When Startup Accelerators Hit the Brakes

It gets personal when a startup you championed falls off the rails.

Danny Robinson, Bootup Labs | BCBusiness
After a promising start, Danny Robinson’s startup accelerator, Bootup Labs, stalled.

It gets personal when a startup you championed falls off the rails.

The idea behind startup “accelerators” would seem to be a no-brainer: take a group of young entrepreneurs with brilliant ideas and early-stage un-funded companies, put a roof over their heads and provide a small investment and some basic business services, and take some equity in the venture in exchange. Then introduce them to a few venture capitalists and angel investors and watch the money roll in when they turn into the next Facebook. The problem, of course, is that it’s not that easy.

Danny Robinson is a veteran tech entrepreneur who founded Peerflix, a DVD-swapping enterprise that ran from 2005 to 2008, and co-founded Strutta.com Media Inc., an ongoing online promotion service. He started Bootup Labs in 2008 and before it stopped accepting new entrants in early 2010, brought in three cohorts of companies. Entrepreneurs accepted into the program were given access to a $100,000 line of credit, in return for which they gave up as much as 15 per cent of their companies, depending on how much of the line of credit they spent. Each company had eight months to try to get to the stage where it could go after a first round of venture-capital funding. A total of eight companies have been through Bootup; two have been acquired, two have already failed and four are still growing.

Robinson describes the program as a “technology assembly line designed to help founders build tech startups.” But in the spring of 2010, a few companies fell off the conveyor belt. After he failed to secure the financing needed to fund the line of credit for his 2010 cohort, Robinson was forced to immediately cut four companies that he had accepted into Bootup, but that hadn’t yet started the program. Blast Ramp, Statusly, Zedmo and AppSocial were all expelled from Bootup Labs. The event was traumatic, not only for the expelled entrepreneurs, but also for Robinson. Both he and Statusly co-founder Jamie Martin wrote emotional blog posts in April that year. Although Boot­up had planned to continue business as usual following an injection of cash from local entrepreneur-turned-VC Boris Wertz, the Bootup assembly line has since ground to a halt; no new entrepreneurs have been accepted since the class of 2010 left Bootup in September that year.

The first lesson to be drawn from Bootup Labs is that there’s no such thing as an assembly line that produces successful companies. All successful startups share the same needs, whether they are raised in an accelerator or not: a good idea and access to capital. The second lesson is that business is personal, especially at the early stages, and the accelerator model makes it more so.

Silicon Valley’s Y Combinator program

Bootup was modelled after Silicon Valley’s Y Combinator, a program that’s famous for its network of potential investors. Y Combinator makes very small investments, typically less than US$20,000, and takes an average of about six per cent of the equity in the companies it accepts. If that doesn’t sound like a great deal, consider that, according to co-founder Paul Graham, the average valuation of a Y Combinator-backed company as of June 2011 was US$20 million. A list of Y Combinator’s investments reads like a roundup of the Valley’s most talked-about startups, including Dropbox, Reddit and Airbnb, just to name a few. These successes didn’t happen because Y Combinator provided a few thousand dollars and someone to answer the phones; they happened because of Y Combinator’s network. 

Y Combinator graduates are likely to receive venture capital funding when they finish the three-month term because by that time they’ll have met many of the venture capital industry’s heavy hitters, such as partners from Sequoia Capital Operations LLC and Kleiner Perkins Caulfield & Byers. Y Combinator is as much a networking program as it is a “mentoring” program. In fact, according to Danny Robinson, “mentoring” is code for networking.

“Really, at the end of the day, the value of mentorship is less than 50 per cent advice and more than 50 per cent the network,” says Robinson, adding that, for entrepreneurs, “it’s not as much mentorship as it is, ‘If you like me, then maybe you’ll introduce me to some of your friends.’” And Robinson has friends a young entrepreneur would certainly like to meet. Bootup’s program is, for many entrepreneurs, essentially a chance to be welcomed into Robinson’s broader community of entrepreneurs and VCs. That community in Vancouver is much smaller than in Silicon Valley, and Robinson is at the centre of it.

The value of networking for a startup

Mircea Pasoi, co-founder of one of Bootup’s success stories, Contact Media Technologies Inc., developer of a social media aggregator called Summify, readily admits that the connections he made through Robinson have been more important than the advice or the $100,000: “By far the most important part was the networking and connections they enabled. We met a lot of successful business people through Bootup and since we had the ‘Bootup badge’ it was easy for us to connect with them and get their attention.” 

That’s why it can be so hard when it doesn’t work out. For Robinson, taking on new groups of founders was like making new friends – and kicking them out is a lot like losing those friends, as is evident in the tone of Martin’s blog post. The startup experience is stressful and emotionally taxing, especially for the rookie entrepreneurs that programs like Bootup take on.

Robinson loves the excitement of these early stages of a new tech company, but acknowledges that it can get intense: “There’s lots of risk, lots of fear, and all those emotions are there and it does get personal. I’ve had founders sit in my office and literally weep because they’re so afraid of what might happen if they fail.”

A few Bootup participants did fail, while others succeeded, just proving that the laws of entrepreneurship still apply, no matter who your friends are.