10 ms·

Waiting for the Accelerator Bubble to Pop

36 points by elaineo 14y ago

elaineo 14y ago
Why do they call this a bubble? Almost all startups fail, and this has been true since the beginning of time. If there's suddenly a glut of seed investors willing to give startups a shot at survival, we're only increasing the chances of unearthing another dropbox. http://www.paulgraham.com/swan.html http://www.paulgraham.com/swan.html
- citizenkeys 14y ago
  Bloomberg TV (which also owns Business Week) covered this a month ago in an interview with Paul Graham: http://ycuniverse.com/pg-on-bloomberg-tv http://ycuniverse.com/pg-on-bloomberg-tv As was said at the time, the portfolio effect requires investing in many startups to diversify risk. Most startups are high-risk investments that will obviously fail. And only extremely qualified investors should invest in startups. One major issues with all these accelerators is the mentors are increasingly less qualified and experienced to give advice. The other major issue is the startups themselves are not focusing on actually making anything people want, but rather focusing on raising money. Paul Graham said as much at Demo Day for YCS12, where the startups were prohibited from speaking about fundraising efforts: http://ycuniverse.com/ycw13-likely-less-than-50-companies http://ycuniverse.com/ycw13-likely-less-than-50-companies
- pedalpete 14y ago
  This isn't about the start-ups in the incubators being a bubble, but rather the incubators themselves. There are too many incubators supporting too many companies, and if incubators don't have exists, which many won't, they aren't making money and therefore will fold. It's a flawed business model for all but the top few.
- vannevar 14y ago
  Yes, people frequently use the term 'bubble' these days when they actually mean 'fad'. Bursting bubbles attract more attention than passing fads, apparently. But accelerators are clearly a fad, not a bubble.
pixcell 14y ago
Then you also have companies like Scion using the incubator concept as a marketing campaign where they do provide a small amount of seed funding, and mentoring to young entreprenuers, but dont take any equity in return. So instead of selecting the business most likely to gain a return on their investment, they select companies that best represent their brand and the image they are trying to create.
- stevewilhelm 14y ago
  Nike+ Accelerator program, "powered by TechStars," is another example http://nikeaccelerator.com/ http://nikeaccelerator.com/
codesuela 14y ago
I think incubators (except for truly valuable ones) are doomed because have these options: a) raise seed money from an angel b) develop a mvp, show some traction and raise money from VCs c) bootstrap a profitable product or d) go to an accelerator from my expirience almost all accelerators have will present you with a bad deal (say 10-20k and office space) and claim to provide you with more value by helping you out with their expertise in other areas. In exchange they want a 20-30% equity cut. BUT the value add through their network (for most accelerators) will be negligible that's why it is a bad deal. Every other option is better: a) Angel -> can be a vocal defender and loyal partner or early adopter of your product b) VC -> You get money at a fair valuation c) Bootstrap -> Keep all the equity and stay hungry So for what it's worth I think reducing the number of accelerators would not be a bad thing for the startup eco system.
- barry-cotter 14y ago
  Really? The first accelerator, the most prestigious, exclusive and selective asks for 6-10% and there are others asking for 30%? No wonder Thiel said getting into another accelerator was a negative signal.
  - codesuela 14y ago
    I was thinking of HackFWD though to be fair after a quick Google check they offer you about 70k for a one person, 110k for 2 people, 160k for 3 people in exchange for 30% equity. [1] https://hackfwd.s3.amazonaws.com/system/documents/4bd586/e2e8b66c7c32000034/hackfwd_offering_overview_download_v1.1__3_.pdf https://hackfwd.s3.amazonaws.com/system/documents/4bd586/e2e... [2] http://hackfwd.com/ http://hackfwd.com/
    - niggler 14y ago
      You should also do the quick calculation: YC originally gave something like 10K for roughly 6%, giving a rough valuation in the 180K range. HackFWD is giving, for two people, 110K for 30% which implies a value of roughly 370K. On the numbers alone the deal isn't as bad as it sounds.
blindblom 14y ago
