A new kind of accelerator


on acceleration and startups

The modern “startup accelerator” model was popularized by Y-Combinator in 2005 as a means of taking a small group of inexperienced but talented individuals and giving them 3 months of freedom to grow ideas into businesses. It was heavily focused on software businesses and billion-dollar opportunities. The success has been unfathomable with a number of the incubated startups growing into billion-dollar unicorn companies (like Dropbox, AirBnB, Stripe, Docker, Zenefits) in a few short years. Since then the number of accelerators around the world has been growing almost as fast as the number of startups.

The YC dilemma

The essential recipe is still bringing young tech companies together with a curated group of mentors but few programs outside the valley are able to hold a candle to the ridiculous success of Y-Combinator. Whether you rank it by valuation, funding, jobs created or just revolutionary tech, Y Combinator cohorts simply stand out from the crowd.

So what are they doing differently? There are a few theories:

  • YC gets first pick: Maybe, but the team that gets first pick in the NFL draft rarely wins the SuperBowl. Plus, given the super early stage of the startups, often the company coming out resembles nothing like the one that went in. It is unlikely that they know how to pick winners through some secret magic as they too, pick a bunch of failures and also fail to pick a bunch of winners.

  • PG is a genius: Yes, Paul Graham is brilliant, I treasure some of his blog posts like gold dust. But there are loads of brilliant people and posts out there, and this brilliance is now easily accessible to everyone (interweb!). So I am doubtful that YC has a higher level of understanding than everyone else and have not shared it already.

  • Access to capital: People often make the mistake that funding=success and cite that YC companies on average get a lot more funding on Demo Day. Then why do so many still fail, and why don’t VCs just throw money at any startup to make it succeed? Also, VCs try desperately to make themselves accessible and scout the market, you will see reps at all the Demo Days of all the accelerators. So I would not cite access to capital as key differentiator.

  • Network: When talking about scaling, you always look for network effects and I think this is the key differentiator and the hidden value in the YC brand. In fact it is so hidden, that even some YC alumni fail to discover it in their time there.

Founder secrets

The hidden value YC actually delivers is its close proximity and access to founders running $5mn, $50mn, $50bn and $500bn businesses. Successful founders from decades of Silicon Valley entrepreneurs and successful founders who are now alumni. YC companies hang out together, integrate with each others’ products and ultimately recomend each other to their investors. Successful founders breed more successful founders because the best advice any founder ever gets is from another founder. I’m not talking about advice from Marc Andreesen and his days at Netscape. That’s lore from 20 years ago and most of that is already published in his blogs and memoirs. I’m talking about the humiliating and awful truth that startup founders only share with each other, and only in person, never in writing. No one blogs this stuff.

Like the guy who maxed out his credit card to bridge 3 weeks of bankruptcy to pay his employees before landing a major contract. Or the founder who cleverly used the fact that she was 6 months pregnant to her advantage during her Series A. Or the CTO that persuaded a cloud provider into volunteering $800k of free cloud credit. The story of the team that negotiated a $1mn contract before even incorporating the company. The guy that spent 18 hours a day for a month on the subway, manually signing up commuters to demonstrate growth and get feedback on his app. The dude that cleaned toilets saturday mornings to design a “find-a-cleaner” site. The founder that failed to raise a dime 6 times before landing a $20mn check. The founder that explained that enterprise sales is measured in liters of alcohol, not in phone calls or meetings. How to avoid liability in your SLAs, when to tell a customer to f*&# off, how to keep tabs your competition, how to qualify for tax breaks, how to pitch your unauthorised personal data mining software as a waste collection service and get the city council to fund it…

This kind of advice is detailed, highly relevant and priceless. That is because these founders are the ones who are 6 months, 1 year and 3 years ahead of you. The details you want to know and truth are still fresh in their minds - and they need someone to talk to, too. If you spent 3 sleepless weeks worrying about your employee option scheme, you want to tell someone who will appreciate it.

