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Content Makes an Accelerator Successful, Not Just Space and Money

(Note: This post originally appeared on Aloha Startups, but it's important to get everyone in Hawaii's tech community weighing in on this topic. Please add your comments and continue the conversation. Also, if you have thoughts about Hawaii's first accelerator, which was recently announced, email Rechung Fujihira with your ideas.)

Seems like every other person I talk with has a plan for a local incubator or accelerator aimed at helping Hawaii's startups. There's accelerator talk on almost every island, there's interest in a social-impact incubator, there's an idea for a live/work incubator, and there was a chat about Hawaii's first accelerator at last week's Wetware Wednesday. Even the state government is getting into it—in a good way, for once—with the passage (yay!) of HB2319 mandating a "Venture Accelerator Program," and establishing $2M in venture accelerator funding. (It's currently awaiting the governor's signature.)

While it's awesome that so much effort is being put into helping our startups grow and flourish, it starts to make you wonder how many such programs can Hawaii support? Are there enough startups to go around? Do we have the expertise locally to run it? Will we need to bring in a portion of the entrepreneurs from the mainland (which is a great idea, IMHO)? And how does this exacerbate (or help?) the "lack of talent" that so many local companies lament?

Accelerate vs. Incubate

In many of the conversations I've had, there still needs to be a clearer understanding of the difference between an accelerator and an incubator. The terms are frequently used interchangeably, but are far from the same thing, so let's get this straight (for the most part...):

  • An incubator helps to incubate ideas into startups, sometimes with money in return for significant equity (~20%, maybe more), and usually with workspace, connections with potential partners and co-founders, education, networking opportunities, advisers, and professional and other support. The term of incubation can last several months to several years. Incubators tend to be localized and supported by governments and/or universities, but not always (Y Combinator is trying out a new program that let's teams apply without ideas).
  • An accelerator takes very early-stage startups (i.e. have a product, a plan and a team) and helps to accelerate their transition into a viable business, almost always with investment (<10% equity plus access to more investors), high-potential connections and networks, professional support, workspace, and valuable mentoring, guidance, and education. Accelerated companies are usually expected to "graduate" within a few months to a year. Y Combinator, 500 Startups, and TechStars are a few the more well-known tech accelerators.

While even the entities themselves frequently use the terms interchangeably, Inc. magazine has a good article on the differences, Brad Feld had this to say (YouTube, starting at 0:45), as does Pittsburgh Ventures (disclosure: I grew up near Pittsburgh and put a premium on any website whose favicon is a Steelers logo) and many others.

Beyond the terminology and scope, they both have one similarity: it's not just a space to work and investment, it's a complete program.

It Takes More than Cash and a Desk

The key components, regardless of what it's called, are the formalized and structured opportunities for networking, guidance, education, and mentoring during the program. Workspace is great, but it's no different than working at a Starbucks if it doesn't come with access to experts, entrepreneurs with experience (in both success and failure), back office support, sources of funding, partnership potentials, and just straight advice.

You see, the whole purpose of creating a "space" for startups is to foster relationships that benefit the startup. Without providing connections, expertise, experience and networks that the entrepreneurs can't get at a coffee shop, it's really nothing more than a shared workspace. And, without creating some sort of application process to accept only those who are serious and capable, it's not an accelerator or incubator, it's a co-working space.

Don't get me wrong, co-working spaces are fantastic. They fill a valuable niche and give entrepreneurs, remote workers, and others a nice, professional space to get some work done. There's also opportunity to make great connections and learn something, but it's usually by chance, not by design, and definitely not required.

Done Right, Accelerators Enhance a Team's Skills

Look at what Y Combinator offers to their companies, and drill down to their list of speakers: it has names like Marc Andreessen, Marc Benioff, Jack Dorsey, Shawn Fanning, Reid Hoffman, Guy Kawasaki, Stephen Levy, Mark Pincus, Jeremy Stoppelman, Stephen Wolfram, and, well, you get the idea.

