Ten years ago, entrepreneurs with a lack of business acumen and urgent need for financial support often sought help from start-up accelerators. From the outside, these accelerator projects have a strong exclusivity and control the source code of successful companies.
However, now this image seems to have become a thing of the past.
“A new model for creating businesses and achieving their scale has emerged,” said Martin Ihrig , an adjunct professor of entrepreneurship at Wharton and a professor of practice at the University of Pennsylvania Graduate School of Education .
The entrepreneurial enthusiasm of the world is unusually high, which has spawned many customized accelerator projects and no longer meets the entrepreneurial culture closely attached to Silicon Valley. The upgraded version of the accelerator is a commercial immersion training camp that helps companies start with a certain percentage of the company’s equity. This model exists in many new projects, attracting new generations of entrepreneurs through a variety of incentives.
According to Susan Cohen, a professor of business at Richmond University, and Yale Hochberg, a professor at the Massachusetts Institute of Technology, the most qualified entrepreneurial accelerators, including Y Combinator and Techstars, help families around the world. There are as many as 300 to 2,000 handicraft companies.
Wharton management professor Ethan Mollick said that the reduction in entry costs has the most important impact on the growing ecosystem of start-ups. He also said that some people estimate that the startup costs of online start-ups have dropped by three levels since the end of the 1990s: “Things that used to cost $3 million can now be done for as little as $300.”
Lower thresholds on the one hand make more people willing to set up businesses, on the other hand, they also affect the way of funding for entrepreneurs, and at the same time question the value of early seed fund projects.
“Once, the status of venture capitalists is very important,” Morik said. His research includes initial entrepreneurship and crowdfunding. “When you need 2 million to start a website, there won’t be many people willing to give you 2 million. You have to go to venture capitalists.”
Morik said that the new game law has created competition among venture capitalists. This situation occurred around 2005, with the emergence of super angel investors. This type of people invested 100,000 to 200,000 for the Silicon Valley seed project before venture capital investors intervened. “They got more rewards from start-ups because they got a big shot from it very early.”
Then in 2005, things changed again. Computer scientist and writer Paul Graham co-founded the Y Combinator. Since then, they have hatched a number of companies including Dropbox, Airbnb and Disqus. Investors realize that the accelerator project allows them to get involved in those companies with good prospects as soon as possible, gaining a dominant position and taking the lead.
Incubator grows stronger
Accelerators were born out of the concept of Incubator that emerged in the late 1950s. Although many entrepreneurs use both words at the same time, incubators are collective. Budding companies share office space and office resources, and occasionally have seniors guide one or two. Accelerators are projects with fixed deadlines, and the time span of target projects revealing prospects ranges from 3 months to 6 months.
Accelerators assist entrepreneurs with the guidance of consultants and mentors to develop their business, develop strategies, and provide rent-free office space and other infrastructure benefits. Such projects often bring together a group of graduates who want to use good ideas to attract potential investors. According to George Deeb, about half of these people have access to capital. This is already very good, because in general only one out of every 100 startups can get funding. Bo was wearing a Chicago Redstone (Red Rocket of Chicago) the company’s managing partner, and created and published “101 business class – an entrepreneur Handbook” ( 101 the Startup Lessons – An Entrepreneur’s Handbook ) book.
However, joining an accelerator may mean that a startup will have to pay 2% to 10%. Dave McClure, founder of Silicon Valley Accelerator 500 Startups, warned entrepreneurs that they should choose projects wisely. “Best projects have a huge impact,” he said. “The worst projects can cause losses.”
Techstars Inc. of Boulder, Colorado, was founded in 2007, following the pace of YCombinator. In the past 9 years, Techstars has become one of the world’s most important accelerators, with projects in Berlin, London, New York, Cape Town, Tel Aviv and other places. “A decade ago, if you want customers to pay, you have to move to Silicon Valley.”
Techstars said that once all startups are accepted by their accelerators, they will automatically receive a $100,000 redemption voucher. The voucher can be exchanged for a pre-trade valuation of 3 million to 5 million (external funds entering the previous valuation or the latest round of financing valuation).
