduates took career steps that reflected the past more than the future or what would serve them better in the following decades.

Over the last ten years, an at first quiet and then deafening rework of thought about how to build new companies took place both within and outside the university. These movements gained popularity in the tech community but were also partly based on work done earlier in manufacturing and scientific exploration.

There are more good resources and content available on entrepreneurship than ever before and yet we still question the results of this output and tools and processes. That’s fine. I question pieces of it myself.

Some programs are built around inexpensively churning through large portfolios of companies with the expectation that the true survivors will identify themselves over time. As long as equity is taken in a large enough portfolio then the long game provides enough upside to run the program. (As long as the program is beneficial and can last long enough.)

Some programs are built around education, trying to give founders the tools to become more successful, faster. The growth in programs like these shows that there is demand for knowledge beyond what many universities currently provide.

There are business models based on selling hope and fun to entrepreneurs. There is a lot of talk and little follow through.

There are many opportunities to learn and practice entrepreneurship at and around USC, from courses to clubs to other programs. There are many students and alumni to serve, many of which are not yet being served.

Entrepreneurship is broader than tech startups.

Sometimes, a great way to thrive is to avoid what everyone else does, as long as there is a reason.

Investment Thesis.

1. Invest in good teams, before they prove their businesses and see how they maintain the pace of learning.

• Invest in teams that are coachable (who don’t know everything yet), that have the capability to build (this will be different depending on the business), that demonstrate commitment and drive, and that will be engaged members of the Incubator community.
• Be open to different business types. This Incubator supports entrepreneurs, whether they run scalable tech startups, product companies or even boutique businesses. There is plenty to learn while operating each type of business. The program supports selected entrepreneurial teams regardless of their interest or attractiveness to typical investors.
• Set milestones to track progress, based on learning objectives (data from running experiments etc) rather than milestones better suited to a stable business (increase sales by 20% etc). Based on achieving learning milestones, bring in more resources to help the teams.

2. Teach skills that will serve the entrepreneurs well in any economic climate or business stage they may find themselves.

• If you are a current student building a business that depends on raising a large amount of financing but the market tanks by the time you graduate, that’s beyond your control but also a risk that you could have defended yourself against.
• Teach skills and give repeated practice in bootstrapping, how to do customer interviews (and get good at them), develop and test business models, understand customer segments, get distribution, generate revenue and present the opportunity. The word “teach” is probably misleading given that the founders apply these skills directly to their work. We really look for change in behavior. This is workshopping plus time plus business application, coming together to equal experiential learning.

3. Do not judge potential Incubatees by perceived market size, at least not too soon.

• There is a lack of awareness of how markets could develop. Often founders are told both to have niche focus and to also build massive companies. When you look at the historical assessments of Facebook or Uber, the two companies originally seemed like small opportunities because by looking at original market sizes we ignore growing past university students and changing passenger behavior, resulting in markets larger than anticipated.
• The explanation that there is a baseline market size ($100M or $1B) below which a business is too constricted is an investor-centric worldview and one in which companies are only either highly scalable with good ROI or “lifestyle businesses” (profitable for the entrepreneur, not for the investor). I once heard a judge tell a student founder that his $8M business was too small to be interesting. If I were 20 years old, like the founder, I’d really like to run an $8M business.

4. Shorten cycle time, especially in these key areas.

• Shorten the discovery cycle. Connect entrepreneurs to potential customers and train them (see point 2) in how to interview and learn from these potential customers, use metrics to learn from data and learn to assess what they need to build. Make connections to alumni and others in the community who may guide this process.
• Shorten the development cycle. Connect entrepreneurs to developers, designers and business talent for specific project work or to team members who can deliver on these functions full-time. Connect throughout the university.
• Shorten the operational cycle. Provide legal, corporate structuring, tax and other resources. Help entrepreneurs do the things that they don’t need to be good at personally, but which if ignored lead to problems later on.

5. Bring in mentors selectively.

• Where there is specific domain expertise needed, bring mentors in to meet teams one-on-one. I find that the level of communication that takes place when mentors dive deeply into business issues outweighs the benefits that the group gets from shared general advice.
• Where there is common needed business knowledge, bring people in, but sparingly.
• Avoid building a long list of mentors unless they are actively involved with the program. There are long published mentor lists at many programs, yet these lists are often there more to attract entrepreneurs rather than to show the activity of (often rarely engaged) mentors.