Sure, most of those tech "celebrities" live or work within a few miles of Silicon Valley's accelerators, but it creates a challenge for Hawaii accelerators to develop the right programs featuring the right people. Should they use all local expertise, or bring it in from the mainland? Should they focus on tech, or areas where Hawaii already has vast talent? What should the startups expect of their mentors and of the curriculum? Should they expect to meet with Instagram and Zynga founders, or local execs from Hawaiian Airlines and non-tech successes like Sig Zane?

How are others doing it?

AlphaLabs, for example, provides weekly educational sessions with access to and advice from late-stage startup entrepreneurs, high-level execs from companies such as Microsoft, professors and researchers from local universities, and, of course, venture capitalists. They also provide attention and hands-on support from the AlphaLab team, staff, mentors and advisers, and the local business community.

Momentum Michigan provides a 12-week bootcamp program filled with events and networking opportunities.

TechStars goes further by providing more tangible support, like $5,000 in communications consulting, $10,000 in Paypal processing fees, $25,000 in AWS hosting services, and more. (Very similar to Startup America's perks...)

500 Startups provides resident mentors and designers who "live and breathe with startups at the accelerator. They give talks, hold office hours, design reviews, hack on product, and provide ongoing support and guidance."

Yetizen, a creative accelerator focused solely on gaming startups, focuses on four pillars of their approach: Education, Partnerships, Investors, and M&A (exit strategies).  They also offer a deep bench of hands-on expertise, with mentors from Disney, Sony, Google, Visa, and more.

To Improve Success Rates, They Don't Accept Just Anyone

Most of the top accelerators also have rigorous application processes. TechStars claims "selection rates lower than the Ivy League," has 25 deep questions on their application page, and requires videos and details of the company's monetization plans.

Y Combinator asks thought-provoking questions that quickly weed out those who have a half-baked idea, haven't done the research on their viability, or just plain don't have the skills:

  • Please tell us about the time you most successfully hacked some (non-computer) system to your advantage. 
  • What do you understand about your business that other companies in it just don't get?
  • How do or will you make money? How much could you make? (We realize you can't know precisely, but give your best estimate.)
  • How will you get users? If your idea is the type that faces a chicken-and-egg problem in the sense that it won't be attractive to users till it has a lot of users (e.g. a marketplace, a dating site, an ad network), how will you overcome that? 

It's also apparent that, to be even considered for a program, you need more than just a great idea. You need the skills, you need to have thought it through, and you need to have created some sort of plan. (It's funny to hear early entrepreneurs as they bash advice to think about their go-to-market strategy or to create rough revenue projections. Sure, everyone knows that they are just guesses, but you need to have an informed guess to be taken seriously.)

A comprehensive application and vetting process is a lot of work for both the startup and the accelerator, but it creates a high bar that helps to improve the long-term success rate of graduates. It also increases the learning by osmosis. If you're a stellar team with a real shot at success, do you want to work alongside a lackluster team with a half-baked idea and wavering commitment? No, you don't.

Garbage in, garbage out, right?

What Should Graduates Expect?

For most tech incubators and accelerators, the "graduation day" is a demo day, complete with press coverage, top-tier judges or feedback, and access to additional funding. That last bit is key, especially in tech.

TechStar grads average over $1M in outside venture capital raised after leaving their program (totaling $155M to date). BoomStartup, in Utah, holds an "Investor Day" with private investors, angel groups, venture capitalists, banks and other members of the ecosystem. Y Combinator's latest batch of grads all received an additional $150k from prominent angel investors. Launchpad LA, in Los Angeles, has had 33 graduates, of which 27 raised more than $100M, combined, mostly based on connections made by their participation in Launchpad.

While the experience of the program should stand on it's own, should success also be measured by a grad's ability to secure additional funding? In the tech world, that's almost always the case. But, in Hawaii, there's a clear lack of investors and investment. So should Hawaii's accelerators focus on different types of companies and expect different outcomes?