Those who join the project give up 6% of their common stock in exchange for loans, while enjoying Techstars resources for life, 3 months of hands-on coaching and office use, 20,000 living expenses, and more than 5,000 experts.
One of the instructors at the beginning of Techstars, Dai Bo, is a staunch supporter of this model, actively recruiting start-ups in the early days. The Techstars Chicago division selected 10 companies from 1,000 applicants. In this way, ensure that the voices heard by investors come from the most potential startups.
Of course, well-known accelerator projects are not the only way to get funding and support. The collaboration between Techstars and some big companies reveals another model in this ecosystem. Since 2015, Techstars has worked with major companies such as Barclays, Disney, and Sprint to create accelerator projects for each company.
At the beginning of 2016, although Disney did not renew the contract with Techstars, it still retained the start-up accelerator project. Kevin Mayer, executive vice president of corporate development at Disney, once said that companies are not like the typical venture capitalists, investing in start-ups is not for quick profit. The entertainment company is more interested in creating cutting-edge products that can be applied while reinventing leadership by continuing to stay at the forefront of innovation.
The company’s leadership believes that it is entirely possible to train and support aspiring entrepreneurs to become part of the company’s internal innovation projects, rather than spending millions to buy innovation afterwards. “Accelerator operation is a strategic decision that allows large companies to keep up with the times and competitive in a rapidly changing economy.” Zack Weisfeld, general manager of the Microsoft Accelerator Program, wrote for Forbes magazine this year. This is written in the review article.
Big business endorsement
Charles Bonello is an expert on entrepreneurs, investors and start-ups in New York. As a co-founder and general manager of Grand Central Tech, his role is a typical subversive.
His start-up center in New York City provides the company with a one-year project that does not charge any rent or equity. Their unique feature is that the company that completes the project needs to rent a four-year office space on this accelerator. They are able to provide 1.1 million square feet of office space and the building overlooks the Central Railway Station. The owner of the office building is also the gold owner behind the accelerator project – the New York real estate giant Milstein Properties with over 100 million assets.
Bonaro has worked hard to create a career through continuous cooperation with companies and entrepreneurs. At Grand Central Tech, he and his team want to build rich types of start-ups in a shared environment. “Our goal is to make New York’s best technology companies a community of destiny.”
Many start-ups that join Grand Central Tech are not for seed funds. What attracted them was that the project has many well-known corporate partners, including Google, IBM, L’Oreal, Microsoft, PepsiCo North America and JP Morgan Chase.
Bonaro and partner Matt Harrigan have long been looking for potential companies to solve specific problems. The start-up company they founded was Nagare Membranes, who was involved in the development of water filtration technology. By bringing together entrepreneurs with similar ideas into the same office, the two hope to solve this problem.
However, some researchers have warned that blindly accepting the enthusiasm of private entrepreneurial leaders and developing a cluster of entrepreneurs locally may change the face of the economy.
“Looking at emerging markets, many people see entrepreneurship as a means of solving unemployment,” says Wharton professor Irig. “But the question is, from the statistics, can start-ups and incubators really create jobs? There is quite a lot to do. There are still many jobs that are outsourced to other countries, such as India’s IT industry.” Wharton Professor Morik of the college also said that although social and political leaders are eager to accelerate business development in the region due to multiple motives, “but it is still unclear whether it works.”
Despite this, doubts about the value of entrepreneurship have not ignited the enthusiasm of all parties. Even the Obama Administration’s “Startup America Initiative” project draws heavily on the basic concepts of accelerators to drive the development of small businesses across the country.
Entrepreneur First, the accelerator from England, has the same idea for the new mode accelerator. They are not looking for the right company, but recruiting talent, the so-called top European technical talent. Entrepreneur First then worked with these talents to start a company from scratch. This model has attracted a large number of experts to study specific issues.
The first batch of accelerators will recruit companies of all types, rather than focusing on certain types of industries. But as the number of projects increases, they will be more cautious when choosing to accelerate their target companies.
