Los Angeles Business Journal

Pace Setters

Accelerators quickly establish value in driving startups By Tom Dotan Monday, January 28, 2013

There’s also a question of whether the increased funding really makes a difference in the continuing success of a startup. Y Combinator, the Mountain View firm that’s considered the originator and reigning standard-bearer of accelerators, only fronts about $18,000 a company. That amount has apparently been enough for tech hits such as Airbnb and Reddit.

Indeed, the bigger selling point for most of the local accelerators has been the ability for startups to come out of the program with a good shot of attracting a quick investment from angels or venture capitalists.

Richard Wolpert, who manages Amplify, said his goal is to see companies receive funding of between $500,000 and $1 million within four to six months of graduating. Of the 18 companies to come from the program, he said, 12 have received seed funding. Those include crowdfunding site builder Invested.In, which raised $875,000, and StackSocial, which took in $800,000 for its technology that lets publishers engage in e-commerce.

“Taking on a company that can’t raise money quickly is too early for us,” Wolpert said. “Sometimes there will be an applicant who’s a great tech guy but doesn’t have a business guy, and we’ll say ‘Come back with a well rounded team before you join us.’”

Still, getting money is no guarantee of continued success in a startup landscape where a majority of new companies fail.

Last year, Pop-Up Pantry came through Launchpad’s third class and quickly raised $1.7 million to fund its high-end frozen meal delivery service. But after barely half a year in business, the company shuttered after it was unable to scale the business to where it could offset its huge shipping and production costs.

Launchpad’s Teller said he was disappointed to see the subscription food service go belly-up, but the harsh reality for startups is that the guidance from an accelerator isn’t enough.

“You can always say ‘what if,’ but we were proud to have invested in that company. Pop-Up Pantry took on an incredible challenge,” Teller said. “That doesn’t worry us or change anything; it’s expected that most companies will not ultimately succeed.”

The founders of Pop-Up Pantry didn’t return requests for comment.

Lid on money

StartEngine’s Marks, a former executive at Activision Inc., said the true worth of a program isn’t how quickly it can get a company to raise money. For his accelerator, which unlike the others will take on startups long before they’re ready to bring in outside capital, the value comes through building up the business model and assembling the right team for future success. Y Combinator may have the advantage of working in a region that’s flush with tech capital, but L.A. accelerators have to manage the rougher investment climate.

“In a market where there’s a nearly infinite amount of money it’s different, but in Los Angeles there’s a lid on money and resources,” Marks said. “Going through a grind that builds team character is better than just raising money.”

As the success of local accelerators raises their profile, their greatest addition to the local scene may be an ability to attract talent from outside the area. Amplify has taken in startups from Oregon, Utah and Canada; at MuckerLab’s recent demo day there were two companies from outside Los Angeles, including GetMeRated, a picture-based social network that began in San Diego.

But after four months spent working in MuckerLab’s Santa Monica offices and building up contacts and potential investors from the area, Duncan McLaren, GetMeRated’s founder, is seriously considering making the move up the coast permanent.

“It’s been a tremendously valuable experience,” McLaren said. “There’s a huge value to the footprints we’ve made in Los Angeles that will benefit us for a long time to come.”

Page 3 of 3

Next