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Have Incubators and Accelerators Jumped the Shark?

startups incubatorsIn theory, incubators and accelerators are excellent concepts because they give startup entrepreneurs the opportunity to flesh out, nurture and develop their ideas. With three months of mentoring, advice, real estate and education, an incubator or accelerator can jump-start a startup’s progress and, in the process, turn an idea into a potential business.

But I’m starting to wonder whether incubators and accelerators have jumped the shark? They seem to be popping up everywhere, fuelled by the growing interest in entrepreneurship and the sexiness of investing in startups.

My reservations about incubators and accelerators spiked with the launch of Unreasonable at Sea, a new accelerator that will see 10 companies spend 100 days  travelling 25,000 nautical miles on a cruise liner, the MV Explorer. The program looks legit, and the advisors include WordPress’ Matt Mullenweg and Google’s Megan Smith. If I were a startup, I’d consider going to sea simply because it sounds cool.

So why my concerns about incubators, in particular, and accelerators if they deliver a variety of benefits to encourage and support startups? Like anything in the technology world, a good idea can quickly go from zero to 60. As a result, the quality of the entities involved start to decline, while the expectations of participants stay sky-high. At the same time, it becomes more difficult for entrepreneurs to figure out who’s good and who’s going along for the ride.

I don’t mean to be critical of the work being done by incubators and accelerators because they have become an important part of the startup ecosystem. In Canada, this kind of support is critical to harness and nurture the enthusiasm of a growing number of entrepreneurs armed with good ideas but little or none business expertise.

As the number of incubators and accelerators expand, there needs to be a way for entrepreneurs to assess their quality, focus, people involved, cost (aka how much equity you need to give away) and success. At the same time, startups need to be better educated on what incubators and accelerators do, and whether a startup should get involved.

Of the two vehicles, incubators are starting to raise more questions. An example is Thursday Bram’s recent post in ReadWriteWeb about whether incubators are necessary for a startup to be successful. Bram delicately danced on the fence before declaring that most startups could do fine with help from an incubator.

There are valid reason to scrutinize incubators because the barriers to entry are lower given they are structured to provide little or no cash to startups, who have to give up a 5% to 10% equity stake. With less skin in the game, it’s relatively easy to create an incubator by getting some office space, a high-speed connection and a few mentors who may not be involved that much.

Incubators set up “demo days” but there are no guarantees investors are going to appear or be interested. And when the three-month incubation period is over, many startups are sent packing so the next cohort can take their place, leaving many startups wondering what to do next other than retreat to the basement or the local cafe.

Call me pessimist or pragmatist but when everyone’s jumping on the bandwagon, it’s usually a sign it’s time to get off or, at the very least, starting asking more questions.

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  • http://michaelnus.com Michael Nus

    Good article. I think it’s important to offer good follow-on funding after the cohort, the way Founderfuel, YC, and TechStars do. It gives graduated teams the breathing room to take what they learned at the accelerator with some runway to get to their next milestone. Accelerators that offer little to no funding need to get this.

  • Michael Cayley

    Good questions Mark. Feel free to send startups our way. They can use Cdling Scores to compare the networks of incubators and accelerators based upon who leads to investment capital. The money is key to survival, but it is also a good indicator of the other factors required to move a startup towards success. No introductions to customers or partners or good advice on product development or business modeling, than the money is unlikely to follow.

    • http://www.markevans.ca/ Mark Evans

      Will do. Thanks for the comment. Mark

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    Feel free to send startups our way. They can use Cdling Scores to
    compare the networks of incubators and accelerators based upon who leads
    to investment capital.