An Accelerator Bubble?

You know there’s an accelerator bubble in Silicon Valley [1] when even opensmut gets accepted into an accelerator.

Paul Graham Inc

But calling it a bubble implies that this market is about to pop. Almost all startups fail. This is not new. Almost all startups have failed since the beginning of commerce.

Now, instead of failing quietly in the nebulae of friends and family, startups get to implode on each other in incubator labs, leaving a black hole in the accelerator’s seed fund.

Any startup accelerator that doesn’t foresee this deserves to pop. Paul Graham refers to startup investing as “Black Swan Farming” [2]:

The total value of the companies we’ve funded is around 10 billion, give or take a few. But just two companies, Dropbox and Airbnb, account for about three quarters of it.

That’s two companies out of over 500 startups Graham has funded through Y Combinator.

Dropbox began with an approximately $14,000 investment from Y Combinator. Would it have made a difference if Y Combinator had given only $7,000 to baby Dropbox, and the other $7,000 to a lesser startup that went on to fail? Probably not.

What if Y Combinator had cast a wider and thinner net, and funded an additional 500 startups at the cost of forcing its portfolio companies to eat more instant Ramen? Maybe then it would have found itself another Dropbox.

The real limitation here is time, and it’s true — you cannot put a price tag on the value of mentorship from industry leaders like Paul Graham.

But as for the second- and third-rate startup accelerators, let them scatter their seed money and sow their wild oats. Give bright-eyed entrepreneurs a chance to dream big and work their tails off. Maybe there has been massive growth in the startup incubator market. Will this ultimately result in an implosion of wealth? Absolutely not.

1. Waiting for the Accelerator Bubble to Pop — Businessweek

2. Black Swan Farming — Paul Graham

See Also:
How to Make Wealth — Paul Graham


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s