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The Brutal Economics of Running an Accelerator

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Andrew Ackerman of Dreamit Ventures provides a perspective on the dynamics of running an accelerator program for startups.

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The Brutal Economics of Running an Accelerator

  1. 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. 2 Key Insight: Every accelerator model has tradeoffs. Know what they are and take steps to mitigate them
  3. 3. 3 There were three exited entrepreneurs
  4. 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. 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. 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. 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. 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. 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. 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. 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. 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. 13. Government Funding Your Goal ❏ To make money Their Goals ❏ Create jobs ❏ Get re-elected
  14. 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. 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. 16. Academic Funding Your Goal ❏ To make money Their Goals ❏ Teach entrepreneurship ❏ Increase enrollment
  17. 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. 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. 19. Corporate Sponsorship Your Goal ❏ To make money Their Goals ❏ Learn how to work with startups ❏ Competitive intelligence ❏ Competitive advantage ❏ Acquisition / acqui-hire
  20. 20. The Power Problem Corporations are used to calling the shots. They are going to want to control over startup selection
  21. 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. 22. VC Funding Your Goal ❏ To make money Their Goals ❏ To make money
  23. 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. 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. 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

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