A recent LinkedIn forum question by Amir Gelman, formerly of The Junction and now of 500 Startups, asked what is missing in Israel’s rich accelerator eco-system. I’ve been mulling this question over for the past few days. It’s not as simple as it sounds. The Israeli accelerator space is full of accelerators with great people helping dozens of companies each year reach their next evolutionary level faster. But there is something missing. I agree.
I feel it when I talk to entrepreneurs who are frustrated from applying to dozens of accelerators, and from accelerator alumni who feel that the 3–4 months they spent in an accelerator would have been more productive if they were actually spent working in some simple office or hub. I also hear the accelerator managers who grumble about the overwhelming number of applications they get, yet they struggle to fill in a full cohort with “good” companies, or have companies they don’t believe in finish the program. So, really, what’s missing? Is the accelerator space in Israel broken?
To open this discussion, I think we should agree on some definitions, specifically two: the life-cycle of a startup and the types of accelerators that exist today. (not interesting? Skip ahead)
THE LIFE CYCLE OF THE STARTUP
Let’s keep it simple. I will look at the three main stages of a startup in terms of product, disregarding funding. These stages are:
- Pre-product — that’s when there’s an idea and a team, but their combined work has yet to mature to a product or technology.
- Launch — once the product has been developed it is launched in some manner. This may be a pilot, a beta or a real launch. This means a little traction and usually more work that needs to be done in order to make the product really market-ready
Market-ready — a real company with a real product. All that’s missing is the marketing or business development push to scale the business.
TYPE OF ACCELERATORS
First, what is an accelerator? According to Wikipedia, they are: a fixed-term, cohort-based programs that include mentorship and educational components and culminate in a public pitch event or demo day. I’ll stick to that definition. The real purpose of an accelerator is to allow a company to reach its next evolutionary stage in the fastest way possible (hence the accelerate in accelerator).
There are many types of accelerators. Again, for the sake of simplicity I have narrowed the range to three (and a half) basic types (I have taken out social or pure non-profit accelerators, since they and the companies they aim to help do not fit the mold of a regular business):
½. Mentored work-spaces — not really accelerators (see definition above) since they lack the structured program, but due to their proliferation, and the fact that many actually call themselves accelerators, I have decided to place some of them in this list. These places provide startup teams with a work-space, office-hours by experts in their field (see a previous opinion-piece: The Word Mentor is Over-used), and sometimes access to investors. (I will not list an example to avoid a fight with any hub calling itself an accelerator)
Private accelerators — These are accelerators operating usually as a business onto itself. Their main purpose is to locate potential startups, invest some time and money in elevating them to the next commercial stage. An example of such an accelerator is the Junction.
Municipal/educational accelerators — a program set up by city municipalities or higher-learning institutes to promote entrepreneurship and perhaps gain some IT tools to better manage city-services. Many of these are developed in cooperation with companies or private accelerators. The HAC in Herzliya is such an example.
Corporate accelerators — programs developed by large companies with their own agenda. The most common agendas are to operate an accelerator as a:
Means to get first access to new technology
Means to get startups “hooked” on their technology
THE CURRENT STATUS
The exact number of accelerators operating in Israel is debatable and ever-changing. It’s somewhere between 20 and 100. But who are their target startups? I tried mapping this eco-system based on the criteria listed above (note: mapping isn’t exact), and as the basis for the map I chose accelerators appearing in updated accelerator guide published by GeekTime (minus inactive programs, new programs yet to complete one cohort, social programs and pure mentored work-spaces). Here’s what I got:
It’s very clear that most accelerators, specifically (and not surprisingly) the corporate and the ones aimed at non-Israeli markets, prefer the later stage startups (they are now what is commonly called a scale-arator), those that can easily have a working product by the end of the accelerator.
The only programs willing to take a risk on pre-product startups are the municipal accelerators, and a few of the more idealistic accelerators such as 8200EISP and theHive. Bear in mind that none of these accelerators offer any funding to the companies.
The exception to this is the Junction. Not only do they target early, pre-product companies, they also offer a capital investment to the startups.
