Entrepreneur First outperformed Y Combinator by supporting local strengths

Y Combinator was arguably the world's first startup accelerator and has built up two massive advantages over its competitors. Its brand and reputation as the best gives them tens of thousands of high quality applicants, and its growing alumni network is a powerful support resource for everyone who's been through their program.

More than a decade after Y Combinator's started, its "exit value" - the amount of money it returned to its investors - was the highest of all accelerators at $6 billion.  Techstars was in second place at $3B, and AngelPad following at $493M. The Top 20 is full of accelerators that have invested more money in more startups than YC, and run more programs and more places, but all fail to break even $400M in value generated.*

(These rankings are from Seed-DB, which tracks the performance of startup accelerators. It defines accelerators as fixed-term, early-stage investment programs, a definition that excludes programs that offer the same support, but don't take equity.)

While these numbers are impressive and get attention, insiders know they don't really explain which program is better for the companies they support.  The return on investment numbers skew the results to the oldest programs, who's portfolio has had more time to grow.

A better measure of effectiveness is the average valuation of each company an accelerator generates, and here, AngelPad comes out on top, with average exit value of $6.4M, and YC second at $3.8M, and Techstars at $2.6M.

Angelpad is a much smaller program that works primarily around one-on-one interactions from its two main partners. This has limited their size, but allows them to be more selective, and fully responsive to each startup.

While others have decided to “scale” and take on more companies or launch more cities, we have stayed true to our original goal: Find a bunch of awesome companies with founders we would like to work with and spend three very intense months with them.

AngelPad does not have “mentors” – well, we do, but in a different way. We don’t believe in the “one-size-fits-all” advice that founders only get when they meet with mentors once and even find damaging contradictory advice founders often get from different mentors.

The partners focus is on "figuring things out." and the program works on a weekly rhythm that starts with an AMA (Ask Me Anything) session. There's additional support from a small group of well-recognized investors and alumni, but the individual attention from experienced and connected partners is what drives the startups. So Angelpad gets great results, though at a smaller scale.

But YC is still the biggest, and everyone knows them. Paul Graham, YC's most visible partner during it's first decade, was known for visiting cities like New York and London strongly encouraging startup founders to just move to Silicon Valley: "The more of a startup hub a place is, the better startups will do there."

That logic resonates, and it applies to YC even more than it does to Silicon Valley in general. Just as actors flock to Hollywood, startups around the world cast their starry-eyed aspirations to Y Combinator. If you’re a startup that’s good enough for YC, you’ll apply and move there.

To compete, some accelerators attempt to differentiate around a region or an industry.

MassChallenge is a non-profit accelerator that started with a focus in social-impact startups. Over the years, they started to challenge the accelerator model, particularly by supporting startups without taking an ownership stake in them.  Unlike standard accelerators, you don't sell a part of your company to join, which means you don't have investors who push for financial returns over impact goals.

The HAX accelerator chose to specialise in hardware startups, in China's electronics manufacturing capital, Shenzen.  Instead of 3-months in one place, HAX takes up to a year. It starts with product development in Shenzen, then startups progress to San Francisco for a business development stage. It also offers much larger investments than a typical accelerator, because electronics is more expensive than software.

Eleven, a startup accelerator in Sofia, Bulgaria, built their reputation around South Eastern Europe, and invested in regular tours to make themselves visible and accessible.

Their efforts were a success in many respects. They had transformed Sofias's startup scene from a handful of hobbyists to a self-sustaining community of experienced startup founders.  Sofia had turned around into one of Europe's most active seed investment cities.

Eleven was financed by a European government investment fund, with a mission to kick off seed investment in startups, like the US accelerators had done. One of the fund's intentions was that private investors would see what was happening, join in and eventually take over.  But when Eleven's funding eventually stopped, the local investors didn't keep the momentum going.

When Eleven started, South Eastern Europe's IT sector was mainly made up of software development companies that grew quickly based on offering professional services to large companies in Western Europe and the US. They'd write custom software and charge for their time. It was typical to grow by getting more contracts to hire a bigger team, and then sell the whole company to a multi-national, like Uber or VMWare, who wanted to have their own in-house team or open a local office.

Bulgaria had a few big product successes too - its own Dropboxes and AirBNBs.

Telerik, for instance, was noted as Bulgaria's biggest tech exit when they sold for $262 million. They were scalable and had globally-recognised products - tools for software developers. But when Telerik started, they paid their bills by being professional services company like any other.

Eleven had worked diligently and scoured the region for tech potential to invest in. They ran a yearly, 10-city tour from the Adriatic Sea to Turkey.

In Romania, they turned down a pitch by a creative agency that had invented a new kind of technology for billboard ads.  When you pointed your phone’s camera at one of their ads, a whole array of extra characters would jump out, visible on your phone’s screen. The creative talent and ability to execute was clear. There was also clear way for investors to make money - this was an established marketing agency with the ability to grow and sell to a large multinational agency for €10-30M within a few years, just like the software agencies.

Yet the startup failed to proceed past Eleven's pre-selection event.

Eleven was specifically looking for product-based businesses, not professional services companies, even though at such an early stage, flipping between the two is quite easy and happens frequently.  Eleven still succeeded in building a community of tech entrepreneurs in and around Bulgaria, and though they followed the strategy set by their investors, they were later challenged on the fund's performance.

This is a common problem when adopting models.

In spite of spotting new opportunities, specialist startup accelerators still compete for "investable startups" to apply. While all accelerators agree they are trying to create tomorrow's technology giants, they define their ingredients, their definition of investable, according to the locality-specific strengths of the leaders like YC in San Francisco.

The biggest global successes in electronics products are companies like Fitbit, which make wristbands that track personal physical activity, and GoPro, a video camera designed for sports. When those companies started, they'd have been rejected by accelerators too, because hardware manufacturing was considered too slow to grow.

While MassChallenge started with the aim of supporting social impact, now it reports its success on revenue, jobs created and, you guessed it, investment money raised. MassChallenge's social impact measures are hard to find.

In 2011, a small program in the UK decided to let everyone else fight for pre-formed startup teams. Instead, they turned their attention to graduates of top universities, offering them a guided path into tech entrepreneurship. They called themselves Entrepreneur First.

Their approach was to find the best people, and run a program that connected them to corporates who presented their challenges as opportunities. Over a year, these young graduates would tackle different industry challenges, with different teammates. When something would click, they'd run with it and start a company.

With 230 companies generating $1.5B in total valuation, Entrepreneur First beats out Y Combinator and AngelPad in average company valuation - $6.5M per company. Simply because they don't compete for startups with the big accelerators, and instead focus on the UK's strength of high-quality university graduates.

Y Combinator started in an environment that already had a lot of venture-capital and startups to choose from, and multi-billion tech companies surrounding them as obvious goals. In places like Boston and Mountain View, the big tech company successes had grown in spite of high odds of failure, because failure could happen quickly and cheaply, and it was normal to move on to the next opportunity quickly.  This allowed for a block-buster investment strategy, where only one in ten investments needed to succeed.

Entrepreneur First truly broke the mould.  Even though their performance speaks for itself, they don't qualify as a Seed Accelerator in the Seed DB reports, because they don't accept pre-formed startups.

But they realised that it didn't make sense to run a program designed for a place where there's an abundance of early-stage investment money. They invested in supporting a path that made sense in the UK.