Top Startup Accelerator Programs for Software
While there are many ways to judge the size and impact of accelerators, here we will use the number of exits as our prime criterion.
Y Combinator, located in Mountain View, CA was one of the first startup accelerators. Each year, Y Combinator funds a group of new startups with approximately $120,000. Interestingly enough, this funding amount was lowered to reduce friction between founders. So far, the companies it has been involved with have a combined valuation of over $100B. Some of the most notable include: Airbnb, Dropbox, Stripe, Reddit, Twitch, Coinbase, and Weebly. Y Combinator has made over 1900 investments and experienced over 200 exits.
Y Combinator runs two three-month funding cycles a year, one from January through March and one from June through August. The first YC cycle, in summer 2005, had 8 startups. In summer 2016, they had 105.
They require the founders of each startup they fund to move to the Bay Area of San Francisco for the duration of the cycle, during which Y Combinator works intensively with them to get the company into the best shape possible. Each cycle culminates in an event called Demo Day, at which the startups present to an audience that now includes most of the world’s top startup investors. An entrepreneur’s dream.
Demo Day has become a big deal. From the first one, which had 15 people in the audience, it has grown into a three day-long event for about 450 investors. In addition, Y Combinator hosts a weekly dinner and invites some eminent person from the startup world to speak.
As it relates to investment, Y Combinator invests a total of $120,000 into each startup for 7 percent in equity regardless of the number of founders.
Y Combinator has an acceptance rate of approximately 1% to 3%. Their application is online and if you choose to do so, get to the point. Alumni reviewers do the first pass, but each partner still reads 70-100 applications per day. Assuming an 8-hour day with 5-minute breaks each hour means each application receives about 5 minutes of each partner's time.
500 Startups, headquartered in Silicon Valley, CA. is a global venture capital firm with a network of startup programs. 500 Startups have over $454M in committed capital across 20 funds and have invested in over 2,200+ technology startups globally since their inception in 2010.
These household names include Twilio, Credit Karma, SendGrid, Grab, GitLab, Ipsy and MakerBot. Fueling this operation, they have a team of over 150 people based in 20 countries that manage their venture. Their investment team and mentor network have operational experience at companies such as PayPal, Google, Facebook, Instagram, YouTube, Yahoo, LinkedIn, Twitter and Apple.
500 Startups takes a similar approach as other accelerators wherein they will invest around $150,000 for 5% of equity but they also "take" a small amount of that back (a little more than $37,000) for program fees. So, about 25% of the money invested, 25%, goes back to them.
Like some other accelerators, 500 Startups is experimenting with a new "zero/zero" program where they invest $0, take 0% equity and ask for a discounted investment right in the company's next qualified financing round. It's great for later stage startups that are post seed / pre-series A where they don't need the front end cash but instead need the network. Again, this does not apply to pre-revenue startups.
Once accepted into 500 Startups, there is a 3-month program covering a range of topics important to startups, including marketing and user acquisition, PR, financials, operations, hiring, fund raising - all from extremely knowledgeable and well regarded individuals, as well as frequent visits from founders of successful companies, sharing their war stories and providing feedback and advice. This program is geared toward companies with early traction, most of which have a functional product as well as substantial user adoption & revenue. Many have already raised capital, and a few have greater than $1 million in revenue and over $1million raised.
This "course" is more like a substantial set of unstructured offerings that startups take advantage of depending upon their needs at any given time. At the end of the 3-month program, there is, guess what, a demo day.
At 500 Startups, demo day is an invite-only day event for 500+ active & accredited investors. It is a private viewing of their most recent accelerator startups before they 'graduate'. Attendees will get a first look at the startups, meet the founders, and network with other top-tier investors, corporate strategists, & press. Not a pitch fest all.
500 Startups also has an acceptance rate of 1% to 3%. Remember, their program is not cohort based. It is only for startups that have achieved market traction which validates the startup’s target market and offering. Startups join 500 Startups to accelerate their growth. 500 brings in a wide variety of speakers on subjects like marketing, culture, startup accounting, user experience/user testing and mobile solutions. Community is often the most valuable thing the startup receive. 500 works with companies directly on their business and product strategy, growth/metrics, and investor presentations.
