Philadelphia Business Journal | Peter Key | November 16, 2012
Seed groups have sprouted everywhere
Today, there are at least 134 of them on five continents and, in one case, a ship, according to Seed-DB.com.
“There has been an insane proliferation of accelerators over the last several years,” said Kerry Rupp, a managing partner with DreamIt, which is based in University City and holds programs in Philadelphia; New York; Austin, Texas; and Israel.
Most for-profit accelerators are basically variations of the same idea: If you select talented entrepreneurs with promising business ideas and work with them intensely for about three months, you stand a good chance of producing viable businesses with the potential for rapid growth.
The accelerators typically provide their entrepreneurs with a little seed funding to cover their living expenses and some costs of doing business, but mostly they provide space, networking opportunities and all kinds of advice and mentoring. In exchange, they get small stakes in the companies in their programs, which they hope will turn into big bucks when the companies succeed.
The concept seems easy to execute, but it’s not.
During a program, the people who run an accelerator are pretty much at the beck and call of the entrepreneurs in the program, and there’s a lot of work in-between programs, too. Accelerators must promote themselves so they can attract quality entrepreneurs; line up service professionals and mentors to work with the companies in their programs (as well as investors to listen to the companies pitch when they complete the programs); and finally, select promising program participants.
“I don’t think people realize how much work it really is,” Rupp said.
When they do, many decide running an accelerator isn’t for them.
“Many of them pop up for a cycle and they go away,” Rupp said.
The sheer number of accelerators has led to efforts to gather information about their performance.
The most comprehensive and the most public is Seed-DB.com, which grew out of a thesis written by Jed Christiansen for the University of Cambridge’s MBA program in 2009, according to the organization. For the thesis, Christiansen, who works for Google Inc. in London, compiled a list of all the accelerator programs he could find, as well as all the companies that had gone through them. He shared information on the list through Google Spreadsheets until last spring, when he started to clean it up and integrate it with live data from CrunchBase, a free database of tech companies.
As of last week, Seed-DB’s data showed that the 134 programs listed on it had accelerated 2,033 companies, which had created 4,840 jobs, acquired $1.6 billion in funding and generated 100 exit events totaling $1.1 billion.
Nine of the accelerators listed on Seed-DB are defunct, which the website designates by putting a red box with the word “Dead” in it by their name.
The website also lists 14 accelerators presently accepting applications for their next programs.
Seed-DB lists programs separately — for example, DreamIt’s Philadelphia, New York and Austin programs each get their own listing, as do each of the five programs run by TechStars, which was started in Boulder, Colo., in 2006. Also, its data isn’t as up-to-date or complete as the accelerators’ data on themselves.
Still, Aziz Gilani said Seed-DB’s data matches up well with a report on accelerators that he started producing but that since has been taken over by Yael Hochberg, an assistant professor of finance at Northwestern University’s Kellogg School of Management.
Gilani, who is a director at DFJ Mercury, a Houston-based venture-capital firm, did his report while he was taking part in the Kauffman Fellowship Program, which is run for up-and-coming VCs by the Center for Venture Education.
“There’s clearly a top tier of accelerators that do their job extremely well,” Gilani said. “Then there’s a middle tier of accelerators that look like they’re getting some companies funded and then there’s another tier of accelerators” having little success.
DreamIt is in the top tier. Excluding its programs this year, it has accelerated 65 companies, of which three-quarters are still in business and 22 have raised $80 million at enterprise valuations of more than $326 million, according to Rupp.
The two biggest accelerators are Y Combinator, based in Silicon Valley, and TechStars. According to Seed-DB, Y Combinator has accelerated 449 companies that have raised $1 billion, while TechStars has worked with 176 that have raised $261.8 million.
Over the very long haul, accelerators will rise and fall based on their success at producing profitable exits. The ones with high rates of doing that will attract more investors for their companies, which, in turn, will cause more companies to want to be in their programs.
With the exception of Y Combinator and TechStars, however, none of the accelerators are old and/or large enough to be judged on exits yet. As a result, entrepreneurs are judging them on how they help their companies grow and attract funding, and investors are judging them by how many of their companies turn out being worthwhile to fund.
“It’s really about the quality of people running the accelerator and the connections that they have,” Rupp said.