Help for a Business Idea Trying to Catch Fire
Katlin Smith says the accelerator affiliated with the University of Chicago’s business school made it possible for her to expand her idea for Simple Mills, a provider of simple foods like a gluten-free baking mix. CreditTaylor Glascock for The New York Times
When Katlin Smith entered the New Venture Challenge business accelerator, she had developed an idea for making food that was “simple, healthy and delicious” but did not have a sense for what to do next.
Ms. Smith came to the program, offered by the University of Chicago’s Booth School of Business, two and a half years ago. She had started out creating gluten-free muffin mixes in her living room in North Carolina, and by that time had “three baking mixes in two to three stores.”
The mentors and guidance provided by the accelerator convinced Ms. Smith that she could be the Betty Crocker of clean eating.
“I never thought about how big I could get,” she said.
She came up with the business concept while working at Deloitte, before starting as a student at Booth, but the accelerator, and the cash prize that came with it, helped her take the next step with her start-up.
Within months of entering the program, Ms. Smith competed against 100 other teams and was awarded some $30,000 in 2014. Since then, she has increased her business’s sales exponentially.
Her business, now called Simple Mills, has products in more than 5,000 stores and her company has raised $5 million to date. She would not disclose annual sales.
Ms. Smith is on a leave of absence from business school as she works to expand her business.
Like many entrepreneurs with little business experience, she sought help when she was relatively young.
“I was 23 when I had the idea for Simple Mills and was 24 when I won the challenge,” Ms. Smith recalled. “I was attracted to Booth’s program for the number of resources available to entrepreneurs.”
Although definitions vary, there are more than 230 accelerator programs worldwide that have provided $19 billion in funding for more than 6,000 companies to date, according to Seed-DB.com, which provides information on accelerators nationwide.
Out of the 160 accelerators based in the United States, about 35 programs are connected to universities.
In essence, accelerators aid start-ups with funding, mentorship and, often, office space. They all provide an essential advantage for any entrepreneur: comprehensive support.
The top two accelerators in the country are Y Combinator, which has provided $10.2 billion in financing, and Techstars, which has given nearly $3 billion in funding.
Of the companies emerging from these programs with significant funding, only “2.1 percent of companies have had a meaningful exit” — a sale, merger or initial public offering — said Prof. Yael Hochberg at Rice University, managing director of the Seed Accelerator Rankings Project.
That number, however, can be deceiving. “For most programs — and most companies that have attended programs — it’s way too early to talk about exits,” Professor Hochberg said. “You need another five to seven years or so.”
She added that 40 percent of companies at accelerators raise $250,000 or more in angel or venture capital funding — an indication that the programs are giving entrepreneurs a leg up.
While every start-up has its eyes on funding, some accelerators have specialized goals. Manos Accelerator, based in San Jose, Calif., focuses on Latino entrepreneurs. The mission of Women’s Startup Lab, also based in Silicon Valley, is to “empower female founders.”
In Booth’s New Venture Challenge, 30 teams of students present business plans in April. Those are winnowed down to the 10 best by a panel of 25 business school and independent judges, said Steven Kaplan, director of the program and a professor at Booth.
“It’s like a crucible,” Professor Kaplan said. “It’s incredibly intense and tough.”
The winners are chosen in June and a total of $250,000 is spread among the 10 finalists. The amounts given can vary. “Last year, the winner received $90,000 of the $250,000,” he said.
Occasionally an accelerator can produce a superstar.
Matt Maloney, a co-founder of GrubHub, the online food takeout service, won the New Venture Challenge in 2006. The company, now linked to more than 45,000 restaurants in 1,100 cities, had more than $120 million in revenue in the second quarter of this year, with 37 percent year-over-year growth.
GrubHub went public two years ago, one of only a handful of start-ups to do so.
Mr. Maloney said the accelerator helped him refine and build on his idea for GrubHub, which had signed on only 100 Chicago restaurants when he went to Booth.
“I knew I had something,” he said. “But I didn’t know what it was. I met a lot of smart, hyper-educated people trying to solve the same problem.”
“The mentoring is the linchpin,” Mr. Maloney said. “The key benefit of the program was being able to model and communicate the power of the business.”
Still, not all accelerators are equal. Mr. Maloney’s advice for start-up owners who are considering one is to look at the people involved. Ms. Smith recommends examining the kind of experienced entrepreneurs the accelerator works with and how much one-on-one advising is offered.
The rankings of Seed-DB, which keeps track of such programs, also offers a guide to entrepreneurs looking for accelerators.
Not all would-be start-ups can get in. Most programs have a competitive selection process. At New Venture Challenge, for example, two-thirds of those who apply do not make the final cut. Accelerators affiliated with business schools typically require participants to be enrolled students.
The programs may also require an investment stake in companies, “generally about 5 percent to 10 percent of investment capital in exchange for seed capital — usually between $15,000 to $25,000” — according to Amisha Miller, a senior program officer with the Kauffman Foundation in Kansas City, Mo., which researches entrepreneurial activity.
Ms. Smith said she found it “invaluable” that her program included a network of people who were also entrepreneurs at various levels. Some were already involved in start-ups, so she could trade notes with them and gain support. These businesspeople were also in a position to offer funding as angel investors.
“I love working with other student entrepreneurs to help them think about their businesses,” Ms. Smith added. “I would probably still have Simple Mills, but I’m not sure it would be anywhere near as big.”
The program at the University of Chicago, she said, “helped me realize just how big this could be and to run after that dream.”
For those not academically inclined — or just not suited to the rigors of leading business schools — other entry-level programs like incubators may be a better match.
These independent entities usually offer co-working spaces; classes in business formation, marketing and funding; and opportunities for networking. Some who have participated advise picking one that offers soup-to-nuts support, including technical advice and access to funding.
Above all, experts advised, make sure the support network of the accelerator is going to work with your personality and business model. Some may be too aggressive, while others provide only meager guidance.
“The top two qualities of the best accelerators for you,” Professor Hochberg said, “are fit and experience of the mentors and managing directors. Making sure the accelerator is a good fit is the key.”
Twitter @johnwasik
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