Another well-known name in the accelerator world, Techstars, is located in Boulder, CO. Its accelerator program has produced over 1,000 companies valued at over $8B. Techstars is the name behind Startup Week and Startup Weekend, which spur entrepreneurs to focus intensively and launch new ventures in a matter of hours.
As of 2019, the company had accepted over 1,600 companies into its programs with a combined market capitalization of $18.2 billion. More selective than Y Combinator or 500 Startups, less than 1% of applicants are accepted.
With 151 team members, their big wins include ClassPass, with almost a $500M valuation. They provide a worldwide network that includes a 3-month program and mentorship and offer 34 location options for their programs.
Each year, Techstars chooses over 300 companies to join their 3-month mentorship-driven accelerator. For those accepted, Techstars, in return for investing $120K, receives 6% common stock and a $100,000 convertible note. They typically fund technology oriented companies, such as web-based or other software companies. Techstars only looks at companies that have a founder and co-founder in place.
Like other accelerators, Techstars only accepts companies that have progressed beyond the point of "How do I start a company?" and most have already achieved some market traction. Their program is not a "boot camp", but instead provides extensive mentorship. From a large pool of mentors, you pick your top 3-5 mentors who will be committed to helping with product development, market fit, and valuable introductions to help grow your company.
In addition to working with your lead mentors, the startup works with the Managing Director to gain additional traction and achieving critical milestones, including the development of a prototype, building out the next phase of the product, finding your first customer or hitting $50M in revenue.
After completion of this phase, Techstars helps determine the startup’s fundraising strategy and assists with investor presentations, partners and other key stakeholders that shape your future. Techstars also offers a 54-hour immersive Startup Weekend and a Startup Week. The Startup Week, over the course of five days, permits the participants in choose any events they’d like to attend from an extensive list.
Demo days from most startup accelerators including Techstars, tend to have a formula. One by one, the CEO of each "accelerated" startup runs onstage to thumping music—or in the case of one CEO at the Techstars NYC Demo Day, the theme song from The Lion King—to enthusiastically deliver a PowerPoint pitch to a dark theater packed with investors, press, and hangers-on.
The primary goal of any accelerator demo day is to generate venture capital investments for its graduating class of startups. Since the JOBS Act loosened the rules around general solicitation, sometimes startups blatantly beg by ending their presentations with slides that say something like, "We’re raising $700,000 and we’ve already got commitments for half of it. If you want in on this opportunity, talk to us afterwards."
Techstars is a self-sustaining accelerator. In addition to taking equity and a convertible note, Techstars uses their venture fund to provide the initial startup finding. Their fund has $265 million under management and is presently investing out of a $150 million third fund.
MassChallenge, located in Boston, Massachusetts, started in 2010. Their team of 175 people has helped created over 60,000 jobs in the global market, including Boston, Israel, Mexico, Switzerland and the UK. Localytics, their most notable alumnus, has raised almost $60M in venture capital.
MassChallenge has worked with over 1600 companies that have received over $6 billion in outside funding and a market cap of over $18 billion. MassChallenge is unique amongst accelerators. They’re a nonprofit and provide their startups with over $2 million in equity-free cash prizes each year to help their startups succeed. Yes, non dilutive funding.
MassChallenge also does not offer a prescriptive program or boot camp in the classic sense. They provide access to expert mentors, top corporate innovation teams, tailored curriculum and world-class resources while also providing receive free legal counsel, PR support and targeted introductions to customers and investors. MassChallenge does require that, during the 3-month program, t the startup resides at the location they have been accepted to.
Like Techstars, MassChallenge provides an immersive startup program with curriculum catered to their individual needs, industry mentors, and access to 24/7 office space – no need to go in depth here – very similar to the other accelerators previously reviewed.
Their funding comes from sponsors that include the Blackstone Group, Microsoft, Verizon, a network of 200 mentors and one very generous commercial real-estate developer, Joe Fallon who also donated the fourteenth floor his new high rise overlooking the Boston Harbor.