What’s a startup accelerator? How do they really work? Is this a smart path to take for your startup?
There has been a lot of buzz about startup accelerators in the past few years. They’ve attracted a lot of attention. They are frequently referred to as a route for gaining funding. So, how do they really work?
Incubators Vs. Accelerators
Startup incubators, accelerators and other similar hybrid models are often all lumped in together. Yet, they can be quite different in execution. The first notable startup accelerator you’ve probably heard of is Y Combinator, which was started by Paul Graham in 2005.
According to Hackernoon and data from the International Business Innovation Association there are now around “7,000 business incubators and accelerators. More than 90 percent of them are nonprofit and focused on incubator programs for community economic development.”
Accelerators are said to be unique in their inclusion of all of these criteria:
Fixed termCohort basedMentorship drivenCulminate in a graduation
Accelerators are focused on early stage startups. In contrast, incubators may take early to late stage startups and may last years.
The Startup Accelerator Process
1) Apply & Get Accepted
The most well-known accelerators are notoriously difficult to get into. After an application, only 1% to 3% of startups typically get accepted. During this process you’ll get to interact with the operator a lot more and find out more about them and the details. You are under no obligation to accept and join the program, until you sign any paperwork that says otherwise. Some startup founders have pulled out, even after being accepted.
2) Get Funded
One of the main reasons that entrepreneurs and founding teams choose the accelerator path is for the money. Accelerators typically offer seed money in exchange for equity in the company. This may range from $10,000 to over $120,000. Though some have recently pulled back on the amount of funding they provide, citing over funding as a major roadblock to success.
Keep in mind that while the offer may seem like a small piece of the company to give up now, that may be quite a substantial amount later, and will impact what’s left for future fundraising rounds.
One of the big advantages of this system is the focus forced on entrepreneurs. They are thrown into what is typically a 3 to 6-month process according to Harvard Business Review. This is normally (though not exclusively) on site, with co-workspace provided. This is an intensive time, where participants are forced to really focus and make progress.
Learning is a big part of this. Expect seminars, workshops and mentorship opportunities. While this can cover a huge array of topics relevant to launching a venture, some of the most valuable is often on the legal side and the practice of pitching.
During this acceleration period entrepreneurs will have plenty of opportunities to network with their peers, other industry support providers and potential investors.
6) Demo Day
Accelerators culminate in a graduation. Typically, a ‘demo day’ where each startup in the cohort presents and pitches.
Demo days may be to a group of active investors, sometimes in the hundreds. This is where the experience and time invested is really proven or not. Founders typically will put together 15 to 20 slides that they include in their pitch decks as part of their presentation.
Joining this alumni is something to be proud of, and many say these connections lead to lifelong relationships. Many of your future VC introductions could come from this group.
Is an Accelerator Program for You?
Attending an accelerator program is not a mandatory prerequisite for launching or growing a successful startup. In fact, many of the most prominent entrepreneurs and angel investors that have enjoyed the biggest exits have not participated in them. This hasn’t stopped them from raising millions and selling for billions.
An accelerator could be for you if you:
Are free to relocate for 3 to 6 months
Can afford to spend 100% of your time during this period only working on your startup
Are okay with a relatively small seed funding round
Really thrive in an intense, high pressure environment, and with learning organized by others
Have more than one founder in your startup team
Alternative to Startup Accelerators
In addition to incubators, there are other ways to benefit from many of these resources and advantages without committing to the furious pace of an accelerator and their terms.
These alternatives include:
Startup and fundraising consultancies
Experienced and engaged angel investors
Putting together your own board of advisors
Bootstrapping your startup
If you do decide to join an accelerator, make sure you understand the value and gamble, and what connections and interests the program organisers really have. Do they really have investors that will be a good match for your startup, or not? What percentage go on to receive large funding rounds after demo day?
For example; at one point Y Combinator’s amazing portfolio of companies worth a heralded $30B, $20B of that was held by just two companies - Airbnb and Dropbox. According to this data, out of 716 funded startups, only 20 were worth at least $100M.
A true accelerator has a very specific group of identifiers. They can offer many benefits, if you can get in. Not all are created equal though. Even among the best, there are massive differences between the success of their graduates. Take your time to evaluate them and your ability to commit, as well as your alternatives.