We had a recent mentor session at MIT VMS where the founder was dead set on joining an accelerator for the summer. We spent most of our 90-minute session dissuading him from that decision.
I see incubators as for very early stage companies where the founders just have an idea and the goal of the incubator is to hatch that idea – turn it into a demo, prototype or even a product. Incubators provide peer-to-peer support, mentoring, outside speakers and other related services, often without charge, as is the case with academic incubators.
Accelerators help founders increase their rate of growth in building their business. Often these accelerators, such as Y Combinator, purchase 6 or 7 percent equity for about $100,000 to $150,000. If you’ve gotten past the idea validation stage, perhaps graduated from an incubator, you may want to join an accelerator like MIT’s Delta V (which has no requirement that founders sell their equity).
Often getting admitted to an incubator or an accelerator is very competitive. As I recall it’s harder to get into Y-Combinator than either Stanford or Harvard. Other things an organization like Y-Combinator or TechStars provide are connections and assistance in becoming investor-ready. The culmination of participation in many of these organizations is a demo day, attended by regional investors. The goal is to help founders get a seed round or Series A investment.
So why were we trying to dissuade our mentee from spending the summer at an incubator or accelerator while his team mates worked on the business, which by the way, was outside the U.S. The answer was simple: the team had a well-defined target market, a well thought out business model, experience as customers in their market, and were on the cusp of running a pilot with a major customer this spring. So our argument was simple: why spend the summer with other founders who more than likely were not nearly as far along the business growth curve and perhaps also end up selling their equity at a bargain price. If he worked all summer to close customers what I call ROTI would be significant. ROTI is Return on Time Invested. Time is the major asset of founders, how they spend it is existential to their ventures. Yet it seemed that peer pressure had convinced this founder he needed to spend weeks learning a standardized curriculum when he could spend those weeks co-located with his team mates, pursuing leads and closing customers. And by the way, learning by doing.
Incubators and accelerators can add a lot of value and many have a proven track record of generating winners. But founders need to think long and hard about fit. Not product market fit, but the fit between their venture and its current status, and the model of value added by the incubator or accelerator they plan to apply to. If you see a good fit, but all means go for it, but if you have progressed far beyond the typical venture in an incubator or accelerator spending time with them may actually de-accelerate your venture.
There is one other value accelerators provide: that’s access to their alumni. In the case of Y Combinator that’s a community of over 4,000 founders. The value of those potential connections is hard to measure, of course. My rule of thumb for founders is that the earlier their stage of development the more value an incubator or accelerator can provide.
Unlike venture capitalists, who are very opaque about how they make decisions, whose value add can be very hard to determine, and whose investments vary all over the map, you can find out a lot about accelerators like Y Combinator by visiting their web site, reading their blog, and studying their application. The only cost to apply is virtually always zero – just your time. At the least, no matter where you are on the business development curve, there are valuable resources on these sites. Check out the Y Combinator Startup Library for example.
We may not know if our mentee takes our advice and works on this startup rather than spends the summer in an accelerator, but at the least we hope that we have catalyzed his decision process by taking a strong position that was contrary to his. Mentors often play the role of Devil’s Advocate, which can help founder teams who can sometimes be subject to group think or peer pressure.