Failures and exploitation: Why it’s time to regulate Australia’s startup accelerators

Startups and accelerators don’t always have congruent objectives. They seem like they do until you scratch the surface to reveal exactly how divergent they really are.

Accelerators need deal-flow based on the rule-of-thumb that less than 1 in 10 startups will achieve some kind of an exit/payday. What happens to the other 9?

The marketing pitch from accelerators is remarkably similar. Some have credentials to support their pitch and many have nothing more than a flashy website that makes a whole lot of claims that don’t pass even rudimentary due diligence.

I got a bug about this since I had articles published back in 2014 where I sought to alert startup founders to the dangers of exploitation. These “dangers” seemed so glaringly obvious and yet many talented, albeit naive founders were being sold a pollyanna future that they’d never realize.

Following the publication of those articles in 2014, I was inundated with messages from founders who’d been taken to the cleaners. I mean that in the sense of what they’d been promised and where they ended up.

Why don’t we hear from the accelerators about all the failures?

We hear about the few successes and rarely do we hear about the startups that bombed and how that affected the lives of those smart, ambitious, full-of-energy people.

Take a look at the website for just about any accelerator and find the list of cohorts and startups. Sometimes hundreds of logos displayed like a trophy cabinet.

You see the logos and possibly a tagline. You see some blog posts and press releases about the good news that’s applicable to 10% of the cohorts at best.

The other 90% are the grist for the accelerator machine. Yet that 90% comprises real people, who had dreams and who worked so hard to make that dream a reality.

Some accelerators even boldly state the industry statistic that 90+% of startups fail and then they fail to state what their record is. Doh!!!

My main gripe five years ago was that the accelerator industry was unregulated. Any dill with a spivvy pitch could hang up a shingle announcing that their genius was now being applied to help startups raise bucket-loads of money and go global.

Back then I heard some terrible stories of pure exploitation. Stories of years of hard work evaporating when it became clear that product/market fit wasn’t a reality. Young founders losing their IP and finding they had contractual obligations running to hundreds of thousands of dollars.

What’s changed since 2014?

Sadly, not much. The accelerator industry remains unregulated. Website claims are taken at face value. Founders, eager to find a home and a pathway towards their vision, still fail to do even basic due diligence.

Sure the accelerator industry has matured, though we don’t know at what cost. I mean cost as in the quantum of startup teams that got burned and churned so that the 10% can be heralded as stars.

Basic metrics

Way back in 2013, consulting firm PWC stated: “The Australian tech startup sector has the potential to contribute $109 billion or 4% of GDP to the Australian economy and 540,000 jobs by 2033 with a concerted effort from entrepreneurs, educators, the government and corporate Australia.”

If the startup industry was worth anything like what PWC stated in 2013, why is the industry unregulated? I mean apart from Australian corporate regulations.

Why does Australia take such a laissez-faire approach to what is demonstrably a large and growing industry? Particularly when the industry can destroy hopes and dreams and set back careers by many years.

We regulate most industries yet somehow incubators and accelerators have sailed along under the radar since the early 2000s.

It should be mandated that accelerators transparently publish even basic metrics of their performance. Why shouldn’t accelerators be required to publish honest feedback from every founder who has completed a program? I haven’t seen a single accelerator in Australia that does this.

Capturing basic information as to the actual outcomes of their work and the impact on the founders will facilitate transparent, rapid due diligence. I’ve created a 4-question survey format that could capture these responses and quantitatively grade them.

Failed founders generally don’t publicly tell their stories, although that would be incredibly helpful. I’m guessing this article may flush out some pretty sad and possibly tragic stories.

The industry as a whole should be agreeing, setting and adhering to standards that can be readily measured and benchmarked. Think of the Net Promoter Score (NPS) as an example of a simple measure of performance that is widely used by business.

I’m not bagging the entire accelerator industry. Clearly, most accelerators operate in the most ethical and sincere fashion with real regard for the cohorts in their care.

What’s missing is a standard means of tracking exactly how startup founders feel about the accelerator programs they’ve completed.

In the absence of action by the accelerator industry, it’s time the government got involved to mandate a form of standardized performance measures to protect startups from operators that profit from exploiting naive founders.

Implementing this form of transparent measure will immediately highlight the dodgy few that need to be called to account.

NOW READ: Get ready to floor it: How to know which accelerator is right for you

NOW READ: Here are Australia’s 24 most active startup accelerators and incubators