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Andrew Ackerman, Managing [email protected]
+1.917.478.5838 @dreamit @andrewackerman
The Brutal Economics of Running an Accelerator
(and how to beat them)
Startupfest, MontrealJuly 2017
2
Key Insight:
Every accelerator model has tradeoffs. Know what they are and take steps to mitigate them
3
There were three exited entrepreneurs
Master the customer meeting❏ When to meet❏ Who to meet❏ Where to
meet❏ What to
show & ask❏ How to run the
discussion
4Let’s start an accelerator!
Master the customer meeting❏ When to meet❏ Who to meet❏ Where to
meet❏ What to
show & ask❏ How to run the
discussion
5
We have great dealflow...
Master the customer meeting❏ When to meet❏ Who to meet❏ Where to
meet❏ What to
show & ask❏ How to run the
discussion
6
… we have the money to invest ...
Master the customer meeting❏ When to meet❏ Who to meet❏ Where to
meet❏ What to
show & ask❏ How to run the
discussion
7
… we’ve learned a lot about startups (the hard way) ...
Master the customer meeting❏ When to meet❏ Who to meet❏ Where to
meet❏ What to
show & ask❏ How to run the
discussion
8...and I’ve got some extra space!
Accelerator-lite Economics
Senior staff Free
Support staff 1 admin @ $40K
Rent Free
Marketing, events, supplies, misc. $40K
Initial investments 8-10 @ $25K-$100K
Follow on investments We’ll figure that out later
Accelerator-lite vs. Angel Investing
Angel Investing
❏ $300K seed investments ❏ $4M-$6M pre-money valuation❏ Much, much, much less work
Accelerator-lite
❏ $1M pre-seed investments ❏ $900K pre-money valuation
($100K for 10%)❏ $80K+ expenses❏ 3 out of 10 raise a true seed❏ Effective >$3.2M pre-money
($1.08M for 10% of 3 startups)
Running A Real Accelerator Costs $4.4M - $4.8M
Investment committee (3 founders) Free
Managing Director $125K - $250K
Program Manager and Admin(s) $100K - $200K
Rent $80K-$300K++
Marketing, events, supplies, misc. $40K
Accounting, legal, prof services $25K - $50K
Initial investments $2M (10 @ $100K x2/yr)
Follow on investments $2M
Master the customer meeting❏ When to meet❏ Who to meet❏ Where to
meet❏ What to
show & ask❏ How to run the
discussion
12
Accelerator Funding Options
Government Funding
Your Goal
❏ To make money
Their Goals
❏ Create jobs❏ Get re-elected
The Instagram Problem
Instagram was acquired for $1B. They had only 13 employees.
Is that a win for you? Hell yes! For the Government, not so much.
Government Funding - Navigating Misaligned Incentives
Reframe as / Mitigate by
❏ Increasing the tax base❏ Creating highly visible wins❏ Long term legacy❏ Choose a funding source
insulated from short term pressures
Their Goals
❏ Create jobs❏ Get re-elected
Academic Funding
Your Goal
❏ To make money
Their Goals
❏ Teach entrepreneurship❏ Increase enrollment
The Student ProblemMark Zuckerberg aside, most students make awful
entrepreneurs. They have zero life or industry experience and are devoting only a small fraction of their time to their ventures.
Academic Funding - Navigating Misaligned Incentives
Reframe as / Mitigate by
❏ Focus on MBA students❏ Open to alumni- and
faculty-run startups❏ Internship opportunities for
undergrads❏ Stress future donorship
Their Goals
❏ Teach entrepreneurship❏ Increase enrollment
Corporate Sponsorship
Your Goal
❏ To make money
Their Goals
❏ Learn how to work with startups
❏ Competitive intelligence❏ Competitive advantage❏ Acquisition / acqui-hire
The Power Problem
Corporations are used to calling the shots. They are going to want to control over startup selection
Corporate Sponsorship - Navigating Misaligned Incentives
Reframe as / Mitigate by
❏ Multiple corporate sponsors❏ Formal selection process❏ Find a right champion who
‘gets it’... and has authority & budget
Their Goals
❏ Learn how to work with startups
❏ Competitive intelligence❏ Competitive advantage❏ Acquisition / acqui-hire
VC Funding
Your Goal
❏ To make money
Their Goals
❏ To make money
The Scale Problem
You need a $25M - $50M fund to support the costs… ...and you only get 1/4 - 1/2 the necessary startups
Assumes typical 2% management fee.
VC Funding - Making The Numbers Work
❏ Participation fees and other chargebacks(effectively increasing the management fee)
❏ Invest outside the accelerator❏ Supplement with other funding❏ Go later stage (pre-A Round)❏ Stack consecutive funds
Andrew Ackerman, Managing [email protected]
+1.917.478.5838 @dreamit @andrewackerman
The Brutal Economics of Running an Accelerator
(and how to beat them)
Startupfest, MontrealJuly 2017
