A few times per year I attend conferences full of fellow fund managers, managers of family offices, and big impact investors. The rest of the year I share investment opportunities multiple times per week with other investors.
From all these conversations, I’ve come to realize the power and benefits of running a business accelerator rather than a traditional venture capital fund.
From 10,000 feet away, we do the same job. We invest in young companies, providing capital to grow. But from 10 feet away the approaches are vastly different. And those differences boil down to what we do with flawed companies. A common, polite terms for flaws is “yellow flags”, so lets’ stick with that.
At an accelerator we expect yellow flags. We seek them out, and when we find them, we consider how hard they will be to fix.
At a fund (or family or individual), when you see a yellow flag, you pass, as there will be another company in the dealflow shortly.
We all agree most startups have yellow flags. This is why so few companies get funding. So if yellow flags are the norm, why is the norm from investors to say no, rather than to say “let me help you deal with that issue?”
That’s what we do at accelerators. I posit that’s why around 80% of accelerator graduates tend to still be in business five years later, vs. the general statistic of 50% gone after three years.
If nothing else, it makes us a lot less surprised when an unforeseen yellow flag appears a year after investing, as accelerators who invest in their startups expect to continue helping our graduates for years, as it takes years to succeed.
In this mindset, we get to say “yes” to a lot more startups, rather than defaulting to “no.” And that makes for a much more satisfying life.