Startup accelerators definition of 'added value' to come for update - TechCrunch

Startup accelerators definition of added value to come for update

Even to outsiders, the inner workings of startup accelerators have become familiar: pumped up on friendships and energy drinks, scrappy founders make product demos on stage in front of a room full of journalists and investors lively.

Two years fast on in a pandemic and, even with the return of hacker homes, much has changed about the way launch pads start to look, feel, and appear value today. Earlier investors are rethinking the risk, weakening and, surprisingly, value of a traditional demo day.

Index

    Pro rata

    Let’s start with a juicy topic: pro rata.

    Signal risk occurs when a VC chooses not to make a pro rata, or ongoing investment, in an existing portfolio company. The idea is that investors you know - those who bet on you earlier than others - choose not to invest in you in your next stage of growth, and that must mean that the agreement is not so good. Negative feedback can fall to other investors who, despite what their Twitter bios tell you, are very risk-averse.

    Accelerators have an interesting place here. If an accelerator like Y Combinator hosts 1,000 startups per batch, an automated pro-rata investment in each startup would be both capital intensive and likely to weaken its own signals unfortunately. Like clockwork, in 2022, the accelerator changed its policy on pro-rata automated investments and chose to invest on a case-by-case basis, just like 500 Startups.

    "We have exceeded the pro rata funds we have raised, and the investors who support YC have no desire to fund the pro rata program at the same level," the accelerator wrote. post in addition. ”In addition, the processing of hundreds of follow-up cycles each year has created an unprecedented operational complexity for YC.

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    “Simply put, all-round investment for all YC companies requires more capital than we want to build and manage. We always urge beginners to stay small and manage their budgets carefully. In this case, we did not follow our own advice. ”

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