6. Avoid activities that are quick, easy and which attract a lot of attention if they do not produce stronger founders and businesses.

• Getting (and measuring) results requires time but parading Hollywood versions of a new business is relatively easy. That means that the market often defaults to doing the things that get attention — events that may attract big crowds, but which do not do that much for the entrepreneurs they are there to serve.
• As an entrepreneur with a limited number of hours in the day, I believe that you should spend your time with customers and working on your business, rather than attending many gatherings (unless the events are packed with your customers).
• Avoid feel-good celebrity visits that produce no lasting effects. If you need inspiration, I suggest you get it from looking at how delighted your customers become when you deliver and make their lives better. Or, find local heroes that will still be around and invested in your success.

7. Build around the strengths and needs of USC and Los Angeles.

• Develop a program that benefits from the strengths of the area, eventually tying in with local industry and problems / opportunities.
• Build for what will strengthen USC and Los Angeles even more.
• In the future, add a “looking for people building solutions to —” component of the application to fast track certain types of businesses.

If you don’t know Paul yet, here’s a bio.

Working with early-stage founders has been my focus for the past three years. After running a startup in New York, I started holding a roundtable series that grew into a bootcamp and then a funded accelerator program in Hong Kong. I’ve advised or had as clients that are startups from early-stage revenue to millions of users. I’ve learned what helps entrepreneurs as they work to figure things out and build successful businesses. It’s been challenging and fun.

Recently I was hired by USC’s Lloyd Greif Center for Entrepreneurial Studies at the Marshall School of Business to build a new university-wide USC Incubator program. Running a program like this at such a large institution — USC has 41,000 current students and 360,000 alumni — provides a way to have impact on a large scale.

The Marshall-Greif Incubator is an experiential program that gives USC’s top student and alumni entrepreneurs the resources and guidance to do more faster. 

Here is how we think about this Incubator program in terms of vision and what Incubatees should expect. (This is a work in progress.)

The program has few restrictions on founders.

As long as the team or company includes at least one USC student or alumnus/a, they are eligible to apply. We look forward to seeing teams from all across the university participating in the Incubator. Apart from the USC student or alumni requirement, there is no other requirement for belonging to a specific school within USC. We expect to see companies with founders and employees across different USC schools and also outside the university.

We know how to work with early-stage entrepreneurs.

We’ve done this before and have experimented with several different models and formats in the programs I ran earlier. Since there are diverse needs at USC, we believe that there is value in selective workshops, based not on a standard curriculum for the group, but instead based on participant needs. We believe that there is incredible value from continuity rather than one-off events. We currently bring in continuity in the form of office hours with each team and tracking what they learn, rather than focusing on one-off generalist events. We also believe that challenging, encouraging and pushing have their place as we get the Incubator companies to do more faster.

We build strong connections to alumni.

This is an area to build out more as we grow. USC has a large alumni base of successful entrepreneurs and we’d like to expand our current mentor, advisor and Incubatee customer lists with more alumni. When it comes to alumni involvement, we favor selective connections to exchange specific domain expertise, rather than generalist group presentations and meetings.

We add support structure.

To work with teams at different stages in their businesses, we operate a small intense group which meets weekly (in addition to office hours and mentor visits in between) and a less intense part-time group.

We work with any university department and external group where there is benefit to our Incubatees. This includes connecting talent with opportunities at Incubator companies, collaborating with existing courses taught at USC and connecting founders with first customers, advisors, legal and other support, potential investors and people in industry.

We believe in providing enough time.

The Incubator program lasts up to a full year (for those who are making progress and qualify), which provides the time to go out meet customers, learn, build and make progress. Earlier programs I ran and the industry standard tend to be only three months long, which may be good for intensity but is too brief to allow for true experiential learning and changes in direction. At this time we are accepting people on a rolling basis.

We’re non-profit.

We take no fees and do not take equity in Incubator businesses. On a case-by-case basis we do set teams up with grants, stipends, access to free resources and bring in investors.

