What Is A Startup Accelerator?

The startup ecosystem is not as easy-going as it looks from the outside. It is marked with 12-hour long workdays, endless brainstorming sessions, and numerous sleepless nights.

This is because startups aim to disrupt the market, which requires a tremendous and constant input of monetary and non-monetary resources. It is difficult to understand this ecosystem that startup founders take years to gauge the market, devise adequate strategies, and work accordingly. That’s where startup accelerators come into play.

If managing a startup is like riding a bicycle, startup accelerators function as electric motors. With their resources and connections, they tend to ‘accelerate’ the growth process of startups that would have otherwise taken years to accomplish.

What Is A Startup Accelerator?

Startup accelerators are for-profit organisations that provide young startups with short-term cohort-based programmes specifically tailored to promote years of growth within a few months. Through education and mentorship in the areas of tech, finance, management, legal, etc., accelerators prepare startups to get funded by investors on the final day of the programme or the demo day.

Run by established companies and investment firms, accelerators organise three to four months long programmes wherein their network of serial entrepreneurs, investors, and industry experts  mentor young startups. 

The accelerators receive several applications out of which only a few are selected. They form a cohort or group that is collectively provided with education and mentorship in different areas related to entrepreneurship and startups until these programmes culminate in the demonstration or ‘demo’ day when each company pitches itself to investors and tries to bag capital.

What Does A Startup Accelerator Do?

Startup accelerators aim at accelerating the growth of startups. With their network of investors, industry professionals, and corporate giants, they provide you with adequate guidance and resources to jumpstart your startup’s growth. They provide:

  • Community: Accelerators partner with companies, government organisations, and industry professionals to facilitate meaningful relationships with startups. Also, they admit young startups in cohorts or groups in which they learn collectively, like in a school classroom. Many of these accelerators’ graduates have emerged as big names in their respective industries. Accelerators expose you to all this. They build a community of like-minded people and allow you to build connections that turn out to be valuable during the programme and years down the line.
  • Mentorship: Accelerators organise numerous mentorship sessions and seminars to bring hands-on real-world experience to you. Their network of entrepreneurs, investors, and industry experts turn out to be good mentors who guide you with everything from management to marketing.
  • Funds: Besides equipping you with relevant knowledge and skills, accelerators also prepare you to pitch for funds. Many of the accelerators themselves offer pre-seed and seed funds. Moreover, their network of investors, venture capitalists, and angels eagerly wait for the demo day when the finest startups woo them for capital.
  • Coworking environment: Cohort system of accelerators allows you to work and learn together in an interactive group of like-minded individuals and benefit from the collective wisdom of the whole cohort. It facilitates discussions, deliberations, and debates that inspire better learning. Also, working alongside future multi-million dollar companies lets you gauge your comparative performance, broadens your outlook, and motivates you to work better.
  • Legal guidance: Law is full of technicalities, and startup founders are often unaware enough to use it to their advantage. This ignorance might land some of them into trouble. Therefore, accelerators also provide much-needed legal guidance.
  • Prestige: Accelerators are associated with skill, zeal, and hard work. The prestige of getting into a reputed accelerator speaks volumes about you and establishes your company’s credibility in front of prospective partners, investors, and customers.

How Do Startup Accelerators Make Money?

Accelerators provide years worth of experience within a short period through structured training programmes. They help you understand more about entrepreneurial management, finance, marketing, etc. They also teach you how to raise capital and allow you to pitch to their network of investors on the demo day.

In exchange for all this, they demand equity. Y Combinator typically invests $125k in exchange for 7% equity.

Sometimes, accelerators are set up by the organisations, who themselves like to invest in the companies. For example, 500 Startups is a venture capital firm that runs accelerator programmes.

A few accelerators may charge you fees for their programme or probably for certain services like technology development consulting, office spaces, design consulting, etc. Sometimes, corporate sponsorships and government grants may also make it easier for them to cover the cost.

Examples of Startup Accelerators

There are thousands of accelerators operating throughout the world and accepting startups across borders. Some of the famous startup accelerators are:

Y Combinator

One of the first and best startup accelerators, Y Combinator was launched in 2005 in America. As of 2021, it has worked with notable companies like Airbnb, Dropbox, Stripe, etc. and has a combined valuation is $ 300B+.

Tech Stars

Another world-renowned startup accelerator, Tech Stars works with a founder-first approach and aims at connecting founders with the right network of companies, investors, and experts. It has helped launch a few remarkable startups like Uber, Twilio, and Sketchfab.

500 Startups

500 Startups is an early-stage venture capital firm and seed accelerator. Currently working in 75+ countries, it aims at providing resources to the best startups ‘regardless of race, gender and geography’.

Some notable companies associated with 500 Startups are Udemy, EatApp, and Visual.ly.

What Is The Difference Between Startup Accelerator And Incubator?

Unlike accelerators, startup incubators come into play during the earlier stages of a startup’s development, that is, when the idea hasn’t turned into a business. They are non-profit government or academic institutions that organise collaborative programmes and aim at converting entrepreneurs’ ideas into business models and then into working businesses. In other words, incubators incubate ideas and young companies to gradually build a sustainable business out of them.

Therefore, they enter into long-term contracts with startups that continue till these young can sustain themselves in the market. Since they are not-for-profit organisations, incubators don’t demand equity in return for their services.

Some examples of startup incubators include CodeLaunch, Naiot Venture Accelerator, Centre of Digital Innovation in Hull, and T-Hub.

