Startup accelerators offer an attractive funding and support option to early-stage companies. While they often get lumped together with other startup funding options like incubators, angel investors, and early-stage venture capitalists, accelerators are their own special animal. These programs are for companies that are established and gaining traction but need help getting to the next level.
Do you think your startup is ready to join an accelerator? You may be wondering a few things, such as what are the benefits of accelerators for early-stage tech companies? How should you choose which accelerator to try for, and what will help you get admitted? How do you get the most out of an accelerator? And is an accelerator the right thing for your business? These are all great questions that we’ll clear up.
We’re very familiar with these programs here at Lighter Capital; we’ve funded companies that have graduated from all of the prominent accelerators. Not only that, but Lighter Capital’s own founder Andy Sack was formerly the managing director of Techstars Seattle. (Techstars Seattle is now run by Chris DeVore, who is a partner with Andy in Founders’ Co-op, one of the largest incubators in Seattle.)
With this background, let’s cut to the chase and discuss a few things you need to know about joining an accelerator. Below, we answer 5 common questions asked by entrepreneurs contemplating taking the plunge.
5 Frequently Asked Questions About Joining a Startup Accelerator
1. What are the benefits of accelerators for early-stage tech companies?
The main benefit of accelerators is the network of connected people — like-minded folks who are also trying to grow their companies and facing many of the same issues you are. This community usually thrives even after graduation from the 10-12 week program, forming the basis of a powerful network.
Another benefit is that being in an accelerator gives you a bit of validation with investors, especially if you’re with a top-tier accelerator. Accelerators also help a lot in teaching participants how to raise money.
A lot of accelerators give you access to free or discounted services and products, such as Amazon AWS computer time and discounts on software like Hubspot. These benefits continue even after the accelerator is over. Here at Lighter Capital we’ve recently launched our own similar program, Client Perks, to benefit our own network of clients.
2. How do I choose which accelerator to join?
Accelerators can be very different one from the other. Class size, focus, reputation, and advisors are some of the main variables. Being associated with top-tier accelerators like Y Combinator, Techstars, StartX, Alchemist, and 500 Startups will give you benefits in terms of bona fides and connections. However, be forewarned that these programs are very, very competitive. For example, TechStars usually accepts only 1 percent of its applicants.
Choosing an accelerator that’s in line with your business and your goals is most important. Some of these are better at B2B versus B2C. Some are even more specific in their focus; Alchemist concentrates exclusively on B2B SaaS, for example. Y Combinator does both B2B and B2C but is more well-known for its B2C engagement. If you match up appropriately, the resources and connections you’ll find at your accelerator of choice will be able to help you the most.
3. What will help me get admitted to an accelerator?
Companies that are admitted to these accelerators usually have achieved some amount of revenue and/or traction. Traction could look like users, beta customers, or actual subscribing customers. Publicity might help a bit. Accelerators will also want to see that you have a solid team and good product-market fit.
Sarah Corrigan, founder and CEO of flower delivery startup Leblum and Techstars alum, suggests that important elements aside from traction are your experience and background that make you a good fit for your business, and the ability to boil the idea behind your company down to a simple, powerful value proposition.
4. How can I get the most out of an accelerator?
Accelerator participants should go into the experience determined to make the connections they think will best benefit their business. Those connections are of two different types: People who can help build the operating entity and people who can help raise money.
It helps tremendously to be in an accelerator that’s lined up with what you do. If you’re a startup that’s looking to sell to enterprise customers, then whichever accelerators you choose should include advisors who used to work for or with those enterprises. For example, if your accelerator has an advisor who used to work at Ford and you want to go into the auto industry, make it a priority to connect with that person.
5. Is an accelerator the right thing for my business?
It is important to consider not just the benefits but the costs of accelerators. Since accelerators take some amount of equity in participants’ companies, it’s important to feel that the benefits will be worth that cost. In the example of TechStars, the accelerator offers each participant a $100,000 convertible note and then contributes $20,000 to cover costs in return for 6% common stock.
“It is your responsibility as a leader to question anyone that is taking a portion of your company in exchange for what they deem valuable,” advises Paul Howey, CEO and cofunder of Talkroute, who turned down a coveted spot in Techstars, because he didn’t think the price arrangement was right for his company.
But for most who get accepted, the benefits far outweigh the costs. A spot in the right accelerator can make all the difference to a fledgling business.