We provide workspace.

Those who need it can qualify for workspace at the Incubator.

You should expect to develop these skills in the Incubator.

• Bootstrapping. The skills of getting people to pay you and building a sustainable business will carry you through any economic climate or investment fashions. Bootstrapping also allows you to get started immediately, rather than waiting to raise capital (often before it is a good use of your time).
• How to run experiments that help validate your business. This includes variations on tools like the Minimum Viable Product as a way to test hypotheses, collect primary data, draw conclusions and learn what to build.
• Customer interviews and observation. A common problem I see with early-stage entrepreneurs is that they miss opportunities to learn from their target customers when they interview them, often actually missing the point by asking leading questions or otherwise skewing results. I workshop these customer interaction skills and also occasionally employ what I call “gonzo interviewing,” which is when I go out into the field with the company (pretending I belong to the team itself) and then give feedback afterward on how they can improve their skills.
• Presenting and pitching. These skills are essential but take time to acquire, alongside someone who can give actionable feedback. Rather than just comment on what was good or bad (the reaction you see in many time-strapped pitch events), I believe in giving feedback and then practicing again and again with the presenters. It takes months (at least) to become good. As a comparison, I occasionally do my version of how I’d present their business. We focus on what it’s like to present to customers and investors.

What we look for in Incubator companies.

• Coachability. This is good for the company as it shows that the founders will be engaged, will do the work required and will be flexible when it’s required to change direction.
• Have the capability to build. This capacity is determined by the type of business being built. There are some businesses that have high technical requirements and others that are marketing-driven. Entering Incubatees should have the ability to build what their business requires, with small exceptions that fall outside the core of the business.
• Commitment and Drive. Founders that are committed and driven — especially about a problem or target customer — will stick with and be more creative and resourceful than others. Note that falling in love with an idea rather than a problem or target customer is not the same and is actually a negative factor.
• Those who will be engaged members of the Incubator. They will share with and help out Incubator companies. They will also engage with the opportunities offered by the Incubator.

If you don’t know Paul yet, here’s a bio.

Breaking my own rule

I wrote about a related issue a few weeks ago, but now find myself pulled back to this topic sooner than I thought. Yesterday, in a TechCrunch article called “The Startup Accelerator Trend Is Finally Slowing Down,” the author says that the overcrowded market for early-stage funding destines most accelerators to fail. Those of you who know me well will note that I was breaking my own rule to not read TechCrunch, but the article was in my Twitter feed and I had a moment of weakness.

I ran one of the 170 accelerators that the article’s author Mark Lennon says there are. Actually, that 170 number is really low. There are probably several times that number when you look beyond the CrunchBase data cited — and that’s why you can’t just rely on one single data source. CrunchBase is good, but certainly incomplete, as I found last year when I was scrambling to use their data at the TechCunch Disrupt Hackathon. But increasing the number from 170 accelerators to something like 500 would only make the situation in the article seem even worse.

The way accelerators are viewed is bizarre

The accelerator I ran with Steve Forte, AcceleratorHK, was never thought of as an unchanging program that would last forever or one that would instantly turn Hong Kong into a tech mecca. Instead, we proved that we could attract talent from around the world and get the startups a lot further along their own paths than if they had continued to work independently, while showing that an accelerator can work in Hong Kong (we were the first program there). Some of the startups went on to raise money, generate revenue and get awarded grants, while team members changed, company direction changed and I’m sure lots of other changes are to come. For a program, you need build something that works in your market, which can mean not being too influenced by what comes out of the Valley and what is published in the mainstream tech press. I expect that there will be other accelerator programs in Hong Kong (and other non-tech hubs) in the future and that they will do things their own way based on what is needed.

But this search for the appropriate number of accelerators or for all-inclusive ways to judge all of them based on public data snippets is part of the problem. For example typically,

• Accelerators are all viewed the same way. One in the middle of nowhere (in the startup world) is judged the same way as one in the Valley,
• Accelerators are judged as though they are there to serve investors. And when it comes to serving the startups, they are only judged based on what is directly related to the investors, such as percentage of startups that raise money after the program or number of exits, when most programs haven’t been around long enough to have many, or any. Programs are not judged on factors individual to their markets or qualities more difficult to measure like progress the startups made during and after the programs,
• Accelerators are judged by other things that are easier to see with minimal research or digging in to see what matters, such as their mentor lists (regardless of mentor involvement), where the startup founders went to school, or acceptance rates,
• Because qualities that are not listed publicly on things like CrunchBase are harder to measure, they are ignored.

