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This article was published on August 21, 2011

Boutique startup accelerators: Natural progression, or impending danger?

Boutique startup accelerators: Natural progression, or impending danger?
Brad McCarty
Story by

Brad McCarty

A music and tech junkie who calls Nashville home, Brad is the Director TNW Academy. You can follow him on Twitter @BradMcCarty. A music and tech junkie who calls Nashville home, Brad is the Director TNW Academy. You can follow him on Twitter @BradMcCarty.

It’s not at all uncommon that when something is successful, other companies attempt to mirror that success by following some of the same methods. From the first cars to the recent deluge of daily deals sites, the behavior is far from surprising.

It stands to reason then that we’d start seeing a number of startup incubators and accelerators popping up across the world, given the success of some of the bigger names within this vein. While the track records of accelerators such as Y Combinator and TechStars are subject to your definition of success, the fact that these companies have spawned some of the names that are now huge within the technology industry will continue to lead more people down a similar path.

But there are inherent dangers to follow-on behavior. Because of that fact, it’s time to look at what’s going on right now with accelerators across the world, for better or for worse.

The Genesis

In order to see where we’re going, it’s important to know a bit of history. By most accounts, Y Combinator was the first startup accelerator. Originated in 2005 with two campuses, by 2009 it had been decided that the Cambridge, Massachusetts location would close and everything from that time forward would happen in Silicon Valley.

Y Combinator appears to take a widespread approach to its funded companies, often times investing in more than one of the same genre with the understanding that “if you fund as many companies as we do it’s unavoidable you’ll end up with some overlap” (per the Y Combinator FAQ). The model works and Y Combinator as a company holds assets that are approaching $5 billion.

The other major player in the space, as you’ve likely read here at TNW, is TechStars. Started only a year after Y Combinator, TechStars uses the playbook that giving dedicated mentorship and access to those mentors for 10 to 12 companies each year will have a higher percentage of success than YC’s (presently) 60+ startups will see.

If I were writing this a couple of years ago, TechStars would fall into that definition of a boutique accelerator, if only because of its size. However, looking at the 4 TechStars campuses, the accelerator graduates more than 50 startups each year and that takes it out of the running.

Nearly every accelerator that you see coming into play now will fall into line with one of these two methodologies. Though there are notable differences in how many of the new accelerators run their business, the macro scale overview will indeed fall into either the Y Combinator or the TechStars camp. In fact, with the 2011 launch of The TechStars Network, 23 incubators have committed to running under the TechStars model, while still being independently owned and operated.

Boutique, by Definition

If Y Combinator and TechStars are the mosters of the accelerator business models, what then can we call boutique? For the purpose of this article, I am classifying boutique both by the amount of new startups that each accelerator graduates each year, as well as adhering specifically to one direction. For instance, an incubator that graduates only 6 new startups annually and all of them do mobile applications would be a perfect example.

I’ll have to take this moment to admit that I didn’t realize that there were so many of these boutique by definition accelerators around the world. It wasn’t until I started writing heavily about the larger accelerators that I began seeing pitches from the smaller ones. What I’ve found though is that there are interesting stories to tell when your accelerator only accepts 2 businesses each quarter, or when you’re stating your primary goal as changing the world…and really meaning it.

Who’s Who?

Let me first state very clearly – This is not a comprehensive list of every accelerator that fits my definition of boutique. The few that I’ll mention here are mentioned because I’ve either written about them recently, or I’ve had an opportunity to do research on them in the past few days.

So who are they? Let’s have a quick look:

COMMON – There’s a big list of WTF’s (no, really, not an FAQ) when it comes to describing COMMON. Essentially it’s a collaborative culture for people who want to change the world. It lies somewhere between an accelerator and an incubator, with a demo day that’s inclusive of beer and music, instead of being all about startup pitches. Oh, and it’s also a brand. If you’re participating in COMMON, then you’re going to have a product with COMMON in the name. Interested? Read more about COMMON here.

Tandem – Hard tasks are best served by more than one person. It’s with that in mind that Tandem provides an environment where people who are building mobile apps can have a better chance at success. It’s another platform that straddles the line between incubator and accelerator. It does provide workspace like an incubator, but it also goes far beyond the typical funding that an incubator will provide, including handing $200,000 to each of its 8 or so startups that it accepts each year.

PeopleBrowsr Labs – If you’re all about social media then PeopleBrowsr Labs is for you. The newly-launched accelerator in San Francisco’s SOMA region does social and only social. By providing not only workspace but also dedicated education sessions PeopleBrowsr Labs isn’t inherently different from its counterparts, but there is one glaring space in which it is opposite – you pay them. If you want the potential benefits, it’s going to cost you $600 per month, per seat. Now there’s a twist for you.

