What Do Accelerators Accelerate Now? Accelerators Evolution As Species From Startups To Scaleups Family Tree
What Do Accelerators Accelerate Now? Accelerators Evolution As Species From Startups To Scaleups Family Tree
Let There Be Ideas!
When they started, accelerators used to accept founders with only ideas. The purpose was to help transform those ideas into real products. At that time, it was still expensive to start a company: cost of computing, storage or hosting was still high, in addition to office space as well. In other words, at that time, accelerators used to accelerate building the product from the idea, and the output was beta versions or prototypes.
The concept, as described by Paul Graham in his 2008 post: How Y Combinator Started, was to invest smaller amounts (as low as $10k only), faster (than regular VC firms), in young techies, who just need some funding to get started in Summer, yes, it all started as a summer program for students in Cambridge!
In addition, and to my surprise, the cohorts or batches approach was created for the Y-Combinator team to learn how to become good angel investors faster with a group of startups. It was not for the founders to learn from each other!
This was basically (and still) against all wisdom in the traditional VC model, where you invest your fund over few years and manage your fund distribution and portfolio wisely, taking into consideration that some of the companies would be good enough to double down on them later on, and some will fail. So you manage risk!
But it worked (and still working) like magic. It has been proven to be a great learning experience for the founders as well as the investors, and a much faster way of getting funded for founders.
How it Evolved
Few years down the road, people started to compete more to get into accelerators. Not only for the seed funding, but also for the overall added value an accelerator would bring such as: mentors, community of like-mined people, and of course, higher chances of receiving next rounds of funding from angel investors and VCs in the Demo Day, specially if the accelerator has a big brandname.
This created a bigger pool of deals for accelerators than they can handle. So they started to focus more on startups with technical co-founders. So that the money will not go to freelancers or software development companies. Instead, all the money will be used to pay for the team salaries so they can quit their jobs and dedicate their full time for their startups, or maybe pay for other needed expenses.
In addition, applicants should have built something before applying. At that stage, accelerators used to accelerate launch.
With more and more competition and more applicants, accelerators started to select teams who have technical co-founders and have already, not only built, but also launched their products, and now ready to experiment in the go-to-market strategy to prove their product-market-fit. At that stage, accelerators started to accelerate traction.
But now, and after only few years, as the cost of hosting is getting less expensive every year, and as we get access to more Saas companies that help startups work faster, cheaper and smarter, top accelerators started to accept only startups that have built, launched, and promoted their product, and now ready to grow or scale! So nowadays, accelerators are actually accelerating growth.
Most of the focus in accelerators is now on teaching founders the various growth hacks that would help them grow faster.
It May End With Exits!
Soon, I guess, with larger funds and more support team members, accelerators will take the role of operational VCs. They will soon start accepting only startups that are ready to become scaleups. So accelerators will soon accelerate scaling up an existing company, and not starting up a new company.
At that point, they might be called Super Accelerators, or Scalerators, or may be, Elevators.
Three examples of this are already happening:
- YC raised a $700m fund to invest in selective YC graduates
- 500Startups raised a $85m fund
- TechStars raised a $150m
But things keep evolving in amazing ways! We’re seeing more and more approaches tested in the accelerators space. And for some reason, Y-Combinator is always in the lead! They are now experimenting with a new program: “YC Fellowship”, on the side, that will focus more on ideas and to invest in massive amounts of startups up to 1,000 per year! They keep challenging themselves to do more disruption to the traditional way of investing in startups!
So in the future, accelerators might have separate acceleration programs for: Innovate, Build, Launch, Promote, Grow, and Scale, and hey! why not to accelerate Exits! This could be done by a special program that connects scaleups to potential acquirers, so in the demo day, instead if investors, there will be corporates to acquire the latest companies out there with solid products and proven track records.
I believe those days are coming soon!
Read Next: As Accelerators Evolve, What Should New Founders Do At The Idea Stage?
