EBB: The ‘capitalism is chaos edition,’ a look at incubators, accelerators and venture builders

(Editor’s note: We’re devoting this “capitalism is chaos” edition of the Eindhoven Business Briefing to a deep-dive into the world of startup incubators, accelerators and venture builders. Full disclosure: Several startups, as well as Dutch startup venture builders including HighTechXL and LUMO Labs, are clients of Dispatches Media. Dispatches Europe tracks the tech scene – startups, scale-ups and mature companies – in Eindhoven because so many of our highly skilled internationals are engineers, physicists and developersEBB is part of our Tech Tuesday series.)

Capitalism is chaos, and nowhere is that more evident than in the startup scene. The craziness begins as you start pitching people – from your friends and family to Sand Hill Road venture capital firms – to invest in your startup, asking them basically to jump off a cliff and trust you that they’re going to fall into a giant bag of cash.

On the way to that billion dollar payday, you become a ninja founder, making it up as you go, trying to spot the bullshit artists while figuring out the technology and fighting to get it to market. What’s really insane is that startups are the new cool and so many kids at uni, not to mention a fair share of senior talent in big tech companies, voluntarily jump into the chaos.

Then, boom … they realize they’re going to need capital and support.

Which is how they arrive at incubators, accelerators and venture builders. We’ve covered a lot of these programs in the Netherlands but never really written about them on the micro level until now.

The problem we see is that the Netherlands has a lot of great engineers and physicists but few people savvy about the startup world, which can be – let’s just say it – brutal. Accelerators, incubators and venture builders … it’s a crazy complicated world. But what we notice is that a lot of people who want to play don’t even do minimal research.

Is it ‘wise’ for young entrepreneurs?

In the United States, jumping into startups, or into the venture firms that finance them, has long been the career choice of the brilliant and ambitious. In Europe, joining a startup tends to be viewed more like taking a gap year … you’re only doing it until you get into the executive training program at Philips or ASML.

This is the mindset at NRC and MT/Sprout, which have collaborated on two new posts exposing what they see as the treacherous world of Dutch startup accelerators and whether it’s “wise” for young entrepreneurs to join them.

Both posts are posited on the assumption that life is fair, everyone shares your altruistic values and investors should be philanthropists. None of which is even remotely true.

“It turns out that (incubators, accelerators and ventures builders) is an opaque world with programs of varying quality,” according to the NRC post, “The risk of the startup factory.”

No shit ….

The NRC and Sprout posts question the value of incubators and accelerators and rightfully point out that if you’re a more sophisticated entrepreneur, you won’t need one. And if you’re not an experienced entrepreneur, you risk getting into something that – at best – is of little value and at worst will result in outsiders profiting disproportionally from your hard work.

Y Combinator is why

There is, of course, the other side of the story.

We Americans take for granted that Y Combinator, the first independent accelerator and still the most successful in Silicon Valley, has disrupted the world in a remarkably brief time. Many of the revolutionary companies of the past decade, including Airbnb and Stripe, went through Y Combinator, which was only founded in 2005.

In those 17 years, Y Combinator has raked in billions when Airbnb, DoorDash and other alums went public, companies in which Y Combinator owned less than 5 percent after dilution. (In 2019, Y Combinator upped the amount invested to $150,000 for a 7-percent non-dilutable stake from $20,000 for a 6-percent stake for the first cohort.) With all that dry powder, they’re now more aggressive than ever in building and in investing in promising startups.

As you can imagine, Y Combinator is extremely, extremely selective, with only 1.5 percent of applicants getting in.

Would Y Combinator work here in the Netherlands? Oh, God no …. they demand complete focus, which we can assure you does not include three-day weekends, taking off the entire summer or observing each and every religious holiday on the Dutch calendar. Dutch programs tend to be less demanding, but still a scary ride during which you might go for long periods without getting paid.

So, the most important question is, should you even be in a startup or an accelerator? Your team might be better off working with an established company with a venture arm that needs your technology. Ultimately, they’ll own you, but you won’t starve, and some are quite generous with investment terms and the amount of equity they let you retain.

Second, if you’re a student team, you might be better off working in a university program.

Wherever you end up, don’t assume you can trust everyone because you can’t when millions, or even billions, of euros could be at the other end of the rainbow. No one is going to come to your rescue if you screw up and assume everyone just sees you as a meal ticket.

That said, accelerators, incubators, venture builders want your startup to you to succeed because that’s the way 1) they keep the operating capital flowing, and 2) build their own brand.

And let’s face it … without startup programs, most startup teams don’t have any of the crucial elements for success, including institutional knowledge, capital, legal expertise, networks, marketing acumen and professional guidance and support such as IP attorneys.

That’s why you join.

