Final shutdown of startup accelerator operated by on deck It is a reminder that while these programs provide startups with access to investors, mentorship, and practical support, they are also businesses in their own right.
why does it matter: Startup accelerators are getting attention largely because of the high-value companies that help them along the way, how they design (and promote) their programs, and the outstanding educators who lead them.
- Y Combinator, founded in 2005, has become the world’s best recognized and respected accelerator. However, a number of others have since built successful programs.
background: On Deck was initially founded in 2016 as a way to connect aspiring entrepreneurs together to explore potential business ideas. Last year it expanded into an official startup acceleration program called ODX.
- As part of this move, On Deck sought to raise $100 million to support the companies; At one point, Tiger Global (which quietly led the On Deck’s Series B tour) committed to investing $65 million in this fund.
- However, the company later said it would only invest $10 million, putting On Deck’s acceleration plans at risk.
- On Deck initially used a portion of its Series B funds to expand the accelerator, with the expectation that its investment fund will soon provide more funds, a source familiar with On Deck’s operations told Axios.
Between the lines: “The money in the end is what exposed everything,” the source explains.
- The hardest part about the accelerator is “How do you cover the administrative fees to hire more people to scale it up?”
- While On Deck does charge to participate in their various other programs, they don’t want to do this for the sake of their acceleration program.
- “Tiger Global is a valued investor in our fund and organization,” On Deck said in a statement. “Combining a highly structured, undiluted program for founders along with the On Deck funding option is a major differentiating factor for us. In fact, many of our fellow founders have experience and repeat founders who have gone through traditional accelerators in the past and prefer our format because it gives them maximum electiveness. to explore the next step.
The Big Picture: Startup accelerator business models vary across the industry.
- Some only use management fees from project funds raised to support participating startups. In turn, this money goes to recruiting program staff and paying for other resources.
- In fact, others charge companies fees, usually taken out of the project funding they receive as part of the program.
- Some turn to sponsors and business partners to fund program operations.
what are they saying: “We’re here to help the founders,” Pear partner Ajay Kamat told Axios when asked if the company would ever charge any subscription fees. “I don’t think that makes sense to us.”
- Notably, Pear is both a small business and an investment company, so it is able to use management fees from its investment funds to pay its employees, who also work at the accelerator.
The plot: While charging startups has historically been seen as predatory (or clumsy Probably)This perception may change.
- A former 500 Global insider said, “My opinion is completely transparent and brilliant” She currently earns $37,500 for its pioneering accelerator.
- “I think the way other accelerators that don’t have money do it is to increase management fees, which are spread out over the same corporate economies.”
Bottom line: “Everyone goes out and tries to be [Y Combinator] “And they can’t do that,” says the On Deck insider.
- “Whatever beats YC won’t look like YC.”