March 11, 2015

Star incubator  

Are incubators all they're cracked up to be?. Credit: Jackman Chiu / Flickr Creative Commons

Right now, incubators and their younger siblings, “accelerators,” are hot . Business incubators started in 1959, based on a simple idea: Building a company can be slow and tedious. Food companies, for example, have to find loans, impress customers, and certify their product is safe. Working with other companies in a shared space makes these steps a little easier.

Accelerators are like incubators on steroids. They’ve only been around for eight years, and they’ve already spread to six continents.

"The interesting thing about accelerators is you can start them for very little money. So if you're an entrepreneur who's motivated to make your community better, it's very inexpensive to throw a little bit of money at some companies and sit them in a room," says David Cohen, a co-founder of an early accelerator called TechStars.

Accelerators start by giving small companies space and seed money that lasts just a few months. In that time, mentors teach them business basics and help them hit benchmarks. Then the accelerator kicks them out the door, in the hopes that they’ll scale up and make money. In exchange, the accelerator gets a slice of the pie.

These days, there are accelerators for health care ventures, education companies, energy products - and even for filmmakers and artists.

There are some major successes. Companies like Dropbox and Airbnb, which went through a program called Y Combinator in California, feed the popularity of -- and hype about -- accelerators.

"It became cool to become an entrepreneur," says Cohen. "Somewhere around the Facebook movie. You know, everybody wanted to try their hand at this." He says that as long as programs are transparent about their results, he’s happy they exist. 

Others aren't so sure this trend is a good thing. 

"They take advantage of desperate people, naïve people, and they don't deliver what they promise," says Chris Lynch, a venture capitalist who used to run companies of his own. He, too, buys stakes in young companies so he can make money. But he thinks accelerators give the false impression that there's a recipe for start-up success. 

"It's reality TV for business," he argues. "Anybody can be an entrepreneur. It's: 'Hey, you too can be an entrepreneur. It's not that hard. Here's the shortcut.' In my experience, I'm gonna be 52, there aren't any shortcuts."

Lynch sees accelerators as an industry, like any other. Because they get a percentage of young companies, they make a lot of money when startups succeed.

It might be a stretch to describe recent college grads with big ideas as desperate, but many are inexperienced. A few years ago, Karim Abouelnaga started an education nonprofit called Practice makes Perfect. His team decided to join a new accelerator for civic initiatives in Atlanta.

Abouelnaga says the accelerator was still scrambling to get off the ground. He felt it used his company to earn publicity and fundraising for itself—which meant his team didn't get the guidance it was looking for. Abouelnaga now wishes he'd done more research in advance - and says there should be some accrediting body to give successful accelerators a stamp of approval.

"There are so many of them now. And a lot of them are really flashy for people who are starting new companies. And they get really tempted to join and get involved with them, without really knowing whether the accelerators actually know what they're doing," Abouelnaga explains.

Scott Stern studies management at MIT, and describes accelerators as an experiment that's still being run. But he likes the idea in theory.

"High-quality entrepreneurship, the kind of companies that go and become large organizations that create jobs, that create new innovation—those are very rare things. And anything we can do to really create an effective ecosystem for those companies, is an important thing."

Stern cites one finding that accelerators seem to increase the total amount of investment in the city around it—even for even for companies that never join them

But he's also quick to emphasize that even the best accelerators don't generate new innovations. They can’t make discoveries or create technologies, the way that scientists and engineers can. "Foundational innovation takes time. But if all that technology does is sit on a shelf or get cited by academics for their own discussions, we are not leveraging those investments for growth over time." 

In other words, accelerators don’t build rockets. They’re just trying to design a better launch pad. 

Business, startups, Incubators, Silicon Valley

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