Benjamin Böhle-Roitelet found that there is a place in southwestern France that fits the development of its own accelerator Blue Builder. This accelerator specializes in the development of marine and other outdoor sports. The company is located in a picturesque fishing village of Saint-Jean-de-Luz, in the heart of the Basque Autonomous Region. Nestled at the foot of the Pyrenees, it is ideal for testing all types of outdoor extreme sports.
This accelerator from France provides a venue for many prototype studios and workshops and is a safe place to test new materials. For example, some polymers and synthetic resins used to make surfboards and snowboards.
“Some places are suitable for starting a company, some are suitable for funding, and some are suitable for helping start-ups achieve business,” says Lottle. “Places like St. Jean de Luz are great because they are close to the market and the audience, unlike the large entrepreneurial ecosystems like Silicon Valley, which are full of temptations and noise.”
For industries such as extreme sports, it is more important to be close to the core audience than to find a reliable sponsor. Lottlet also believes that such entrepreneurs are very committed to their own way of life, and the products they are committed to improve are also used by themselves.
Blue Builder doesn’t have a long-term project. It doesn’t set the “road show” like many other accelerators. They will work with entrepreneurs on specific projects until the product is truly in front of investors. Accelerators provide brand designers, user experience planners, business developers, and financial and legal experts to these creative pioneers. Develop a product over the course of a year to increase the chances of success. For example, a sensor that can measure surfboard motion data in real time.
Lottle’s team will determine how much equity should be held based on the valuation of each company, rather than setting a uniform entry ratio at the outset.
The role of the government
Muhammed Mekki is one of the founding partners of AstroLabs. He spanned more than half of the globe and brought his business from the United States to Dubai, United Arab Emirates.
For the Iraqi-American, the founding of the company is significant, allowing him to continue his MBA while partnering to build Silicon Valley technology start-ups. AstroLabs and Google have partnered to create a start-up center that trains students and is committed to bringing online and mobile services to the Arab world. The cooperation between the two sides is not surprising. Because Google’s “Google for Entrepreneurs program” is designed to promote start-ups around the world. AstroLabs also has strong government support. In order to create jobs in the 21st century, local and regional governments have contributed to the success of such projects.
“This is part of the culture. Once it becomes part of the culture, it becomes part of the ‘government’ and promotes the idea of start-up thinking,” says Bambi Francisco. His company Vator is one of the main social networking platforms dedicated to entrepreneurs.
In 2011, the Chilean government decided that the best way to promote local entrepreneurship is to build its own accelerator. The Ministry of Economic Development and Stanford University experts jointly researched and created the Chilean Entrepreneurship Project (Start-Up Chile). Government officials provided $40,000 in non-equity capital, infrastructure and one-year work visas to entrepreneurs from around the world, giving them six months to set up a company. The project will also open the Chilean financing network to a number of start-ups.
The government hopes that entrepreneurs who come here will become role models and form a Chilean start-up culture. “I know that a lot of people have participated in the Chilean entrepreneurship project, but as far as I know no one is staying,” Morik said.
Diego Saez Gil from Argentina was the first entrepreneur to join the Chilean entrepreneurship project. He won the seed fund for his last company, WeHostels. The mobile-based hotel reservation social app was sold shortly after launch. Jill was attracted to this project in Chile because he hoped he could contribute to the entrepreneurial ecosystem in Latin America.
But his newly founded company is located in Silicon Valley, which also validates the views of Wharton’s Professor Morik. However, Morik believes that from around the world, locally-developed accelerators can provide a valuable financial service because of the lack of diversity in Silicon Valley. “There are problems with traditional sources of financing. Frankly speaking, Y Combinator and Techstars are no different. Most of them only support males, white males, and white males from famous universities.” Morik said: “Either only these talents are Interested in starting a startup, or the system itself is biased.”