There is also just a lack of willingness to think of ways that this world can change. How many other things could happen that change “the number”? For example will crowd-funding change the situation for early-stage startups significantly? Will corporate accelerators become more commonplace? Will programs first validate ideas themselves and then find teams to execute on them? If you take a static view of the world, then it’s hard to think about anything new while reading that article.

The startup world is big — bigger than you probably think. Even at hundreds of accelerators, with the numbers of startups that they “graduate” a year, there is no way that these programs have significant impact to sway the entire startup world. They might get a disproportionate amount of attention, but they are not drastically changing the environment by either creating startups that otherwise wouldn’t exist or disappointing the startups that don’t raise money — accelerators only touch a tiny fraction of all the startups out there. Now, to the question of whether there just aren’t enough good startups out there to invest in and therefore there can only be a certain number of accelerators (and the number is 170 or 500 or whatever), I think that this is a lack of imagination.

Two sides of the story

When I speak to tech investors in tech hubs, they usually tell me there are too many accelerators. Too many programs chasing too few good investments, which after all is how they view the world.

When I speak to startups, the feeling is much more positive. With the exception of those that are too far along to go to an accelerator, they usually express interest in the programs. I even had one funded startup in LA tell me that given the option, you should always go to an accelerator because there’s almost no way you could end up worse for it. As Paul Graham said about that in terms of getting value for the equity you give up: “If we take 6 percent, we have to improve a startup’s outcome by 6.4 percent for them to end up net ahead. That’s a ridiculously low bar.” In visiting and talking to lots of people involved with accelerators, while I have seen situations where programs do damage, I think they mostly they do good.

Mismeasurements

But only a tiny fraction of startups ever go to accelerators. Acceptance rates are on average in the single digits and less than one percent for the most popular programs. Given that only a fraction of startups apply leaves only a tiny fraction of one percent ever going to an accelerator. Again, as Paul Graham wrote:

“[T]he one thing you can measure is dangerously misleading. The one thing we can track precisely is how well the startups in each batch do at fundraising after Demo Day. But we know that’s the wrong metric… [F]undraising is not merely a useless metric, but positively misleading. We’re in a business where we need to pick unpromising-looking outliers, and the huge scale of the successes means we can afford to spread our net very widely. The big winners could generate 10,000x returns. That means for each big winner we could pick a thousand companies that returned nothing and still end up 10x ahead… I can now look at a group we’re interviewing through Demo Day investors’ eyes. But those are the wrong eyes to look through! We can afford to take at least 10x as much risk as Demo Day investors… [E]ven if we’re generous to ourselves and assume that YC can on average triple a startup’s expected value, we’d be taking the right amount of risk if only 30% of the startups were able to raise significant funding after Demo Day. I don’t know what fraction of them currently raise more after Demo Day. I deliberately avoid calculating that number, because if you start measuring something you start optimizing it, and I know it’s the wrong thing to optimize.” (excerpt from Black Swan farming)

How else could we measure accelerators?

The vast majority of accelerators out there are generalist programs. An application, review of applicants, some seed capital in exchange for a little equity, three months in a group location, mentorship and maybe workshops, ending with a demo day. And then often nothing at all afterward.

Here are some other ways to measure accelerators. But these are difficult to measure without doing a lengthy round of interviews and visits and so I expect there will not be a good global view of this written by someone on the outside of this world. Some ideas of what else to look at:

• How much progress did the startups make? Did they avoid wasting a year working on something that won’t work? (Tough to measure)
• How many people did they save from less productive work? (Tough to measure)
• What does the program do to follow up with its startups afterward? (Easy to measure if you put the time in, but not listed publicly online)
• Is there an alumni network? Is there really an alumni network? (Easy to measure)
• How involved are the mentors? Is there real domain expertise in the areas that the startups are focused on? (Tough to measure)
• Can the program or its mentors get their startups in doors of places they couldn’t by themselves, giving their companies a huge advantage? (Tougher to measure)
• Are the programs doing something entirely different that works better in their markets? (Easy to measure if you can get to know the people running the program)

Until then, these articles on accelerator metrics are often more distraction than they are discernment.

