Guest Post: The Origins of Startup Accelerators
The Startup Accelerator was born when Paul Graham wanted to disrupt the Venture Capital(VC) business by encouraging investors to make smaller investments early on in a start-up’s evolution, and funding younger founders and hackers rather than ‘older suits’. Within 10 years, there were 579 startup accelerators globally, that had invested over $206 billion in 11,305 startups with thousands of exits. Airbnb, DropBox, Reddit, Stripe, Pillpack and SendGrid are just some of the graduates of Startup Accelerator Programs. ‘Y Combinator’, the accelerator Paul Graham founded, has launched over 2000 startups globally with a combined valuation of $155 billion.
“Jessica, I’ve got this idea to start our own VC firm, but with a big twist!”. The twist — tying startup investments in with an education and mentoring program — belonged to Paul Graham. When he shared it one day in the spring of 2005 to his soon-to-be wife Jessica Livingston, she declared, “I’ll help you start it up”, and within three months, the idea became the world’s first ever ‘startup accelerator’. Paul based his twist on a model of investment a friend of his had made in own startup Viaweb which he had sold a few years earlier for $49 million.
Or so the story is told in a new book “Startup Accelerators” by Associate Professor Dr Naomi Birdthistle, Dr Richard Busulwa and Steve Dunn. Paul Graham put $100k of his own money into Y Combinator, convinced Jessica to help him run the program, and they recruited a third and fourth co-founder, Robert Tappen Morris and Trevor Blackwell, their friends and computer programmers from Paul’s startup Viaweb. Robert and Trevor put in $50K to set up an investment fund that initially invested $10K into 8 startups for a small percentage of equity, whilst also taking the startups through a 3-month summer job-style internship.
The original idea was expanded into a host of ways to accommodate more mentors into the program, from all walks of entrepreneurial life, advising the startups on how to ‘get investment ready’. The mentors also shared knowledge to startup founders on how to avoid all the challenges, dilemmas, and pitfalls they’ll likely face getting their startups off the ground. Today the Y Combinator accelerator has launched over 2000 startups globally with a combined valuation of $155 billion, and there are now around 10,000 startup accelerators held in almost every country around the world fueling local startup ecosystems and jobs growth.
Co-Authors of Startup Accelerators, Steve Dunn and Richard Busulwa, are aware of the paradox that after taking their startup through 3 accelerator programs in USA, Europe and Asia Pacific, they still have not raised an investment round. “After we wrote the book, we realized we were nowhere near ready to take our startup to the next level in the first US-based accelerator we did, and only now after graduating from three accelerator programs are we starting to find product-market fit”.
The Y Combinator co-founder backgrounds, bear some resemblance to the backgrounds of the co-founders of Apple. Mr Tappen Morris — like Steve ‘Woz’ Wozniak at Apple — were expelled from their universities for computer hacking. In Mr Tappen Morris’ case, he became famous for releasing the first serious internet virus in 1988, called the ‘Morris Worm’ and being the first person to be indicted for internet hacking under the US Computer Fraud and Abuse Act (sentenced to 3 years’ probation, community service and fines). According to both Woz and Tappen Morris, they hacked computer systems not to cause damage, but to highlight security flaws.
Despite Y Combinator’s co-founders ‘hacking’ beginnings — Paul Graham is often referred to as the ‘Hacker Philosopher’, he runs a blog called the ‘Hacker news’, and has written a book titled ‘Hackers and Painters — the Y Combinator story has been anything but rough. Their first program in 2005 began with a bang gaining successes from 4 out of the first 8 participating startups including Reddit being acquired by Conde Nast in 2006 for $20 million, and Loopt acquired by Green Dot for $43.4 million. Then a few years later the household name companies came through Y Combinator including Airbnb, Dropbox, and Instacart. The accelerator’s only hiccup came in 2018 when a software glitch notified all 15,000 applicants that applied to the program that they were accepted, only to learn a few hours later they had been rejected.
Y Combinator provides a remarkable story, not only because it has launched so many successful startups through its programs, but also because it spawned so many accelerator programs across the planet with their own successful startup alumni. Given Y Combinator’s initial success it was not surprising that competition soon followed. In 2006 David Cohen, Brad Feld, David Brown and Jared Polis started the Techstars accelerators, and now they boast helping launch 1600 companies with a combined market capitalization of $18.2 billion. In 2011, Techstars launched the Global Accelerator Network (GAN) in conjunction with President Obama’s Startup America Partnership, which linked 22 similar programs internationally.
Co-Authors of the book ‘Startup Accelerators’, Mr Dunn and Mr Busulwa took their startup LEAPIN Digital Keys through the first GAN accelerator in Australia in 2012. They had both just finished studying their Masters in Business, when Accelerators were starting to take off around the world. During the Australian GAN accelerator, Mr Dunn and Mr Busulwa met Techstars Co-Founder Brad Feld, and from that moment on they caught startup fever and become somewhat addicted to accelerator programs. “When I met Brad the ‘Godfather of global startup accelerators’ and interviewed him about what it takes to be a successful startup, I knew right then, that I had to get over to the US and do a startup accelerator there”, said Mr Dunn. The following year LEAPIN Digital Keys was accepted into an accelerator called 10Xelerator run out of the Ohio State University.
Mr Dunn and Mr Busulwa are passionate advocates for Startup Accelerators. They see Y Combinator and Techstars accelerators as pioneers in building the recent Silicon Valley startup boom. “Just look at some of the mentors in Y Combinator and Techstars who have taken their own startups and/or thousands of other startups to big successes, and you can begin to see how thriving startup ecosystems are built”, said Mr Dunn. “The mentors in these programs are simply mind-blowing — from partners in the biggest VC firms on the planet, such as Marc Andreessen, to the biggest entrepreneurial influencers and investors, such as Fred Wilson, to the former CEO of Twitter Dick Costolo, to Presidents of the biggest Media Corporations such as Michael Zeisser VP of Liberty Media which owns Formula One and SiriusXM”.
Mr Busulwa says that although mentors are a big part of startup accelerators, “our research revealed eight key benefits for startup founders including; accelerated startup evolution; accelerated learning/skills development; funding/investment readiness/fundraising support; network building; getting free/discounted professional business services; getting strategy right; ongoing advice/hands on support; and honing entrepreneur’s professionalism and confidence.
The book “Startup Accelerators” not only introduces the reader to birth of this new startup phenomenon that has swept across the business world, but it also explains what different accelerator programs offer, how to get accepted, what to do during the program, how to raise money during accelerators, what to do after the program ends, and much more. Packed with real-world case studies and advice from leading experts on startup accelerator programs, this one-stop book also provides step-by-step guidance on the entire accelerator process.
The author, Steve Dunn has attended 3 accelerators on 3 different continents. He’s an avid traveler and the co-author of the book, “Startup Accelerators.”