Our advice:

In our opinion, no team should ever pay up front to join an incubator, accelerator or venture builder. The capital should flow from them to you. Legitimate programs raise funds with limited partners just like VCs, or they capitalize through government grants, corporate partnerships and, of course, stakes in alums that achieve big exits either by going public or being acquired. The Sprout and NRC posts point out that some programs promise startups big investments that go right back to the program in the form of fees, rents and services. But remember, everything is negotiable. And of course, the less you know the more vulnerable you are.

Incredibly important tip No. 1

The path of the righteous man is beset on all sides by the inequities of the selfish and the tyranny of evil men. So saith Samuel L. Jackson. That means, the very first thing you do is hire a great lawyer, and not your friend’s cousin’s son who just finished law school and needs the money. The reason we’re even here today is that for our previous media startup, we had a top M&A attorney at one of the most prestigious law firms in the United States watching our backs. Yes, he cost us $350 per hour, but he was worth every penny because he could structure intricate deals while telling us instantly if anyone – including potential investors – was trying to screw us. And if they were trying to screw us, he sent them a very lawyerly letter telling them he would strike down upon them with furious anger and lay his vengeance upon them. Or something like that …. whatever, it worked.

Incredibly important tip No. 2

Of course, you’re going to want to join a program that includes funding. But no one gives you money for nothin’. Every investment that’s not a loan, grant or, God forbid, a government subsidy means giving up ownership. And this is where things can go really, really wrong, depending on the program you choose.

You start out with 100 percent of nothing, and then let’s say you enter an accelerator or venture builder that invests 50,000 euros in your team. You’re saying, “Hey, great … we have 50,000 euros!” What you should be saying is, “How much equity did we just give up?”

Using Y Combinator as the model, they get 7 percent of the shares for a pretty modest (in American terms) investment of $125,000. But your team also gets the imprimatur of being a Y Combinator company, which means a lot … the potential for raising obscene amounts of money in Series A and Series B rounds.

As you go through the various funding rounds, the Series A, the Series B, the value of your company will increase, but the percentage you own will decrease. You own a smaller piece of a more valuable pie. The trick to is to make sure the valuations outstrip the current value of your founder’s equity and your ownership stake doesn’t drop to zero, leaving you with nothing even though you just built a billion euro business. Which happens more than you’d think. To do this, you need someone who understands valuations and the granular aspects of deal making such as liquidation preferences. In other words, to navigate the shark tank, you’ll need your own shark. (See above)

Because the less you know, the more vulnerable you are.

Incredibly important tip No. 3

If you’re reading this in Eindhoven, chances are you’re an engineer or physicist. Get out your resumé and see if there’s anything on it about your being a financial expert or marketing person. The odds are, there isn’t. So, whatever incubator, accelerator or venture builder you join, they’re likely going to smarten you up in those two areas, even if you personally have no plans to be the CFO or CMO. The whole point of an accelerator is access to subject-matter experts for seminars and workshops that make your startup stronger.

However, you should still have someone on your team who can read term sheets and contracts. Why? Because the less you know, the more vulnerable you are.

Incredibly important tip No. 4

Look for an incubator, accelerator or venture builder that’s part of an ecosystem with a large network and strong connections to the most important tech companies in your industry niche be it semiconductor, AI, robotics or embedded software. In Eindhoven, that’s easy because ASML, NXP and Philips are all based here or have operations here, and all are connected to the startup ecosystem.

Incredibly important tip No. 5

Look for an incubator, accelerator or venture builder with tangible successes. Fortunately, in Eindhoven, both HighTechXL and LUMO Labs have created companies that got traction fairly quickly. The older of the two, HighTechXL, has a dozen startups, including Accerion and Sustonable that have grown into thriving global scale-ups. LUMO has a list of advisors and venture contacts from around the globe. Talk to people who’ve gone through those programs and find out how they benefitted. Obviously, personality conflicts and other issues can cloud peoples’ opinions. Try to factor out that noise and look strictly at results and where the organizations are going. THEN look at the personalities and decide if you can deal with them.


In the end, being in a startup program is what you make of it. But you can help yourself by getting serious and learning all you can about the startup world before you commit to what is a very risky, demanding way to make a buck.

Why? Because the less you know, the more vulnerable you are.

The best books on the startup world include:

“The Silicon Boys,” by David A. Kaplan

“The New New Thing” by Michael Lewis

“Steve Jobs,” by Walter Isaacson

“The Hard Thing About Hard Things,” by Ben Horowitz

“The Secrets of Sand Hill Road,” by Scott Kupor

You can read more here about the startup scene in Dispatches’ archives:

You can read more about accelerators here.

You can read more about venture capital and finance here.

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Co-CEO of Dispatches Europe. A former military reporter, I'm a serial expat who has lived in France, Turkey, Germany and the Netherlands.

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