The accelerating pace of Accelerators

Accelerate  ac·cel·er·ate  (ăk-sĕl′ə-rāt′)

 ac·cel·er·at·edac·cel·er·at·ingac·cel·er·ates

means to increase the speed of, cause to occur sooner than expected, cause to develop or progress more quickly, to move or act faster, Physics: to change the velocity of

In 2008, a speaker at one of the event hosted by Indian STEP and Business Incubator Association (ISBA) did some arithmetic on the number of graduating engineers, business grads and said India needs 600 incubators / accelerators. At that time, it sounded like answer of ‘42’ in Hitchhiker’s Guide to Galaxy.  I was so enthused by the idea that I was really close to starting an accelerator in 2009.  Back then, incubator programs were run by educational institutions and just one Y-Combinator like private accelerator.

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Cut to 2014, there is a rapid growth of accelerators to keep with the momentum of rise and rise of startups.

India which traditionally has had family-run businesses is now seeing a surge of first time entrepreneurs. Being a first-timer comes with its own challenges.  Some of the challenges do not seem to be challenges when there is a right guide, which is primarily the role of the accelerators.

Pranay Gupta, Partner with 91SpringBoards and earlier with CIIE, IIM Ahmedabad says that for these first gen entrepreneurs accelerators help with right advise and support to ensure that they can grow their startups faster, more stably and more confidently. Importantly, to avoid doing mistakes others may have already done.

Agreeing to the point, Abhishek Gupta,Head of Accelerator (TLabs) @ Times Internet Ltd, says, accelerators are the first real and structured interface for most startups in any eco-system, they not only provide the knowledge and network but also hands-on help to each startup so that they can get clarity about their business and visualize the path of their startups. Such specific help is needed more so in the nascent ecosystems like India where it is very hard to drown in advice and knowledge but no 1-on-1 help.

In addition to being a first-timer, there are numerous college startups, with founders in the age group of late teens to early twenties. Prajakt Raut, VP- Indian Angel Network and Founder –The Hub for Startups, believes such young entrepreneurs need exposure on different situations from which they can learn about how to and how not to manage a business.

The needs of starting-up founders are many:-

  • Domain mentoring: Great advice in the industry/domain that the founder is ideating on.
  • Business mentoring: This is a wide set of guidance which ranges from finding early adopters / users, visibility, the nuts & bolts of running a business, building a team.
  • Seed money: Incubators/ Accelerator do provide some sustenance money during the period of experiment.
  • Enabling market access, including international markets
  • A place to work out from and PR and ability to pitch to investors who can invest further and connections to large organizations and many more.

Most accelerators include various of these as its course curriculum along with the quintessential demo-day, as the graduation day.  Execution is critical. It really helps if accelerators not just provide mentoring but hand-hold in execution.

Abhishek believes that the “biggest gap is that accelerators are not run by entrepreneurs and have very little knowledge of the domain in which the startups operate. He says, very few accelerators have founding partners who have built businesses or even failed at one and by simply creating a “gyan” network and providing some money will not help startups. The employees and founding partners have to think of themselves as a part of startups and unless they bring about that change in their own psychology it will be very hard to help the entrepreneurs”. Pranay does think that accelerators in India are startups themselves and like startups, accelerators should have a rocking full time team.

With so many accelerators mushrooming, it obviously is very difficult to choose the right one. Since most accelerators take an upfront equity stake in the startups, there is an added burden on the founders to take an informed decision on choosing the right accelerator or whether he needs to be working with one. I know of one accelerator which has restrictive covenants of no-dilution until series A. Another accelerator has a part-time consultant to run the operations and provide office space in return for equity.

Pranay says ranking of accelerators is not going to help but introspection of what each startup needs. Each accelerator has its own pros and cons. He suggests that the founders need to spend enough time with the accelerator’s core team and fall in love with them before deciding. Also, talking to the recent portfolio companies on how the accelerator helped with their specific problems is a great way of knowing the value add of the accelerator.  He advises the founders that after taking the decision, they should believe in the team and work hard with the team to help them to help themselves (founders).

That reminds me of the contract law principle of Caveat Emptor ˌkævɑːt ˈɛmptɔr which means “let the buyer beware”.

It is like a marriage, says Pranay.  Choosing the ‘right’ accelerator is an important decision and Abhishek believes that startups getting into the program should also set a goal for themselves of what they want to achieve at the end of the program.  He cautions that, if having a ‘goal to raise funds at the end of the program’ then perhaps ‘failure is the most likely outcome’.

Most accelerators play for equity, many a time the possibility of the accelerator’s success is dependent on future rounds of funding of the startup. The selection criteria, therefore, even for an accelerator program, is the same evaluation like that of a seed/ VC investor.  There is a big crunch between seed and series A investments, says Pranay. Abhishek seconds him and says any nascent ecosystem struggles with like low availability of risk capital, hard to find time of good mentors, less success stories and lack of exits but then that is true to for the entire eco-system and not only for accelerators.

We perhaps need some program for life-style businesses too.

With the success of the accelerators being so closely tied to the success of the startups, some accelerators are doing a stellar job of raising the bar of the entire eco-system.

Sharda Balaji

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