Startup Accelerator Fail: Most Graduates Go Nowhere • Hacker News Board

Re: Startup Accelerator Fail: Most Graduates Go Nowhere

#11

Post by pg » Thu, Jun 21, 2012, 5:13 PM UTC

Exits are a stupid test for what they're trying to measure here. By that standard, Airbnb and Dropbox are failures.

Exits are a reasonable test for investments made, say, 10 years ago. But none of the incubators are that old yet. So the right way to judge them is by the valuations of the startups they've funded. Unless the venture business as a whole loses money, that will be a lower bound on the eventual exit numbers.

Then you don't need to measure fuzzy stuff like "VC perceptions" either. Each incubator has a single score: average valuation. The last time we calculated ours (for the Forbes incubator rankings: http://www.forbes.com/sites/tomiogeron/2012/04/30/top-tech-i...) it was $45.2m.

You could still screw up e.g. in the case where a company hasn't raised money for a long time and whose last post-money valuation is 1/10 of what they could raise at now. But you won't screw up as badly as if you just measure acquisitions.

Re: Startup Accelerator Fail: Most Graduates Go Nowhere

#12

Post by danielrhodes » Thu, Jun 21, 2012, 5:15 PM UTC

Given the exponential returns possible from just one big exit, the bar for success is not that most companies do well but just a couple. It would seem odd then that the accelerator would invest in the others, but since there is relatively little information available at the time of funding, it becomes a numbers game. Given that the instincts of the accelerator are good, there is no reason not to invest in as many companies as possible to catch a few stars in the net. To the outside world however, it looks like a bunch of failures.

Re: Startup Accelerator Fail: Most Graduates Go Nowhere

#13

Post by kylebrown » Thu, Jun 21, 2012, 5:23 PM UTC

pg wrote: post #11

Exits are a stupid test for what they're trying to measure here. By that standard, Airbnb and Dropbox are failures. Exits are a reasonable test for investments made, say, 10 years ago. But none of the incubators are that old yet. So the right way to judge them is by the valuations of the startups they've funded. Unless the venture business as a whole loses money, that will be a lower bound on the eventual exit number…

How about median valuation?

Re: Startup Accelerator Fail: Most Graduates Go Nowhere

#14

Post by pg » Thu, Jun 21, 2012, 5:27 PM UTC

kylebrown wrote: post #13

pg wrote: post #11

Exits are a stupid test for what they're trying to measure here. By that standard, Airbnb and Dropbox are failures. Exits are a reasonable test for investments made, say, 10 years ago. But none of the incubators are that old yet. So the right way to judge them is by the valuations of the startups they've funded. Unless the venture business as a whole loses money, that will be a lower bound on the eventual exit number…

How about median valuation?

The trouble with median valuation is that even for the most successful incubators it will approach zero, because I doubt any of us are going to have a success rate over 50%.

Re: Startup Accelerator Fail: Most Graduates Go Nowhere

#15

Post by pramanat » Thu, Jun 21, 2012, 5:32 PM UTC

DanielRibeiro wrote: post #5

Not really a secret[1]: Peter Thiel: Do Y-Combinator companies follow a power law distribution? Paul Graham: Yes. They’re very power law [1] http://blakemasters.tumblr.com/post/21869934240/peter-thiels...

Perhaps a corollary could be that incubators also follow a power law distribution?

Re: Startup Accelerator Fail: Most Graduates Go Nowhere

#16

Post by damoncali » Thu, Jun 21, 2012, 5:41 PM UTC

Most VC's perform miserably, financially speaking, with the profits piling up at the very top firms. Why, then, would it be surprising to see that most accelerators fail to produce notable results? It's basically the same business, and the same things contribute to success.

Re: Startup Accelerator Fail: Most Graduates Go Nowhere

#17

Post by snambi » Thu, Jun 21, 2012, 5:42 PM UTC

pg wrote: post #11

Exits are a stupid test for what they're trying to measure here. By that standard, Airbnb and Dropbox are failures. Exits are a reasonable test for investments made, say, 10 years ago. But none of the incubators are that old yet. So the right way to judge them is by the valuations of the startups they've funded. Unless the venture business as a whole loses money, that will be a lower bound on the eventual exit number…

If the startup is profitable and self sustain itself, does it count as success or failure?

Re: Startup Accelerator Fail: Most Graduates Go Nowhere

#18

Post by jroseattle » Thu, Jun 21, 2012, 5:44 PM UTC

Not sure if others share the same view, but I view many startup accelerators as startups themselves -- heck, nearly the entire industry is a startup. We should assume that startup accelerators themselves can fail.

The Y-Combinators and TechStars are the Tier-1 players in this space, but that's only getting their members to reach funding -- certainly nothing about exits.

Evaluating accelerators should be akin to evaluating venture capital firms -- return on investment. Last I checked, I think VC firms were down over the past ten years, yet I don't see anyone calling them failures.

Re: Startup Accelerator Fail: Most Graduates Go Nowhere

#19

Post by [deleted] » Thu, Jun 21, 2012, 5:45 PM UTC

pg wrote: post #11

Exits are a stupid test for what they're trying to measure here. By that standard, Airbnb and Dropbox are failures. Exits are a reasonable test for investments made, say, 10 years ago. But none of the incubators are that old yet. So the right way to judge them is by the valuations of the startups they've funded. Unless the venture business as a whole loses money, that will be a lower bound on the eventual exit number…

[deleted]

Re: Startup Accelerator Fail: Most Graduates Go Nowhere

#20

Post by brittohalloran » Thu, Jun 21, 2012, 5:45 PM UTC

snambi wrote: post #17

pg wrote: post #11

Exits are a stupid test for what they're trying to measure here. By that standard, Airbnb and Dropbox are failures. Exits are a reasonable test for investments made, say, 10 years ago. But none of the incubators are that old yet. So the right way to judge them is by the valuations of the startups they've funded. Unless the venture business as a whole loses money, that will be a lower bound on the eventual exit number…

If the startup is profitable and self sustain itself, does it count as success or failure?

Assuming it's actually making good money not just breaking even, its true valuation will be high (though it can't be measured using the 'latest round' method)