We live in the age of the accelerator.
And it’s all Y Combinator’s “fault”. They launched their Summer Program in 2005 and immediately started spurring copycats.
I think the accelerator model doesn’t make too much sense outside of YC or a couple of other example. Aside from being really hard to self sustain financially, the reality is that most accelerators can’t quite accelerate a company like PG and YC’s current partners.
Before accelerators were all the rage, there were a number of traditional incubators, oftentimes sponsored or run by big corporates or universities, where companies were actually “incubated”. Companies would be accepted on a rolling basis and would be offered office space as well as general help and services.
Starting companies today has become much cheaper and easier than before, and this factors have led to a slow but steady decline for incubators. Why give away 20%+ more of your equity if you can just go out and raise a million dollar round for the same amount?
The incubator I’m envisioning becomes really close to some foundry models, but those usually don’t accept external ideas for a variety of reasons. In my opinion, accepting external ideas, and most specifically founders who are really passionate and knowledgeable about a space and an idea is instead one of the great opportunities for incubators.
- Vertically focused on a specific business model or vertical.
- Accept founders with complementary skills and knowledge.
- Aggregate the most possible knowledge, best practices and connections.
- Aggregate and provide basic company functions such as bookkeeping, tax, lawyers, HR, EA, etc.
- Only accept founders/ideas where the incubator’s knowledge and services will have a positive impact.
- Work with 2-10 companies at any given time.
- Act as a full cofounder for at least 12 months.
- Provide office space.
- Aim for 10-40% equity stakes.
- Hold a board seat, but without weird vetos or controlling provisions.
- Getting to financial sustainability. I’d treat an incubator almost as a traditional VC fund. The capital required to start something like this is non negligible, if you want to really help the companies and attract the best teams.
- Attracting the best talent. The best people usually have no trouble in raising capital for their companies, and may not be interested in the additional services if it means giving away a huge chunk of equity.
- Transitioning out the business. Not super easy to cut loose all ties with the incubator, but if done gradually can be sorted out.
- Follow on investments. Getting VCs to invest in businesses spun out of incubators is a bigger challenge than clean cap tables.