New Nine Plus Accelerator Stretches Out the Startup Timeline (Alternative Accelerators, Part 2)
Brooks’s Law of software development, coined by Fred Brooks in his 1975 book The Mythical Man-Month, is that adding personnel to a late software project makes it even later. His pithy summary of the law: “Nine women can’t make a baby in one month.” (That’s a lesson the folks building the Healthcare.gov portal at the Department of Health and Human Services learned the hard way this fall.)
At the new Nine Plus startup accelerator in San Francisco, the philosophy is similar: it’s that nine entrepreneurs (or 90, for that matter) can’t make a startup in three months.
According to Peter Relan, Nine Plus’s co-founder and chief mentor, it takes at least nine months—coincidentally, the length of a human pregnancy—to build a company that’s truly ready for a Series A venture investment.
Accelerators with three-month programs, such as Mountain View, CA-based Y Combinator, may offer admirable returns to their investors, but they do it at the expense of young entrepreneurs, Relan and Nine Plus mentor Jerry Held believe.
“You can build a feature, but you can’t build a company, in three months,” says Relan (pictured above right). Held goes farther, saying most young entrepreneurs who enter three-month accelerator programs would be better off spending that time gaining experience working at a big company.
“They can get into Y Combinator, or any of the 120 other accelerators, they can get some funding and work for three months on that, but after a year, they’ll usually fail,” Held says. “For most people who go through these programs, it’s not the right thing for them. I would separate Y Combinator out, because they are one of the ones that has done really well, but for the other 120, most of those are actually doing a disservice to the kids.”
Both Relan and Held are Silicon Valley veterans. Relan is probably best known as the founding head of technology at Webvan, the fast-growing grocery-delivery startup that raised $800 million in venture backing but ran out of cash and shut down in 2001.
Relan says Webvan made three huge mistakes: setting prices too low, spending too much on an overly complex distribution infrastructure, and expanding beyond the Bay Area too soon, before the technical and business problems had been ironed out.
But today’s Internet startups have several big advantages over Webvan, Relan and Held say.
For one thing, they usually don’t have to build their own infrastructure from scratch. For another, there’s a new awareness of the importance of building small, experimental products and listening to customers before scaling up.
Relan put those principles into practice at YouWeb, the startup incubator he founded in 2007 after starting and selling a fraud-detection startup called Business Signatures. At YouWeb, Relan personally mentored just two entrepreneurs per year, investing $100,000 in each company.
It turned out to be a remarkably good use of his time: YouWeb’s leading graduate, OpenFeint, was acquired by Japanese video game giant GREE in 2011 for $104 million. At Nine Plus, Relan is shortening the time scale slightly while expanding the program to 10 startups per term. Each receives $110,000 in funding, in return for an 18 percent equity stake—about three times what Y Combinator asks, reflecting the increased length of the program. Because it has elements of both a YouWeb or Idealabs-style incubator and a Y Combinator-style accelerator, Held jokingly calls Nine Plus an “inculator.”
The program’s focus is on startups in gaming, mobile apps, wearable computing, and big data. The first group of entrepreneurs admitted to the program include former OpenFeint CEO Jason Citron, who’s working on a multiplayer online battle arena game for tablets; Playhem founder Ryan DeSanto and Rosetta Stone lead architect Austin Heap, who are figuring out ways to help developers include sweepstakes offers in their mobile apps; and Amos Barzilay, a former managing director at Astra Venture Partners who developed a successful poker coaching app and is now designing a new breed of workplace training apps.
The wager Nine Plus is placing is that by picking entrepreneurs carefully, giving them more time to develop, tweak, and test their product, and providing more help with hiring and investor relations, Relan and his team will be able to achieve a higher hit rate than Y Combinator and other classic three-month accelerators.
“YC will do 100 companies in a year. Let’s say three or four will really get to Series A, Series B,” Relan says. “If we do 20 companies a year, which is our model, we think we can get at least half of them to be much more fundable companies. In three years there will be 10 from YC, but we will have had 10 a year.”
That theory is only beginning to be tested. But Held says the key is being more selective about the startups Nine Plus selects, and … Next Page »