Unrelated note... On first load of the page in Chrome, could not scroll. Reloaded. Several times. Scrolling finally works. Decided tl;dr as the story is of little interest to me. Back button redirects back through a huge array of page elements that you have to go through before returning to the actual previous page. How did this garbage make it out of testing? I'll be avoiding bloomberg news links in the future.
ig1 14y ago
The research behind this article is pretty flakey. Measuring accelerator success by exits only works when you do cohort analysis, not when you compare companies created 6-7 years ago (YC and TechStars) against companies created in the last couple of years (the others accelerators). YC's scaling back of class sizes wasn't anything to do with the quality of the cohort dropping, but rather due to YC's ability to handle a cohort of that size. First-time startup founders tend to make the same mistakes as each other, and that's one area in which it's easy for accelerators to add value (some do and some don't). Clearly some accelerators are better than others, and some will undoubtedly fail, but this article doesn't really provide any compelling argument for it.
juskrey 14y ago
Failure is not the reason of blow up. Fragility is. That is pretty simple for those who are familiar: Mathematical Definition, Mapping, and Detection of (Anti)Fragility Nassim N. Taleb, Raphael Douady http://arxiv.org/pdf/1208.1189v1.pdf http://arxiv.org/pdf/1208.1189v1.pdf
rdl 14y ago
I'd never heard of "Unreasonable at Sea" -- this seems like a really interesting concept. Another thing I've been thinking about is renting some houses in Hawaii, Thailand, etc., where teams could work for ~3-4 weeks on a new project (1983-Apple-Mac-team style), and then bring their friends/families for a week or so at the end.
pg 14y ago
"There are already signs of paring back. In December, Y Combinator’s Graham wrote about his accelerator’s decision to reduce its class size, from 84 companies in the summer 2012 class to less than 50 in the current session." This was nothing to do with any overall trend. It was just because YC's then structure couldn't deal with so many startups. The other thing this guy doesn't seem to grasp is that we didn't decrease the size of something homogenous. This is not like a restaurant cutting back from 84 tables to 46. Essentially we picked the best 46 out of 84. And in any group of 84 startups, the top 46 will have 100% of the success. There are so many of these things now that I wouldn't be surprised if a lot of them die off. But if that happened I don't think it would affect us.
- kruipen 14y ago
  This is a pretty bold assumption that the 46 you selected where the top 46.
  - ghshephard 14y ago
    I guarantee you that pg isn't claiming he knows which the "Top 46" of 84 are. All he can do is pick the best as he see's them, and hope for the best. I think he's said in many article, that, in fact, the vast majority of the returns each session will come from only one or two startups, and he certainly isn't able to identify those two in advance.
  - pg 14y ago
    We were already claiming we could pick the top 84 out of ~3000. It's not that much harder to narrow it down to 46.
- hglaser 14y ago
  If you had the ability to pick the top 46, why did you fund 84 in the first place? (Not doubting, honestly curious.)
  - pg 14y ago
    Between batches we spent a lot of time systematically trying to identify the predictors of failure. Previously we only tried to look for predictors of success. And they are not simply complements.
shaneeb 14y ago
I don't have any counter-evidence to show if the incubator trend is a bubble or not so I am not going to argue along those lines. I have a very different perspective to offer. I live in Pakistan where there is an energy crisis so serious we don't have electric power half the day. It is in these challenging conditions that we are trying to establish ourselves as a tech startup. Perhaps this is not such an issue in SV but incubators can play a very crucial role in places where the conditions are not so ideal . For example the incubator we have here, apart from providing seed money and mentoring, provides 24/7 power supply, connects us with businesses abroad (huge benefit, because no one wants to do business with a Pakistani startup, right?), is trying to get some foreign investors on board, etc. In effect, an ecosystem is being built and I dont see how it could have been possible without an incubator at its center. Perhaps in SV these things dont even matter but they can be the difference between survival and failure in lesser developed ecosystems.

