Startups’ road crowded with new accelerators

Programs vie to put peddle to the mettle

Elizabeth Kraus isn’t shy about where she believes the startup accelerator industry is going.

“(Accelerators) are everywhere,” Kraus said. “I think that we are going to see a pretty big shakeout because there’s such a difference in the quality of accelerators.”

That hasn’t stopped Kraus and fellow Boulder angel investor Sue Heilbronner from launching MergeLane, an accelerator serving women-led startups. The pair believes their experience as investors and entrepreneurs themselves, along with the breadth of their network, will spur MergeLane to success even in the face of competition.

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But MergeLane is entering an ever-more-crowded accelerator space, one where opportunity abounds even as experts predict a market correction.

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Accelerators generally provide startups with seed investment of around $20,000 and an intensive 10- to 12-week program of mentoring and professional services in exchange for an equity stake in the company of from 6 percent to 10 percent.

Yael Hochberg, a professor at Rice University, and Susan Cohen, a professor at the University of Richmond, put out annual rankings of the top accelerators based on such metrics as the value of their portfolio companies, the ability of portfolio companies to raise venture capital after graduation, and the opinion of entrepreneurs going through the programs.

Tenfold growth

In 2009, Cohen said, there were 28 accelerators in the United States. There are now 215 according to Cohen’s and Hochberg’s records, and that doesn’t count many new kids on the block such as MergeLane. Nor does it include the hundreds of accelerators that have sprouted in other countries in recent years. Boulder alone will have no fewer than five as MergeLane joins TechStars, the Unreasonable Institute, Boomtown and Catalyze, an accelerator at the University of Colorado geared toward student-led ventures.

The value of such accelerators is difficult to measure because the industry is young and it’s too soon to tell how successful the companies will be. Y Combinator in Silicon Valley, founded in 2005, generally is considered the first modern-day accelerator, with TechStars launching in 2007 and the industry exploding from there. But if the approval rating of those going through the programs is an indication, the value is clear.

Cohen said her research last year found that 95 percent of entrepreneurs said the experience was worth the equity they gave up, and 90 percent said they would repeat the experience.

Accessing pros

There is cachet around startups that have graduated from programs such as Techstars. But it’s the access to a network of mentors who can provide entrepreneurs with guidance in the early stages of their companies that is perhaps most often cited by those entrepreneurs as the largest value.

As Krause put it, “To have dedicated time from smart people in a concentrated way is pretty valuable.”

That was the case for Ethan Martin, chief executive of recent TechStars Boulder graduate Wellhire, which provides a mobile platform for matching job opportunities with candidates to ensure a good fit for both sides. Wellhire created, developed and launched its product during the 12-week TechStars program. Another major benefit, Martin said, is the education received on raising venture capital as well as the access to investors gained through the program.

“We have some great opportunities shaping up that were really enhanced by TechStars,” Martin said.

On the investor side of the equation, the accelerators often can provide critical prescreening. But David Brown, managing partner and a co-founder of TechStars, said accelerators also have helped create a buzz around entrepreneurship that’s led people who might otherwise have kept working for established companies to create startups.

Winnowing the field

Brown is another of those who believe an accelerator shakeout will happen.

Founded in Boulder, TechStars now has 14 programs around the country and in London, including some that the program runs for corporate partners such as Disney and Nike. Of the 483 startups that have gone through the programs, 76.7 percent are still active. Fifty-three have been acquired, the exit that ultimately provides the payoff for founders and investors. And Techstars alumni have raised $906 million in venture capital.

TechStars has worked to stay at the forefront of the accelerator industry by remaining innovative, having announced over the summer an equity-back guarantee that promises any startup – beginning with 2015 participants – the chance to reduce or eliminate TechStars’ equity stake if at the end of the program they’re unhappy or don’t think it was worth it.

Delimiters

Brown said he believes many of the accelerators sprouting up won’t have the funding model to sustain the blow of an economic downturn. And Cohen, the University of Richmond professor, said there are several limiting factors to the industry.

Those include whether there are enough viable startups to sustain the boom, whether there is enough seed-stage capital to support the companies coming out of those accelerators, and whether there are enough engineers and other staffers to work at startups. Accelerators also must be wary of “mentor drain,” or not asking too much too frequently of the professionals whose participation is so vital.

Cohen pointed to Durham, N.C., where three accelerators have closed in recent years, as proof that not everyone will make it. She said those that tend to fail either have a focus that is too narrow or have chosen a market that is too small.

Cohen said she believes the accelerator industry, while still growing, will be similar to many other emerging industries, which see overentry followed by a shakeout.

“That doesn’t mean accelerators aren’t important or are in some way bad,” Cohen said. “It’s more just the natural evolution and ecology of new industries.”

Catering to women

MergeLane is hoping to find its spot in the industry by filling a sorely needed niche, although it won’t be the first accelerator aimed at women-led businesses. Others such as Springboard and Prosper are in the space already.

MergeLane will offer $20,000 in seed funding as well as mentoring and professional services in exchange for 6 percent equity. The goal for now is one cohort each year in Boulder, although Heilbronner said the accelerator might explore other markets down the road.

The program will try to address some of the unique issues female leaders face, and will have a heavy focus on executive coaching.

MergeLane will run for 12 weeks. But instead of requiring entrepreneurs to be in residence for that whole time, only the first two weeks and the last week will be onsite at First Western Trust Bank in Boulder, where MergeLane will be run. The hope there is to help draw in leadership teams that might not be able to commit to 12 weeks in residence, whether for family or other business reasons.

Heilbronner said it’s hers and Kraus’ belief that women are opting out of some key stages of the startup ecosystem – accelerators being one of those.

“If our theory is right,” Heilbronner said, “then there is a need for this program.”

Joshua Lindenstein can be reached at 303-630-1943, 970-416-7343 or jlindenstein@bizwestmedia.com. Follow him on Twitter at @joshlindenstein.