Absolutely! If accepted into the right program, there is no better way for an early-stage startup to scale and find the best investors. But you may wonder how to go about it. Since 2005, accelerator programs have become a trend in the investment sector. Globally, there are close to 200 active startup accelerators today. In this sea, how to choose the right fit? Let’s begin with the basics.
What is a startup accelerator?
Startup accelerators are intensive mentorship programs. They help startups crunch 3-5 years of the growth process into 3 – 6 months. Yes. You heard that right. This is why they are called ‘Accelerators’. Most of them provide a seed fund of $10K – $25K in exchange for 0 – 10% equity in graduating startups. But accelerator programs are best known for their ‘Demo Day’, the final day at the end of the program when startups pitch their accelerated, scaled-up pitch decks to potential investors. That is the moment of truth. Apart from these, there are upcoming programs that offer a longer engagement.
Broadly, based on their operating structure, startup accelerators are of three types:
- Venture funded: These are driven by Venture Capitalists with the sole aim of profits. They look for quick and massive ROI over a short period. The startups they choose to fund must show a promise of higher returns over a 3-5 yr period when compared to regular investment instruments.
- Government funded: These accelerators have a broader goal beyond short-term profits. They nurture startups with a potential for the greater good such as job creation, reviving local economies, creating applications for government projects, staying ahead in the global competition for tech innovations, and the likes.
- Corporate funded: Corporate-sponsored startup accelerators nurture new ideas usually to further their business vision. For example, giants like Microsoft, Google, Facebook run accelerator programs to support innovations. If it fits, they might end up acquiring some of them.
Beyond these, startup accelerator programs have defined goals. Their operating industry, funding structure, mentor network, skill development programs, course duration, on-site requirements, investor network, alumni support, and geographies are well defined. So make sure you thoroughly research various accelerator programs before choosing the right one.
First startup accelerator – Y Combinator
This is where the accelerator story began. In 2005, Paul Graham, Jessica Livingston, Robert Morris, and Trevor Blackwell founded a 12-week on-site program for early-stage startups. Their flagship program based in Mountain View, California accepts two batches a year focusing on finance, impact investing, and virtual currency industries. They have a special focus on black/African, American-led, and women-founded startups.
Over the years, Y Combinator has diversified its accelerator programs to suit various geographies. They excel not only in their on-site curriculum but alumni support as well. Startups graduating out of Y Combinator become part of an elite network of entrepreneurs, investors, and industry experts. Y Combinator also runs an online Startup school that is accessible from anywhere in the world. As of 2019, they have made 4000 odd investments valued close to the US $155B. Today, Y Combinator is the most successful startup accelerator program in the world.
What do startup accelerators provide for startups?
Startup accelerators provide the best growth opportunities. Besides the mentorship, networking, and the basic seed fund, they do not promise success but the best shot at it. Here are some of the opportunities you can expect from a startup accelerator:
- One-on-one meetings with industry experts and mentors
- Cohort-based co-working opportunities with fellow founders
- Progress monitoring and evaluation
- Capacity building of the Startup business process
- Possible connections with early adopters and channel partners
- Focused, goal-driven work culture
- Cross-learning and problem solving
- Experiential learning
- Access to potential investors on demo day, extended network
Pros and cons of startup accelerator
As an idea, accelerator programs are great. But if you are not ready for the fast ride, these programs can set you back massively. Time is the most precious resource in a startup journey. Before committing to an accelerator program that usually demands the presence of at least one founder and the core team for the entire duration of the course, it is best to analyze all aspects of it. Here are some of them:
Benefits of startup accelerators:
- Focused training to raise funds from top investors in the industry
- Assured seed fund at graduation
- The startup journey can be lonely. Accelerator programs create cohorts for founders across various industries to brainstorm and learn from each other
- Build strong relationships with mentors, industry experts, and alumni
- Social validation. Graduating from top startup accelerator programs lends a unique identity to new startups in the market. Investors tend to rely more on their capabilities compared to other companies trying to make it on their own.
Problems of Startup Accelerators:
- Demands 100% presence. This is a non-negotiable term with most startup accelerators.
- Demanding schedules. Accelerator programs run on tight schedules. They facilitate ‘learn on the go’. So there is learning and immediate application.
- Equity dilution. Every accelerator demands equity in exchange for its services and a basic seed fund. A dilution at the seed stage will only magnify the possibilities of higher dilution in the subsequent funding rounds.
- Relocation. Most accelerator programs are on-site. The core startup team has to relocate to the accelerator location and live around the premises for 2 – 3 months.
Thus there are many aspects to a startup accelerator program. If approached with sufficient preparation, the pros might outweigh the cons. As a startup founder, you cannot deny the gravity and timing of investments. Startup accelerators provide access to just that and much more. Then how should you approach this? What is the right time to consider an accelerator program?
When should I choose a startup accelerator program?
When you are ready. As a founder, make sure to ask yourself if you and the company are ready for an accelerator program. It is a myth that an accelerator guarantees success. As if it was a formula to become a unicorn overnight. In fact, it is the other way round. Accelerators need you to be at your best. Else it is a wasted opportunity. These programs are highly competitive with an acceptance rate of 1 – 3% only. So make sure you make the best of it. Here are some pointers to determine your ‘readiness’ for an accelerator program. You are ready when:
- Startup has reached the early-seed or seed stage
- Startup has a co-founder
- Startup has an MVP
- Startup has sufficient market research data to establish the viability of the prototype
- Startup has a business plan
- Startup ready for a growth spurt
- Startup has a core team of experts who can learn and deliver under high pressure, portray leadership skills
- Startup team can commit 100% time to the accelerator program beyond managing the company on a day-to-day basis
- Startup ready to part with 5 – 10% equity in exchange for the deliverables of the accelerator program
- Startup ready to part with an additional 10 – 20% equity for the seed round on Demo Day
- Startup core team ready to relocate to accelerator site
- Startup has all legal documents in place
- Startup has a minimal error process to update and maintain cap tables
Once you have checked all these boxes, you can rest assured that an accelerator program will work in your favor. But this is only one side of the story. What about the merit of an accelerator program? If you have worked so hard to create a credible company, shouldn’t you check the potential of the ones choosing you? Will they do justice to your time and efforts? Here is how you can approach this situation.
