Why Join a Non-equity Based Accelerator?

Must-read Posts on Incubators and Accelerators

There is a very real knowledge gap in the early stage start-up game, on both sides of the table. First-time entrepreneurs lack the seasoning to captain a steady ship through turbulent waters. Inexperienced friends and family (and, increasingly, crowdsourced investors) lack the ability to gauge the viability of a business, or to mentor naïve entrepreneurs. This knowledge gap, I have come to believe, is best filled by savvy incubators. However, there are over 7,500 business incubators around the world, and most of them fail.

Here are several must-read articles on incubators and accelerators that will help you navigate and make informed decisions.

• Should You Join an Accelerator? – There are over 8,000 accelerators around the world. Most of them fail. Before you decide to join one, you should try to understand why they fail, so that you do not end up failing with them.

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Incubators and Accelerators FAQs

This post answers some commonly asked questions about incubators and accelerators. I have answered these questions on Quora as well.

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How To Evaluate An Incubator

There are over 7,500 incubators/accelerators in the world. Most fail.

Entrepreneurs are thoroughly confused on how to evaluate incubators and accelerators.

Entrepreneurs are also thoroughly confused on why they get rejected by incubators and accelerators on the grounds of being too early.

This short slide deck outlines some points you ought to keep in mind in selecting an incubator/accelerator.

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What Can You Do When You Fail To Raise Series A After “Graduating” From An Accelerator

I don’t believe in the concept of “graduating” from an accelerator, but since most incubators and accelerators use this as a framework, let’s discuss what entrepreneurs ought to do when they ‘graduate’ without funding.

This, btw, is the plight of MOST startups around the world.

MOST incubators and accelerators promise to get them funded.

MOST fail to keep their promise.

Why?

Because most businesses are not fundable.

Let’s recap some basics from Entrepreneurship Does NOT Equal Financing:
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Why Accelerators Are ‘Graduating’ Entrepreneurs Who Fail To Get Funding

There is a notion of ‘graduation’ in incubators and accelerators that I find amusing.

Entrepreneurs are often expected to ‘graduate’ after 3-months.

Let’s explore what this means …

Out of the over 7,500 incubators and accelerators around the world, most consider ‘funding’ as the key success metric.

As I pointed out in my Harvard Business Review article, The Problem With Incubators and How To Solve Them:

Most incubators use funding as a success metric, which is a somewhat flawed criterion. Over 99% of companies should operate as organically grown, self-sustaining businesses — bootstrapped, without external financing. For them the goal is to achieve customer validation, not financing. Yet if the incubator uses financing as its success metric, it will try to force inexperienced entrepreneurs into an unnecessary financing round. And more often than not, they will fail.

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The Problems With Incubators And How To Solve Them

Excerpt from my book, The Other 99% (Entrepreneurs).

There is a very real knowledge gap in the early stage start-up game, on both sides of the table. First-time entrepreneurs lack the seasoning to captain a steady ship through turbulent waters. Inexperienced friends and family (and, increasingly, crowdsourced investors) lack the ability to gauge the viability of a business, or to mentor naïve entrepreneurs.

This knowledge gap, I have come to believe, is best filled by savvy incubators. However, there are over 7,500 business incubators around the world. Most of them fail.
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YCombinator’s Further Evolution Into A Seed Fund

YCombinator has just announced that it will replace its $17k for 7% pre-seed equity investment with a $120k for 7% seed investment deal. From the WSJ:

Previously Y Combinator’s standard deal was about $17,000 for 7% of the company, plus an $80,000 note from a group of venture investors and firms eventually known as YCVC, which most recently included Andreessen Horowitz, General Catalyst, Maverick Capital and Khosla Ventures.

So, startups will now get $120,000 from Y Combinator, instead of $97,000 from a combination of Y Combinator and select venture firms. That means the implicit valuation for YC startups rises to about $1.7 million from the previous $1.4 million (YC might deviate from the standard deal “in exceptional cases,” presumably for an ultra-hot startup that merited a higher valuation).

The $120,000 will come directly from YC and a fund it manages that has limited partners, though the accelerator itself has no limited partners, Altman said.

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