It sounds quaint these days, but what about incubating a non-tech company whose goal is a great product that drives profit, not VC investment? Would that take considerably more resources from the accelerator? Is tech the only sector sexy enough to get interest?

An Exciting Time for Hawaii's Startups

It's an exciting time to be a startup entrepreneur in Hawaii. From Wetware Wednesdays to Startup Hawaii, and Startup Weekend to accelerators and incubators, the opportunities for local startups to connect, grow, and succeed are becoming bigger and brighter. We're seeing more and more startups grow beyond the idea stage, more entrepreneurs getting the connections and experience that they need, and more reason for talent to stay in Hawaii and help grow the startup ecosystem.

Regardless of how these first incubators and accelerators perform or how long they last, it's all pushing us in the right direction. Being a startup entrepreneur is a gamble, and most fail. But, that failure is a learning experience.

For incubators and accelerators, it's the same. There might be a few that win and a few that fade away, but it's critical for Hawaii that they continue to try.

What do you think? There are a lot of unanswered questions in this post, so add your thoughts to the comments below...

Aloha!

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Comment by Daniel Leuck on August 7, 2012 at 4:41pm

The data on Ben Franklin Technology Partners's economic impact on Pennsylvania is very interesting. Thank you for sharing.

Comment by Arthur J Grau on August 7, 2012 at 4:46am

With the quality and prevalence of online video sharing etc and speed of high quality networks, I am wondering if Hawaii can use the tools to wean ourselves from the constant brain drain and looking over our shoulder to the mainland. Should the big bucks get approved, A way to build local expertise might be to require a one-on-one mentorship, joining a mainland expert and a local expert in working pairs, for the creation and delivery of the startup program itself.

Comment by Jason Rushin on June 19, 2012 at 12:50pm

@Brian - Pennsylvania's Ben Franklin Technology Partners probably has the best data on their overall economic impact: their programs have generated over $9B in economic activity, over 10,000 jobs, and over $500M in state tax revenue, which represents a 3.5x payback on the state's investment.

Their accelerator in Western PA is AlphaLab. I spoke with their director recently and wrote about their program in another post on AlohaStartups.com. They are a great model, and have really leveraged and focused on local resources.

@Ron - Thanks for the like and the great points! :-)  IMO, we can't sustain a pure tech model right out of the gate and should broaden the focus a bit. The $2M in state funds calls for one accelerator to be focused on creative media, so that's a good alternative. There's a lot to be said for startups that can still scale but are just tech-enabled over tech. I gave some examples, but I think we're on the same page.

There's also support for your comment on makerspaces. Encouraging that techie mindset can help spur startups that might be more in the Pebble Watch or Juicies physical product realm, but still have the ability to generate wider economic activity for Hawaii. A great local example is Nella Media Group, a publishing startup in Chinatown that is doing phenomenal work for Mokulele Airlines and some local hotels, but focuses on print media.

I'm finishing up another post for AlohaStartups.com on CO.LAB, an accelerator in Chattanooga that started with a very non-tech focus on artists, but has expanded into essentially accepting any qualified team. It should be up by early next week...

Comment by Ron Lunan on June 17, 2012 at 4:51am

@Jason - I wish there was a like button for this post.  

Just like an entrepreneur, if progress is being made, no matter how small, Hawaii will succeed at developing effective resources for entrepreneurs like accelerators/incubators.  It's close.  I think everyone can feel that. 

Incubating non-tech startups has been on top of my mind lately as well.  It's not sexy, and less proven than tech incubation.  I think the key difference is that a lot of tech startups share many of the same needs and resources while those of a non-tech startup would run the gamut from manufacturing to publishing to distribution, etc.  That would certainly pose a challenge when trying to develop a network of support for your mentee's.

I read a lot of Jerry's stuff.  His talks about Makerspaces really excites me.  I think they hold a lot of potential for the type of development you referenced above that's focused on profits and not VC investment.  The ball is being dropped in this arena and could quite possibly be the bridge Hawaii needs between nothing and a local high tech ecosystem.


