Accelerators help startups in many ways, but aren't great for venture capital returns, panel says
Panelists at a recent venture capital forum enthusiastically endorsed accelerators as providing plenty of value for entrepreneurs – mentorship, networking, business connections and the like.
But several VCs on the panel were less confident about what sort of benefit, if any, accelerators could offer them.
Joe Cunningham, a managing director with Austin, Texas-based Sante Ventures shared a rather staggering statistic that, if true, illustrates the kind of odds that accelerators are up against. Cunningham said he’s seen research that indicates about 250,000 technology ideas are hatched per year in the U.S., and five of those ideas will ever lead to a venture capital return.
“If you move back upstream and [increase] that first number a little bit, the actual chance of changing the five isn’t good,” he said.
Accelerators, then, need to define their major objectives – and helping companies get follow-on funding doesn’t realistically belong near the top of that list, according to Cunningham.
“I see a lot of accelerators start with unrealistic expectations for what they’re trying to accomplish,” he said.
If accelerators’ objective is simply to create “a culture of entrepreneurship” rather than launch companies that generate significant returns for investors, that’s more realistic, Cunningham said.
James Joun, a New York-based VC with Essex Woodlands, said he works as a mentor at accelerator BluePrint Health, though the accelerator’s companies are too early stage for his firm to invest in. “It’s a fun atmosphere, with people in flip-flops exchanging ideas,” he said.
“It’s a whole lot of fun, but beyond that?” Joun said. “We just [graduated] a class of nine, and I don’t know how many will make it.” (Sorry, guys.)
A number of entrepreneurs at BluePrint didn’t previously have healthcare experience, so the accelerator has been helpful in supplying it to them, Joun added.
Edison Ventures’ Michael Balmuth agreed that measuring accelerators by their graduates’ ability to generate “funding events” doesn’t make sense, but praised accelerators for the “collegial” environment they create.
The forum was sponsored by BioEnterprise, a Cleveland-based nonprofit that helps biomedical companies with business development.