Business Advice Centre

Thursday 28 August 2014

Accelerator funding is no guarantee of quick success

Adrian Weckler

Published 30/03/2014 | 02:30

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The Entrepreneurship Forum's Sean O’Sullivan and Minister Richard Bruton l at Dogpatch Labs, which Eamon Leonard rates as one of the best accelerators around. Picture: Steve Humphreys
The Entrepreneurship Forum's Sean O’Sullivan and Minister Richard Bruton at Dogpatch Labs, which Eamon Leonard rates as one of the best accelerators around. Picture: Steve Humphreys

IS it worth applying to a start-up 'accelerator' or 'incubator' fund? What are your chances of getting into one? Is the 'mentoring' offered in such places worth it or is it just a semi-social office with coffee, coding and a bit of pool thrown in?

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Thanks to an impressive bit of research from AIB and Amarach, we now have a good idea of the scale and success rate of accelerator-hosted start-ups in Ireland.

For the uninitiated, an accelerator programme is where start-ups with potential are given a small amount of cash (under €50,000), space to work and access to some relevant expertise for around six months. Participating start-ups sometimes give up 5 per cent or 10 per cent of their equity as a quid pro quo, while the organisations putting up the resources range from big corporations to investors looking for a front-row seat to what might be the next big thing.

There are a few good examples in Ireland. These include the highly regarded Dogpatch Labs, which is just across the road from Google's headquarters in Barrow Street, and the O2-backed Wayra Academy in Dublin.

Overall, there are 27 such accelerator programmes in the country. And it turns out that if you apply to get into one of them, you have a pretty good chance of acceptance. Outside Dublin, almost half of all applicants get accepted, according to the AIB/Amarach research (which was based on interviews with start-ups in 20 of the 27 accelerator programmes). In Dublin, that falls to one in five. Some metrics for what constitutes 'success' are decent, too. For example, three-quarters of accelerator start-ups do actually bring a product to market, according to the Amarach research. And while just half go on to raise follow-on funding, four out of five start-ups from 2012's crop of accelerator participants are still in business in today, says Amarach.

Furthermore, while the gender balance is still weighted towards men, 30 per cent of accelerator participants are female, a significantly higher percentage than some other areas of the tech industrial ecosystem.

But there are still a few things to keep in mind, say veteran technology entrepreneurs in Dublin.

"Accelerators can present amazing opportunities for fledgling start-ups in terms of mentorship and investment," said Eamon Leonard, vice-president at Engine Yard and serial start-up investor. "But they can also give false hope."

Leonard, one of the best-connected people in Dublin's tech start-up community, reckons that some start-ups confuse accelerators with de facto success.

"If you're accepted into an accelerator, that doesn't mean you're validated or of a higher calibre than others," he said. "It just means you got into an accelerator. There's also a risk of a new generation of start-ups that engage in accelerator-hopping, jumping from one to the other, like people who never leave college."

Leonard rates Dogpatch Labs as one of the best accelerators around.

"If you look at the serious investments they've made, compared to a lot of the others it's pretty impressive," he said. "That probably has something to do with the founder's [Polaris investor Noel Ruane] history from working with Silicon Valley firms, though."

In Ireland, accelerators are a growth industry. According to the Amarach research, there are over 600 start-ups housed by 27 accelerator funds. Of 136 start-ups that applied last year, 35 were accepted. But acceptance is just the beginning.

"Ultimately, [measuring success] comes down to a numbers game," said Leonard. "There are only really a few accelerators around the world that have produced big-name tech firms. If you're leaving your job in a big firm for your start-up idea, don't expect that getting into an accelerator will make it succeed. It won't."

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