On Incubators
As with the previous cycle, we are once again seeing the formation of many new incubators (Om has a post up which inspired my post)
…I believe that the only two versions that work are: accelerators, such as YCombinator and Techstars, and “foundries” (my attempt at a neologism), such as Idealab and Alleycorp.
…If you try to customize your offering for each startup and work with outside teams and their ideas, you wind up with both moral hazard and adverse selection problems of huge magnitudes. These incubators attract teams that are not strong enough to make it on their own (adverse selection) and expend too many resources for too long on concepts that are not getting traction (moral hazard). On top of that you don’t even have the control to make the changes that would be required to fix things.
I believe that the ecosystem at any point can sustain only a handful of accelerators and foundries. The fall off curve beyond those will be dramatic as by spreading out resources you diminish the likelihood of success (as we all know, starting just one successful business is super hard).
NYC is seeing a deluge of incubators, accelerators and all things in between. Two years ago, you couldn’t find a single mention of such programs in NYC and now they are popping up all over the place.
I do not see any problems with these programs, yet. With over 500 startups having applied to TechStars NYC this past winter, there are clearly willing participants and a strong demand. Even if you took the top 10%, you have at least 50 startups that are probably strong enough to be successful. With each program taking a maximum of 10 startups, which is the most sensible limit for an effective program, that means NYC could sustain about 5 programs per year per class.
I do believe that Albert has a point in his post. At what point are there too many, not all of the startups in these incubators are going to succeed? The potential to spread resources too wide across startups that might not be strong enough by themselves to succeed could result in a higher overall failure rate, thus diminishing the value of these programs. Not all of these programs are going to be successful, and those programs that simply try to copy Y-Combinator or TechStars by adding more “features” are not going to experience an ugly fall, taking along the startups in their programs with them.
If you are considering an incubator program, make sure you are thoroughly questioning the organizers and checking references and meeting others that are applying to the program or are slated as mentors. More importantly however, determine if an incubator program even makes sense for you and your startup as it may not be the recipe for success that you think it is.
Check out my previous posts on the subject for more information on incubators and the criteria to use when evaluating such programs.
Should You Join a Startup Incubator?
Evaluating the Tech Start-up Incubators
Revisiting NYC Tech Incubators and Accelerators
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