I chose these three because they’re prime examples of how the accelerator space is morphing itself to fit the world in which it resides. While Y Combinator and TechStars are far from broken, there are needs that are perhaps better served by dedicated resources such as these, and breaking away from the status quo sometimes requires that you get creative in order to stay alive.

The Ties That Bind

There are a few common threads among the boutiques that I’ve spoken to over the past few weeks. First and foremost it’s the idea that focusing on one particular area allows you to build a network full of people who are incredibly good at doing the things that you do. Because of that you’re providing access to far more people who are dedicated to a common craft than what you might have access to in another environment.

Secondary to that network is the idea that practice makes perfect. When you do something or focus in a specific area time and time again then you naturally become better at doing so. Of course, with both of these, there are potential negatives.

Missing The Forest for the Trees

Part of what has made TechStars (as well as the accelerators within its network) so wildly successful is the fact that the mentor list reads like a who’s who of technology. It’s because of this that the accelerator doesn’t shy away from accepting startups that could perhaps be seen as being on the fringe of what is considered to be a comfortable investment.

This is one area where it seems that the boutiques could find themselves landing in hot water. Though I don’t doubt for a minute that Alex Bogusky (of COMMON) has a massive network from which he can pull, it doesn’t seem that COMMON keeps that network on retainer as Y Combinator or TechStar might.

It’s a classic case of missing the forest for the trees. When you’re so microscopically focused onto one area, it’s often times difficult to see what’s going on around you. While it might behoove startups to work in an environment where everything that is going on around them is tailored to their own interests, outside the walls, there is a whole other world that can be missed.

The Real Bubble?

The problem with any sort of follow-along methodology is that it inevitably raises the question of how much is too much. Boutique accelerators are far from being immune to this, and as far back as November of last year TechStars’ David Cohen was predicting that we were starting to see a bubble forming in the accelerator culture.

Cohen (perhaps rightly) posits that the world of accelerators will grow to perhaps three times as large as it was when TechStars began before it reaches a point where the bubble will burst:

“There will be a run up to a couple hundred and then we’ll probably see a run down to 10 would be my guess over the next five years. There will certainly be a little mini accelerator bubble.”

While bearing in mind that this quote from Cohen dates back nearly a year from the time that I’m writing this, his prediction seems to be ringing true. Searching across the Internet, you’ll see accelerators that run the gamut of interests and directions. Though some big names (Microsoft and Cisco, among others) are involved in the accelerator programs, there are others that you might not expect, being run by people who perhaps have little to no business directing the business of others.

What happens if that bubble bursts? The short story is that not much changes. Fortunately, the vast majority of the pop-up accelerators could disappear tomorrow without having a drastic effect on the overall ecosystem. Unfortunately, for those companies relying on those accelerators to help drive their businesses forward, damage will be done, at least to some extent.

Interestingly, we’re starting to see some accelerators being launched in a place that we’ve not seen before, but should have all along – universities. As I’ve often lamented publicly on how educational institutions educate people to be employees rather than entrepreneurs, it’s surprising to see programs such as Flashpoint and others stepping under the flag of a .edu domain in order to create new startups.

What Should Happen?

Here’s where things get a bit sticky. I’ve always told people that I work with that they should come to me with problems, but have a possible solution when they do so. Unfortunately, this is one place where I have to violate my own rule because I honestly don’t know if there’s a real problem. At least not yet.

The hard fact remains that there should be 2 reasons for doing an accelerator:

1 – Help new businesses succeed

2 – Make money by doing so

You’ll note that I listed these as 1 and 2. I did so because my idealist perspective believes that this is the order of importance. Granted, nobody should go into business to lose money, but making money should be an unavoidable aspect of simply running a well-designed venture. This is where I think some people are starting to lose focus and this is where things begin to pick up an inherent danger.

Mind you, I’m not trying to discourage people from starting or joining an accelerator, as long as both are done for the right reasons. In the interest of proving my sincerity, I’ve recommended specific accelerators to people on more than one occasion because I think that the work that these programs do is positively invaluable. I’m simply saying that both starting and joining one should be approached with utmost care and caution. Facing facts, there are livelihoods at stake when it comes to business. Screw up and you’re messing with someone’s home, their family and a myriad of other factors that are far more dangerous than just the act of losing money.

In short, we might not be in an accelerator bubble just yet, but we certainly appear to be heading toward one. I have the utmost respect for each of the ventures that I’ve mentioned in this article, and I wholeheartedly believe that they’re doing the right things for the right reasons. Let’s just hope that, moving forward, the ones that aren’t take a cue from those that are.