You probably have heard of accelerators and venture capital firms. You may not know exactly what they are or how they work but you’re probably aware of them.
Accelerators and VCs invest capital in startups and offer the companies-in-development access to capital, mentoring and other services in return.
Accelerators are generally smaller programs that provide startups with resources such as office space, business coaching, legal assistance, consulting services etc.
If you’re looking for a large amount of capital and an ecosystem to grow into then accelerators aren’t perfect for you. However, if you’re just beginning your startup journey these programs can be a great ally.
They offer startups access to multiple services at once rather than individually which means it costs less money per startup and can give you many opportunities to succeed at once instead of one after the other.
What’s an Accelerator?
Accelerators are programs that, in principle, invest in your business in exchange for equity. Yet, accelerators offer startups much more than investment.
They offer startups a variety of services like mentoring, office space, access to networks and investors. These programs generally take between 6 and 12 months to complete along with a one-time fee.
They generally target early stage startups before they scale their business or go through at Series A or B rounds. This makes accelerators a great way for seed-stage startups to enroll and help them to find larger investors or venture capital funds.
Y Combinator provides a leading acceleration program in the world that you might have heard of.
How Much Money Do Accelerators Offer?
Seed money is one of the main reasons why entrepreneurs choose accelerators. An accelerator typically provides seed money in exchange for equity in the company ranging from $20,000 to over $120,000.
Due to the low amount of funding and the length of the program, you’ll find that the majority of accelerator programs offer networking and other perks in addition to investment. You’ll get access to the best people, connections and resources to help you grow your business.
While there’s no guarantee that an accelerator will become your next investor, it’s a great way to connect with top executives and investors in your industry.
Start-ups can use the services provided by an accelerator partner to assist them in navigating the start-up lifecycle, in addition to getting various support services. Partnerships like this are common across the start-up ecosystem and help start-ups determine which product or business model is most likely to succeed.
Location and Duration of Accelerator Programs
There are dozens of accelerators across the globe, with programs in North America, Europe and Asia. Most programs last between 6 and 12 months and some even offer part-time options.
If you choose an accelerator that’s based outside your area you may have to relocate for the program although after covid, these programs offer online or hybrid programs as well. Some programs let you stay at home but you’ll be missing out on the networking opportunities that come from being in the same place. In this article, you can see a complete list of top remote startup accelerators and how they work.
Accelerators are generally run by a management team that helps each startup with their specific needs. This can be very valuable to startups especially those in early days as they struggle a lot with finding talents, investors and other resources due to their “liability of newness“.
Some accelerators like Y Combinator run programs in multiple cities at once. YC are based in California and run summer and winter programs. Most accelerators operate in just one city.
Debunking The Myths About Accelerators
Many startups wrongly assume that accelerators are the same as VCs. They’re not and it’s important to understand the difference. Accelerators target seed-stage startups and are typically $20 million or below in valuation.
They are not looking for high-growth companies and they aren’t interested in large valuations. VCs generally invest millions or tens of millions of dollars and expect a high rate of return.
Accelerators are generally focused on mentoring startups. They offer advice, introductions and advice on how to make your business work to very early stage startups and they do not sit in the board or try to make changes to the management teams.
They don’t provide funding but they let you know how much you need and help you with your finances. Most accelerators are open-door policies so you can always talk to the team members about their experiences.
VCs, on the other hand, buy the equity in order to accelerate growth mainly through appointing one or more managers that could help in this way.
When To Go To An Accelerator
If your idea is great, has traction and you’re ready to take the leap, an accelerator can help. You can’t officially start a business until you’re signed up with a government agency like the Department of Labor or IRS.
Once you have the paperwork and a business plan, it’s time to find investors and one of the best ways to do this is through an accelerator. Accelerators can help to validate your ideas and help you find investors who are excited about investing in early stage companies.
Accelerators also provide constructive feedback, through mentors, to startups to learn about their mistakes. This is very valuable in the early days of a startup since some of your decisions such as finding a co-founder, types of investment, etc. can have long-lasting effect on your startup.
However, if you are not willing to give away equity (accelerators usually ask for 7%-15% equity shares), you might not be willing to work with accelerators. In this case, incubators, co-working spaces or university hubs can help since they don’t take equity stake in your startup.
Summary
Accelerators are great for startups that are at the beginning of their growth. They provide mentoring and networking opportunities to help startups get off the ground.
If you’re just getting started and don’t know where to start, an accelerator may be for you. The investment of an accelerator program is relatively low, between $20,000 and $50,000 depending on the program and length of time, so it’s a low-engagement way to get your business off the ground.
However, if you are not ready to give away part of the equity in the very early stage, perhaps because you think your startup has the potential to grow fast and you have resources to do so, perhaps acceleration programs are not a good fit and it is best to consider other players such as incubators or co-working spaces.
