Connect with us

Archives

Are Accelerators Failing Startups or the Curious Case of “Zombie Startups” Jumping from One Accelerator to Another

Published

on

Zombie Startups

On Wednesday I had a chance to interact with 31 entrepreneurs in the IoT space at Plug and play technology coworking space in Sunnyvale. There were 10 companies in the Healthcare IoT area, 11 in the connected car and 10 in the home automation (IoT) space.

Plug and play has 3 sponsors for their programs including Bosch, Johnson and Johnson and StateFarm, so the companies chosen were deemed a good fit for those sponsors to help them with innovation and startup scouting.

The interesting part that was very obvious to me when I looked at the list and later spoke with many entrepreneurs was that 19 of the 31 had gone to another accelerator program before this one. Of the 10 companies in the connected home space, 3 were from the Microsoft Accelerator itself.

Of the 31 companies, 28 were outside the Silicon Valley, which makes sense (that they would want to move to the valley). Two that applied were from YCombinator as well, so, there were not just companies from tier 2 accelerators.

I asked the entrepreneurs why they felt the need to go through another 3-4 month program after they had been to one before.

The not so surprising conclusion is that for many (not all) companies, the 4 month accelerator model is largely insufficient. I did learn that most entrepreneurs did value the support, mentorship and advice provided by the accelerator program they were with before, but many had insufficient “traction” to justify a series A after their “acceleration”.

Of the over 3500 companies funded by venture capitalists in technology last year, less than 150 went through accelerator programs. Of them, nearly 50% were from YCombinator.

At the same time, over 1200 companies went through accelerator programs in the US alone last year. Of the over 1200 companies, 68% have gotten some form of funding (or about 800 companies) is the claim from the accelerators.

Which means about 650 (800 minus the 150 who secured VC funding) companies that “got funded” after an accelerator program, have not secured Institutional funding from a VC, but either from angels or from other accelerators.

If you look at the angel data from the US, of the over 4000 deals funded by angel investors in technology, < 5% or about 200 companies have been through accelerators before.

The result is that 450 companies that were claimed as “funded” after an accelerator program actually went to another accelerator.

Going back to the numbers above, if out of the 1200 companies funded by accelerators, about 450 (or 30%) went to another accelerator and 20% of them (on average) shut down, fail or close, then really about 50% of the startups from the accelerator programs or about 600 companies should be technically “funded” institutionally, but that number is 150. So, there are 450 “zombie” companies.

So the question is – what has happened to the “zombie” companies?

There are only 3 possible answers:

1. More companies have shut down that the numbers reported by accelerators.

2. Many companies end up becoming “cash flow positive” or “break even”, so they chose to not raise funding, but instead grow with “customer financing”.

3. More companies are “zombies” or walking dead – trying to raise funding, not succeeding, but not growing fast enough to justify institutional Venture funding.

I have my hypothesis, that it is #3 that makes up most of the “zombie” companies, but I’d love your thoughts.

If the measure of value that an accelerator provides (as measured by entrepreneurs) is funding, alone we are failing big time.

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Archives

Creating Artificial Constraints as a Means to Innovation

Published

on

By

Artificial Constraints

Many of the entrepreneurs I know have created new innovative startups thanks to real constraints they had. For example, I was hearing AirBnB’s Brian Chesky, on the Corner Office podcast and he mentioned that when he and his cofounder were trying to get some money to get started and the only way to keep afloat was to “rent” their air bed they had in their room. That, then led to Air Bed and Breakfast, which is now AirBnB.

This was a real constraint they had – no money to “eat” so they had to make it happen somehow.

I have heard of many stories of innovation where in the protagonists had real constraints of either financial, technology, supply, demand, economic, social or any number of other characteristics.

The interesting story that I have also recently heard of how Facebook has “pivoted” from being a desktop offering to getting a significant part of their revenue from mobile is how they were given the arbitrary constraint of only accessing Facebook via the mobile phone.

So there are ways that you can create “artificial” constraints to force innovation to happen.

Most larger companies and some smaller ones as well, have to constantly find ways to create artificial constraints – to find a way to innovate and be more be a pioneer.

While some constraints are good – lack of funds at the early stage for example and lack of resources, there are entrepreneurs that are stymied by these constraints and those that will find  a way to seek a path to go forward.