Update. Since I wrote this article I’ve one on to build a university incubator program at USC in Los Angeles with over 70 portfolio companies and a startup accelerator in Rome/Vatican focused on environmental technology for the rest of the world. I’m currently working on a HBR case study about accelerators and incubators. Stay tuned.

 

There are lots of startup accelerators out there. I believe that most of them add value to the startups they work with, as measured against the equity and time they take. In spite of that, most accelerators will not last long-term and could be adding much more value. Here I want to support development of alternative models, including non-profit and corporate-backed startup accelerator models, which I believe is where some interesting growth will be.

Blindly copying a model can be a bad idea

Most startup accelerators follow a similar model: a centralized program, taking somewhere between 2% – 10% equity for around US$100k+ (earlier only $20k) of seed capital, working with a portfolio across multiple domains, and ending after three months with a demo day. The best I can gather after talking to different programs around the world is that they go with this model because that’s what everyone else does. That really mean that what originally worked for Y Combinator (who originated the model in 2005) led to everyone else copying that model instead of innovating from there as a starting point.

Running Startups Unplugged (as a bootcamp) and then AcceleratorHK as the first accelerator in Hong Kong meant that the door was open to experiment with different formats. And by taking the time to understand what was needed in Hong Kong and what would help the entrepreneurs who traveled in from other countries, we built something that fit those needs. We were more hands-on than we would have been in the US, worked out of a co-working space to allow visitors to come and go easily and focused more on building sustainable companies with limited local investors than we might have elsewhere.

Of the many accelerators out there, lack of funding, lack of direction, lack of engaged mentors, or lack of people to run it can all shorten the lifespan of any program. They will close, limiting the strength of an alumni network, but their brief existence is still better than having no program at all.

Of the thousands of startups that go through accelerators, most will not survive past a couple of years after the program. Even for the most elite accelerators, success rates are far from certain, once you dig into the numbers instead of taking them at face value.

There are many paths to entrepreneurship and discovery. You don’t need to run a startup to qualify as an entrepreneur or to learn. While a lot is written about what I’ll call “traditional startups,” there is a much larger group of people already doing innovative work in areas that get much less attention. These are people for whom the de facto models don’t work. Research-driven startups that have longer times to market, startups where the team doesn’t fit the mold (being older, lacking educational credentials, working in unsexy markets) — they mostly ignored by accelerator programs.

Accelerators are usually just a first step

Often when I meet investors based in tech hubs, they say that there are too many accelerators — too many to choose from a limited pool of strong, investable companies. Often when I meet startups, at least early-stage ones, they are interested to apply to an accelerator — while also facing acceptance rates of low single digits. When I talk to people outside of the tech hubs, they sometimes bring up developing an accelerator as a way for their city to distinguish itself. When I talk to the people who run these programs, they often believe that they’re doing work that is good for their communities.

So there are four motivations here

1. Investors need to show returns and therefore are interested in accelerators insofar as they provide potential investments, which they do less often. While volume goes up, attractiveness of investment may not keep pace. Demo days crowded with other investors are not the best place to find early-stage startups to invest in. However, these investors will often support programs by mentoring and often support the work that is being done.
2. There is plenty of demand from entrepreneurs for accelerator programs. Judging from application numbers and acceptance rates (often in the low single digits), there is excessive demand on the part of entrepreneurs. Investors tell me that most of the startups applying are not good investments and therefore these low numbers are appropriate. But a better question is, what is the purpose of the accelerator? Who is it there to serve?
3. There is more than one reality in the world of startups. The Valley may be the major contributor but life outside of the tech hubs is very different. Starting an accelerator can distinguish an off-the-beaten-path location, attract talent and potentially keep talent local. I saw that while running AcceleratorHK in Hong Kong. I’ve heard it from people in other cities too.
4. People who run accelerators want to help the startups. They care less about the money and more about the impact. This might be long-term impact on their startup communities or it might be short-term impact by helping individual entrepreneurs build their businesses. There are much easier ways to make a living than running an accelerator, just like there are easier ways to make a living than running a startup.

