How Nonprofit Accelerators Distort Markets

Many tech accelerators (think Techstars and Y-combinator) employ the business model where the accelerator invests and takes equity in the startup. Most startups see this as a fair trade. But in the social impact accelerator / social entrepreneur “fellowship” market, there are many free accelerators and fellowships that don’t take any equity (while still giving out philanthropic grants), so social impact startups get to compare programs that charge with those that don’t. Back in the day, we tried to charge our startups, but as more free programs popped up, we were undercut and struggled to attract the best entrepreneurs because the perceived return on investment for a free accelerator was almost infinitely better than the perceived return on investment for a paid accelerator (simply because the investment was only a founder’s time versus their time and their equity).

The social impact accelerator / fellowship market has been distorted by awards, prizes, and free programs and fellowships, and that is changing our customer’s perception of what ought to be paid for. Consequently, accelerators are abandoning potential revenue streams that should be available to them if they operated in more efficient markets.

Now, like any good market-responsive company, accelerators (Uncharted being one of them) are identifying new customers and seeking alternative revenue streams (like corporate-sponsored programs), but the irony is not lost on me that programs that espouse the principles of social enterprise, charging for value, focusing on earned revenue, treating people as customers not beneficiaries, and avoiding the non-profit charity models, are themselves somehow caught in this downward cycle where their weird non-profit behavior is making the market evaporate underneath them.