In 2019, I joined Forum Ventures, an early-stage SaaS fund and accelerator based in San Francisco, New York, and Toronto, as Managing Partner. I was new to the Venture world, other than being on the other side of securing funding as a founder, and a few of my own angel investments. What I knew about accelerators came from my own time spent in Forum’s program back in 2016 when I was building my second tech startup Limelight, an Experience Economy marketing platform.
While I knew Forum Ventures through my time in their program, I needed to get to know the landscape of accelerators and incubators in Canada in order to talk to prospective founders about why we’re unique.
What I quickly realized was that in most cases, accelerators and incubators are a bad deal for founders. And since that time, the deal has likely gotten worse.
Y Combinator was launched in 2005 as the first accelerator in the world (funnily enough, they were also the first to move away from self identifying as an accelerator). YC started as a response to the lack of capital for early stage startups following the dotcom crash at the turn of the century. There also wasn’t a lot of information available back then for first time founders to launch a business, and in a highly SF-based tech club, startups across the rest of the US needed an in. YC gave them that.
Soon after, Techstars (2006), Plug and Play (2006) and Seedcamp (2007 in UK/Europe) followed, and since then, countless startup accelerators and incubators have been born with the global number reaching the thousands in 2021.
Today, traditional funds are offering more accelerator-like services and support than ever before as a way to differentiate themselves in an increasingly competitive market. In addition, large corporations are either launching or sponsoring accelerators, and many accelerators are launching multiple niche tracks, creating an even more crowded space.
The result: more capital and support available for early stage founders than ever before.
There is also an abundance of information about building a company available so founders no longer need accelerators for business education. And connections to investors – the other value accelerators used to provide – are easier to make regardless of where you live via Linkedin, social media, and online communities.
All this to say, with much less of a need for what accelerators used to bring to the table (money, information, connections), and more services being offered across early stage funds, accelerators and incubators need to redefine their value in the 2022 market or founders will (and should) choose another route. Let’s dig into what that could look like.
Since accelerators/incubators often take a large percentage of equity from founders, they need to justify this by building shoulder to shoulder WITH founders, and not just running a program for them with one-off mentor advice.
So, with that being said, here are two categories that I believe accelerators/incubators are going to continue to be valuable in this year:
These accelerators have investor brand recognition (which can translate into future investment), huge communities given the hundreds of founders they invest in each year, and lots of money to go around. What they don’t have: a close-knit community or 1:1 support (there are simply too many startups in each cohort) and therefore the inability to really get to know founders and their businesses, and in turn give advice that’s right for them as people. Still a great fit for many.
These accelerators and incubators are smaller and therefore provide that 1:1 attention. The team can go deeper into your business and market and by spending more time with founders they can support on a whole other level. This type of support then trickles into fundraising, as investor introductions are made on a personalized basis, i.e. a good fit for your business. Communities are also closer, which only multiplies the support founders get. Their brands are not as well known, so if that’s what you’re after, the first category is a better fit for you.
Any incubators or accelerators that don’t fit into one of these two categories will probably struggle to provide founder value or generate meaningful return for their investment in the next few years.
There really is no reason in this current market for high performing founders to give away equity without an investment. Most founders don’t have time to sit in startup school – they need to be building their business, and they need to get support, guidance, and advice about THEIR business WHILE they build it. And community can make a material difference in founder mental health and is therefore a must have for accelerators.
If you’re thinking about going through an accelerator, make sure you’re walking into a situation that’s going to materially push your business forward. For most, that means money, support, community, honesty, partnership, and U.S. connections. That is what is going to continue to drive our Canadian entrepreneurs to make their mark on the world, as we continue to evolve into a world class ecosystem.