Startup accelerators’ definition of ‘value add’ is due for a refresh – TechCrunch

Even to strangers, the inner workings of startup accelerators are familiar: pumped up with camaraderie and energy drinks, pessimistic founders perform product demonstrations onstage before a room full of journalists and boisterous investors.

Two years after a pandemic, and even after a short while with hacker homes back, a lot has changed in the way startup launchpads look, feel, and show their value today. Early investors are rethinking references to risk and mitigation, and most surprisingly, to the value of a traditional offer day.

relativity

Let’s start with an interesting topic: proportionality.

Signal risk occurs when a venture capitalist chooses not to make a proportional investment or pursue an investment in an existing portfolio company. The idea is that the investors who know you best — those who bet on you first — choose not to invest in you in your next stage of growth, which means the deal isn’t all that great. Negative perception can be passed on to other investors who, despite what their Twitter bios will tell you, are highly risk averse.

Accelerators have an interesting role to play here. If an accelerator like Y Combinator gets 1,000 startups per batch, then an automatic proportional investment in each startup will be capital-intensive and perhaps inadvertently dampen its own signals. Like clockwork, in 2020, the accelerator changed its policy on automatic proportional investments and chose to invest on a case-by-case basis, just like 500 startups.

“We have significantly exceeded the funds we raised for the bonuses, and investors who support YC have no desire to fund the pro-rata program on the same scale,” the accelerator wrote in a post at the time. “In addition, processing hundreds of follow-up rounds annually created significant operational complications for YC that we did not anticipate.

“Simply put, investing in each YC round requires more capital than we want to raise and manage. We always ask startups to stay small and manage their budgets carefully. In this case, we failed to follow our own advice.”

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