A Greenhouse for Post-Seed Startups

MIT Economists recently confirmed the elephant in the room that many of us in Silicon Valley have been eyeing: while the number of newly minted startups is increasing, fewer of those startups have gone on to become big, sustainable companies. And no, the rapidly fluctuating list of unicorns doesn’t count, especially given all of the haircuts many have undergone over the last quarter.

At first glance, this state of affairs seems incongruous given that there seem to be more incubators and accelerators debuting across the globe every day. As I’ve outlined in a previous post, the answer lies in the name of these programs: incubators incubate, and accelerators accelerate. Neither of these root words relate to scaling.

Incubating and Accelerating are not Scaling

Incubators, Accelerators, many venture capitalists, and other innovation ecosystem drivers have long favored what economist Robert Litan calls the “shots on goal approach,” or “spray and pray” approach: invest in and distribute your risk across as many startups as possible, because while most of them fail, statistically, a small handful will achieve runaway success.

Too many startup ecosystems and initiatives place too much emphasis on business formation at the expense of foundation building and scale. With the seed investing environment as crowded as it has become over the last 18 months, I’m seeing an ecosystem-wide, knee-jerk move down the startup development stack, with programs accepting entrepreneurs with just an idea and and investors writing checks to companies without a name. But at the end of the day, what does it matter that you’re the first to have found the next Amazon or Facebook if the founding team flames out after Demo Day?

Companies that pitched us seed rounds in spring of 2015 are coming back today to pitch another seed round, having burned through last year’s seed raise (which, mysteriously, has been re-labeled as an angel round) with almost nothing to show. It’s clear that racing to capture companies at the beginning of the innovation cycle will not get us over the wall that too many startups are currently being accelerated straight into.

The year immediately following a seed investment is critical to a startup’s survival as the founders make a series of high stakes strategic decisions on how to grow their team, scale their technology and operations, and take the product to market. To date, however, very few programs and resources exist to support these companies making that transition to series A; while some top incubator and accelerator programs offer limited workshops about scaling and long-term growth, it is difficult for founders to apply these one-size-fits-all lessons learned in the abstract to growth related questions, which can be very specific to the company’s target vertical or very dependent on the current economic climate.

A Post-Seed Ecosystem: The NewGen Greenhouse

Like seedlings, startups that emerge from incubator and accelerator programs often need additional growth support to successfully hit the milestones necessary to survive in a more competitive environment: in the case of early stage startups, it’s the infamous Series A Crunch.

NewGen Capital is tackling this opportunity with its Post-Seed Greenhouse program. Upon receiving investment from our team, qualified companies will receive considerable advising on growing and scaling operations and introductions to strategic growth opportunities via from our investment team and advisory network of industry experts. The NewGen Greenhouse support network will combine the firm’s investment with its operating expertise and advising network to provide its portfolio companies with the support structures and foundations vital to sustainably grow and hit the milestones necessary to achieve subsequent rounds of institutional funding.

We are closing in on a decade of accelerator (and pre-accelerator and incubator) dominance, having spread startup gospel so effectively that most of these programs have rendered themselves obsolete. With the accelerator, pre-accelerator, and incubator market as crowded as it is today, I expect to see more greenhouse programs forming to address this growing demand for longer-term scaling support. It’s already happening beyond NewGen’s Greenhouse: 500 Startups last year launched Distro Dojo in London, a three-month program to help companies meet their growth targets ahead of subsequent rounds of funding. HeavyBit in San Francisco is building a more informal, nine-month residency for startups making developer focused products. As early stage investments continue to cool, the race to launch before runways run out will be increasingly cutthroat: I can’t wait to see what the new greenhouse era will bring.