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Yet Another Startup Accelerator?

Startup Sauna Accelerator
Startup Sauna Accelerator

Back in 2013 when I launched the StartUp42 accelerator in Paris, I received so many “oh, another accelerator” comments that I was really wondering if I wasn’t too late in that space.

Since then, TheFamily, 50Partners and Microsoft Ventures launched, the city of Paris opened new incubators and Xavier Niel, France’s telecom mogul, announced 1000startups, the soon to be largest startup incubator in the world.

Corporates like media company Canal Plus or telecom giant Orange also opened their own incubators. Even the French government announced a 200M€ investment plan for private accelerators throughout France.

Are we in an accelerator bubble?

Olivier Ezratty, a long-time and well respected commentator of the French startup ecosystem seems to think so, based on his recent article (in French) about our ecosystem being overheated. And, apparently, this is not just in France.  Silicon Valley entrepreneur and strategy consultant, Sramana Mitra, also recently wondered about being in an accelerator bubble. I’m not even talking about bloggers like Craftsmanfounder’s Lucas Carlson with his “incubators are bullshit” piece. And more are coming.

While the exact number of accelerators is unknown, f6s.com, a website that provides services to accelerators (including us at StartUp42), lists more than 2,000 worldwide. In a HBR article, Sramana Mitra even talked about 7,500 business incubators globally. In Paris, the city hall’s MyStartupInParis lists 44 incubators as of today and I’m coming across individuals and corporations who want to launch their own startup program literally every day. So no questions asked here: we are definitely in an accelerator bubble.

Is it a bad thing?

Question: can you tell me which of the two pictures below is a startup accelerator?

Startup Office 2Startup Office1            None but anyway you wouldn’t know just by looking at the pictures. The main problem with having too many startup programs is that entrepreneurs don’t know which one to choose, especially if they decide to give away equity to the program. It’s like choosing a university after high school.

Each accelerator has its own model (non-profit/for profit, equity based or not, investing or not investing), its value added and it’s rather difficult to judge for organisations that mostly did not exist 3 years ago. The problem when it’s difficult to judge the quality of an accelerator is that entrepreneurs might lose some precious time (and sometimes equity) in a program that does not bring enough long-time value.

Without disrespecting some programs, I clearly see the difference between programs that are entrepreneur-friendly, mentorship driven and focused on results, compared to others that offer glorified office space and mentorship that look like (and sometimes is) McKinsey style consulting session.

But this is hard to see from the outside. This is clearly one of the reasons that pushed us to be a member of the Global Accelerator Network, which ensures that all its accelerator members fall into their vision (which I share) of acceleration.

Do we need startup accelerators?

Happy Startup SchoolBusiness schools emerged in the second half of the 19th century to meet an educational need not provided for by other institutions. Accelerators are trying to fill a similar gap today. So, while b-schools train future corporate leaders, accelerators train current entrepreneurial leaders. Accelerators are today’s e-schools. By providing hands-on advices from experienced mentors and networking opportunities to founders, especially those not very familiar with business topics (like technical founders), accelerators really fulfil this “educational” mission.

Accelerators are also a great way to shake up an ecosystem and help emulate  entrepreneurial vocations. But, on top of that, what I’ve found most valuable for the founders we’ve helped so far, is endorsement. Entrepreneurship is hard. You make a lot of sacrifices, especially social ones. Being selected in a renowned program, even if you’re still not making money, is already a great sign sent to your family and friends that you’re not doing all this for nothing.

Will it stay the same?

I think we’re going to see more and more accelerators in the short run. Driven by startup hype (and probably bubble) and growing interest from corporations (see this good piece by @jd on the subject), startups will now have more and more options in terms of support. Their success in the long run will depend on their business model.

Equity-based accelerators will need to have several successful exits to sustain their growth and convince LPs to keep investing (there will always be investors) while, for other models (like non-profit), it will really depend on the accelerator’s capacity to show value to their sponsors (or customers) over time. As of corporate accelerators, I doubt most of them will still exist in the next 3 years as they’re usually considered a cost and their existence is almost always tied to one executive sponsor internally (that will eventually leave).

As of StartUp42, our sustainability is tied to our ability to select and help future successful startups that will in return help the organisation, while at the same keep convincing sponsors that our position in the ecosystem (especially developers’ groups) is still relevant over the years.

My ($19B) cents on WhatsApp acquisition

facebook-whatsappI recently came across a chart summarising the cost per user of famous tech acquisition, indicating that WhatsApp acquisition by Facebook could somewhat be justified based on the relatively low cost per user paid ($35.56) compared to other tech acquisitions. While I can’t really comment on if $35 is a fair price to acquire users, I don’t believe it is the correct amount.

First of all, according to SEC filings, out of the $19B Facebook paid :

  • $12B are in Facebook stock, based on today’s price, which is more or less monopoly money since I doubt anyone from WhatsApp will liquidate, especially with the founders  joining Facebook board ;
  • $3B are in restricted Facebook stock to retain WhatsApp employees (aka signing bonus, no one will cash out before years) ;
  • Only $4B is in cash.

So, if we assume that only the $4B are used to acquire the 450M WhatsApp users (the rest being acqui-hire in monopoly money), we’re talking here about a cost of $8,8 per user. An if you take into the equation the fact that Tencent, Facebook biggest competitors, could had have eyes on WhatsApp (it’s just an intuition but would have been a smart move to conquest US and Europe markets), I think the cost per user is even lower than $8 (since part of the price is motivated by defending Facebook presence in his markets).

Not bad for a community of users with very high usage, right?