Posts Tagged accelerators
First Ascent Ventures final say on Microseed accelerators
I really suggest this website, especially for these three articles on microseed accelerators. In their last article on the subject, they look at the success rate. Without going into the detail I recommend you read the article; they recommend that you seek out the accelerators if that fits your business model.
The only drawbacks they point out is the unwillingness of some entrepreneurs to part with 6% of stock for 25k. The reality is that this is not a tremendous amount of money, but at the same time, you are more likely to get this funding, which in turn will make you more likely to get later funding through their contacts. This investment typically values a company at $416,000. However, with the next level of investment you can value a company between $2,000,000 and $8,000,000; meaning that another 25% to 50% stake can get you $500,000 to $4,000,000 in more working capital.
Until you have been through the rounds trying to get money or working with VCs considering money you do not realize how hard it is to get investment. By lowering the barriers to getting investment (smaller dollars, willingness to take on higher risk) microseed accelerators could be opening the doors to a lot more entrepreneurs to get investors. At the same time the accelerators are providing tangible benefits of training and contacts. Translate contacts into future sales.
My only concern is on the investor side: is the risk to return ratio good enough for the microseed accelerators to make money. Right now, its too early to tell, but I hope to address this at least theoretically in a future post about this subject.
The reason behind Microseed Accelerators
Yesterday, I wrote about James St. Jean’s January article about New Venture Capital Models. He also wrote a part 2, addressing why these new business models are cropping up. Go read his article.
In summary, he said that it was first started by Paul Graham in 2005. Graham was new to the investing scene, a creative thinker and not tainted by the old ways. Sound familiar? This is how most entrepreneurs start when they break off from a large company. Unwilling to say “because that is how we always do it” entrepreneurs are willing to take a look at new ways that may offer advantages. Graham did this to investing.
Furthermore, it seems that NOW is almost a “perfect storm” for investing in small startups. You have products becoming cheaper to build and launch, a shift in traditional venture capital funds to larger investments leaving a vacancy for small investors, and the role of the internet in providing services (and products) to niche markets in a profitable manner. This leaves an opportunity for these microseed accelerators to fill.
The conclusion that St. Jean draws is since smaller capital is at risk the penalty for failure is a lot lower and so this fosters more creative and risky ideas. I agree that this is probably the governing reason for the idea of investing in smaller amounts but not that this is the reason behind providing the extra support.
My supposition is that certain people see a value in a skunkworks: A small team of dedicated developers focused on one goal with little or no distractions of a large bureaucracy but with the support and the skills that a major corporation provides. These certain people came from large companies and business schools where these skills and situations were studied and fine tuned. Realizing they could duplicate this in a skunkworks scenario it is just a matter of finding funding and the right entrepreneurs to make this work.
What makes the right entrepreneurs is THE discussion for this blog. Ultimately, it will not be just skills and experience, but also the entrepreneurs’ willingness to learn and grow into the role of a successful company.
The microseed accelerator model
Posted by Steve in Capitalization, Execution on September 14, 2009
A couple of weeks ago I had the opportunity to interview the founder of a new venture in Dallas, a microseed accelerator. This is a relatively new business model for venture capitalists.
Originally, there were incubators, which were venues that provide office space and a variety of business office and infrastructure back office services to startups. The idea was that by providing these specialized needs to startups they could focus the startup on what they do best, create and sell a product. The result would be rapid growth.
The biggest weakness of incubators was that while they treated all startups the same and did not provide them much in training, mentoring, and/or coaching. Also, the startups themselves did not necessarily recognize they needed anything other than a place and support. The reality is that startups have a different mix of skill sets and experience levels. Some need more help than others in their core competency: creating and selling a product.
In comes the accelerator. Accelerators took the incubator idea one step further. Accelerators would also provide two key elements: some funding and a lot of coaching/mentoring to the startups. The startups joining would take the money and be receptive to the idea of being coached.
More recently, the microseed accelerator is emerging. These companies or portfolio management firms differentiate themselves by invest a small amount of money, focus on idea/prototype stages, focus on specific niches, and provide very customized support to a small team. Some of them, such as the one I interviewed, have a program that puts the startup through a “boot camp”. The boot camp helps them complete out the rationalization of their business plan: make it even more focused on what customers need (not just want) and put them in touch with prospective customers. Rather than “hope and pray” as the earlier incubators, they stack the odds in their favor by fostering growth and success proactively.
To read more about check out the article at www.firstascentventures.com titled: New Venture Capital Models – The Rise of Business Accelerator Seed Funds (Part 1) – 01/13/2009. Check in later this week to learn more about one starting in Dallas: Tech Wildcatters.