1. Andrew Ackerman, Managing Director
andrew@dreamit.com
+1.917.478.5838
@dreamit @andrewackerman
The Brutal Economics
of Running an
Accelerator
(and how to beat them)
Startupfest, Montreal
July 2017

2. 2
Key Insight:
Every accelerator model has
tradeoffs. Know what they are and
take steps to mitigate them

3. 3
There were three exited entrepreneurs

4. Master the
customer meeting
❏ When to meet
❏ Who to meet
❏ Where to
meet
❏ What to
show & ask
❏ How to run the
discussion
4
Let’s start an accelerator!

5. Master the
customer meeting
❏ When to meet
❏ Who to meet
❏ Where to
meet
❏ What to
show & ask
❏ How to run the
discussion
5
We have great dealflow...

6. Master the
customer meeting
❏ When to meet
❏ Who to meet
❏ Where to
meet
❏ What to
show & ask
❏ How to run the
discussion
6
… we have the money to invest ...

7. Master the
customer meeting
❏ When to meet
❏ Who to meet
❏ Where to
meet
❏ What to
show & ask
❏ How to run the
discussion
7
… we’ve learned a lot about startups (the hard way) ...

8. Master the
customer meeting
❏ When to meet
❏ Who to meet
❏ Where to
meet
❏ What to
show & ask
❏ How to run the
discussion
8
...and I’ve got some extra space!

9. Accelerator-lite Economics
Senior staff Free
Support staff 1 admin @ $40K
Rent Free
Marketing, events, supplies, misc. $40K
Initial investments 8-10 @ $25K-$100K
Follow on investments We’ll figure that out later

10. Accelerator-lite vs. Angel Investing
Angel Investing
❏ $300K seed investments
❏ $4M-$6M pre-money valuation
❏ Much, much, much less work
Accelerator-lite
❏ $1M pre-seed investments
❏ $900K pre-money valuation
($100K for 10%)
❏ $80K+ expenses
❏ 3 out of 10 raise a true seed
❏ Effective >$3.2M pre-money
($1.08M for 10% of 3 startups)

11. Running A Real Accelerator Costs $4.4M - $4.8M
Investment committee (3 founders) Free
Managing Director $125K - $250K
Program Manager and Admin(s) $100K - $200K
Rent $80K-$300K++
Marketing, events, supplies, misc. $40K
Accounting, legal, prof services $25K - $50K
Initial investments $2M (10 @ $100K x2/yr)
Follow on investments $2M

12. Master the
customer meeting
❏ When to meet
❏ Who to meet
❏ Where to
meet
❏ What to
show & ask
❏ How to run the
discussion
12
Accelerator Funding Options

13. Government Funding
Your Goal
❏ To make money
Their Goals
❏ Create jobs
❏ Get re-elected

14. The Instagram Problem
Instagram was acquired for $1B. They had only 13 employees.
Is that a win for you? Hell yes! For the Government, not so much.

15. Government Funding - Navigating Misaligned Incentives
Reframe as / Mitigate by
❏ Increasing the tax base
❏ Creating highly visible wins
❏ Long term legacy
❏ Choose a funding source
insulated from short term
pressures
Their Goals
❏ Create jobs
❏ Get re-elected

16. Academic Funding
Your Goal
❏ To make money
Their Goals
❏ Teach entrepreneurship
❏ Increase enrollment

17. The Student Problem
Mark Zuckerberg aside, most students make awful
entrepreneurs. They have zero life or industry experience and are
devoting only a small fraction of their time to their ventures.

18. Academic Funding - Navigating Misaligned Incentives
Reframe as / Mitigate by
❏ Focus on MBA students
❏ Open to alumni- and
faculty-run startups
❏ Internship opportunities for
undergrads
❏ Stress future donorship
Their Goals
❏ Teach entrepreneurship
❏ Increase enrollment

19. Corporate Sponsorship
Your Goal
❏ To make money
Their Goals
❏ Learn how to work with
startups
❏ Competitive intelligence
❏ Competitive advantage
❏ Acquisition / acqui-hire

20. The Power Problem
Corporations are used to calling the shots. They are going to
want to control over startup selection

21. Corporate Sponsorship - Navigating Misaligned Incentives
Reframe as / Mitigate by
❏ Multiple corporate sponsors
❏ Formal selection process
❏ Find a right champion who
‘gets it’... and has authority &
budget
Their Goals
❏ Learn how to work with
startups
❏ Competitive intelligence
❏ Competitive advantage
❏ Acquisition / acqui-hire

22. VC Funding
Your Goal
❏ To make money
Their Goals
❏ To make money

23. The Scale Problem
You need a $25M - $50M fund to support the costs…
...and you only get 1/4 - 1/2 the necessary startups
Assumes typical 2% management fee.

24. VC Funding - Making The Numbers Work
❏ Participation fees and other chargebacks
(effectively increasing the management fee)
❏ Invest outside the accelerator
❏ Supplement with other funding
❏ Go later stage (pre-A Round)
❏ Stack consecutive funds

25. Andrew Ackerman, Managing Director
andrew@dreamit.com
+1.917.478.5838
@dreamit @andrewackerman
The Brutal Economics
of Running an
Accelerator
(and how to beat them)
Startupfest, Montreal
July 2017