“Top Startups” Lists and Accelerators
TL;DR: “Top Startup lists” are being used as complements, and in some cases replacements, to accelerators for helping entrepreneurs signal their talent to investors.
The value proposition of elite universities is a fairly straightforward 3-part bundle:
B. Talent Sorting / Signaling
Data showing that top students who attend elite universities perform on average the same as those who are accepted but attend lower-ranked schools proves that the actual education elite universities provide isn’t nearly as important as some people think; at least for most students. But their talent signaling and network functions are fairly important and durable, and it’s very hard for competitors to build viable business models to deliver them; though some are succeeding.
Respected employers willing to not require elite educations are, for example, talent signaling competitors to elite universities. Being “Google Alumni” can be seen as more value determinative than being “MIT Alumni.”
Now, the value proposition of top accelerators is also a fairly straightforward 3-part bundle:
B. Talent Sorting / Signaling
Look familiar? Many post-accelerator founders will tell you that the actual educational content accelerators provide is hardly that big of a deal to them. I’ve definitely known some entrepreneurs who find it useful, but the more hustler autodidact types will say it’s just re-hashed versions of what you can find online and in books. But the other two propositions (talent signaling and network) are much harder to build, and harder for alternatives to compete with.
To the extent accelerators build respected brands — and by that I mean respected by investors and other ecosystem players entrepreneurs want to connect with — their ability to sort through the ecosystem’s “noise” and signal talent, and therefore reduce search costs, is extremely important for founders. I would say most of the founders we work with understand instinctively that the main reason to attend any accelerator is to simply make it a lot easier to connect with investors. And yes, for the right accelerators, it works. Big time.
A short list of accelerators have built real and durable talent signaling brands, and are worth their cost tenfold. The challenge for some has been maintaining them, and not supplementing themselves with business models misaligned with the goal of being very selective. Accelerators heavily tied to real estate/co-working, for example, struggle to not dilute the accelerator brand by accepting a lot more people, because they can still monetize them with offices (even if their equity isn’t worth anything). Lower your standards to fill office space, and your talent signal weakens, which means fewer top people show up to your events, which dilutes your network proposition, which further weakens the quality of your startups, and now you’re in a death spiral.
One thing you’re seeing all over the place in startup ecosystems is “top startups lists.” “Top startups to watch.” Top this, top that. Top 50. Top 25. Top 10.
Initially, my reaction was to judge these lists as just PR plays. Politics/brand driven founders who want a bit of an ego stroke pander to publications to get on them, and in turn the publications get eyeballs and visibility, and can make money off of ads.
But analyze what these lists are, or could be, from the perspective of the talent sorting/signaling function of accelerators, particularly at early stage. To the extent some publications can build highly credible “top startup lists” — the kinds that investors and other players pay close attention to, they could prove to be viable competitors to the talent signaling proposition of accelerators.
I actually think many entrepreneurs understand this, and it’s why they care so much about getting on these lists, and why the lists are proliferating. If your ultimate goal is just to connect with investors, “top startup lists” that get real brand credibility could, much more cheaply, get you the “brand” you need to get meetings with selective investors. Of course, it boils down to whether the right publications are willing to put in the time to build the needed credibility, and not make them simply politics or “pay to play” schemes. I suspect many won’t, but some will.
By no means am I under the delusion that accelerators and top startups lists are direct competitors. Many smart founders use them, wisely, as complements. The most important thing is for founders to understand what their real purposes are, and to judge them accordingly.
Originally published at Silicon Hills Lawyer.