Startup Accelerators
Startup Incubators
Purpose    
They aim to induce rapid growth of startups.
They help convert ideas into working business models.
Provisions
They provide startups with mentorship, coworking space, networking opportunities, and capital.
They provide startups with infrastructure facilities, mentorship, and other resources.
Working time-frame
Most accelerator programmes last for three to four months.
Incubators work with startups for a longer period, some even on an open-ended basis.
Run by  
Usually, for-profit organisations like established businesses and investment firms operate accelerators.
Usually, not-for-profit organisations like academic and government institutions operate incubators.
Raising funds
Accelerators demand equity in startups in exchange for funding.
Incubators don’t generally invest in startups.
Ease of joining
Accelerators are selective and take only a handful of startups in.
Incubators are easy to get in; all you need is a valid idea.

What is the Difference between Startup Accelerator and Startup Studio?

A startup studio is an organisation that develops several disruptive ideas and builds companies out of them simultaneously.

Usually, these organisations come up with the ideas themselves and establish founding teams to build businesses out of them. They work on several ideas simultaneously, a style of business building called ‘parallel entrepreneurship’.

However, many startup studios bring in young startups from outside and assist them with expertise and capital to build their businesses. In this arrangement, startup studios behave like investing co-founders and assist the founding team with everything they can do. They provide human capital, network, technology, and other resources in exchange for huge equity.

Some examples of startup studios are Betaworks, Builders, and Colab.

Startup AcceleratorStartup Studio
Provisions      Startup accelerators provide mentorship, coworking space, networking opportunities, and capital to startups.  Startup studios provide startups with human capital, network, technology, and other resources.
Working time-frame  Accelerator programmes last for three to four months.Startup studios guide companies from the very start to the time they exit.
EquityAccelerators demand small equity of 5-7% usually.Startup studios demand equity of 30-60%.
    

Are Startup Accelerators Worth It?

Accelerators help startups by providing structured training programmes to boost their growth within a short period. They impart years worth of knowledge and experience in three to four months. They also allow you to network with like-minded entrepreneurs, investors, and industry experts and raise capital for your startup.

However, they have their flaws as well.

  • They require you to devote a lot of time: Startup accelerators demand you to carve out three to four months completely for them. The never-ending line of training sessions, seminars, meetings, and brainstorming sessions leaves little time for anything else.
  • They induce very rapid growth in a short span: Startup accelerators induce rapid growth, which may prove to be disastrous for the ideas that are supposed to mature with time.
  • They require too much commitment and focus: Accelerators require sheer commitment and drive. The packed schedule will leave little time for anything else, including your main job or even friends and family. So, unless you are completely devoted to your startup, it’s not easy to get through an accelerator programme.
  • They ask you to give up equity: Accelerators provide funding in exchange for equity. They may not be a good choice for company founders who do not want to give up ownership so soon.
  • They are full of distractions: Quite a lot of meetings and workshops organised by accelerators won’t be useful to your purpose. These distractions may be frustrating during these intense months.

Enrolling in an accelerator has both advantages and disadvantages. It’s the founder’s job to balance the pros against cons and decide whether to apply for an accelerator programme or not. 

If you have a job, health issues, or other commitments, you should probably not go for an accelerator just yet. Also, you may want to see if your loved ones are able and willing to understand your complete absence for the specified duration.

Consider the health of your company too. If your idea should mature over time, these programmes may prove to be disastrous.

Moreover, accelerators prefer startups with great ideas, capable teams and traction for their products. So, you are expected to have launched at least an MVP. Although there are exceptions to this rule, having proof of traction for your MVP is always beneficial.

Therefore, you need to think this through. Describe the state of your business and your ideas, goals, and vision for it; then, list down all your priorities. Discuss the situation with your co-founders, acquaintances, friends, and other people. Only then make the call of applying to an accelerator

How to Get into a Startup Accelerator?

After you have made the call to enroll in an accelerator, you need to shortlist the ones that suit your needs. Keep in mind that it’s just like university admissions; you cannot afford to put all your eggs in one basket. So, prepare a list of accelerators you can apply to.

Remember that there are thousands of them and different accelerators cater to different demands. For instance, Highway 1 Accelerator focuses only on startups providing hardware services. So, you need to consider their specifications before making your choice?

Who are the accelerator’s graduates? How well did it work for them? How long does the programme last? Do they want you to relocate?

Research well before shortlisting the apt accelerators; try to reach out to their graduates for feedback.

Once you have your list ready, start filling up the application forms. Startup accelerators are selective; they take only a handful of companies in. Top ones like Y Combinator and TechStars typically accept only 1-3% of the total applications. In fact, some organisations have established pre-accelerators to prepare startups for accelerators.

Therefore, take your time with the application form; read and re-read it continuously. You may also ask the same acccelerators’ graduates and mentors to review your application.

Once you are almost done with the application form, contact the leaders of these accelerators. Tell them about your interactions with their graduates and mentors and ask them for tips and suggestions. You will be surprised by how helpful they are. A few accelerators like Y Combinator have put such suggestions on their blogs as well; go through them before applying.

After numerous rounds of revision and reviews, be confident and send your applications in. The accelerators will go through them and might shortlist you for future rounds. Then, you may have to appear for interviews. Just be thorough with the things you mentioned in the application and you might get selected.

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What Is A Startup Accelerator?

by Kavvya Kishan