I think this is a great way for you to think about innovating in a new space. If you have constraints, find a way to use it to your advantage.

Continue Reading

Archives

The Great Mobile App Migration of March 2020

Published

on

By

Mobile App Migration

Over the last few weeks as many in the world have been in lockdown, there has been a temporary “mobile app migration” happening. There are new apps downloaded and they replaced existing apps on the “home screen”.

While some of these apps are likely temporary use, for e.g. I have 6 “conferencing apps” – Zoom, Uber Conference, Webex, Google Hangouts, Blue Jeans and Goto Meeting. That is because of the many people I have conference calls with – each company seems to have chosen a different web conference solution.

Other apps seem like they will have staying power – Houseparty, for e.g. which has games, networking and video conferencing all built into one app to keep in touch with friends and relatives.

Houseparty

The apps that have moved away from my “home” screen, which I expect will come back once the crisis will be behind us include – Uber, Lyft and all the airline apps from Delta, Alaska and United.

Continue Reading

Archives

Perseverance with the Ability to Pivot on Data: 21 Traits We Look for in Entrepreneurs

Published

on

By

Perseverance with the Ability to Pivot

There are 5 key inflection points I have noticed which makes founders question their startup, to either make a call to continue working on their startup, pivot to a new problem or quit their startup altogether.

It is at these points that you really get to know the startup founder and their hunger and drive to be successful. I don’t think I can characterize those that choose to quit as “losers” or “quitters” because of many extraneous circumstances, but there is a lot of value that most investors see in entrepreneurs who face an uphill part of their journey to come out on the other side more confident and stronger.

These five inflection points are:

  1. When you have to get the first customers to use and pay for the product you have built after you have “shipped” an alpha / beta / first version. Entrepreneurs quit because they have not found the product-market-fit – because the customer don’t care about the product, there is no market need, or the product is really poorly built, or a host of other reasons.
  2. When you have to start to raise the first external round of financing from people you are not familiar with at all. Entrepreneurs quit because while it is hard to get customers and hire people, it is much more harder to get a smaller set of investors to part with their money, if you do not have “traction”, or “the right management team” or a “killer product”.
  3. When you have to push to break even (financially) and sustain the company to path of being self sufficient. Entrepreneurs quit at this stage because they have now the ability to do multiple things at the same time – grow revenues and manage costs, and many of them like to do one but realize it is hard to do that without affecting the other. So, rather than feel stuck they decide to quit.
  4. When you have to scale and grow faster that the competition – which might mean to hire faster, to get more customers, to drive more sales, or to completely rethink their problem statement and devise new ways to grow faster. Entrepreneurs quit at this point because they are consumed by the magnitude of the problem. They overassess the impact the competition will have on their company, give them too much credit or focus way too much on the competitors, thereby driving their company to the ground.
  5. At any point in the journey, when the founders lose the passion, vision or the drive to succeed. Entrepreneurs quit a these points because they have challenges with their co founder, they don’t agree with the direction they have to take, or encounter the “grass is greener on the other side” syndrome.

While I have observed many entrepreneurs at these stages at  discrete points in time, I have also had the opportunity to observe some entrepreneurs in the continuum, and I am going to give you my observations on 3 of the many folks I have known, who, have quit.

Perseverance separates great entrepreneurs from good ones
Perseverance separates great entrepreneurs from good ones

One went back to college to finish his MBA after getting a running business to a point of near breakeven, another found the business much harder than he originally thought he would and got a job at a larger company and the third was just unable to have the drive to go past 11 “no’s”‘ from angel investors.

Over the last 8 years, if I look at my deeper interactions with over 90 entrepreneurs, who I would have spent at least 100+ hours each, I would say that of the 24 people that are not longer in their startup, the one thing that stands out among the ones that persevere is that it is not “passion” or “vision” at all.

It is the inherent belief that they are solving a problem that they believe is their “calling”. They also don’t believe that there is any other problem that’s worth solving as much, even though there may be easier ways to make money.

So most of my questions of entrepreneurs to test whether they will pivot or quit are around why they want to solve this problem (which I am looking to see if they know enough about in the first place) versus any other one.

The answer to that question is the best indicator I have found to be the difference between the pivots, the leavers and the rest.

Continue Reading

Trending