I think the key to all of these questions is to bring the community together first.  Easier said then done, I know.  Once you've done that you'll know what you're working with.  Start there with the resources and people you have.  Then, as time goes by, and your network grows, begin to fill out the bigger picture with quality mentorship for non-tech products or 

Comment by Brian on June 15, 2012 at 6:48pm
@ Jason

Possibly. Do you have any examples of places that has happened? What's happening right now in Texas, Utah and Colorado suggests to me that the broader suitability of an area is more important than specific tech accelerations.
Comment by Jason Rushin on June 13, 2012 at 8:47am

@Jerry - You bring up a good point about the islands beyond Oahu: most of the startup and accelerator talk tends to focus on Honolulu. I do remember hearing about an accelerator on Maui that fell through, and have heard talk of one for the Big Island. I think that, to be competitive and effective, these initiatives should invest in collaboration tools that enable the startups to work with and learn from mainland expertise as well as neighbor island colleagues.

You also bring up good points about the makerspaces. I'm a firm believer that a Silicon Valley-type accelerator will have a tough time here, so Hawaii's versions should have a broad focus along the lines of what you mentioned. Most of the other non-Bay Area accelerators that I've spoken with have consciously included manufacturing, food, artistic, and other business types that their regions can better support. As long as there's job creation and economic activity, the local resources should drive the focus.

@Brian - Good points - it's going to take more than a few accelerators to change the economics of our state. But, it's a good place to start, and hopefully will attract the right types of talent and investment that will, in turn, spur advancements in local education, housing, and other areas.

Comment by Jerry Isdale on June 13, 2012 at 12:21am

Excellent post. I referenced it in my discussion post in MauiTechies group on maker, coworking, incubators, and accelerator spaces.

Maui and the other islands dont see the startup weekends or have existing co-working sites as you do on Oahu. We do have a makerspace - akin to HiCapacity in Honolulu, with potential spaces starting on Kauai and Big Island. Makerspaces are shared workshop where people learn to use equipment and then use it for personal projects and often prototyping for business startups.

I am a firm believer that spaces like these will play a big part in changing the economy and educational system, not just here but across the USA and around the world.   There is a revolution in manufacturing occurring with small scale systems that allow for small production runs and prototyping locally.  3D Printers, laser cutters, desktop cnc mills, vacuum forming, advanced embroidery and sewing machines, and similar may not be something an individual would buy to start a business with out prior experience.  A makerspace provides the opportunity to learn.  There are hundreds of small businesses that have started out of makerspaces around the country.  Some are now multi-million dollar enterprises.

We need to educate our population in these distributed production techniques - as well as small scale agriculture and energy that can help Hawaii achieve a more 'sustainable' economy.    There is a USGovt funded program to establish makerspaces in 1000 high schools across the country over the next 3 years.  We need to get several of these here - and make them available to adults as well as kids.

A population educated in modern tech will help create new small businesses and jobs -- often addressing many of the issues Brian brings up - environment, housing, etc.

Comment by Brian on June 12, 2012 at 11:33pm
I think your post is very well-formed and sourced.

I had a longer post but Safari ate it, so bluntly let me say that I think a core issue is we are too focused on startup weeks and tax credits and missing the bigger issues like.. Lack of affordable middle class housing, some of the worst schools in the nation, traffic, and so on.. Not to say the former don't matter but they're not the whole solution.

We need an environment that doesn't just make itself attractive to companies but does to the actual employees as well. Hawaii risks turning into California - a state devoid of middle class with only the established elite and our plantation-esque hospitality workers. Much like SoCal if your parents didn't buy into Kahala, Manoa, etc odds are you won't be able to.

Everyone likes to point to Kapolei as the solution but that's still decades away from becoming a vibrant community (and who really wants to live there?). Decades of luxury condo developments catering to wealthy retirees and the Japanese market have seriously hurt middle class housing in our urban corridor. I think this is something that could be solved with developments targeting younger middle class and owner-occupancy restrictions.

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