Acceleprise heads to SF, bets that a vertical focus will give its SaaS accelerator a big edge

By Michael Carney , written on June 17, 2014

From The News Desk

Not all accelerators are created equal. Whether measured by the return on investment they generate or the impact they have on the success rates of participating companies, the fact is, most accelerators simply aren’t very good.

Part of the reason for this comes down to the fact that there simply aren’t that many unicorn companies to go around, and success in this game is disproportionately weighted toward finding and investing in unicorns. And at the earliest stages, it’s nearly impossible to distinguish the unicorns from the mules. The other factor is that it’s nearly impossible to systematize a curriculum that applies equally to companies across all categories, stages, and levels of founder experience, making the claim that generalist accelerators increase the likelihood of startup success a dubious one.

This analysis begins to change, however, when you look at vertical accelerators. While I can’t point to data to suggest the ROI performance is any better, although it may be, it’s easy to see how a more focused approach to company building – such as one around theses like hardware, gaming, or enterprise software – allows accelerators to increases their impact on participating companies.

It’s with this as a backdrop that Acceleprise, the nation’s first enterprise SaaS accelerator, is expanding from its original Washington, DC location to open a San Francisco arm. Led by Managing Director Michael Cardamone – who was an early business development exec at Box and more recently VP of Partner Marketing at AcademixDirect – Acceleprise SF will take what’s worked in DC and look to take it even further, with an emphasis on investing in vertical SaaS opportunities.

For example, rather than backing LinkedIn – which at its core is a SaaS recruiting platform – Acceleprise will look to back the next generation of companies like Spiceworks (“LinkedIn/Facebook for IT workers”), GitHub (developers), Edomo (educators), or Practice Fusion (doctors). Perhaps the most successful vertical SaaS company is Veeva Systems, a seven-year-old, life sciences-focused company which now has a $3.1 billion public market cap.

By focusing on specific industry domains, and backing entrepreneurs with practical experience in these categories, Cardamone believes Acceleprise can gain a critical edge in the market. It’s a thesis that has found some advocates in the traditional VC realm as well.

“Not all vertical SaaS companies will come from typical Silicon Valley founders,” he says. “We think they will come from within traditional industry. We’re looking for entrepreneurially minded people within incumbent companies that have deep industry knowledge, but not necessary the tech skills or experience scaling a business. It’s way harder to learn the nuances of the oil and gas industry than how to build responsive Web applications. We can teach the latter.”

While Cardamone will lead day-to-day operations, his co-founders include Karen Appleton (Founding Executive and SVP of Global Alliances at Box), Nick Mehta (Chief Executive Officer at Gainsight), and Rowan Trollope (SVP & GM of the Collaboration Technology Group at Cisco). The group also has a roster of dozens of mentors from prominent SaaS companies.

“There’s a massive imbalance in knowledge,” Mehta tells me in an interview. This is equally true of those with experience scaling SaaS businesses and those who know their way around the pain points of vertical industries.

“It just feels right and good to impart this knowledge and to help people transform industries,” he continues. “By choosing this specific vertical focus, we think we have more value to add and better odds at creating financial returns than a general accelerator. We’re also more likely to get [the] best companies, due to that specificity.”

Companies participating in Acceleprise will get $30,000 as well as four months of office space, programming, and mentorship in exchange for a 5 percent equity stake. It’s not a lot of cash, but it’s not meant to be. The investment is designed to cover the costs of participating in the program (travel, housing, meals, technology, etc.), while the real value is meant to come from the programming and mentorship.

Cardamone is targeting two to three classes per year of five to 10 companies each, with the goal of investing in 60 companies across three years. Applications for the first SF class opened today with the target of a mid-August start date.

While not disclosing the size of the Acceleprise SF fund, Cardamone did say that more than half of the fund will be reserved for follow-on investments (both Seed and Series A) in the accelerator’s most promising companies. Not all accelerators operate in this way, but emphasizing follow-ons should give Acceleprise a better chance at driving meaningful returns, even as it adds complexity of signaling risk.

“We raised a big enough fund to make pretty meaningful investments in Series A rounds,” Cardamone says. The fund’s backers are largely fellow founders and executives of prominent SaaS companies, he adds.

Beyond investing in these companies and delivering four months worth of programming, Acceleprise’s biggest impact will hopefully come through ongoing community involvement, Cardamone explains. Even the best traditional accelerator, Y Combinator, has only a limited number of SaaS businesses and mentors, he says. With 40 past graduate companies from of Acceleprise DC and another 100-plus to join the ranks on both coasts over the next few years, the Acceleprise community will soon be one of the largest and most focused around.

“The biggest bet we’ve made to date in focus,” Mehta says.

It will be several years before we can evaluate Acceleprise on its performance. In the meantime, Cardamone and crew will have to hope that enterprise remains hot and entrepreneurship appealing enough to attract domain experts out of traditional industry.

Even the best investors will admit that success is equally parts luck and skill. Cardamone has assembled a highly skilled crew around building successful SaaS ventures. Whether they will be lucky enough to bag a unicorn or two remains to be seen.

[Image via Michael Nichols, National Geographic Stock]