36 points by elaineo 14y ago

Why do they call this a bubble? Almost all startups fail, and this has been true since the beginning of time. If there's suddenly a glut of seed investors willing to give startups a shot at survival, we're only increasing the chances of unearthing another dropbox. http://www.paulgraham.com/swan.html http://www.paulgraham.com/swan.html

citizenkeys 14y ago
Bloomberg TV (which also owns Business Week) covered this a month ago in an interview with Paul Graham: http://ycuniverse.com/pg-on-bloomberg-tv http://ycuniverse.com/pg-on-bloomberg-tv As was said at the time, the portfolio effect requires investing in many startups to diversify risk. Most startups are high-risk investments that will obviously fail. And only extremely qualified investors should invest in startups. One major issues with all these accelerators is the mentors are increasingly less qualified and experienced to give advice. The other major issue is the startups themselves are not focusing on actually making anything people want, but rather focusing on raising money. Paul Graham said as much at Demo Day for YCS12, where the startups were prohibited from speaking about fundraising efforts: http://ycuniverse.com/ycw13-likely-less-than-50-companies http://ycuniverse.com/ycw13-likely-less-than-50-companies
pedalpete 14y ago
This isn't about the start-ups in the incubators being a bubble, but rather the incubators themselves. There are too many incubators supporting too many companies, and if incubators don't have exists, which many won't, they aren't making money and therefore will fold. It's a flawed business model for all but the top few.
vannevar 14y ago
Yes, people frequently use the term 'bubble' these days when they actually mean 'fad'. Bursting bubbles attract more attention than passing fads, apparently. But accelerators are clearly a fad, not a bubble.

pixcell 14y ago

Then you also have companies like Scion using the incubator concept as a marketing campaign where they do provide a small amount of seed funding, and mentoring to young entreprenuers, but dont take any equity in return. So instead of selecting the business most likely to gain a return on their investment, they select companies that best represent their brand and the image they are trying to create.

stevewilhelm 14y ago
Nike+ Accelerator program, "powered by TechStars," is another example http://nikeaccelerator.com/ http://nikeaccelerator.com/

codesuela 14y ago

I think incubators (except for truly valuable ones) are doomed because have these options: a) raise seed money from an angel b) develop a mvp, show some traction and raise money from VCs c) bootstrap a profitable product or d) go to an accelerator from my expirience almost all accelerators have will present you with a bad deal (say 10-20k and office space) and claim to provide you with more value by helping you out with their expertise in other areas. In exchange they want a 20-30% equity cut. BUT the value add through their network (for most accelerators) will be negligible that's why it is a bad deal. Every other option is better: a) Angel -> can be a vocal defender and loyal partner or early adopter of your product b) VC -> You get money at a fair valuation c) Bootstrap -> Keep all the equity and stay hungry So for what it's worth I think reducing the number of accelerators would not be a bad thing for the startup eco system.

barry-cotter 14y ago
Really? The first accelerator, the most prestigious, exclusive and selective asks for 6-10% and there are others asking for 30%? No wonder Thiel said getting into another accelerator was a negative signal.
- codesuela 14y ago
  I was thinking of HackFWD though to be fair after a quick Google check they offer you about 70k for a one person, 110k for 2 people, 160k for 3 people in exchange for 30% equity. [1] https://hackfwd.s3.amazonaws.com/system/documents/4bd586/e2e8b66c7c32000034/hackfwd_offering_overview_download_v1.1__3_.pdf https://hackfwd.s3.amazonaws.com/system/documents/4bd586/e2e... [2] http://hackfwd.com/ http://hackfwd.com/
  - niggler 14y ago
    You should also do the quick calculation: YC originally gave something like 10K for roughly 6%, giving a rough valuation in the 180K range. HackFWD is giving, for two people, 110K for 30% which implies a value of roughly 370K. On the numbers alone the deal isn't as bad as it sounds.

