The landscape of startups has undergone a seismic shift, demanding adaptability from accelerators to stay relevant or risk obsolescence.

The past fifteen years have been marked by unprecedented changes – from the catastrophic housing crash to the soaring heights of a lengthy bull market and the unforeseen disruptions caused by a global pandemic. Amid these tumultuous times, the VC accelerator sector has emerged as a robust contender. Fueled by the zero-interest environment of 2020, it has surged ahead, fostering a continuously expanding spectrum of funds. Nevertheless, an imminent paradigm shift in the broader venture landscape might be looming.

The dynamics of network effects have evolved, transitioning from traditional physical spaces to digital domains. Online communities and social platforms such as Signal NFX, Twitter, YC’s co-founder matching, and Slack groups like “Flyover Tech” have played a pivotal role in this transformation.

As of the onset of 2022, assets under management (AUM) had reached a staggering $1 trillion, accompanied by $230 billion in VC dry powder. These figures dwarf the AUM before the financial crisis by a factor of five. Concurrently, the eight-year period leading up to 2022 saw the creation of 2,700 funds, a stark contrast to the 883 established in 2010. Crowdfunding experienced a remarkable growth of 2.4 times from 2020 to 2021.

Angel investments in 2022 matched the sum of those made between 2006 and 2011. Family office investments surged by five times, while corporate venture investments saw a sixfold increase, thereby unveiling new avenues of capital for founders facing difficulties in fundraising.

The competitive landscape underwent substantial changes as well. At the dawn of 2022, the number of active VC firms stood at 2,900, marking a whopping 225% surge since 2008. This influx of funds propelled platform VCs to enhance their strategies, proactively nurturing their portfolios and aggressively securing deals.

Simultaneously, the talent pool for tech startups has expanded significantly. Factors like remote work, offshore development, and the growing labor pool of software engineers have enabled startups to onboard additional engineering talent, injecting further vitality into this dynamic ecosystem.

Of considerable significance, the conventional accelerator model has reaped the benefits of these potential paradigm shifts. Accelerator numbers more than doubled since 2014, while accelerator-supported startups in the U.S. nearly quadrupled within the same timeframe (encompassing investments from 2005 to 2015 and total investments up to 2021). Nonetheless, while peering into the future, founders confront a fundamental query: In the face of this abundance of accelerators, is joining one even a requisite anymore?

Accelerators find themselves besieged from all fronts. The notion that accelerator funds offer little value gained traction during the pandemic

as an abundance of capital prompted first-time founders to bypass accelerators altogether. What’s more, reports of unethical practices at accelerators are becoming increasingly common. A notable example is the allegations of fraud surrounding Newchip, a prominent virtual startup accelerator.

The collapse of Newchip sent shockwaves through the startup ecosystem, amplifying concerns about questionable practices at accelerators. Another instance of negative publicity involved On Deck accelerator, which in 2022 laid off a quarter of its staff due to a deal gone awry with Tiger Global, forcing the accelerator to tap into its Series B funds to sustain its operations.

The falls of entities like Newchip and On Deck aren’t isolated occurrences. They underscore the growing realization that accelerators now vie for capital and opportunities alongside established institutional VC firms. For instance, when YC was founded in 2005, there was no “pre-seed” round, and launching a tech company required $500,000. Today, pre-seed rounds have surged in popularity, becoming the preferred means to propel a business from MVP to generating $1 million or more in ARR. In 2022, the market witnessed ten times the capital compared to a decade ago, and there exist numerous pre-seed VC funds with hyper-targeted investment focuses (such as psychedelics or construction).

The influx of pre-seed venture capital has intensified competition with accelerators and encouraged more funds to adopt a “platform VC” model, some even encompassing a venture studio (for in-house company creation) or an incubator (providing long-term support at the earliest stages). In some cases, funds themselves establish “accelerators,” which usually translate to extended platform support and capital for nascent startups, thereby enabling the VC to invest earlier in the startup lifecycle.

Notably, a VC firm pursuing pre-seed funding evades the stereotypical accelerator branding by offering more favorable terms. Additionally, many VCs have cultivated communities around their accelerator model in ways that traditional accelerators often fail to do. Thematic platform VCs possess top-tier advisors in specific sectors, fostering cross-pollination within their portfolios. Certain pre-seed VCs focus on supporting community-driven startups that enjoy access to networks, facilitating distribution and discovery.

Crucially, it’s not just emerging managers or micro VCs that are initiating platforms; established names are joining the fray as well. For example, Sequoia Capital’s Arc or a16z’s Crypto Startup School attract high-quality ventures through attractive terms, substantial capital, and robust brand recognition. The chart below illustrates how VCs have adapted their strategies across market cycles:

Platform VCs come in varying definitions and concentrations, contingent on each firm’s logistical setup. For instance, at Redbud VC, our team oversees a VC fund along with certain aspects of a studio, incorporating support from accomplished operators who have founded billion-dollar enterprises. In general, VCs have continued to invest at earlier stages, with many now backing idea-stage or pre-product founders. Some firms, like K9 Ventures, even abstain from funding founders who have previously taken institutional capital. Given the escalating competition attributed to platform roles and the quest for untapped early-stage founders, it’s conceivable that every VC will soon incorporate a platform or studio component.

Are accelerators fulfilling founders’ needs and desires?

However, there remains a fundamental

question: How does an accelerator differ from a platform VC, a strategic angel, or an early-stage VC in general? On closer examination of what accelerators offer founders, the benefits can be grouped into categories such as:

1. Knowledge sharing.
2. Networking opportunities.
3. Access to resources.
4. Peer group interaction.
5. Capital infusion.
6. Participation in events.

The value of these factors is directly linked to the founder’s level of entrepreneurial experience. Nevertheless, the value that accelerators deliver comes at a cost – in terms of both time and equity. The substantial equity stakes and extensive commitments can deter high-caliber founders. While equity can be justified if the promised value is delivered, time is a non-negotiable resource. Several accelerators are now adding over 20 hours of programming per week and hosting networking events that might not always meet expectations.

In conversations with over 2,000 founders, Redbud VC discovered that founders are primarily interested in network effects and knowledge sharing. Given their time constraints, filtered insights from accomplished founders can expedite years of learning, and warm introductions can save months of effort.

So finally, the startup landscape’s evolution has prompted accelerators to reassess their role and adapt to the changing dynamics. The influx of capital, the rise of platform VCs, and the shifting priorities of founders have all contributed to this transformative journey. As the ecosystem continues to evolve, the role of accelerators and their value proposition will remain subject to scrutiny and adaptation.