What is a Startup Accelerator Program?
In the United States, approximately 300 accelerator programs for startups. What you must realize is that these organizations do not invest their own money in these startups and the duration of "involvement" with the startup is limited. Here, startups typically, upon admission, join a cohort of similar startups and cycle through a prescriptive program – think Army boot camp. Once this cycle is completed, a new cohort is selected and cycled through the same process.
So, what is an accelerator?
History of Startup Accelerators
In the early days of startup gestation, there were incubators and these organizations worked primarily with hardware based startups. These startups could be IoT devices, clean energy (wind, solar and fuel cells), new OLED films, medical devices or perhaps home healthcare tablet based solutions. The range of these hardware based startups spanned multiple industries with myriad potential solutions. Think in the thousands.
While these startup solutions varied widely, they had one common element – hardware was a key component of their solution suite.
What they shared was the requirement for significant capital and time. Although a gross oversimplification, these startups required approximately $500,000 and at least five years to see the light of day and become profitable. If you were a potential investor, not for the faint of heart.
So, many of these startups looked to pursue government funding via SBIRs (Small Business Innovation Research), STTRs (Small Business Technology Transfers) as well as a host of other government grants. Very time consuming but these grants were non dilutive – the founders were able to keep their equity as they moved forward.
Over the last ten years or so, a different type of startup emerged - startups that required no hardware of their own design. The world of software startups – software as a service. Develop a software application that could be rapidly developed and deployed. Think Airbnb, Facebook, eBay and thousands of others. A whole new category of startups.
This changing and rapidly growing category then spawned a new class of “incubators” – now referred to as accelerators. Pure software. These startups still required significant assistance identifying their target market, mvps (minimally viable products), product development assistance, go to market strategies and access to capital.
However, their capital requirements to get "off the ground" were much less, perhaps $50,000 or less, and their time to market was measured in months, not years. And the nature of the assistance required was somewhat different. They required assistance with rapid development, feedback and deployment. Also, the ability to work alongside other startup founders, exchange ideas and exist within an ecosystem designed solely for software startups. And, they functioned differently from an incubator.
How Accelerator Program Works for Entrepreneurs
Startup accelerators, sometimes referred to as seed accelerators, are many times fixed-term, cohort-based programs that include seed investment, connections, mentorship, educational components, and culminate in a public pitch event or demo day to accelerate growth. A cohort is a group, typically 5 or 6 startups, that are accepted simultaneously and run through the program in lockstep. The peer support and feedback that the classes provide is an important advantage and if the accelerator doesn't offer a common workspace, the teams will meet periodically.
Application Process for Accelerator Program
Let’s begin with the application process. The process is open to anyone, but highly competitive. For example, Y Combinator and TechStars have application acceptance rates between 1% and 3%. Compare this to the acceptance rates at Harvard which is 4.6% and Stanford which is 4.5%. And those applying at Harvard or Stanford are the “best of the best”.
The focus is on small teams, not on individual founders. Accelerators consider that one person is insufficient to handle all the work associated with a startup and additionally, most accelerators insist that at least the Founder is working full time on the startup and not working a full-time job elsewhere.
The startups must "graduate" by a given deadline, typically after 3 months. During this time, they receive intensive mentoring and training and are expected to iterate rapidly. As you might expect, many drop out during this process.
Experience in the Accelerator Program
During this progression, virtually all startups spend a significant amount of time in the customer discovery process – identifying who their potential customers are and then developing a MVP (minimally viable product). Virtually none of them get it right the first time and must iterate or pivot to find the correct market/product match. Those startups that become successful pivot an average of 2.7 times.
Virtually all accelerators end their programs with a "Demo Day", where the startups present to investors. Think pitchfest where the audience consists of potential investors, mentors and accelerator personnel. These demo days typically allow approximately 15 minutes for the presentation and 15 minutes for Q&A. Investors are then encouraged to meet afterwards with any startups they might be interested in.
Investment in Startups to Bootstrap
A seed investment in the startups is typically made in exchange for equity. Typically, the investment is between $20,000 and $50,000 and the equity obtained averages between 5% and 7% but this varies by accelerator and will be discussed later.
What are the best startup accelerators?
While there are many ways to judge the size and impact of accelerators, we have our own thoughts on the best startup accelerator programs.