The VentureCode

As innovation grows, expands and evolves, terminology follows suit. In the field of entrepreneurship and startup opportunities, the understanding of ever-changing terms is crucially important. Full understanding of incubators and accelerators is vitally important to any innovative startup trying to stake their claim in this world.

Incubators and accelerators serve similar roles with helping start-up companies and entrepreneurs; however, their approaches differ.

Incubators, like the largely successful Idealab, create tech ideas and start-up companies based on them in-house. Once the incubator is satisfied with the potential profit and success of a new tech invention, strategy, or business innovation, they will launch the “incubated” project with an external company or team. The benefitof incubators is two-fold. First, because Incubators generally have extensive R&D departments, they can usually launch programs/companies for a fraction of the cost of traditional start-ups. And second, incubators usually stay in a close business relationship with their start-up, insuring its success. However, this comes with a trade-off. The incubator takes a higher percent of equity from the start-up, ranging from 15% to 30% (not to say this equity cut is not higher at times. Usually, the incubator does not invest in incubated startups.

These days majority of them are about providing the infrastructure (office space, network connection,
phone answering service, copy machine) and facilitating networking and business connections.

Accelerators act quicker and more intensive in building up start-ups and business ventures. Instead of creating the ideas and business plans for a new start-up in-house like incubators, accelerators, like TechStars, take on external start-ups and developed ideas. Through an intensive program, generally lasting about three months (ex. TechStars, Woman Innovate Mobile and The NewMe), the accelerator will provide a plethora of resources and generally capital to ensure success after completion of the program. There are benefits and drawbacks with working with accelerators.

On the positive, if selected by an accelerator (many apply, but few get into these programs), the start-up or entrepreneur will be asked to attend a training program, wherein, success is nearly guaranteed. This high success rate is insured through the accelerator’s mentorship, business connections (ex. during Y Combinator’s program, a weekly “dinner” allows start-ups to mingle with those successful in their industry) and capital investments. In return, the accelerator will take a small equity stake in that start-up.

The cons of accelerators lie in their exclusivity and short-term interest. Many accelerator programs are extremely difficult to get into. For example, TechStars states that thousands apply, but only ten get in for each of their programs. Additionally, once the program is over, accelerators do not stay as involved in their “graduated” start-ups as incubators do.

Lack of focus is a common issue that I see every day.

To me, the biggest mistake for early stage companies is to try addressing
multiple problems and markets at the same time. They will end up spreading
their resources thin and fighting competitors on multiple fronts.
For startups with limited resources that is not the most efficient approach.

Focus on one problem and one market to start with. You can always expand
to other areas after proving yourself in one.

Is the number of patents filed an indicator of rate of innovation?

Number of Patents filed in US yearly 340,000+
Number of Patents filed globally 2,000,000+

USPTO patent filings are growing at an annual rate of 10%

Simply put the reason to invest in private equity is to improve return characteristics of an investment portfolio, while it potentially correlate to increased risk.

The long-term returns of private equity represent a premium to the performance of public equities.
This has been the case in the US for over 20 years and also in Europe, following an increase in the number of private equity funds, for over 10 years.

“The Yale Endowment states, ‘Private equity offers extremely attractive long-term risk-adjusted return characteristics…’”

Private equity has arrived as a major component of the alternative investment universe and is now broadly accepted as an established asset class within many institutional portfolios. Many investors with little or no existing allocation to private equity are now considering establishing or significantly expanding their private equity programs.

As nicely presented by EVCA, adding private equity to a balanced portfolio (bond and public securities) can reduce volatility and contribute to an overall improvement in risk profile.

Based on statistics gleaned from Venture Economics, ACA , PriceWaterhouseCoopers entrepreneurs try to start some 5 million businesses in the U.S. every year. Of that total, 400,000 are looking for capital beyond what they can charge to their credit cards.
Most of them approach Friends, Family and Angels. From those approaching VCs less than 2% receive funding.

Having said that, investment decisions are inherently subjective and in no way reflects any negative sentiment toward the business idea.

Scott Cook (Intuit) has been rejected 39 times before it was funded.
Cisco was rejected by 76 VCs before they got funding.

And here is a list of companies Bessemer Venture didn’t invest in:
http://www.bvp.com/port/anti.asp

Being in constant touch with entrepreneurs and investors and exposed to common issues inspired us to start this blog.

The purpose is to openly discuss and analyze issues facing early stage companies and their investors.

Please note that the statements and opinions expressed here are solely those of their authors and are only meant to encourage and foster additional comments, suggestions and insights.

So don’t be shy. Get in touch and share your stories and experiences.