Most programs lack industry focus, mentors with specific domain knowledge, and follow the typical three-months to demo day format.

There are cultural and stylistic differences between every accelerator but apart from that, few construct a program based on a theme, an industry or technology.

I’ve seen the same celebrity mentors listed on many programs. How involved are they? It’s not that they don’t want to help, but how much time can they really devote when they’re listed on multiple programs and have other work to do?

Is the typical three-month program length appropriate for what you want to do? If other programs didn’t do it first, would you have chosen that length of time yourself? Why? Three months goes by in the blink of an eye. If you allow your startups to change course in month three — which you absolutely should do — then what happens when the program ends a few weeks later?

What support do you offer your “graduates” after the program ends?

Do you really need to do a demo day? Or is it a distraction? What’s the goal for your demo day, beyond keeping people focused on an end point?

Do your startups have a fighting chance to raise money after the program? Or should you focus them on surviving by building a sustainable business in a market without investors? That’s what most of the world looks like, by the way.

When you think there’s only one way, you miss opportunities.

Stop trying to build another Y Combinator and build something that works for you. Markets are different, people are different and there are many ways to run an accelerator. The traditional model should not be duplicated everywhere. But we act like it does apply everywhere. Actually, we act like the Hollywood version of the traditional model applies everywhere. That’s what happens when you read TechCrunch too often.

So I want to support a different model: the External Innovation Model.

This is how it works for institutions (since this is not limited to for-profit companies).

The institution sponsoring the accelerator issues a set of challenges to which they need solutions. They collect applications, but judge the applicants on their ability to build, not on their ability to market or present themselves. Over the year (there is no need for the entire cohort to start and stop at the same fixed dates), a program lead manages the entire process and institutional mentors guide the startups. There are in-person group meetings every six months to show progress and to make go/no go decisions on continued involvement or granting extra resources.

For a modest budget, this institutional sponsor could fuel a program with ten individual startups working on issues related to its success, travel for the periodic meetings and someone to run the program.

Purpose and Execution.

• Lower investment risk. Early on, ten small bets can be better than one large one. There are reasons why institutions can’t quickly do many small projects themselves, but having ten external teams devote their own time is not problematic for the sponsoring institution. Let the startup develop their solutions with guidance from the sponsor rather than develop solutions individually and then pursuing a sales relationship.
• Difference in opportunity cost. The ten startups gain even if their ventures are not successful. They learn, get access to some financing and make connections with the sponsoring institution. It would be prohibitively costly for the sponsor to support ten projects internally.
• No Demo Day. There are good and bad things to demo days, but this type of a program doesn’t benefit from a demo day in the ways that general startup accelerators do. First, there is not necessarily an outside investor that has either the interest or the ability to invest in these projects or companies. Second, there’s no need to include a large public audience for the purposes of outreach or brand building. Actually, some of these demos might bore people in the startup world to tears. And that is a good thing.
• Resources. Like accelerators, the company needs to invest a bit of capital into each startup. Unlike most accelerators, I don’t believe the corporate sponsor needs to provide workspace for or relocate the admitted companies to a central location. The exceptions to that may be hardware or biotech based programs where equipment access is a key differentiator.

Phase I: Define the problems to solve for this program. Admit startups into the program, have one central person work with them while bringing in mentors from the institutional sponsor. Define an end-point at which the different startups present back to the sponsor.
Phase II: The sponsor determines which startups to continue to invest in. The program continues, possibly in-house.
End game: Acquire technology, acquire team, or end involvement with the startups. The end game is different in this model because the entrepreneurs themselves probably want different things than those that apply to the traditional accelerators. Not everyone wants to build their startup the traditional way.

If you liked this post and want to discuss it or tell me why it would or wouldn’t work for you, you can reach me here. 

I posted this recently on Medium. Reposting the link here to share the reasons why I think startup pitch events are awful. Hope you like it.

Eradicate the startup pitch event.