In “Why Startups Need to Acqui-Fire Government Policies,” guest poster and San Francisco-based entrepreneur Simon Burns argues that the real value of NYC, LA and SF doesn’t come from publicly funded real estate, nor capital, but a support model. In Part Two, the entrepreneur examines the track record of MaRS’ Jolt Accelerator, at times praised by graduates, other times criticized by venture capitalists.
Imagine
Imagine you had half a billion dollars to spend.
The money comes with only one rule. The golden rule is that you’re not allowed to spend the money on your own startup. The money can only invested in other startups. Your goal in this exercise is to build as many successful startups as possible.
What do you do? Do you build a co-working space, fill it with smart people and just see what happens? Do you start an accelerator? If so, what is your value proposition to best startups who can easily go to one of the other 2,426 accelerators? What if you have to start this accelerator in an unattractive city with little developer talent? Now you’re beginning to see what policymakers in cities from Stockholm to London, Riga to Singapore and Santiago to Chennai are facing.
Let’s add some context to $500 million dollars. $500 Million comes out to 2 percent of the median annual venture capital spent in the U.S. over the last 10 years, or 25 percent of the two billion invested by Canadian VCs last year. This is the kind of money that could make a dent in the industry over any time frame.
It’s the same sum that the MaRS Discovery District has been given to spend on its innovation policies. MaRS has a clean tech fund, a social enterprise fund and several other funds that its budget goes to. Most seem to be doing alright and a little turbulence is what one should expect with entrepreneurship.
I believe that one fund, however, has been under-performing in comparison with its peers, and several VCs have come out criticizing it.
Jolt
The fund is the Jolt Accelerator, MaRS Discovery District’s on-campus accelerator. Jolt is Toronto’s answer to the accelerator trend. More specifically, it is the province of Ontario, city of Toronto and federal governments’ answer, with support from the provincially and federally-funded Ontario Centres of Excellence. Toronto has a large population, is near major sources of capital and boasts an amazing developer talent pool. It’s a great city for an accelerator.
However, after two years 17 Jolt companies have raised but $1,680,000. That’s an average of $98,823 per startup; less than the average 500 Startups, YC or AngelPad company on Day 1.
A more stratified view would be to look at competing Canadian accelerators.
Data on accelerators is difficult to find. That’s largely because data changes rapidly as new startups get funded or fail. Seed-DB, a database of accelerator performance, is one of the few great sources.
Jolt does not fare well on Seed-DB. The data shows that Extreme Startups, GrowLab and FounderFuel have each outperformed Jolt. The private accelerators have raised on average $386,666, $304,500 and $194,567 respectively for their portfolio companies. Jolt raised $98,823.
Since its 2012 launch, Jolt has been in the press several times. The Globe and Mail, FP and Reuters have quoted their performance as follows (with slight variants): “Since its launch in July 2012, JOLT has invested $610K in seventeen startups that have successfully raised over $5.2 million of additional financing. Five of the seventeen JOLT companies have raised over $500,000 of follow-on financing.”
“$5.2 million of additional financing” seems like a quote that would imply Jolt companies have received $5.2 VC/angel funding. The additional financing language is much too vague. It might be more realistic to back-out government funding from the metric. Every Jolt accelerator company receives a $150,000 BDC-backed convertible note. The terms are very favourable and let’s assume again that each portfolio company takes the convertible note.
That is 17 multiplied by $150,000, or $2,550,000 that we can back out from the headline number.
But what about the Jolt companies that have received venture rounds? I believe that many of these venture investors are government programs that operate as venture investors to prop up Canadian startups.
Greengage Mobile, a former Jolt start from the Summer 2012 Batch, raised a $1,000,000 seed round from MaRS’ Investment Accelerator Fund, RBC’s Generator Fund and the Golden Triangle Angelnet, an angel group based in Ontario. The MaRS IAF is government funded. RBC’s Generator Fund is subsidized by government. RBC discloses its various government subsidies on the RBC Generator website. Lastly, the Golden Triangle Angelnet describes itself as a “not-for-profit corporation operating under the Ontario Ministry of Research and Innovation’s Angel Network Program”.
Another Jolt company, Singspiel from the Winter 2013 batch, raised a $50k seed round from the Ontario Centres of Excellence, which again, is taxpayer money.
Comments
This may not be a problem. Startups need support especially when it is difficult to raise money elsewhere. Most innovation traditionally has come from the private sector. They argue that part of doing a startup is failing. As the adage goes, by trying and failing over and over again maturity brings success. Whereas Jolt companies can likely continue raising money from government programs to evade failure. Which has led a select few to argue that Jolt is actually hurting innovation.
But Jolt is a product within a greater structure that several prominent tech voices have argued is flawed, the public and private charity that is MaRS.
SalesForce EVP Daniel Debow took to the StartupNorth Facebook group prompting a now (in)famous debate, asking entrepreneurs “which of you has *really* been helped by MaRs?” Over 300 commenters voiced their opinions. Some praised MaRS, and Jolt, and some didn’t.
There are doubtless tons of hard-working, intelligent individuals within MaRS who genuinely want to affect real change in innovation, and further insight over why both MaRS and Jolt have have experienced limited success can be found in this StartupNorth piece.
Paul Singh at 500 Startups and Brad Feld of the Foundry Group are also vocal critics. Brad Feld wasn’t as kind as others when it came to government accelerators. Feld said “I don’t think government should be funding these accelerators, nor do I think they need to”. Paul Singh of 500 Startups was more specific in his critique, focusing on Canada’s startup ecosystem. “So the question is: Are technology companies so capital-intensive that government has to help? I think the answer is no,” he said. Both Feld and Singh pointed out that the natural forces of entrepreneurship seemed out of balance at government accelerators.
Decisions
With thousands of accelerators to chose from and several accomplished private accelerators in Canada, should the best entrepreneurs be going to Jolt? If not, then should the government keep Jolt alive for the entrepreneurs who can’t raise any other money? While the answers will only become clear with more companies and more time, many are adamant that the $500 million dollars MaRS is allegedly receiving could generate a higher ROI with private accelerators with strong track records like GrowLab, ExtremeStartups and FounderFuel.
Part Three to come. Read Part One here.