A lot has been written lately about the Series A crunch--the phenomenon of too many seed-stage companies chasing too few real investment possibilities. I know the data supports the thesis, but it also sounds a bit whiney to me. Maybe it’s an offshoot of the psychology of the millennial: Everyone gets a trophy and nobody loses the soccer game.
Building a funding-worthy company is not an “everyone wins” proposition. It is a numbers game. That is why the great majority of companies will not get funded. The numbers look even worse in second- and third-tier communities, where the dearth of professional investors and active angel investors creates additional pressure.
At times, other institutions attempt to step in to alleviate this pressure. Economic development organizations from city and state government entities are perfect bad examples. An artificial stimulus to the capital supply chain creates a false sense of success, is not perceived well by professional investors, and in general does not create good entrepreneurs.
You see, a Darwinian winnowing is a healthy and vital part of the journey. In our start-up accelerator, we embrace this idea fully--you can see it in how we operate as follow-on investors to the companies exiting our program. Everyone gets something, but some companies get a modest amount (say $20,000), while others get a more business-building amount (up to $150,000).
With three years and 23 companies under my belt, I’ve learned a few things about great accelerator entrepreneurs and not-so-great ones:
- The better founders embrace and consume every piece of relevant information from a wide variety of mentors. The others skip opportunities to meet with new mentors.
- The not-ready-for-prime-time founders seem to focus on the wrong things for their business--even after that problem is brought to their attention.
- The best teams operate as teams continually. They evaluate what needs to be done and allocate tasks appropriately. There are no operational titles in a start-up.
- Some founding teams attempt to operate their start-up more like a mature business, spending time discussing issues they will probably never get to. It’s ridiculous when founders who have produced absolutely nothing spend days crafting a culture treatise and defining their philosophy on hiring.
- A few founders have an unbalanced view of business and place too much value on the technology at the expense of the business model. (We try like heck to weed these out in our selection process.)
- A handful of founders create continuous business momentum. Momentum is contagious. It creates positive mojo, which flows outside of the founding team to potential hires, interns, customers, partners, and investors.
Most startup entrepreneurs are not ready for prime time. That is why programs like The Startup Factory are necessary. The three months with us allows founders to see and feel prime time, but in a relatively safe environment. Hence the old term incubator
The new term, of course, is accelerator--as in, we create accelerated exposure and experience to keep founders from falling into the typical traps of a start-up. We surround them with so much input and data as to be exhausting. That's their best hope when the winnowing comes, as it always does.