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MassChallenge founder: A widening “funnel of experimentation” is giving rise to accelerators

8:14 am by | 0 Comments

Akhil NigamAkhil Nigam and John Harthorne left their jobs at Bain & Company in 2009, with the U.S. economy in the dumps, feeling an urge to help restore focus on entrepreneurs as society’s great creators of value.

With the help of sponsors including Fidelity, Verizon, Microsoft and American Airlines, they now run MassChallenge, a startup contest and accelerator that’s about to launch its fourth class next month.

MassChallenge gives out $1 million in startup funding each year, but unlike some of its accelerator brethren, it doesn’t take equity in any of the 125 participating companies. Rather, it structures its program as a four-month competition, where the prize money is awarded to just a handful of companies at the end.

Nigam sat down with MedCity News this week to talk about the accelerator business, creating a model that’s appealing to startups and why all of this matters now.

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Especially in the hotspots like Boston and San Francisco, there are so many accelerators (in Boston alone, there’s Rock Health, Healthbox, TechStars, MIT’s student entrepreneur accelerator, and the University of Massachusetts Boston’s Venture Development Center). It’s really becoming a market in itself, and I’m wondering what you see happening here?

There are several different models that are coming into the market already, and within the models we are seeing variation in monetization strategies. One of those models is the incubator model, which is you come in and you can avail of the services that are here, and you can stay here indefinitely. A lot of universities are building their own entrepreneurship centers and incubator spaces. The second is a co-working model, which is we’re going to provide you with chair services, because as a two-person startup, you will not be able to afford a phone system or your own server. We don’t really care what your business model is; it’s a pure real estate play. The third is the accelerator model, which is like, I’m going to work with your company and really accelerate the growth of your company for three to four months, but after that, we’ll kick you out.

Why is this happening now?

I think one reason is just the supply-and-demand curve. On one hand, it’s becoming cheaper and cheaper just to test out ideas, that allows for greater experimentation. So if you look at college students, they’re like, ‘I don’t know if this will work, but I can test it out for a few hundred dollars,’ whereas a few years ago it would have cost a million dollars. So that’s opened up a huge funnel of experimentation. It’s also happened because of the democratization of innovation, as I say it. You don’t necessarily have to be in Silicon Valley or Boston to try all of those ideas. You can be in the middle of Europe or India and you have access to all the same services.

So that’s at the top end of the funnel. But if you look at the young generation, the other options in terms of employment are not that attractive anymore. You go to Harvard or MIT, and people used to go into banking or consulting, but those aren’t as attractive anymore. On the other hand, you’ve got people from Europe, where there’s a huge eurozone crisis happening. And if you look at places like Spain, unemployment rate is at like 40 percent, and the biggest entities who used to employ these people, corporations and government, are not doing it anymore, so that’s leading to a lot more experimentation.

Is there ever going to be too much experimentation and innovation, to the point where it becomes too hard to weed out the stuff that has potential from the stuff that doesn’t?

I think there are a lot more people experimenting on the top end of the funnel, but that doesn’t mean that all of them are going to become viable or scalable companies. But that experimentation is good because people build upon failures of other companies. What you are going to have is a whole bunch of companies, and if you think about the previous generation, maybe five or six major companies came out of it–which are the Yahoos, the eBays, the Googles of the world–and they have been consolidating a lot of these sectors. I think that’s a cycle that continues in every era.

So to companies who are thinking about applying, what makes MassChallenge different?

One of our key differentiators is that we are open to any industry. We have clean tech ideas, we have healthcare ideas, we have technology ideas, consumer products, retail, etc. So judging companies across all of these sectors is a little bit different. We have industry-specific judging pools, so your application is going to be read by somebody who understands your industry. But we also make sure that within that industry, your application gets read by at least one investor, one executive, one technical expert and one lawyer.

What we look for is, is it a big impact idea? Is it scalable or replicable? And could it potentially change the industry? The second thing is, what do you have that convinces us that you might be able to execute on this? Is it a technology, is it a proprietary know-how, is it customer relationships, is it access to channels? The third criteria is, what have you done to date? You might have a great idea and you might have a competitive advantage, but can you execute on it? This gets really important toward the end when we have our final judging. When you’ve had three or four months surrounded by all the resources that you might need, what have you done?

You also seem to structure the program in a way that incentivizes progress and hard work.

I think there’s a value in deadlines. So when people know that at the end of the accelerator program there’s actual money to be had, there’s a lot of progress. I think one thing that’s also different is at a lot of the other accelerator programs, you put in your applications and then you find out whether you made it, and that’s it. Every one of our applications if you apply gets between three and five pieces of feedback on the application itself. We have had a lot of stories where it’s like, last year I didn’t make the cut but the feedback was awesome, I changed, and this year they are in the program.

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Deanna Pogorelc

By Deanna Pogorelc MedCity News

Deanna Pogorelc is a Cleveland-based reporter who writes obsessively about life science startups across the country, looking to technology transfer offices, startup incubators and investment funds to see what’s next in healthcare. She has a bachelor’s degree in journalism from Ball State University and previously covered business and education for a northeast Indiana newspaper.
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