Innovation Pipeline

Startup “accelerators” borrow an idea from Simon Cowell to get early-stage innovation back in gear.

Funders of early-stage tech startups have borrowed an idea from the wildly successful Fox TV show “American Idol.” They only hope the entrepreneurs they launch stick around longer than Clay Aiken.

In a recent report titled “Finding Business Idols: A New Model to Accelerate Startups,” the Kauffman Foundation details a new concept in startup investment. It’s called an accelerator.

Unlike an incubator, which usually is just a glorified landlord, an accelerator is a VC or angel group that takes a much more active role in development of its hopeful young stars. An accelerator helps its startups with the legal process of forming a company, recruits management and provides its own industry expertise.

Where does the “American Idol” angle come in? Entrepreneurs must compete for a spot in the accelerator’s stable.

Judging is rigorous. Paula Abdul need not apply. But the people running these accelerators hope that, by putting together a team of talented entrepreneurs, they can develop truly successful innovations. That’s partly why they concentrate on one field, such as technology or biotech, “since it often takes a critical mass of people with similar educational and business backgrounds to come up with cutting-edge commercially successful advances.” says Christine Gulbranson, director of Advancing Innovations for the Kauffman Foundation.

It is certainly time to try something new. In its report, the Kauffman Foundation points out that from 2000 to 2005 there was a dramatic drop in seed-round investments–from 281 deals to just 63.

Among the most active accelerators is Foundry of Menlo Park, which was formed in 1998 and funded by Morgenthaler Ventures and Split Rock Partners. It has launched more than 10 medical-device companies and raised over $200 million. Others include Accelerator in Seattle, TechStars in Colorado and Y Combinator in Mountain View.

Will it work? Is there a Kelly Clarkson out there? A Jennifer Hudson, poised to win an Oscar? Stay tuned. By Lee Bruno