Another thing that is very obvious is the lack of vertical specialization on the left side of the matrix. So while corporations like El-Al focus on logistics and travel MassChallenge Israel can (and will) accept anyone, regardless of their vertical.
Also, it’s crowded as hell in the right-top corner (which is one of the reasons for a vertical-focus as a unique competitive advantage).
SO WHAT’S MISSING?
Having said all this, and also based on talks with startups and accelerator managers I find that the following things are missing from this rich eco-system:
FUNDING FOR PRE-PRODUCT COMPANIES
Many startups are comprised of very talented people in the age group of 35–55. These are also usually gainfully employed family people. It is very hard for them to leave their salaried life for a stint of 3–12 months (until funding is attained) and focus on developing something new.
Yes, I’ve heard the investor mantra “if you don’t believe in your company why should I?”. But that’s only easy to say when you can pay your mortgage. Many would-be entrepreneurs lack the courage (or the financial ability) to make the move to full-time-no-salary startup, no matter how much they believe in the idea.
So they are left to try and develop their product in the evenings and the weekends. Which leads to 3–4 years of development and potentially to missing the market.
That is why most accelerators manage to mainly attract people in their early 20s and completely miss out on the opportunity of good products and amazing experienced teams. Give them a good runway, and the older guys will perform miracles.
VERTICAL PRE-PRODUCT FOCUS
Pre-product accelerators try to focus more on the process of creating a company and less on the subject matter. This is mainly due to the fact that Israel is a small country and because of the previous point (no capital investment in pre-product) it is hard to find enough “good” companies to fill-in a vertical-specific cohort every cycle.
The result is that the accelerators may be less effective than needed. A vertical focus, i.e. a deep understanding of the market and the customers, is essential in moving quickly through the early stages of any company.
Like I stated before, accelerators take a company from one stage to the next. However, sometimes that’s just not enough. After investing mentoring time and getting to know the company, its products and its market, the accelerator’s team are in the best place to continue assisting the team in later stages too.
I would imagine that having an accelerator bring a company from pre-product to launch and then having an organized hand-off to a second accelerator to elevate it from launch to market-ready would be ideal and shave-off many month from the company’s time-to-market.
MORE INTERNATIONAL EXPOSURE
Like I mentioned, Israel is a small country. There are only a limited number of investors and exceptional mentors to be had. This means that they are divided between all the accelerators. If you open any two accelerators’ webpages and compare their mentor list, you are more than likely to find 30% overlap. This makes it hard for accelerators to be unique, but also limits the thinking of the startups who rely on the advice of a limited number of people, most of them working in Israel.
What startups need is more information and assistance from specialists in their target market, be it the US, China or Europe. They need to be able to form relationships with potential investors from overseas at the earliest point possible. They need to talk to their future customers, not the Israelis but the real market abroad. Essentially, they need more international exposure. Today this is done only in later stages by such accelerators as UpWest Labs.
LONGER PROGRAMS WITH EXIT POINTS
This is a continuation of the multi-stage acceleration in some form. For many companies 3 months is just not enough, especially if during these 3 months they “waste” a lot of time on events and lectures that may not be relevant for them (also a problem due to the no-vertical focus and acceptance of many startups in different stages). There should be an option for startups to continue for longer periods, while other startups can have exit points that are suitable for them (i.e. after 3 or 4 months).
It’s no secret that the most important part of a startup is the team. However, it is often hard to judge based on a form and a few interviews. When I work with entrepreneurs for a period of several weeks (for example when we develop a business plan or formulate a go-to-market strategy) I sometimes discover during this process what a great/awful company this is even though the idea is horrible/amazing.
The same process should be applied to the acceptance stage of accelerators. There should be some sort of pre-program that lasts a few weeks (even if only during the evenings) in which the startups can be more closely scrutinized and the strengths or weaknesses of the team become more apparent. This will ensure that the program has better cohorts and can advance faster.
FINALLY, A CONCLUSION
This turned out to be longer than I intended, and I even skipped a few points I had (want to talk about it? Drop me a line). But I think the conclusion is that there is much that can be done in accelerators that is not done today.
Now the real question is who can create a program that helps pre-product companies, provides them with adequate pre-seed funding, and is a multi-stage, vertical-focused program with international exposure?