blindblom 14y ago

Unrelated note... On first load of the page in Chrome, could not scroll. Reloaded. Several times. Scrolling finally works. Decided tl;dr as the story is of little interest to me. Back button redirects back through a huge array of page elements that you have to go through before returning to the actual previous page. How did this garbage make it out of testing? I'll be avoiding bloomberg news links in the future.

ig1 14y ago

The research behind this article is pretty flakey. Measuring accelerator success by exits only works when you do cohort analysis, not when you compare companies created 6-7 years ago (YC and TechStars) against companies created in the last couple of years (the others accelerators). YC's scaling back of class sizes wasn't anything to do with the quality of the cohort dropping, but rather due to YC's ability to handle a cohort of that size. First-time startup founders tend to make the same mistakes as each other, and that's one area in which it's easy for accelerators to add value (some do and some don't). Clearly some accelerators are better than others, and some will undoubtedly fail, but this article doesn't really provide any compelling argument for it.

juskrey 14y ago

Failure is not the reason of blow up. Fragility is. That is pretty simple for those who are familiar: Mathematical Definition, Mapping, and Detection of (Anti)Fragility Nassim N. Taleb, Raphael Douady http://arxiv.org/pdf/1208.1189v1.pdf http://arxiv.org/pdf/1208.1189v1.pdf

rdl 14y ago

I'd never heard of "Unreasonable at Sea" -- this seems like a really interesting concept. Another thing I've been thinking about is renting some houses in Hawaii, Thailand, etc., where teams could work for ~3-4 weeks on a new project (1983-Apple-Mac-team style), and then bring their friends/families for a week or so at the end.

pg 14y ago

"There are already signs of paring back. In December, Y Combinator’s Graham wrote about his accelerator’s decision to reduce its class size, from 84 companies in the summer 2012 class to less than 50 in the current session." This was nothing to do with any overall trend. It was just because YC's then structure couldn't deal with so many startups. The other thing this guy doesn't seem to grasp is that we didn't decrease the size of something homogenous. This is not like a restaurant cutting back from 84 tables to 46. Essentially we picked the best 46 out of 84. And in any group of 84 startups, the top 46 will have 100% of the success. There are so many of these things now that I wouldn't be surprised if a lot of them die off. But if that happened I don't think it would affect us.

kruipen 14y ago
This is a pretty bold assumption that the 46 you selected where the top 46.
- ghshephard 14y ago
  I guarantee you that pg isn't claiming he knows which the "Top 46" of 84 are. All he can do is pick the best as he see's them, and hope for the best. I think he's said in many article, that, in fact, the vast majority of the returns each session will come from only one or two startups, and he certainly isn't able to identify those two in advance.
- pg 14y ago
  We were already claiming we could pick the top 84 out of ~3000. It's not that much harder to narrow it down to 46.
hglaser 14y ago
If you had the ability to pick the top 46, why did you fund 84 in the first place? (Not doubting, honestly curious.)
- pg 14y ago
  Between batches we spent a lot of time systematically trying to identify the predictors of failure. Previously we only tried to look for predictors of success. And they are not simply complements.

shaneeb 14y ago

I don't have any counter-evidence to show if the incubator trend is a bubble or not so I am not going to argue along those lines. I have a very different perspective to offer. I live in Pakistan where there is an energy crisis so serious we don't have electric power half the day. It is in these challenging conditions that we are trying to establish ourselves as a tech startup. Perhaps this is not such an issue in SV but incubators can play a very crucial role in places where the conditions are not so ideal . For example the incubator we have here, apart from providing seed money and mentoring, provides 24/7 power supply, connects us with businesses abroad (huge benefit, because no one wants to do business with a Pakistani startup, right?), is trying to get some foreign investors on board, etc. In effect, an ecosystem is being built and I dont see how it could have been possible without an incubator at its center. Perhaps in SV these things dont even matter but they can be the difference between survival and failure in lesser developed ecosystems.