“For many entrepreneurs in the tech space, being part of something larger has helped them get their businesses off the ground more quickly and smoothly. Ultimately, an [accelerator] can be the perfect bridge to make the big step from idea to execution.” –Matthjis Keij, CEO at FixOne.
In recent years, accelerator programs such as SparkLabKC have become major forces in shaping the startup ecosystem. Across the world, they rally innovators around new products and tech-savvy ideas, creating opportunities for entrepreneurs everywhere. These accelerators provide early stage products and companies with accomplished mentors and assistance in areas such as fundraising, marketing, and product development in the hopes of taking their ideas to launch and beyond.
The top startup accelerator programs have been responsible for some of the most innovative and disruptive companies in today’s market. Companies such as Reddit, Dropbox and Airbnb—valued at a combined $23 billion—all have accelerator programs to thank. According to Forbes, the Top 3 accelerator programs in the U.S. — Y-Combinator, Techstars, and DreamIt Ventures — all have produced companies valued at a total of at least 500k. Y-Combinator outshines the competition with a valuation somewhere in the $7 billion range. These three accelerators, along with others across the United States, have assisted some of the most innovative minds in launching their new businesses and are now reaping the rewards.
Kevin Colleran, Partner at General Catalyst Partners, explains, “The most well-known and highly regarded [accelerators], including Y Combinator and TechStars have truly perfected a formula for putting young, often first-time entrepreneurs through a business boot camp that serves to teach the most important business lessons.” These accelerators have changed the game for entrepreneurs across the world.
Let's take a closer look at some of these success stories.
Y Combinator - Mountain View, California
Hailed by Forbes as the most successful accelerator program in existence, Y-Combinator (YC) is responsible for companies like Airbnb, Dropbox, and Cloudkick. Founded in 2005, YC has invested approximately $8 million into over 400 companies. As Drew Hansen explains, the returns on these investments have been massive. “This year the value of YC’s portfolio is approaching $10 billion, largely due to Dropbox and Airbnb. Nevertheless, a number of YC companies have had clean exits, including Heroku, OMGPOP, Loopt, Cloudkick, Wufoo, and Reddit.” The company now boasts one of the strongest networks of entrepreneurs and CEO’s in the world, and, as Hansen explains, previous founders are “willing to go to bat for other Y Combinator companies.”
YC startups aren’t the only ones reaping the rewards. The accelerator normally invests a total $120,000 into each startup in the class in return for a 7% stake in the company. While $120,000 may seem like a hefty price for investors, consider this: a 7% share in Airbnb would pay $910 million today. Couple these massive returns with the fact that Y-Combinator has funded over 700 startups, and investors can begin to see the possibilities of huge rewards.
TechStars - Boulder, Boston, New York, Seattle, San Antonio
Founded in 2007, TechStars strives to keep their accelerator classes small so as to provide extra, individualized attention to each of its startups. Responsible for companies such as ThinkNear and SendGrid, TechStars has launched more than 400 companies to date — 362 of which remain active. Its focus and goal is to provide entrepreneurs with more than ample access to successful business mentors in the hopes of getting each product to launch in the speediest manner possible. Forbes notes, “[Techstars] has a 10-to-1 mentor to startup ratio to make sure each company gets focused, deep attention from several mentors.” This approach has generated almost a billion in total venture capital funds as of 2012.
DreamIt Ventures - Philadelphia, Baltimore, New York, Israel
DreamIt comes in at #3 on Forbes list of most successful startup accelerators. Founded in 2008, DreamIt has had more than 156 companies complete its program. They have gone on to raise over $176M and have an enterprise value greater than a half a billion dollars. DreamIt is responsible for the launch of both SCVNGR (prior valuation of $100 million) and LevelUp (prior valuation of $175 million).
These companies are only continuing to grow. SCVNGR just completed its second round of funding, during which it raised over $15 million. DreamIt Ventures originally offers each company a $25,000 stipend in return for 6% passive equity in their startup companies. Simply calculating the total value of SVCNGR and LevelUp, an investor owning even 1/10 of this 6% would have seen a return of over $1.2 million since the companies’ founding less than a decade ago. Startup accelerator investment returns can be astronomical!
Why SparkLabKC Will Be Next:
The technology scene in Kansas City is thriving and growing and the talent pool is getting younger and more technologically advanced. One recent Kauffman Foundation study found that most rapid-growth companies in Kansas City “believe Kansas City offers high-quality talent with a strong work ethic. Growing firms often have long-term employee development strategies to hire young people and train them to be first-class professionals.”
The success that Y-Combinator and TechStars companies are achieving is largely due to the initial capital and funding they receive. The same Kauffman Foundation study found that in Kansas City “very few of the high growth firms [received] venture capital or angel investments. Instead, most were self-financed or received financial assistance from founders' close friends and families.” If the startup community in Kansas City has grown despite a large lack of investment capital to drive new startups forward, imagine the boom the startup community could see with a greater investment presence.
Y-Combinator and TechStars both note the power of the alumni network of entrepreneurs that have graduated from these programs, as well as the interactions between accelerator companies and their mentors. SparkLabKC brings together a community of highly successful business professionals and entrepreneurs who are willing to give their time, advice, and effort to the Kansas City startup scene. The Kauffman Foundation also concluded that Kansas City's “small-town environment often contributes to higher-quality professional leads and the quick establishment of trusted business relationships. Entrepreneurship leaders therefore need to take more intentional, formalized steps to connect experienced and new entrepreneurs."
Connecting innovative entrepreneurs in the early stages of creation is precisely what SparkLabKC offers our startup teams and community. Just as Y-Combinator and other successful accelerators have proven, SparkLabKC is providing these startups with mentors and partnerships that ensure the most direct route to the existing market and, ultimately, success for both the company and its investors.