Disrupting the Disruptors: Startup Accelerators Feel Pressure.

A decade ago, eager entrepreneurs with little business acuity and in need of funding turned to startup accelerators for help. From the outside, these programs had an air of exclusivity with the source code to build successful businesses. Now that image seems passé.

“New models are emerging on how to create ventures and scale them,” says Martin Ihrig, an adjunct professor of entrepreneurship at Wharton and practice professor at Penn’s Graduate School of Education.
The global explosion of interest in entrepreneurship has spurred the growth of tailor-made accelerator programs to service a startup culture no longer tethered just to Silicon Valley. The evolution of accelerators — business immersion boot camps that usually take a percentage of equity to help launch companies — can be found in scores of new programs offering budding entrepreneurs all sorts of incentives to join.

The original startup accelerators — Y Combinator and Techstars — have spawned a cottage industry with estimates ranging from 300 to more than 2,000 worldwide, according to business professors Susan Cohen of the University of Richmond and Yael Hochberg of the Massachusetts Institute of Technology.

The reduction of entry-level costs has played a primary role in the growth of the startup ecosystem, says Wharton management professor Ethan Mollick. He adds that the cost of launching a web-based startup has fallen by three orders of magnitude since the late 1990s by some estimates. “What used to cost $3 million to do now costs $300.”

The easy access not only has led more people to launch businesses, it also has affected the way to fund entrepreneurs, leading to questions about the value of early stage seed-fund programs.

“It used to be that VC investors were very important,” says Mollick, whose research includes early-stage entrepreneurship and crowdfunding. “When you needed $2 million to launch your website there weren’t many people to give you $2 million. You had to go to a venture capitalist.”

“The best [accelerator] programs have a substantial impact. The worst programs can probably cause damage.”–Dave McClure

Mollick says the new equation has led to competition among venture capitalists. It started with the rise of super angel investors in the mid-2000s who spent $100,000 to $200,000 on Silicon Valley pet projects before venture capitalists got involved. “They were starting to take more value of the startup because they got a big chunk of the startup early.”

Then the landscape changed again in 2005 when computer scientist and essayist Paul Graham co-founded Y Combinator, which has since graduated such companies as Dropbox, Airbnb and Disqus. Investors realized accelerator programs could get them in on the ground floor with promising

Accelerators were born out of the incubator concept that began in the late 1950s. Although many entrepreneurs use the words interchangeably, incubators generally are collectives where infant businesses share working space and resources, and get occasional mentorship. Accelerators are fixed-term programs generally lasting from three months to six months that target projects showing promise.

Accelerators help entrepreneurs develop operations and strategies with guidance from advisors and mentors, as well as providing rent-free office space and other infrastructure benefits. The programs usually culminate with graduates pitching their ideas to potential investors. About half raise capital, which are good odds considering about one in 100 startups overall get funded, according to George Deeb, managing partner of Red Rocket of Chicago and author of 101 Startup Lessons — An Entrepreneur’s Handbook.

However, entree into accelerators can cost a startup from 2% to 10% equity. Dave McClure, the founder of Silicon Valley accelerator 500 Startups, cautions entrepreneurs to choose wisely when considering a program. “The best programs have a substantial impact,” he says. “The worst programs can probably cause damage.”

similar idea with its new-model accelerator. Instead of looking for companies, it recruits what officials say are Europe’s top technologists. Entrepreneur First then partners with the talent to build a company from scratch. This is a way to attract a variety of experts to work on a specific issue.

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