As a founder, you can’t tell your friends, family or colleagues the above things no more than you can tell your customers or your investors. Other founders are your only cathartic outlet because they are the only ones that will understand you.

How acceleration happens

Guy Kawasaki has a great presentation which tell the story of the ice-making industry. It starts with people cutting ice blocks out of frozen lakes, then moves to central ice-factories that deliver ice to eventually the home fridge-freezer. He sees each of these as “jumps” in the curve and aptly points out that ice cutters didn’t invent the ice factory and the ice factory didn’t become fridge companies. This comes back to the idea that even though they had all the customers, they didn’t see the next jump in the curve because they knew what customers wanted (ice) but did’t know what customers needed. And this is the real job of the entrepreneur.

So the entrepreneur has two objectives:

  1. Come up with a plan (customer want)
  2. Execute on the plan (customer need)

The first objective is typically called “the problem statement” or “your billion dollar idea” and usually comes from a problem the founders have identified or experienced themselves. While they will have a vague idea like “catching a cab is a bitch,” the actual pain point will not be clear until more work has been done. This is usually quite straightforward and is about asking the right questions to the right people. The guys at FounderCentric have some good flashcards on CustDev. The easiest part as most customers know what they want Books like the Lean Startup suggest that frequent discussions with customers and iterating on quick, cheap stabs at a product will help you achieve the second objective. But ideas are easy, execution is everything, right?

Ben Horowitz thinks CEOs are made, not born. I would rephrase that to say that CEOs can be made in the sense that learning from the challenges of execution can make you a great founder. But the question still remains, how do you learn from these challenges without crashing the company? VCs will tell you it is their guidance, but that is rarely true. The VC sitting on your board most likely just exited their company, exited a looong time ago or were never entrepreneurs themselves. Their memories of ‘when they were in your shoes’ will be clouded by their recent experiences and romantic view of the early days. Most VCs will give better advice in the later stages when you are looking at $100mn+ valuations and your interests are more aligned and they have as much to lose as you do in terms of equity.

Once you have decided to take a stab with your idea how do you execute? Where to stab? How hard to stab? Who to stab? And who to stab first? These questions, it turns out, are very easy to answer for people who just went through that phase. It’s like asking a guy coming down the mountain how to get up. A founder who closed his Seed Round a month ago is the best person to answer questions about a Seed Round. Five founders who closed recently is even better.

Acceleration then, is directly correlated to the number and frequency of interactions you have with relevant founders who have just been through the same execution shitstorm you see coming. Acceleration happens when you can get through that shitstorm exponentially faster than you would have without that founder’s advice. And the shitstorms just keep coming faster and getting bigger so you need access to that advice like an addict needs crack.

So while accelerators can help you get through the first few hurdles which are largely the same for any new company targeting high growth, founders need to learn how to accelerate themselves by finding founders working in similar industries with similar problems. Joining an accelerator program, you have no idea if the rest of your cohort is going to be full of billion dollar companies. Even if your incubator MD deems you special enough to introduce you to a previous cohort company’s founder, what is in it for that founder? He/she is busy, too.

A new kind of accelerator program

So with this in mind a new kind of accelerator program is born. A 6-month program run by founders who are actively running their own seed, venture and growth stage companies 1/3/5 years ahead of the cohort companies. These founder-mentors selected from London’s startup community will select the 10 cohort startups. During the program startups and mentors will be able to interact in a free-form process. At the end of the program, each startup will choose 3 founder-mentors (1 seed, 1 venture, 1 growth stage) to give 1% equity each and serve as official long-term advisors or board members.

As a result of this simple process, you will have “further up the chain” founders personally invested in helping new startups succeed. Moreover, these seed, venture and growth stage startup founders will build relationships with each other while advising and serving on boards of new startups. The goal is to increase interaction vertically and horizontally across the startup ecosystem for radically more effective network effects. A founder-mentor should not be able to accept an offer from more than 2 or 3 companies. Some equity (TBD) will also go to the accelerator program fund in exchange for the usual 15k, office space, etc.