He added that the average distance between venture capitalists and the people they invest in is only 80 miles. “So, if you’re not in San Francisco, New York, or a few other places, it’s hard to get financing.” He also expressed doubts about some of the accelerator financing. Their marketing perspective may be very accessible, but the goal is still “the same, almost all white, almost all men, almost all in coastal cities, almost all of them already holding resources. They are Y Combinator and others. “Most of the people in the project.” Morik said: “The accelerators are generally developed in European cities, because many people are blocked from financing channels and support systems. These systems are only in the United States. A few lucky ones serve. But you can’t just copy Y Combinator and expect it to work.”
Comprehensive entrepreneurial means
The University of Pennsylvania is pioneering a new approach to entrepreneurship: combining academic applications with practical experience. Karl Ulrich , Wharton’s associate dean of entrepreneurship and innovation, said that universities are now at the best time to start a business, because universities are close to talent, making it easy to test products and collect feedback.
“We encourage students to develop their own projects while they are in school,” Ulrich said. He is currently responsible for guiding the Knowledge and Strategy Management Research Initiative (SEM-K) at the Wharton School’s Snider Entrepreneurial Research Center. “They can try a variety of fresh ideas and consult a professor when there is a problem.”
Penn’s Graduate School of Education has launched the first Master of Management in Education and Entrepreneurship in the United States. The school also helped to create an educational planning studio that integrates incubators and seed funds to serve educational start-ups. Entrepreneurs who choose this incubator can receive guidance from professors at the Penn Graduate School of Education to find out what’s new in their areas of interest. However, this incubator cannot obtain a degree.
The two-pronged entrepreneurial model has academic support, attending a master’s degree at school or joining an incubator program, and this is not limited to educational start-ups. “We can also incorporate universities into the entrepreneurial ecosystem to apply research results to practice,” says Irige. He is also one of the academic directors responsible for the creation of the Master’s program at the Graduate School of Education.
However, Jill does not believe that a degree is essential for students who are eager to do business. “Maybe if you think you want to start a business, you should do it.” Jill is the co-founder and director of Bluesmart. The project is also a travel product start-up for Y Combinator.
Francisco believes that it is easier to start a startup than ever before. Her company Vator (short for innovator), a social networking platform that serves startups, is an example of how the seed fund’s environment has changed.
Founded in 2007, Vator has held entrepreneurial conferences in Los Angeles, London, and Oakland, California, and has finally reached an investment partnership. One of Vator’s funders is the Silicon Valley red man Peter Thiel. His most famous investment was in 1998 when he invested in PayPal, became Facebook’s first external investor, and co-invested in data analysis giant Palantir Technologies. Francesco said that what the accelerator provided ten years ago was exactly what this emerging ecosystem needed. “When it was time, their value proposition was particularly accurate,” she said. “They can introduce you to so many investors. But there are a lot of resistances.”
In 2015, Techstars launched an equity recovery guarantee program to address people’s hesitation in accelerator projects. Due to the large number of competing accelerators, there are many other ways to get investors’ favor, and Techstars will now provide an opportunity for start-ups to reduce the share of shares that need to be abandoned by start-ups or even give up. If you are not satisfied with the conditions proposed by Techstars, the startup may reject the style contract proposal within three working days after the termination of the program.
However, Francisco also saw a more fundamental problem in the new business. “The value proposition of the accelerator has been reduced,” she said. “In addition to this, there is a lot of information and a large number of investors. Now it is no longer necessary to get rid of the head in order to gain the favor of a small number of investors, because the capital is quite abundant.”
For example, Vator has launched about 175 new companies in the past five years through a startup competition. The winners of the competition competed for investors in the final stage, just as the Accelerator’s Road Show Day did. Francisco said that Vator’s startups have received $700 million in investments and have not sold any equity to the funders.
Oversupply of accelerators may also lower their overall value. But this does not include the largest accelerators and accelerators that meet the professional market, such as Blue Builder in France. One example of this trend is the June 2015 Techstars acquisition of another accelerator, UP Global.
“The incubators and accelerators are too many, and some of them will inevitably be merged or disappeared.” Irig said: “Only the best will survive.”
Entrepreneur veterans are not the only ones who have doubts about the old model. Entrepreneur recruits, Erica McLain of Palo Alto, Calif., question whether immersion entrepreneurship projects are valuable.
