Are Accelerators Worth It?
Forecastr went through the Techstars program in early 2020 and it was a game-changer for our business. As one of the most competitive accelerator programs in the world, the program not only strengthened our network but also provided instant credibility to our brand among investors.
But the same may not hold true for other startups. Will an accelerator help your business grow?
What is an Accelerator?
An accelerator is a program that helps startups or small businesses grow quickly through various resources, workshops, and courses. These programs are privately funded and typically allow access to those resources in exchange for equity.
While a program that accelerates growth sounds like a no-brainer, we must understand the nuances of accelerators because not all businesses are impacted in the same way. Particularly depending on your business model and the stage of your business, accelerators may or may not be a good fit for you.
What are the Pros?
The blood of a business is cash. Especially in the early stages of business, you often need money to make more money.
Cash can be used to hire people, purchase assets, and complete development work, particularly for SaaS startups. However, as founders, we need to make that money work for us. Accelerators often award startups a small amount of cash to kickstart operations. The amount is often not huge and likely won’t replace fundraising, but may be able to tide your business over until that point. Accelerators most significantly impact your cash through their network, which can often lead founders directly toward investor relationships.
Next, an accelerator can provide your business with mentorship. Accelerator team members from reputable programs often have years, even decades, of experience in the startup industry. These individuals will provide invaluable skills and knowledge to founders throughout the program, from business operations to interpersonal etiquette, such as how to approach investors and successfully execute a fundraise.
Particularly for first-time founders, this mentorship can take those critical early-stage months to the next level. Especially if you are fundraising for the first time, this mentorship is critical.
By far, the most game-changing benefit of these programs is access to the accelerator’s network. You gain access to a wealth of knowledge from seasoned entrepreneurs. You can make connections with experts in your industry or investors looking for the next opportunity.
Not only do you have access to their network over the course of the program, but you can make connections for years down the road. As you grow your startup, you can return to those connections for advice, mentorship, and even investments long after the program has ended. The startup world is small, and those connections go a long way.
As we mentioned earlier, access to investor connections can transform your fundraising process. Many, if not most, startup founders have no network of investors at the start.
Accelerators can open the door to that network and allow you to build relationships that you may otherwise never discover.
What are the Cons?
While there are plenty of benefits, there are a few potential drawdowns to consider. First of all, the pro’s listed above are strongest for established, reputable, accelerator programs.
Programs like Y-Combinator, Techstars, and Unreasonable Group are highly competitive and invite very few startups into each cycle. As such, on top of those benefits, your business can gain remarkable credibility through acceptance into these types of programs. This credibility alone can jumpstart your fundraising process. Entrepreneurs and investors recognize those big names and know that their resources and selections are top-notch.
However, many smaller programs exist in the startup world that may waste your time more than they grow your business. While you do not necessarily need to get into a top 10 startup accelerator to reap the benefits, perform your due diligence on a program before you apply.
Accelerators often take equity as a form of payment for their investment and resources throughout the program. For reference, the average equity in an accelerator deal is roughly around 5%. This isn’t a huge chunk, but it’s worth noting that the implicit cost of that equity could be wildly different depending on the size of your company. For example, if you’re a more established company with a larger valuation, that equity will “cost” more than a smaller startup just getting started. It’s always good to consider the status of your company and the value of the equity you would be giving up when making the choice to join an accelerator.
Second, consider the element of time. Many accelerator programs require significant travel, moving to a new location temporarily, and a large time investment. During this time, you may gain priceless relationships and resources to help grow your business in the long-term. However, determine if the resources in that program are pertinent to you before you decide to take a 3+ month time commitment to the program.
Depending on your business model and stage of the operation, the opportunity cost of that time may not be worth it.
In our experience, if you are willing to sacrifice some equity and dedicate the time, a strong accelerator program can change the game for your startup.