Betabeat is of the opinion that there will soon be a wave of start-ups who’s early funding, be it a friends and family or a seed stage round, is going to run out. A few of these companies will have enough traction to raise an A round, slightly more will pivot to another model, but most will be forced to call it quits. As Shair Goldman and Chris Dixon point out after our last Seed Stage Slaughter post, this is how the venture capital system is meant to work. But what that ignores is that this will be happening at a much higher volume than any time in the last ten years.
As Xconomy pointed out in a post today, the number of tech incubators has practically doubled, from 34 in 2010 to 64 in 2011. And that likely doesn’t count all the accelerators and other similar programs that aren’t officially “incubators”. Xconomy reports this as a good thing, offering a a guide for start-ups eager to apply to programs for the low low price of $149.
We’re all for more entrepreneurs getting the chance to build their businesses and love seeing programs connect up and comers with seasoned mentors. But the number of incubators was also a pretty clear reflection of the bubble in early stage funding that peaked in 2010 and early 2011. A lot of the early stage funding for companies coming out of those programs came from less savvy angels who had made their money on wall street and in real estate. If the stock market continues its gyrations, you can bet those backers will be part of the herd fleeing to safe, liquid asset classes like Bitcoin (jk, obvi).
The upside in all of this, of course, is that tech talent from failed start-ups will be consolidated behind the winning companies. The VC model assumes 1 out of 10 ideas will work as a business, if that, and a flood of dumb angel money and incubators artificially keeps a ton of bad companies alive. When they perish, the top firms who are starved for talent will have a chance to swell their ranks and really grow at scale.