Startup accelerators: the good, the bad, the ugly (interview with Mikko Jarvenpaa)
‘Speed up your startup’ is a new book by Mikko Järvenpää, formerly marketing dude at the HackFwd accelerator. His book, as it happens, is also about startup accelerators. We already wrote a short blog about the most important conclusion of the book – namely, that Jarvenpaa thinks that we’ll see a shift from startup accelerators who take all kinds of projects to to saccelerators who specialise in specific industries or business models like gaming, consumer internet or software as a service.
‘Speed up your startup’ is two things at once: it offers advice for startup founders (it has plenty of good, practical tips and tools) and on the other hand it presents and discusses the results of a survey that Jarvenpaa did with amongst 150 founders of startups who went through startup accelerators.
The duality stems from the fact that Järvenpää was literally between worlds while writing it, he says in an interview with Whiteboard.
Mikko Järvenpää: “As I was moving from the accelerator side to my own startup, I wanted to systemize my learnings and observations. I knew that my own view on things was subjective, so I wanted to run it through a survey, to validate my assumptions. I wanted the book to offer startps the benefits of an accelerator without having to do an accelerator – the working title was ‘DIY accelerator’.”
Accelerators seem all the rage right now, can you talk a bit about their history?
Järvenpää: “I couldn’t tell you what the first one ever was. Obviously Y Combinator is the trailblazer of the modern accelerator program, but in house accelerators or incubators have been around for much longer. Maybe Bill Gross’ Idealab was the first accelerator of this nature – it’s a natural extension of venture investing, a more systematic way of investing money and time.
But as I said, in corporations they’ve done it for quite a long time already, it’s the skunkworks idea that became popular back from the early days of Apple, even. The basic format is: skunkworks take on projects that are riskier, so you don’t put as much resources in it. It’s the same for accelerators: they take on projects that have much higher risk reward ratios.”
Is there a “bubble” of startup accelerators?
Some people say there’s an accelerator bubble happening. Do you agree?
Järvenpää: “Not really. I might agree with the sentiment that there’s a LOT of them, both private, public and semi-public. I don’t think that it’s a problem, though. Let’s face it: if an efficient market exist, this surely must be one of those. Accelerator programs are very demand driven, and the return on investment – or lack of it – happens very fast.
Like in any efficient market, when supply starts to increase, suppliers needs to find a way to differentiate itself from other suppliers. One of the ways the accelerators are differentiating today is towards a more vertical accelerator.”
Apart from the move towards industry specific (‘vertical’) accelerators, do you see any other big trends?
Järvenpää: “The bigger trend, I think is towards programs that ensure a good fit between startups and accelerators. Industry specific accelerators are just one way to ensure this fit, but it can come from anything: the focus of the program, the industry contacts that the accelerator provides, or from the experience of the accelerator founders.
Another point of differentiation for accelerators is obviously location. The talk of startup hubs has only increased lately. All that focus on hubs, I think, is mainly driven by government interest in ultimately replicating the success of Silicon Valley. The Silicon Roundabout in London has lots of funding from both private and public funds, just like Berlin, Riga and Helsinki.”
The talk of who will be the Eurohub – isn’t that futile? It’s clear that no hub will ever conclusively “win” that race. So why obsess over it?
Järvenpää: “I think that obsession is a very European thing, because a lot of the funding is public or semi-public. Half of European VC funding comes out of public funds. So from that follows a mandate of keeping that money in the country. Or if it’s money from the European Investment Fund: to keep that money in Europe. It’s very much a top down thing, I think.”
Does it have real life consequences?
Järvenpää: “For the individual startup founder, I’d say it’s a good thing if countries start to compete with each other to make it attractive to relocate to their tech hubs, or make it attractive to hire employees. The more interest there is in encouraging entrepreneurship, the better.
So it’s not futile – while these hubs might not grow into the ‘next Silicon Valley’, for the individual startups all this activity is very positive.”
The mismatch between what startup accelerators offer and what startup founders expect
One thing that struck me in the survey: startups feel that startup accelerators sometimes think that a few workshops on specific topics are sufficient – about design, say – whereas they would prefer to have a top designer on hand during the program rather than a lecture by one. There seems to be a mismatch.
