What is an accelerator?
In recent years there has been an explosion in the number of startup accelerators. At the most basic level, accelerators are organizations that concentrate resources in an effort to accelerate the lifecycle of startups and to provide them with years’ worth of experience in just a few months. Accelerators select a batch of early-stage tech startups to participate in their programs through a rigorous application process. The selected startups will then join the accelerator for a period of a few months, during which the accelerator will often provide a small cash investment, mentorship from experienced entrepreneurs, seminars and access to other members of the entrepreneurial community. Typically, an accelerator program culminates with a “Demo Day,” which is an opportunity for the startups to use the skills they have obtained over the course of the program to pitch members of the local investor community.
First-time entrepreneurs in particular benefit from access to a network of mentors and peers. Startups may learn important insights from seminars regarding substantive areas that are outside the founders’ expertise or from founders of other startups in the accelerator. Many people feel that the best accelerators increase the odds of additional funding for participating startups by providing those startups with increased credibility and exposure within the investment community through Demo Day.
The most valuable component of participation in an accelerator may be that the participants can experience the startup lifecycle at a rapid pace. The accelerator will force the startups to focus on key issues, address areas of concern, and pitch to investors and respond to their feedback faster and more frequently than they would outside of an accelerator. As a result, the learning curve for participating startups may be enhanced, leading to quicker product development, better funding opportunities or the realization of an inadequate business model in a shorter period of time.
Accelerators can turn out to be a distraction for startups, wasting time and resources. Founders may spend their time onboarding into a program or attending rudimentary or off-topic seminars, while that time could have been better spent developing the startup’s product or seeking funding from investors. In that case, the primary purpose for joining the accelerator — to accelerate the iteration cycle of the startup — may be precisely what the accelerator hinders. While acceptance into an accelerator’s class of startups may seem exciting, with all but the most prestigious accelerators, partaking in an accelerator program risks signaling to venture capitalists that the startup could not raise funds any other way and therefore must not be a sound investment. Finally, the funding that accelerators do provide is often small monetarily and on terms that are unfriendly to a company (such as significant ownership percentages that cannot be diluted prior to a subsequent financing event).
Each startup needs to examine its specific circumstances and the specific accelerator opportunity to determine whether joining an accelerator is the right decision. Joining a lesser-known accelerator outside of a startup’s geographic area that provides mentors inexperienced in the startup’s industry likely is a waste of time, especially for a seasoned team of founders. Conversely, joining an elite accelerator in a startup’s home city that promises to connect the startup to relevant industry experts can be helpful to startups with first-time founders. Since there is no bright-line answer, startups should carefully research an accelerator and compare what it has to offer with the startup’s particular needs and situation.