Incubate, accelerate or go solo

By Gabey Goh May 20, 2013

Sooner or later, many startups will look at joining an incubator or accelerator
If you do so, what should you take into account when deciding which one to join?

Incubate, accelerate or go solo A NEW entrepreneur once asked me about joining an incubator or accelerator programme.

Much to my chagrin, his main concern was whether joining one would adversely affect his chances of finding financing for his venture.

The short answer to that was: “Honey, if your idea is awesome enough, not much will affect your chances of funding. And you really should not be thinking about funding before you sort out all the other issues related to building a startup.”

Now, with that out of the way, let us delve deeper into the message of today’s column: Incubators and accelerators — to join or not to join.

Firstly, incubators are programmes designed to support the successful development of entrepreneurial companies through an array of business support resources and services, developed and orchestrated by the incubator’s management and offered both in the incubator and through its network of contacts.

Seed accelerators are a modern, for-profit type of startup incubator, with an open application process, taking in classes of startups consisting of small teams, supporting them with funding, mentoring, training and events for a definite period — in exchange for equity.

On a global scale, one notable name is Y Combinator, led by Paul Graham, which recently claimed success with 172 companies over seven years that now have a combined value of US$7.78bil.

It counts startups such as Reddit, Dropbox and AirBnB in its portfolio.

Another is the Founder Institute, led by Adeo Ressi, that claims the most graduates with over 650 companies, and 90% of these companies still running. Notable names include online education website Udemy and Retailigence, a location-based mobile marketing company.

On the local front, entrepreneurs can look to homegrown programmes such as 1337 Accelerator and Cradle Coach & Grow as options.

Now, one could argue that if the founding team is solid and the startup idea is top-notch, then it is not necessary to join such a programme.

“Yes I agree, there are plenty of companies which are good without going through one,” said Founder Institute Singapore director Jeffery Paine when asked for his thoughts on the subject.

NextUpAsia founder and serial entrepreneur Daniel Cerventus Lim noted that in the case of first-time entrepreneurs, joining a good programme would help them “to learn to fail faster.”

“You do not know what you do not know,” he said. “That is why it is always good to have mentors, investors or advisers to look out for you, especially at your blind spots.”

Bikesh L, founder and CEO of 1337 Ventures which runs the 1337 Accelerator programme, said even with a solid team and great idea, startups must also ensure that they are connected.

“That is also a role accelerators play – to open doors to further funding or even potential deals and customers to be introduced.

“There have been solid teams that join such programmes just for the network an accelerator gives the startup,” he said.

Once a startup has decided that joining a programme would be beneficial, Paine advises choosing one that can best help you with the gaps that you have, be it in area of business development, marketing or technical support.

“The quality of the accelerators should also be a key consideration, in addition to their strengths,” he said. “For example, if your main market is in China, your accelerator should be better networked there versus other markets.”

Vetting a potential programme is important because you do not want to waste money paying the associated fees and more importantly, wasting time undergoing the process only to realise it wasn’t what you were expecting.

Lim suggests checking out a programme’s track record as one indicator and also to connect with programme alumni to ask about their own experiences.

“Also be sure to read through the terms carefully,” he said. “In some cases, accelerators may ask for too much stake in the company for very little in return.”

Bikesh echoed the need to check the terms that come with any programme and to ensure the place has expertise on the type of ideas you are working on.

“Check the mentor list to ensure there is someone there that would be a worthy adviser to your startup, and it is someone you may not be able to get face time with easily without the programme’s aid.

“It is pretty much a relationship you are getting into when you sign up with such a facility, so you have to like the people running it and be on the same wavelength with them,” he said.

Incubate, accelerate or go solo Paine noted that there are various metrics one could employ when evaluating a potential programme.

“But I think it all depends on the situation and the startup,” he said. “For example, how many incubatees raise money post-graduation is not really a metric.”

When checking out accelerators/ incubators, some things to look out for include:

The programme’s network of investors, customers and partners;

What kind of help is offered for product development, marketing and talent recruitment; and

What the programme offers for you as a founder to grow as a person, manager and leader.

Some red flags to be mindful of include:

No company-building experience;

Terms for investing are too weird or harsh;

The criteria used for choosing other cohort companies are poor; and

Programme appears generally weak on the above three points.

Of course, joining such programmes will involve some sort of fee or equity stake and is a commitment any lean, bootstrapped startup must carefully consider.

Do the terms demand a price you are willing to pay in exchange for access to mentors? For guidance in areas outside your expertise? For a warm introduction to a ready pool of investors?

The answer will be different for everyone.

The young entrepreneur I spoke to expressed reservations about his application to one programme, noting that they seem to only want the “cream of the crop.”

Please do not be surprised that they do. In the real world, everyone wants to back a horse they are pretty confident in, and no one is ever keen on welcoming a lame horse into the stable.

Deciding on whether to join one is up to a startup, choosing which programme is also up to a startup.

But once forms have been filled out and papers have been submitted, the ball is on the other side of the court.

As Bikesh quipped: “All those are the easy bits; the next thing is to then see if they want to take you in!”

This column originally appeared in the Metro Biz section of The Star and is reprinted here with its kind permission.