“Accelerators are extremely expensive to get capital.” She said: “If you have never started a company before, this is a good blessing. Maybe you need it to help you. If you need more powerful The network and want to consult, then this is the key that the accelerator can provide to you, it is worth 7% for you to sell.”
The company founded by McLean is called PATHworks. She said joining the accelerator project means your company is not yet mature. “If you are a tried and tested entrepreneur, or if you have worked as an engineer at Google and your company is growing fast, then the accelerator may even become a negative signal when you stand in front of a venture capitalist, letting people know you. Already gave up 7%.”
However, the 2008 Olympics triple jumper still believes that the entire application process will be of great benefit to anyone. McLean has applied for an educational technology accelerator called Imagine K12 and gained valuable experience. She entered the interview phase of the Silicon Valley accelerator, but ultimately failed to win. “In any case, the question they ask you is what every entrepreneur needs to think about.”
When McLean answered the application for Imagine K12, she had spent 10 months running her own summer after-school education profit program. The project promotes STEM and language and literature education by organizing sports events.
“But I didn’t answer the questions in the way they asked questions.” The Facebook operations manager said: “It takes a lot of effort to spend 6 hours. If you walk into the angel investor’s office, you will be asked. The same problem. If you haven’t seriously considered this issue, then looking for a VC may not be your best way.”
Wharton’s Morik also believes that the accelerator needs further self-examination. He said that they did not really take the time to analyze their own values and contribute to the promotion of business development.
“The biggest gain is whether the accelerator itself is chosen by the accelerator itself?” he asked. “Is the guidance I get from it? Is the investment I get? Is it a roadshow day? I don’t think the accelerator is doing everything it can to learn more. They have their ideas, but I don’t know if they will collect data to see which It is feasible and what is not.”
The future of Silicon Valley
Looking to the future, as technology ports around the world come to the fore, is Silicon Valley’s status as an innovation center showing signs of being divided? Some industry experts think so. Today, Bangalore, Beijing, London and Los Angeles can all see thriving start-up communities. All of these places are filled with entrepreneurship that is no different from Silicon Valley.
“Some people say that Silicon Valley is unrepeatable and cannot be defeated,” McClure said. “These two statements are all wrong. In 10 years, if Beijing is more active than Silicon Valley, I will not be surprised.”
It should not be surprising that an area that is proud of the “subversion” industry through innovation will experience the same subversion. In many ways, this is part of the natural evolution. It is this evolution that has made the San Francisco Bay Area a global economic engine with many stars such as Apple, Facebook, Google and Twitter.
However, Morik opposed the arbitrariness of ignoring the influence of Silicon Valley. “Starting a business elsewhere is becoming easier. But there is no doubt that Silicon Valley is at the heart of entrepreneurial activity at any stage, especially for the online software services industry. You can start a business anywhere. But you can start a business anywhere. And Silicon Valley is no longer important, it’s two different things.”
Because of those big brands, the Bay Area remains the center of innovation in the United States. But the entrepreneurial environment has indeed changed. Dai Bo, author of the 101 Entrepreneurship Lessons – Entrepreneur Handbook, said, “Silicon Valley is still the center, but it is gradually losing market share.”
As investors become more dispersed, entrepreneurs can start businesses closer to home. This may lead to a number of local entrepreneurial circles that contain accelerator projects and localize financing. McClure said that an active entrepreneurial center needs the number of start-ups to reach the “minimum key value” and invest in entrepreneurs. At least 100 metropolitan areas around the world have the potential to meet this threshold.
Vator’s Francisco believes that the type of industry also plays an important role in where the entrepreneurial circle may form. She added that Silicon Valley will not lose its position in a short period of time, as entrepreneurs still want to attract heavyweight companies such as Sequoia Capital and Kleiner Perkins Caufield & Byers.
Judging from the employment growth and real estate boom in Silicon Valley and San Francisco, the high-tech corridors in northern California are still in their infancy. But not all start-ups should go there to seek success.
Morik said: “I don’t think California’s advantages no longer exist. I just think that there are great possibilities in other places.”