What startup accelerators *really* do

Background reading:

What is the job of elite universities? Most people would say, after giving you looks for asking such a “stupid” question, that it’s obviously to educate top students.

What if I told you of studies showing that students who are accepted into top-tier universities but choose to instead attend lower-ranked schools (often for scholarships, other reasons) on average perform (in terms of earnings) just as well as students who actually attend the top-tier schools? Does that change your answer?  It should, because it shows that the actual education those universities deliver isn’t that correlated with performance.

While education is obviously an important role of top universities, many would argue – with some backing by data – that their real (or at least first) role is sorting. Sorting through millions of students to find the most talented is extremely costly for employers. And on the flip side, talented students find it incredibly difficult, on their own, to separate themselves from the “noise” in the market to credibly signal their talent to employers.

So elite universities perform a service that both students and employers need: a respected, credible process for sorting talent, and easily signaling it to employers, to reduce search costs.

Translate these details to startup ecosystems, and you can pick up very quickly on what startup accelerators do. The “employers” are investors and other kinds of commercial partners, and the students are entrepreneurs and other kinds of tech talent whom those entrepreneurs might hire.

As the cost of starting a startup has gone down, the amount of “noise” in startup ecosystems has gone up. It used to be that starting a company was so hard that the sheer difficulty of it had a way of filtering out entrepreneurs that weren’t credibly skilled enough to build viable businesses. More noise means more demand for sorting/signaling mechanisms of entrepreneurial talent: enter accelerators.

Elite accelerators, just like an acceptance into elite universities, help talented entrepreneurs, employees, and investors find each other in the “fog” of the market. To the extent they actually serve that function well, they have a durable value proposition, and shouldn’t be expected to go away any time soon.

But of course, every market has bottom feeders who perform little real value, but through clever marketing and spin, are able to trick people into wasting their time and money on them. Shitty, over-priced universities and accelerators are the same in this regard.

Accelerators are part service providers, part investors, and in that sense they can and should be diligenced just like any other service or investor. Find people in your personal network who’ve attended them, and get candid, off-the-record feedback. Were their resources differentiated and valuable when compared to the cost? Did they legitimately move the ball forward in terms of customer development, investor connections, or some other business need? Did they respect boundaries and not try to force you into uncomfortable relationships, like conflicted lawyers as an example?

Do. Your. Diligence. Twitter, Facebook and LinkedIn posts, and sponsored local events, can often be pure orchestrated marketing spin, and you only find out the truth by having off-the-record discussions with honest “users” (other founders). By doing real diligence, I’ve seen many entrepreneurs dodge lethal bullets, and also gain much-needed market intelligence to assess whether a particular accelerator is actually worth the cost.

Sponsored Post. Contributor: Jose Ancer, Technology & Venture Capital Partner, Egan Nelson LLP