March 10, 2012
Frank Gruber CEO of Tech Cocktail moderated a panel on startup accelerators at SXSW this afternoon with a fabulous lineup of panelists: David Cohen of TechStars, Aziz Gilani of DFJ Mercury, and Gabriella Draney of Tech Wildcatters. We were packed into Salon A at the Hilton where we learned a lot and laughed even more (we also boo’d – keep reading to find out why).
First, some background. Last year, Gilani and Gruber decided to rank startup accelerators, because entrepreneurs were constantly asking Gilani about which accelerators they should apply to. Turns there was just not a lot of data available. Now, there is.
Some excerpts from the panel:
David Cohen: Accelerators launch on average every day around the world. There are so many programs, so talk to founders who have been involved in the program. Founders should demand info [on number of funded companies, for example] before applying.
Aziz Gilani: The reason accelerators are popping up everywhere is due to the initial success of YCombinator and Tech Stars. All of these local communities across America look at their success and want to do that too.
[At this point, cheering got VERY loud at the salon next door. So, we had a cheering match that went on for a few minutes. We won, of course.]
Aziz Gilani: Ultimately, the self-enforcement mechanism is the accelerators themselves. If they are investing in companies that are not making it, those accelerators are going to close. You really need to spend a lot of time focusing on what accelerator is right for you [before applying].
[At this point, David Cohen decided we would boo because they cheered again next door.]
Gabriella Draney: The best companies I am seeing are outside the US, which is pretty cool.
David Cohen: Except right now, they’re inside the US. [Laughter] I started Tech Stars in Boulder, because that’s where I live, and it’s convenient. We’re deliberately not in San Francisco or the Valley. There is a lot of data around secondary markets – if you’re an investor, it’s super attractive, because you are not overpaying and you have access to deals that don’t cost a fortune.
Aziz Gilani: We only invest in the middle of the country, because they deserve capital and to be accelerated….When we did the rankings, we wanted to know what the magical formula was to a good accelerator. Two things became clear: the person who runs the accelerator should be a successful entrepreneur with a good Rolodex of people in the VC community. Second, have involvement from several sources of capital in the program….We started investing in accelerators; they are a great source for the companies we want to be involved in.
About 20 minutes was devoted to a lively Q&A session:
Q: The concept of winning is often based on acquisition. Is that evolving?
David Cohen: Each entrepreneur has their own definition of success. Stay focused on what you care about and how you define success.
Q: What have caused accelerators to fail?
Gabriella Draney : The wrong people.
Aziz Gilani: If the mentor community comes from a world that doesn’t have a lot of engagement with seed accelerators, then that can be a problem.
David Cohen: Lack of conviction. They realize it’s hard, or they get bad reputations for taking like 25% of the stock.
Q: Peter Thiel has been talking and writing a lot about how colleges are overpriced and that high school kids should skip college and go to accelerators. What do you think?
Gabriella Draney: There are a lot of outliers, the Steve Jobs of the world. It is a great idea to take a year or 2 off between high school and college, but I am not sure if that’s the right way to go. It really depends on the individual.
David Cohen: A lot of the university system is about the social experience, and that is really important.
Aziz Gilani: Saying that all college is unnecessary is a broad stroke. A lot of startups are built on years of experience.
David Cohen: There is a misperception that startup founders are all young. The average age of our founders are over 30.
Q: What makes an ecosystem for a startup accelerator?
David Cohen: You need people who are passionate, not dumb money. Talk about how great your city is.
Frank Gruber: Density and relationships are important.
Q from Dave McClure: Can you talk about follow-on capital?
Gabriella Draney: We just started to set up a convertible note for each company that comes in.
David Cohen : We do 6% common stock, $100k that is a capped note. We try to avoid uncapped notes….We are putting our focus on B rounds.
Q: I am from Columbus, Ohio. How do we take Columbus to next level?
David Cohen: Don’t try to be the next Silicon Valley. Just think about how to make your area as good as it can be. Be the best you can be.
Gabriella Draney: Silicon Valley is a huge network. Put together a lot of events and help build a network and make connections.
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