a few of them will pay off. But if you’re going to let in a lot of companies, you have to be ready to serve all of them—and Lowe says Greenstart always knew it wanted to stay small, bringing in fewer than a dozen companies a year.
(Even Y Combinator has been struggling with scaling issues. It admitted a record 84 companies to its Summer 2012 class, then slimmed down to about 50 for its Winter 2013 class after it found that “more things than usual broke” with 84 companies in the mix, in the words of co-founder Paul Graham.)
In addition, you need a strong enough brand to attract lots of applicants, so that you can be picky about whom you admit. But Greenstart is still very new. “I think only Y Combinator and possibly TechStars at this point have a brand and a track record that create so much demand that they can work with that many startups and still meet certain benchmark criteria,” Lowe says.
So Greenstart’s decision to focus on quality was another reason it had to stay small. That means there’s a lot more riding on each startup. Which means, in turn, that the companies need more individual attention and professional assistance, like Merkoski’s design services. At that point, the operation looks a lot more like a small venture fund than an incubator.
Because accelerators don’t generally share their financial data, it’s hard to know whether the dozens of accelerators that are less famous than Y Combinator, TechStars, or 500 Startups are confronting similar math. “My suspicion, though we don’t spend any time talking to other accelerators, is that the growth curve of the other new accelerators is probably having some of the same issues,” Lowe says.
There’s one final challenge facing accelerators in the energy world and other sectors outside the pure software world, though Lowe says it was not a factor in Greenstart’s decision to pivot. It’s the sheer difficulty of innovating in sectors of the economy that aren’t yet fully digitized, and that are dominated by entrenched players and decades-old consumer behaviors.
If you’re building a photo-sharing app, iterating is easy. You can often zoom from the napkin stage to early product testing and beta launch in just months. In other sectors, including cleantech, it can just take longer to revise your product in response to customer feedback. Is your solar panel less efficient than you expected? Is your biofuel mixture more expensive to produce than you thought? Then it’s back to the drawing board, or the laboratory.
“For most companies, and particularly companies that are dealing in energy-related products and services, to get to product-market fit in less than 90 days is pretty unrealistic,” Lowe says.
Again, though, Lowe says the difficulty of finding a lucrative market and building a product that satisfies it before demo day wasn’t what inspired Greenstart’s shift. “It was all about how do we attract the best entrepreneurs and how do we add value,” he says.
And all along, Greenstart has tried to minimize the difficulties inherent in energy innovation by steering toward the cleanweb—its term for the larger group of companies using the power of information technology to transform inefficient parts of the economy.
That definition is broad enough to include collaborative-consumption companies like Zipcar or Airbnb, which reduce overall demand for energy by encouraging sharing and re-use. “We’ve identified 13 subsectors in cleanweb, and all of them have the characteristics of being able to get feedback quickly, so companies can be nimble and have multiple opportunities,” Lowe says. In fact, most of the follow-on investments raised by Greenstart companies have come from traditional technology investors, not from cleantech investors, he says.
Only one of the 15 companies in Greenstart’s portfolio has gone out of business—it was called Wa.tt, and had been developing games to get consumers to pay more attention to their energy consumption. At least one of the companies, Ridepal, is “crushing it,” in Lowe’s words. The company helps big Bay Area employers organize bus rides to work for employees. (You couldn’t invent a more perfect business for the traffic-clogged peninsula.)
All of the rest are shipping products, raising money, winning grants, running pilots, and doing all of things startups are supposed to do. Including pivoting: former bike sharing startup Liquid “has changed its business model dramatically,” Lowe says, though to what is still a secret.
Greenstart will continue to invest in new companies, as venture funds do, and in each case there will be an initial “immersion period” in the fund’s sunny top-floor space on Battery Street while Lowe, Merkoski, and the rest of the team dig in on business-model and product-design questions. But there will be none of the structure of an accelerator program, and the companies will be welcome back at any time.
“I think what we’re trying to do is bring together what a First Round Capital or a True Ventures would do, in terms of the investing stage, and then bring the capacity of a boutique Ideo or Frog to bear,” Lowe says. The reboot, he says, simply reflects the discovery that “the 90-day construct does not make sense…The only real change we’ve made is stripping away that construct and saying we want to be a partner for life.”
