Disconnect: the downside of startup incubators and accelerators

Disconnect is a weekly column in which Tech in Asia’s Charlie Custer pokes at holes, plays devil’s advocate, or otherwise attempts to rain on the tech industry’s parade.

First things first: this is a regular column, not an April Fool’s joke. I hate April Fool’s Day and I refuse to participate. Grumble, grumble, get off my lawn.

If you’re running a startup, you may have noticed something: there are tons of startup incubators and accelerators out there. Across Asia, there are hundreds of different programs, and of course there’s nothing limiting you to just Asian accelerators anyway. Globally, I wouldn’t be surprised if there are literally thousands of programs promising to help your company scale fast… for a price, of course.

Are these programs worth it? Some of them can be. But we hear about the advantages of accelerators all the time. What are the downsides?

Money. This is the obvious one. The vast majority of incubator and accelerator programs will take a chunk of equity in your company, meaning you get less if you eventually find an exit and cash out. That’s not necessarily a good reason to avoid accelerators, but it does mean you need to be sure that what you’re getting is actually worth the price you’re paying in equity. Sometimes, it isn’t. And there are less obvious downsides too, like:

Conflicts of interest. Most startup incubators and accelerators are themselves businesses, which means that they have their own targets to meet, and their own concerns when it comes to things like reputation and PR. Often those align well with your company’s needs – after all, it’s good for everyone if you succeed – but conflicts of interest can arise. At some accelerators, for example, startups face pressure to scale quickly and raise another round of investment, because being able to say “our startups all raised rounds of US$10 million or more after graduation” is good for the accelerator. But that kind of high-speed growth might not be what’s best for your company, and raising a round higher than what you actually need could doom you later down the line if the market sours and you’re staring down the barrel of a down round.

The best incubators and accelerators won’t do this, of course. But there are thousands of them out there. They can’t all be the best.

Cookie-cutter approach. Another problem is that incubators and accelerators tend to be set programs with a pre-defined structure that every founder goes through, regardless of how relevant it is to your company. This can result in wasted time spent at events that don’t really apply to your business model, or even poor advice from your mentors, who are used to answering the same questions in the same fashion after years of guiding hundreds of startups down the same pre-defined path.

There’s a reason accelerators do this, of course – they’ve found a formula that works for most companies most of the time. But works for most companies is meaningless if it doesn’t work for your company, so you’d be well-advised to look very carefully at any program before you sign up to be sure it’s structured in a way that makes sense for your startup, and isn’t likely to waste your time with irrelevant events or advice.

It’s also worth pointing out that the cookie-cutter approach can have an affect on you. Your advisors are used to seeing problems and dealing with them in a certain way, and that way might be totally effective. But perhaps without their guidance you could have come upon a better, more tailored-to-your-company’s-needs solution on your own. Being part of a pre-defined program and having those resources to work with can sometimes make it tougher for you to think way outside of the box.

Relocation dangers. Sometimes you can find an accelerator in your home city, but often you’ll have to travel, and that can bring a host of other dangers. If you go alone as a founder, you’ll be geographically out of touch with your team. If you’re still a small company and the whole team goes, then you’ll be out of touch with your home (and presumably) target market for a few months, and could miss opportunities.