- Do a thorough background check of the accelerator program. Check with their alumni and market feedback
- Do their goals align with your company? With 5 – 10% equity they will become your shareholder. Ensure you are allowing management access to the right people
- Check their curriculum. It should include courses that strengthen your fundamentals in startup operations such as legal, business model, finance model, equity management, due diligence, and the likes
- Check how they monitor progress and performance. Do these metrics suit your business?
- Visit their premises and check facilities
- Verify their engagement levels. Ensure their goals are pragmatic
- Verify mentor profiles. Ensure they are seasoned entrepreneurs with real industry experience
- Verify investor network. Research their Demo Days. Who participates? What is their credibility? Transparency in financial transactions, etc.
- What happens after you pass out of the program? How is the alumni support?
Popular startup accelerators
There are more than 100 startup accelerators and the number keeps growing by the day. To get you started, we have compiled a list of the top 10 based on the amount of seed capital raised:
Y Combinator
Duration: 3 months
Headquarter: Mountain View, California
Companies launched: 1801
Seed fund: $39,839,695,289
Track record: 4000+ investments, 354 exits
Top brands:
Stripe, Airbnb, Cruise, Automation, DoorDash, Coinbase, Instacart, Dropbox, Twitch, Reddit
Techstars
Duration: 3 months
Headquarter: Boulder, Colorado
Companies launched: 1336
Seed fund: $8,664,791,204
Track record: 3,300+ investments, 310 exits
Top brands: Bench, Digital Ocean, FullContact, SendGrid, and Zagster
500 Startups
Duration: 4 months
Headquarter: San Francisco, California
Companies launched: 686
Seed fund: $3,195,638,016
Track record: 2,600+ investments, 288 exits
Top brands: Twilio, Credit Karma, SendGrid, Grab, GitLab, Bukalapak, Canva, Udemy, TalkDesk, Intercom, Ipsy, MakerBot, Wildfire, and Viki
AngelPad
Duration: 3 months
Headquarter: San Francisco, California
Companies launched: 153
Seed fund: $2,234,261,983
Track record: 175+ investments, 36 exits
Top brands:
Buffer, CoverHound, MoPub, Postmates, Astrid, Drone Deploy, Ribbon, Pipedrive, Rolepoint, and Vungle.
Seed Camp
Duration: Customized to suit shortlisted candidates
Headquarter: Shoreditch, London
Companies launched: 118
Seed fund: $1,124,789,400
Track record: 400+ investments, 43 exits
Top brands: UiPath, TransferWise, Revolut, Hopin, Wefox, Grover, Viz.ai, Sorare, and Trestle
The Alchemist Accelerator
Duration: 6 months
Headquarter: San Francisco, California
Companies launched: 344
Seed fund: $1,036,045,522
Track record: 540+ investments, 37 exits
Top brands: LaunchDarkly, Rigetti Quantum Computing, mPharma, Matternet, and Mightyhive
DreamIT Ventures
Duration: In 4 phases, distributed over a year
Headquarter: Greater New York Area, East Coast, and Northeastern US
Companies launched: 197
Seed fund: $1,032,491,096
Track record: 370+ investments, 38 exits
Top brands: LevelUp, Trendkite, SeatGeek, HouseParty, Adaptly, Wellth, Biomeme, Tissue Analytics, Redox, Eko Devices, Raxar, Cylera, and Elevate
Amplify. LA
Duration: 4 months
Headquarter: Venice, California
Companies launched: 36
Seed fund: $689,256,760
Track record: 140+ investments, 17 exits
Top brands: Tapcart, Candid Wholesale, Carpay, Lantern, Abstract, Strike Graph, Return logic, Good fair, Stack Commerce, RadPad, Bitium, Mover, and Mapsense.
Mucker Lab
Duration: Phased over 1 yr
Headquarter: Santa Monica, California
Companies launched: 27
Seed fund: $628,025,626
Track record: 9 investments, 3 diversity investments
Top brands: Alcatraz, Artful, Bambee, BloomNation, Butter, Citruslabs, Cloverleaf, Emailage, GoFor, Hologram, Honey, Leaselock, Papaya, ShipHawk, TrunkClub, and Workfast.
FounderFuel
Duration: 4 months
Headquarter: Canada
Companies launched: 69
Seed fund: $596,485,083
Track record: 94 investments, 13 exits
Top brands: Sonder, Transit, Mejuri, Bus.com, Unsplash, XpertSea, LoginRadius, BenchSci, and Ready Education
Conclusion
Since the launch of Y Combinator in 2005, startup accelerators have become a trend. To nurture and launch startups for a small percentage of ownership in their companies has become a profitable investment strategy. They promise higher returns when compared to traditional investment instruments. Hosting a startup accelerator program and graduating out of one is a symbol of market leadership today. As a startup founder make sure to weigh all the pros and cons before embarking on this journey.
