How to Tell if an Accelerator Is Right for Your Startup
With the success of Mark Zuckerburg and many other entrepreneurs, forming a startup is no longer limited to college students looking to change the world. The technology is available today, if you have the right idea and are determined, you can build the next big thing.
Unfortunately, the journey from idea to marketable product is challenging. For a rookie entrepreneur building your network and knowing how to determine if someone is taking advantage of you are two of the toughest lessons for anyone to learn.
In light of the increased interest in entrepreneurship, many investors, businesses—and other relevant parties—have begun forming accelerators as a way to help aspiring entrepreneurs rapidly execute their ideas in sheltered environments. Although the concept is novel and in many cases entrepreneurs greatly benefit, accelerators aren't for everyone.
In this guide, discover the evaluation process, and key considerations, to determine whether an accelerator is a good fit for your startup. If it is, I'll also have some tips on how to increase your chances of getting accepted.
What Is an Accelerator?
One of the hottest topics in the entrepreneurial space today are accelerators because they are associated with providing aspiring entrepreneurs with all the resources they need to get their projects going, without requiring the individual to build up their own networks over an extended period of time. The most common characteristics of accelerators are that they provide participants with: capital, mentors, a community of like minded peers, and much more. As the name implies, accelerators are intended to help entrepreneurs from day one ramp up their companies.
Accelerators are intended for startups to achieve rapid growth—with most sessions typically lasting either three or six months.
Since entrepreneurship is a vast field, many accelerators focus their efforts around specific niches. It is vital that when picking an accelerator you only apply to ones that fit the areas where your startup is involved. Two of the biggest names in the accelerator space are 500 Startups, and Tech Stars along with Y Combinator, yet there are literally hundreds, if not thousands of accelerators popping up globally due to the increased interest in entrepreneurship.
Accelerators have gained popularity with notable success stories such as: AirBnb, Dropbox, Reddit, and Wufoo. Despite the promise of success however, there is also plenty of controversy surrounding the accelerator model.
When evaluating options for your business you should consider the pros and cons of any offering before making a final decision; this principle hold true for determining if accelerators are the right option for you to pursue.
Where Accelerators Shine
For many entrepreneurs, one of the biggest challenges they face is trying to build a solid network to help them not only shape their business, but also help it grow.
Aside from the routine challenges of bookkeeping and registering your business, one of the most difficult challenges faced by entrepreneurs focusing on building a startup isn't just finding capital, but also finding like minded peers to surround yourself with—those on a similar journey that you can share resources and ideas with.
While it's possible to network and build your connections organically, not everyone is able to work effectively with others. For example, if you're a coder or person who wants to work behind the scenes, building an entrepreneurial network can be a nightmare for yourself. On the other hand, an accelerator surrounds you with the resources needed to build out your startup rapidly from day one. Since accelerators typically have demo days (the opportunity to demonstrate your product to potential investors) at the end of their sessions , participants in accelerators have a significant incentive to make progress quickly.
Of course, access to capital is one of the most notable aspects accelerators provide to startups. The amounts given out to participating companies however are fairly small—usually around $25,000 or so, as the money is intended to help ignite the spark of innovation.
The real money comes into play during the final demo days of the accelerator. Since these events are attended by numerous investors, angels and high caliber professionals, this is the stage when a startup is able to land the funding they need to continue growing beyond the days of the accelerator.
Downfalls of Accelerators
A notable negative attribute of startup accelerators is that they often require you give away a significant amount of equity in your business. While the average amount of seven to ten percent equity might seem small, down the road, the fact that you gave away equity already can scare off many early stage investors.
The next major pitfall of an accelerator is that you are giving up significant control over your startup at a preliminary stage. Many accelerators put significant pressures on their portfolio companies to scale rapidly so that they can recoup their investments quickly. When applying to an accelerator, you need to consider the objectives and focus of the curriculum. Some accelerators place an emphasis on raising capital, while others place a focus on successfully bootstrapping your startup. Ultimately, you need to focus your efforts towards the entities that are most aligned with your goals.
