Yesterday I received an email from an entrepreneur who wrote: “I am launching a startup in the mobile/social media/sales & e-payments/arts & networking arena this summer and am looking to get into an accelerator.” Rather than try to figure out what that type of business this might be, I basically responded “Thanks for reaching out Ben Franklin TechVentures. I’m sorry, but we are an incubator, not an accelerator.” It was perhaps a bit sarcastic, but it is how I feel and with that response, and this blog post, I’m formally registering a complaint to the people in charge of word usage. The word “incubator” has been hijacked by many people, most of whom are from southern California and even more perniciously, I suspect, belong to the 1%! These people, for the second time in just over a decade mind you, have taken the good word “incubator” and have begun mixing it, as if synonymous with, the word “accelerator”. And now, the people from that world, are declaring that there are too many incubators! There are NOT too many incubators…there ARE too many accelerators and have been since there were more than 2 of them.
Late in the first Dot.Com era, many venture capital firms carved out some office space and a shared conference room in their buildings and called them “incubators”. “Bootcamps” were provided where unqualified entrepreneurs “ideated” every conceivable web-based interpretation of standard businesses known to man. They were taught about raising venture capital from VC’s (talk about the vultures watching the incubator!). This is happening again, late as we are in the second Dot.Com era. Y Combinator leads this pack and there are now calls that there are too many incubators and that the concept has been watered down. Here is one example of an outstanding blog post/rant on the topic by @littleidea on his Blog, StochasticResonance. I’ve asked the author to do a “search/replace” of “incubator” for “accelerator”. Probably not fair to ask, but it is the start of my campaign.
I would very much like to draw a sharp difference between an incubator and an accelerator.
Accelerator programs tend to obtain equity stakes in conceptual companies. In exchange for the ownership stake, the founders get access to a network of people and brainstorming sessions that craft an actual business idea around the concept…like the one from the guy who emailed me. The goal of the accelerator is to have the founders present these only partially baked concepts to a “deal day” where lots of attendees tweet out about all the great deals they’re seeing. Many receive investment and the whole thing is declared a victorious and noble exercise. The problem for us is that obtaining finance is the measurement of success. Three months of networking and hacking and logo creation does not create a sustainable business! It creates a hyped, auction-like environment where the buzz in the room gets ahead of actual value. These unviable concepts spend their invested dollars trying to lure non-paying customers to their applications until it is obvious that they don’t have companies at all, but merely “features” that are sold to Google or Microsoft or a few others who have enough cash to overpay for features, and the founders either start another concept or become investors themselves.
I’m bearish on the accelerator business model and I hope it disappears soon but I’m worried about the damage its demise will have on actual incubator programs. After Dot.Com crash #1, government support for and private sector respect for true incubators waned. Somehow, my old-school incubator program that had created a few public companies and few multi-100 employee companies was equated to the flameout ridiculousness of Pets.com and the like. The best argument I could use was that real incubators invest in people and businesses that will build long term value while the accelerators invested in short term financial opportunities. Real incubators also don’t have the luxury on focusing only on things described as “mobile/social/sales…whatever”. We focus on sustainable companies in life sciences, electronics, advanced materials and more. These companies require a more sustained effort and can’t be built in 3 months. It is an important distinction to make and I’m unhappy that we’re going to have to try to make it again.
The eye-popping, but arguably overinflated, values of companies like GroupOn and Facebook are beginning to be tempered as Zynga’s tepid reception may be showing. This is overdue. A weakness in our capitalist system is our inability to stay focused on true value when shiny returns blaze through the sky. I’m not sure how to measure it, but my economics training tells me that the money flowing into accelerator-supported type ventures has come at the expense of incubator-supported type ventures. Perhaps it has been a phenomenon of desperation in a crappy economy. Perhaps a rising overall economic tide will once again make it ok to invest in companies that seek profit rather than freemium growth. Perhaps the word incubator can once again describe a place where businesses are warmed instead of super-heated and the focus is again on the business of chickens and not just the eggs.