So you have a great idea, an idea that will change the world. But you have a few problems: no money, no experience in managing any project, and absolutely no connections whatsoever. What do you do?
Believe it or not, there are some companies (or startups) that actually deal with these types of startup problems. Meet the accelerators. For three months, you will participate in a boot camp that pays you to join, and it will allegedly teach you the business skills necessary to take your idea to a different level. You will also meet top startup gurus and people who have been there, done that, in the startup world. Most importantly, major league angel investors will send their scouts to these accelerators to find the next diamond in the rough. ((Getting Up to Speed, The Economist, Jan. 2014, available at http://www.economist.com/news/special-report/21593592-biggest-professional-training-system-you-have-never-heard-getting-up-speed.)) The catch: you will have to give up a percentage of your ownership in exchange for this boot camp ((Id.)) But the loss of your ownership is insignificant compared to what you can accomplish at one of these programs, or so you think. ((Id.))
You and thousands of others. Y Combinator, the firm that “accelerated” AirBnB and DropBox only took 74 out of 2,600 in its last “batch.” Other high-profile accelerators, such as TechStars, are just as selective (14 out of more than 1,500 in its 2012 New York batch). ((Id.; Harrison Weber, TechStars NY announces its latest class of startups, featuring 5 female founders, TheNextWeb (Mar. 13, 2012), http://thenextweb.com/insider/2012/03/12/techstars-ny-announces-its-latest-class-of-startups-featuring-6-female-founders/?utm_source=dlvr.it&utm_medium=twitter#!zswqW))). However, the insane number of applications prompted a wave of accelerator startups globally. According to www.f6s.com, a website that provides services to these accelerators, there are more than 2,000 accelerators world-wide. ((Getting Up to Speed, The Economist, Jan. 2014, available at http://www.economist.com/news/special-report/21593592-biggest-professional-training-system-you-have-never-heard-getting-up-speed.)) Given the fact that Y Combinator is widely known as the first accelerator, ever, and it only started in 2006, having 2,000 of such firms in 2014 is impressive. In order to stand out and “promote creativity,” some of these accelerator programs are even more creative than the startups that they are trying to help. For example, Unreasonable At Sea is a 100-day program on an ocean-liner that “encourages the entrepreneurs to combat the greatest challenges of our time.” ((Patrick Clark, Waiting for the Accelerator Bubble to Pop, Bloomberg Business Week (Mar. 14 2013), http://www.businessweek.com/articles/2013-03-14/waiting-for-the-accelerator-bubble-to-pop.))
While the efficacy of some of the lesser known accelerator programs is unclear, one thing for sure is that most startups fail (disclaimer: I do not know the success rate of Unreasonable At Sea). A business that depends on the success of many of these risky startups is arguably even riskier. Some accelerators try to improve their profitability by lowering the standards of their selection process just to have more startups in their portfolios. According to one study, only Y Combinator and TechStars have produced meaningful exits for the founders, while 45% of the accelerators in the study failed to produce a single graduate with venture funding. ((Sarah E. Needleman, Start-Ups Crowd ‘Accelerators,’ Wall Street Journal, May 2014, available at ((http://online.wsj.com/news/articles/SB10001424052702304065704577422131523831456?mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052702304065704577422131523831456.html.)) That fact brings up another interesting point: angel investors are also less likely to fund startups in programs that have not produced any startup stars.
Given the fact that accelerators are numerous and that they are usually ineffective, this industry is on the verge of a bubble burst. However, the accelerator industry will never die off completely. After all, the benefits mentioned above are still valid. Weeding out the ineffective accelerators could actually help the startups in at least two ways. First, some startups may not need their services. The existence of these accelerator firms could pigeonhole the entrepreneurs into thinking that joining an accelerator is necessary for their success. Second, by having only a few accelerators selecting the most competitive startups, angel investors are more likely to zero-in on the ones with the most potential.
For lawyers, this could be good news. As venture capital firms concentrate their resources on those that are pre-screened and accelerated by the proven accelerators, the capital-rich startups are more likely to enlist the help of quality lawyers. As for law firms that often take stock options or equity in exchange for their services, these accelerators also act as an important screener that reduces the risk of this relatively risky business model. In that sense, this bubble burst could be better for both the startups and the other service firms that revolve around the business as a whole.