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Gaining Experience

In a global world with increasingly complex problems, it’s not a surprise that a successful startup no longer consists of one person armed with one idea.

“Nobody innovates on their own,” said startup guru Greg McKee, CEO of San Diego’s longest-running business accelerator CONNECT. “The concept of the solo inventor working out of his garage is the myth of invention.”

Today, entrepreneurs facing the daunting challenge of transforming an idea into a product are finding the support they need in the growing number of incubators and accelerators.

Definitions vary as to what constitutes an accelerator vs. an incubator, but the goal of each is the same: to increase the odds of building a successful business by offering much-needed talent and resources. Clearly, startups need the help.

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Half of all new ventures fail after five years of operation, according to a report by the U.S. Census Bureau. For technology startups, the odds are worse. According to data compiled by bankruptcy law firm Allmand Law, over 90 percent of technology startups fail.

As technology develops, the pace of change is accelerating dramatically. Problems are more complex. The world is smaller and more connected. Competition is no longer local, but global.

“It’s not just a business advantage to be part of a network anymore,” McKee said, “It’s a necessity. You need many, many people to contribute small pieces to a big idea.”

Leaders in technology and science have recognized the collective need for collaboration, and incubators and accelerators are in turn popping up across the globe.

Accelerator Boom

According to startup ecosystem database CrunchBase, business accelerators have grown from 25 locations worldwide to 170 in the span of seven years.

In San Diego alone, there are dozens of these organizations designed to support entrepreneurs with everything from office space and IT support to legal counsel and wet labs.

Sometimes accelerators take a portion of the equity in exchange for their services, and others (as in the case of CONNECT’s Springboard program) offer their resources with “no strings attached.” After all, fueling innovation pays dividends to the local economy.

A decade ago, San Diego’s startup support network consisted of a few small business accelerators and a smattering of university resources. Today, the city is home to at least 27 incubators, accelerators, and co-working spaces, according to the City of San Diego’s Economic Development Division, although many additional groups likely operate under the radar.

Incubators can be competitive and often exclusive. Even the application process can be a learning experience for new entrepreneurs, said Sid Shetye, founder and CEO of cloud security startup Crypteron.

“The application process is rigorous, and the level of scrutiny is extremely high,” said Shetye, whose company is currently housed at one of San Diego’s more competitive incubators, EvoNexus. “It was kind of nice to be put through that. It made us rethink many of our assumptions. It’s quite like pitching to an investor, a partner and a potential employee all in one meeting. Even if you don’t get into the incubator, you’ve already benefited from completing the application process.”

Chance of Survival

If a company earns a place at one of these organizations, their odds of survival improve. About 65 percent of CONNECT’s portfolio companies are still in operation since the accelerator’s founding in 2005, and EvoNexus (founded in 2009) reports 88 percent of its portfolio companies are still active.

Much of this success is attributable to the network the accelerators provide. Apart from offering mentorship through a network of successful executives, incubators and accelerators often set up one-on-one meetings with investors in Silicon Valley and Los Angeles with startups here at home. Other times, the organizations invite investor groups to pitch fests, where dozens of startups get a shot at the cash.

McKee said companies that have been through CONNECT’s Springboard program have collectively raised $1.5 billion since the accelerator’s inception.

Ambition Outruns Resources

However, raising capital in San Diego is not easy, Shetye said. No matter how many accelerators support the innovation economy, an important part of the equation is missing.

“You wouldn’t have an education system with only elementary schools,” Shetye said. “You need middle schools and high schools. San Diego’s startup community needs investors who are willing to take risks. A lot of venture capitalists in San Diego talk a big game, but they don’t play one. The region has limitations, and ambitions outpace the resources here.”

Although McKee agrees there’s less venture capital in San Diego now than in the past, he said he’s not sure it’s affecting the region’s startup scene.

“Frankly, venture capitalists don’t invest in startups,” McKee said. “That’s a myth. They don’t take that risk anymore; they are primarily late-stage investors. But high-net-worth individuals have come along to take up the slack. No entrepreneur wants to hear this, but there’s not a shortage of money. There’s a mismatch between good ideas and money. All the venture capital in the world is not going to make up for good ideas. We can’t beg these people to come to town. We have to show success. Once you’re successful, the money will come.”

Still, Shetye said there’s more to be done to help the region’s innovation clusters thrive.

“We have to nurture the mindset that once you’ve made it big, you should give back to the community,” Shetye said. “Not just through advisories (advisory boards), but through investments toward the next generation of companies. We can learn a lot from the Bay Area. I think there’s a lot of that kind of change in motion; it’s just going to take some time.”

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