Järvenpää: “There might be a mismatch there, yes, but most of the programs do make up for it in mentorship, which is actually where they offer the most value. It’s important to realise that most programs are actually very short – the startups need to get their head down and work on product quite a bit. There’s no time for hands on design classes – but if the accelerator can connect the startup with a relevant mentor, that should more than make up for that lack of hands on assistance.”
I also gathered from the book that you aren’t a fan of so called friends, fools and family money.
Järvenpää: “I’m passing that as a sarcastic point in the book – mostly from personal experience (laughs).”
Okay, now you have to explain.
Järvenpää: “What I meant is that I’ve seen it go wrong – money can sour friendshpis, and you should be cautious about that.
Especially since there’s other possibilities, like crowdfunding. When you crowdfund, you’re reaching people who are interested in what you’re doing instead of who you are. Crowdfunding puts the project first, instead of the relationship.”
How about handing out sweat equity? You’re for it, but you advise startups to let it vest slowly.
Järvenpää: “I’m for it because it can bring advisors on board as members of the team. And if you use it, I think it should vest on the same schedule as the founders.
How much you give depends on the timing and how much effort and impact they bring. Anywhere from half to two percent equity is the norm. Of course you should be careful when doling out percentages. Being percentages, there’s a only a very limited, fixed amount of them available (laughs). But on the other hand, it’s better to own a small share of something that happens than 100 percent of something that goes nowhere.”
Another thing that some startups warn about: most startup accelerators are focused on the demo day that is supposed to secure follow up funding for your company, and you should be aware of that.
Järvenpää: “Well, if that is in fact the model of the accelerator, make sure that your business model fits into it. It’s no use to show up on demo day and not fit the mould of where the accelerator has been pushing the program.
Although there are companies that don’t look for further funding that do fine in accelerators. As long as you get something out of it, it’s really fine. Demo day is not just a matter of getting additional funding – it’s also a great way to get exposure to the press or to find new customers. Accelerators are usually very good at getting you that exposure.
Another thing that some founders pointed out – especially in shorter programs – this huge focus on demo day means it makes a lot of sense to have a team in place next to the founders. This team can focus on the day to day business and the product while the founders are engaged with the mentorship sessions.”
A bit unexpected, I thought, was the fact that startups think that accelerators are not great at providing the psychological support you might need during the program. Intuitively, I would have thought this was one of the selling points for accelerators.
Järvenpää: “Indeed, and that’s why personal chemistry with the mentors is important. If there’s a good fit, it carries you through the program. This wasn’t something I asked about in the survey, it was spontaneously raised by founders.
An accelerator program is a taxing experience. It brings a lot of pressure because you’re responsible to more people, you get lots of conflicting advice, and you have to devote a lot of attention to it. Founders are used to working long hours, but an accelerator program itself also takes up a lot of time, which can be a problem.”
If you think you know what hard work is, you haven’t seen the inside of an accelerator?
Järvenpää: “Yes, in some cases that’s true. It surprised me too, actually.”
Last question: what is the best accelerator? HackFwd?
Järvenpää: “I can’t give you a direct answer to that. TechStars and Y Combinator are obviously the darlings of the field. And having had the pleasure of attending the Y Combinator startup school last Saturday at Stanford, seeing all the energy, the quality of people that they were able to pull – that really showed me how important it is to build that track record of success.”
Mikko Järvenpää’s 3 tips for any startup founder thinking of entering a startup accelerator
1. Make sure there’s a good fit between the program and your startup. This fit could be anything as long as it’s relevant to what you’re doing: either investor contacts, experience in your business or industry, personal chemistry.
2. Make sure you’re commited to the program. That means: make sure you clear your schedule so you have all the time needed to do the program completely. If necessary, have people on board to continue development on your product so that you can benefit from the mentorship and advice. Having other people besides the founders available means that you can let them test things that you learn, without having to take time off the program.
3. Be ready for life after the accelerator. This was raised by people in the survey and I’ve seen it elsewhere too. When a startup leaves a program, it’s a culture shock, a very challenging moment in their lives. It is a bit like moving out of the nest, yes. Some startup founders emphasised the importance of a good alumni program.
(4. Take your vitamins. Accelerators are hard work.)
You can buy Mikko Järvenpää’s book on his product website speedupyourstartup.com
Watch a video about organic marketing with Mikko Järvenpää here!
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