The ‘Accelerator Bubble’ will pop, but not for the reason you think it will

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By Jesse Rodgers

The incubator/accelerator market has a growing number of people watching and waiting for its bubble to pop. The reasons cited for this looming pop should be obvious: most accelerators aren’t going to perform as well as some TechStars programs and not even close to Y Combinator. Poor performance (measured in the number of short-term wins) along with the short-term nature of the funding behind most of the accelerator programs will cause them to run out of money and simply fade into startup history.

But that won’t pop the bubble.

As accelerators have become an increasingly popular way to scatter seed funding among a large number of companies, critics have noted two key developments: Companies of lesser promise are gaining acceptance, and often funding, and the quality of mentoring in the programs has decreased.

When David Tisch, former managing director of TechStars’ New York City accelerator, stepped down from his role with the program, he complained in an interview that “the majority of accelerators are not good for companies.”

I think the bubble pops when the application numbers and the quality of the people applying drops. That will happen when people no longer feel they need what accelerators offer. The leading indicator will be the poor performance of the companies coming out of the programs – the likely result of the poor quality of entrepreneurs entering the programs.

The angel and VC communities reacted to YC’s early success and latched on to the TechStars model that was viewed as a copy of Paul Graham’s YC model but open (these are the only two models for success). The experimentation with TechStars worked in terms of building a big lead list of early-stage companies and “founders to watch” who can be given a baseline education and network. That is something investors used to have to do for their early-stage investments; the TechStars model provides investors with a way to scale that early-stage knowledge transfer.

The problem is that everyone copied the 12-week TechStars model and didn’t look at what brought Y-Combinator it’s early success. It isn’t the DemoDay or the great list of mentors. It is the education process (which includes holding people accountable) that built the success and now the alumni network is allowing it to scale to a point.

When looking at the demand (indicated by the ever-growing pile of applications), it isn’t just fuelled by the popularity of tech startups and the sexiness of the moment. The demand for accelerator programs is fed by a gap in the services or product that is currently offered in the education system, globally. As building companies that require highly skilled and educated employees has gotten “easier,” the higher education system that was optimized to train PhD candidates hasn’t adjusted to the new reality.

The education industry gets this and has been learning how it can meet the need. There are a lot of experiments out there in higher education that have a long history but more recently the focus on experiential learning has seen the accelerator model meet education. The common place to find them spreading in higher education globally is to google ”Venture Lab” and skip past the .CA reference. There are 25+ of them across the globe and the number is growing.

The first generation of programs are a few years along and the next generation of programs is emerging. They range from innovation and entrepreneur streams in undergraduate and graduate programs to full-blown programs that are accelerator-like but heavily integrated into the educational experience of students. There are still many unknowns to be worked out but it is clear to me that the education system is better positioned to educate students and will eventually make most accelerator programs obsolete.

These programs will come to exist at every school and if they are done right at a few key schools the applicant pool will degrade for expensive accelerators.

This post was originally published on Jesse’s blog, Who you calling a Jesse?

 

/// COMMENTS

2 Comments »
  • Andrew Moizer

    March 28, 2013 9:04 am

    Funny, this arrived on the same day as this http://landandlivestock.wordpress.com/2013/03/26/managing-the-ranch-as-a-business-education-a-hollow-promise/.

    Given that it’s been dramatically proven how hard it is to pick “winners” in new endeavors, it’s not surprising that any accelerator program can consistently create successes. Allowing for general eduction to help create people with the skills has to make a lot of sense.

    This quote from the article above summed it up nicely I think: “If one thinks of education as being nothing more than accelerated experience so many errors could have been avoided.”

    My Dad was an architecture prof and strongly of the opinion that teaching was a lot more effective and efficient than “learning by doing”. Some of his colleagues didn’t share this view, and felt that the studio/design was more important. I’m with Dad, you need the hands-on, but being prepared first makes a lot more sense.

    So often, “Experience is what you get right after you needed it.”

    It also seemed to me, that some (at least) of the accelerator/incubator programs were designed to create cushy work for the “mentors”.

    cheers,
    Andrew

  • Jesse Rodgers (@jrodgers)

    March 28, 2013 11:16 am

    @Andrew — great comment, thanks for that! I think “learning while doing” should be the emphasis. You can enhance the teaching experience with hands on experience but it takes more resources (ie. instructors time) and resembles something more like an apprenticeship or graduate education model.

    Also, I don’t think mentors have a cushy job at all. Many lack the skills to be good teachers and are often overwhelmed by the demand. As leaders they can be great coaches/mentors to a few but often they have 30-50 entrepreneurs assigned to just one. Education institutions can do that and funnel more resources to the high potentials for a fraction of the *cost* (time/money).

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