Quality is another major concern which comes into play when choosing an accelerator to work with. Just because someone offers you money doesn't mean that you should take it. When it comes to working with someone investing in your project, you want smart money which is aligned with your interest. When accepting any offer, you need to ensure that you are picking a program positioned with your interests rather than someone who is just tossing money around to see which ideas stick.
The Odds of Acceptance
Although accelerators might seem like they are a dime a dozen, only a handful are actually worth their weight. Y Combinator for example—even back in 2011, they were getting one application every minute according to a tweet from the founder Paul Graham. If Y Combinator is your dream accelerator, this means that statistically, your odds of getting accepted are on par with winning the lottery.
Most leading accelerators also sport fairly thin acceptance rates. TechStars is another leading accelerator which stands out by having a ten-to-one mentor to startup ratio, meaning that they tend to place an emphasis on quality over quantity.
How to Improve Your Odds of Success
While getting into an accelerator is difficult, the good news is that you can improve your chances of success by having a quality idea and a great team. Below are some of the best ways to help your startup stand out from the crowd:
- Good chemistry between founders is key: one of the biggest factors investors consider when investing in startups is how well the founders know each other, especially in a business setting.
- A comprehensible product in a big market: although many investors are willing to work with entrepreneurial teams with imperfect ideas, in an accelerator you need a great fit between your product and the accelerator's niche. Given the typical three to six month timetable, investors involved in accelerators expect rapid returns on their investment.
- Have traction (either money or users): While some accelerators will accept startups without a prototype, you can gain an edge over the competition by showing your product has achieved some market validation.
- Keep your application short: Since many leading accelerators go through at least 2,000 applications per funding cycle, you need to ensure your application is concise and clear. Additionally, make sure you tailor your information to the accelerator you apply to, since there may be specific conditions you'll need to address.
- Practice your interview: as with anything, practice with intent. While you don't need to know everything in your pitch, investors will expect you to know key numbers and metrics.
- Have good references: one of the best ways to improve your odds of getting into an accelerator is to have an influential entrepreneur recommend your project. Even a recommendation from a key employee of a company that went through an accelerator can be helpful.
What to Do After a Rejection
If your application to an accelerator is declined, that doesn't mean that you should scrap your idea and give up on entrepreneurship. When it comes to venture capital, the odds of actually getting funding are slim, which is why you need a secondary plan.
Often a rejection just means that you should continue building your business—albeit on a smaller scale than you hoped. Fortunately, by breaking down your project into manageable chunks and only building out the essentials, as discussed in the Lean business development methodology you can test the waters before creating a fully developed product.
Rejection from an accelerator doesn't mean that you can't apply to the same one again. Despite this, you shouldn't keep resubmitting the same idea over and over for consideration. Your initial application was rejected for a significant reason. Trying to apply with the same information over and over is unproductive. Rather than making the same mistakes over and over, learn to pivot and re-evaluate the direction of your project.
After you refine your idea, and you're sure that you have some data to show traction, then give an application another shot. Keep in mind that admission to an accelerator is still fairly unlikely—even with the greatest idea.
Alternatively, you might choose to give up on pursuing accelerators and just build up your startup organically. There is nothing wrong with that approach. In fact, this is the best approach for many entrepreneurs, as they are able to learn how to build their business in the real world, without being protected in a sheltered accelerator environment.
Should You Even Bother With Accelerators
As the title of this article implies, the whole purpose of this guide is to help you evaluate a potential path for your startup and whether you should pursue the accelerator route. Unfortunately, the answer to this question is far from a simple yes or no.
Every entrepreneur has different strengths and weaknesses, along with their own set of priorities. And some business ideas are a great fit for accelerators, while others really should be grown organically.
That being said, a great way to ballpark if your startup is good accelerator material is to ask yourself, "is this a project that can be scaled exponentially in a few months, or is this something which needs time to grow?" Also ask yourself whether you are willing to work sleepless nights to achieve success and literally devote all your time to your venture if needed.
When you join an accelerator, you are working in an environment where you're expected to provide at least a ten-times return over five years, on average. This premium is far more than a bank loan, and this is the reason why when soliciting any type of venture funding, you should think about it carefully before jumping in.
Accelerators are an entrepreneurial tool, one to consider applying to, particularly if it looks like a good fit for your business goals.