Chris Lynch is still waging war on accelerators.
A little over a year ago at the Massachusetts Institute of Technology’s annual venture capital conference, Mr. Lynch, a general partner at Cambridge, Mass., venture firm Accomplice and former chief executive of data analytics company Vertica, tangled withDavid McClure of 500 Startups about the value of accelerators such as Mr. McClure’s.
In December, Mr. Lynch returned to the event for a keynote presentation on why investment syndicates led by entrepreneurs investing through AngelList are a better way for startups to get going. In his opinion, such syndicates offer a source of long-term capital from people with industry expertise who have a financial stake in a startup’s success. Accomplice, founded by Atlas Venture’s technology partners, is an investor in AngelList and backs a syndicate of Boston-area entrepreneurs who invest via the platform.
Mr. Lynch recently discussed his views with Venture Capital Dispatch. Here is the interview, edited for length and clarity.
What is wrong with accelerators?
What’s wrong with them is they provide standardized terms and training for entrepreneurs, and entrepreneurs are dynamic, deals are dynamic. There’s no way you can legitimately tell me every deal should be valued at the same rate and that every entrepreneur should get the same kinds of training regardless of the business they’re in.
The next thing that’s wrong is the duration. Accelerators by definition spend a short amount of time – weeks, eight weeks, 12 weeks, depending on the program – as opposed to traditional investment, which lives to the life and death of the company.
Another thing that’s wrong with them is that it’s a bait and switch. They show you Mr. Wonderful on the website and you go to the class and you’re meeting people and surrounded with people that in most instances have had no entrepreneurial success of their own.
The last is that they take advantage of these kids with these terms that are ominous, where they take 10% of the company for fifty grand, and then they have antidilution in the next round, which basically creates a cap table that is polluted.
Can’t you run into some of the same problems with syndicates?
No, because it’s a free marketplace. You go on AngelList – think of syndicates as the application, AngelList as the operating system. Let’s say you have an idea, I like it, I give you fifty grand, we both post up Russ Inc. on AngelList, sponsored by lead syndicate Chris Lynch. People draw signals from that. They look me up, say, hey, this guy’s been successful, you know what, I’ll throw fifty grand behind Lynch. In five days, we have our $1 million, we have our syndicate.
Doesn’t this imply some sophistication, particularly on the part of first-time entrepreneurs who probably haven’t dealt with this stuff before, where an accelerator might provide them other like-minded entrepreneurs to talk to and mentors who can walk them through the process?
I tell startups when they tell me they’re partnering with other startups and it’s young, inexperienced entrepreneurs who are partnering with young, inexperienced entrepreneurs, the analogue is if you tie two rocks together and you throw them in the ocean, they sink faster. If you were a budding musician, who would you want to mentor you, the Beatles or the Rolling Stones, or Simon Cowell?
But not everybody can have the Beatles or the Rolling Stones mentoring them.
That’s the fallacy, that’s the big lie of the accelerators. They tell you the venture guys won’t want you, established entrepreneurs won’t want you. That’s bull****.. I take emails and calls. If you’ve got an idea, I’ll give you 15 to 20 minutes to articulate that. If I like it, I’ll tell you to come in, if I don’t, I’ll tell you why. So I think they can have access. The other thing I’d argue is some of the people that can’t get access, there’s a reason. It’s called economic Darwinism. Some ideas are terrible, some people aren’t entrepreneurs.
Why not go to an early-stage venture firm such as yours?
The reason you’d come to me versus to the syndication would really be about the amount of money you want. If you need to raise $500,000 or $1 million or under, you’re probably better off doing it through syndication in terms of getting the best price, if you’ve got the right entrepreneurs backing you.
Are there any cases where you would steer somebody to an accelerator?
Let me give you an exception. There’s a guy, Jason Seats, that is out of Techstars in Austin. He’s an ex-executive in Rackspace. He’s a very credible guy. If I had a cloud deal and they were not local to Boston and I thought they were just not ready, I would consider putting that person in with Jason, but Jason as an individual. Would I put somebody just anonymously into an accelerator? I wouldn’t.
What I would do is, depending on the industry, I’d say, “Come on, I’m going to put you in one of my companies that’s in your space. Go spend a year and do whatever your functional role is. Learn, and then at the end of the year, you’re going to know what it’s like to be an entrepreneur, you’re going to know what to do, you’re going to have some sense about the market, and then I’ll fund you.”