A step up or a crutch?
Startups’ long-term use of accelerators debated
PledgeCents, a Houston startup that developed a crowdfunding website for educators, completed two accelerator programs that help young companies refine their product, raise money and grow. Sensytec, a Houston
startup that uses technology to monitor cement and concrete structures, has participated in three accelerators. LAMIK Beauty’s ecommerce site counts four programs, and medical device company Noleus Technologies has completed five accelerator programs.
Which raises the question: Would their time have been better spent finding customers?
Accelerators, the short, intensive programs that helped propel companies such as Airbnb and Dropbox to fame and fortune, are proliferating in Houston and across the country and providing more opportunities for startups to find the advice, money and connections
that might lead to success. As a result, startups are finding it easier to enroll in multiple programs, sparking a debate in the innovation sector of whether moving from one accelerator to another merely delays the hard work of building a business and testing the market for new products and services.
“You’re doing startup theater the longer you stay in accelerator programs,” said Marc Nathan, who advises startups for the Austin law firm Egan Nelson. “At some point startups have to grow up or die.”
Others agree. Y Combinator, considered the original accelerator, has said its data — which it has not released — show companies that go through multiple programs end up worse than firms that only complete Y Combinator. Tom Luby, director of the Texas Medical Center Innovation Institute, which runs a health care accelerator, said a company that goes through more than one program raises red flags as to whether that company is learning from each program or if it’s become a distraction. He scrutinizes previously accelerated companies that apply to TMCx, asking what specific development goals the company was looking to achieve in past programs and what TMCx can provide that’s different.
“Are you really getting value at each one of those accelerators,” Luby said, “or has it just become getting into the next accelerator feels like progress?”
But many startups that have participated in more than one accelerator say the programs have helped them advance their businesses.
Dr. Swarna Balasubramaniam, the founder of Noleus Technologies, said she learned something different and built on different strengths in each of five accelerator programs in which she and her company participated since 2018. Her company has raised $880,000 and is conducting preclinical trials for its device designed to decrease swelling that occurs during abdominal surgery.
“People say, ‘Oh that’s crazy. Why be in so many accelerators?’” said Balasubramaniam. “But I think for a first-time entrepreneur the more advice you can get the better.”
About accelerators
Accelerator programs began in 2005 with the creation of Y Combinator, which launched in the Boston area and relocated to Silicon Valley. Techstars hosted its first program two years later in Boulder, Colo.
These programs ignited a craze, with the number of U.S.-based accelerators increasing an average of 50 percent each year between 2008 and 2014, growing from 16 programs in 2008 to 170 programs in 2014, according to a 2016 Brookings Institution analysis by Ian Hathaway, a nonresident senior fellow at Brookings’ Metropolitan Policy Program.
Accelerators, named for their ability to accelerate a startup’s growth, are offered in a variety of formats. Some take equity in the companies they assist while others are funded through civic and corporate partnerships or by charging a fee to the startups. But all proper accelerator programs are designed to last a specific period of time, typically three to four months, and include mentorship and educational sessions. They end with a graduation, often a pitch or demo day where entrepreneurs present their businesses to investors.
The impact of accelerators remains open to debate, according to research co-authored by Yael Hochberg, Rice University’s Ralph S. O’Connor Professor in Entrepreneurship. Some researchers have found accelerators help startups grow, attract venture capital and add a spark to the innovation ecosystem. Other researchers, however, found the effects on a young company’s performance are muted or even negative.
Either way, Houston has seen an influx in accelerator and preaccelerator programs, which are designed for earlier-stage companies, often with the goal of getting them into accelerator programs. These include Founder Institute and Plug and Play from Silicon Valley; MassChallenge from Boston; and gener8tor’s gBETA program from Wisconsin. The Ion Smart Cities Accelerator is a homegrown program focused on internet of things technologies that can be used by the city’s government. The Texas Medical Center’s TMCx is focused on health care.
Hochberg said startups can learn different things from different programs. Some, such as gBETA and Founder Institute, focus on very early-stage companies and have heavy educational components that help founders create a business plan or understand market size. Others, such as the Ion Smart Cities Accelerator and TMCx, have narrower, industry-specific missions that focus on connecting startups with potential customers.
But founders should be cautious about entering additional programs if those programs don’t offer different insights, such as targeting specific industries or geographic areas, or if the startup hasn’t undergone a major change in products or personnel, said
Aziz Gilani, managing director at Houston venture capital firm Mercury Fund.
“If you have the same team executing with the same product and going after the same market,” Gilani said, “and trying over and over again with the same approach, I don’t know if going through multiple accelerators will help that entrepreneur.”
Program overhaul
Luby, director of the TMC Innovation Institute, said the saturation of health care accelerators has prompted an overhaul of the six-year-old TMCx. It’s now more focused on leveraging the world’s largest medical center and its corporate partners — Johnson & Johnson, AT&T and ABB Robotics and Discrete Automation — to get startups clinical trials, pilot programs and early customers.
To make sure startups are ready for these medical and corporate partners, TMCx is now hosting a two-week boot camp to select finalists. These startups are evaluated during the boot camp’s educational sessions, proposal reviews and customer engagement pitches. TMCx is also adding two months to the program, boosting it to six months and offering a more personalized curriculum.
Accelerators need to set specific goals for themselves and the startups they assist, said Jon Roberts, managing director of the Austin consulting firm TIP Strategies. Roberts added that these programs also should be measured by how the accelerated companies spend money from investors, how many jobs they create and how many companies stay in the accelerator’s city to contribute to the region’s economic growth.
What could also contribute to Houston’s economy is if accelerators attract entrepreneurs to the city and showcase its low cost of living and large base of potential customers, especially for businessto-business entities, said Harvin Moore, president of Houston Exponential, a nonprofit that works to accelerate Houston’s tech industries.
Taking charge
The Ion Smart Cities Accelerator views multiple programs as a positive, a sign that the company is mature enough to test its technology in pilot programs with the city, a key component of the accelerator, said Gaby Rowe, executive director of the Ion, a startup hub being developed by Rice University.
Some entrepreneurs, particularly people of color, may need more than one accelerator to gain momentum, said Kim Roxie, who’s shifting her vegan makeup line LAMIK Beauty from a onestore location to an ecommerce startup. She said attending the DivInc accelerator for diverse founders got her into three additional accelerator programs, including two that gave her investments in exchange for future equity.
It’s money Roxie, the only black woman in each accelerator she attended, might not have received without these programs. Between 2009 and 2017, startups led by black women received .0006 percent of venture capital and angel fundraising, according to a study by Digitalundivided, an organization encouraging women of color to become entrepreneurs.
“Me getting into a lot of these accelerators has not been the easiest thing to do,” Roxie said. “It could hint at a bigger issue. That is the issue of everybody getting access.”