Let’s face it. If you’re planning to launch a startup, you will come across a number of roadblocks. Obviously, it’s up to you to decide how you’re going to face them. First, you can face them on your own. But, if you’re not prepared for this, you can learn some of the hardest and most important lessons from the comfort of the entrepreneurial womb, by which we mean business accelerators.
What makes these programs so attractive is the fact that they are usually available for a wide array of businesses, while the fee is most commonly a minimal equity share in your venture. However, growing a business is everything but an exact science and there is no guarantee that taking part in one of them will help you build a stellar career.
To start, there are two basic types of accelerators: state-sponsored and privately-funded ones. Today, we’re going to discuss the latter and highlight some of its major pros and cons.
First, what are Startup Accelerators?
For those not certain what startup accelerators really are, here is a simple definition. Also known as seed accelerators, they support early-stage, growth-driven companies through mentoring, training, funding and, most importantly, industry contacts.
Logically, the ultimate goal of such projects is to ensure a company’s future growth, profitability and market readiness in a particular field. In her recent work, Susan Cohen, a professor of entrepreneurship at the University of Richmond offers a straightforward definition of this entire concept:
“Broadly speaking, they help ventures define and build their initial products, identify promising customer segments, and secure resources, including capital and employees. More specifically, accelerator programs are programs of limited-duration—lasting about three months—that help cohorts of startups with the new venture process. They usually provide a small amount of seed capital, plus working space. They also offer a plethora of networking opportunities, with both peer ventures and mentors, who might be successful entrepreneurs, program graduates, venture capitalists, angel investors, or even corporate executives. Finally, most programs end with a grand event, a “demo day” where ventures pitch to a large audience of qualified investors”
Are Startup Incubators and Accelerators the Same?
Many think that startup incubators and accelerators are the same, but you need to know that there are some vital differences between the two. Even though both programs offer entrepreneurs good opportunities early on, their overall frameworks for startup success are slightly different. While accelerators are focused on scaling an existing company, incubators are supposed to initiate the innovation by building a whole new business from some pioneer ideas and steps.
What are the Gains?
Parallel with the rise of the number of startups worldwide, the number of seed accelerators is growing as well. Now, the major question to be asked here is what makes accelerator programs so different from other stage investors? Most importantly, are they really valuable for startups today and why?
Mentorship is the key to success
This is actually one of the main reasons drawing so many startups to accelerators. They can provide you with not only a lot of invaluable experience, but also with some immensely useful lessons on how to lead the company in the right direction. Finally, you’ll also be offered an opportunity to benefit from precious one-to-one instructions, as well as the continuous support from both industry experts and successful entrepreneurs.
You’ll have your product developed and tested
Apart from the above-mentioned experience, you would gain notable discount services and interest-free loans. Joining an accelerator is a chance to have your product developed and tested almost for free. After all, almost any helpful accelerator program offers not only product development and testing, but also thorough market research, help with marketing strategies, legal advice, and financial planning.
You’ll build a recognizable brand
For a young startup, it’s all about being different from competitors. It’s not surprising at all since this step is definitely the foundation of successful branding and reputation management. However, once you start your company, you’ll more or less have similar ideas as other startups at the same stage. Here, accelerators can help you develop a unique program and strategy that will help you stand out from the sea of similar companies.
In the competitive startup world, you will probably feel like it’s you against everyone, which can significantly bring your motivation and morale down. However, when in an accelerator, you’ll be a part of a completely different atmosphere. Since there will typically be about 5-10 other startups in a program, you’ll get a chance to develop some professional relationships with other early-stage businesses and establish possible strategic partners.
What are the Drawbacks?
In the past, it was certainly a lot simpler to choose a proper seed accelerator, since Y Combinator was probably the only famous one. However, in the last decade, the situation has changed a lot. Today, when it comes to both startups and startup accelerators, it is not a secret that there is still an alarming knowledge gap on both sides of the table. Apart from lacking seasoning capital, first-time entrepreneurs also lack experience, which is vital when it comes to choosing a reliable stage investor. In his recent paper, The Brookings Institution’s Ian Hathaway claimed the following:
“To summarize, accelerators can have a positive effect on the performance of the startups they work with, even compared with other key early-stage investors, such as leading angel investment groups. However, this finding is not universal. So far, positive effects have been only attributed to leading accelerators. Outside of those, the impact of participation in an accelerator may be ambiguous—or perhaps even negative.”
Here are some of the most important disadvantages of startup accelerators:
Too little mentorship
Sometimes, providing new companies with access to capital is not enough for the majority of accelerators. On the contrary, it is mentorship they offer to inexperienced companies that plays the vital role here. As it has been already mentioned, accelerators should teach you how to develop your product, market it, maybe sell it to bigger corporations, hire staff and much more.
However, the biggest problem is that the number of startups looking for accelerators is constantly rising, while the number of available mentors is quite finite. Precisely because of this, the majority of those accelerators base their entire business on embracing more startups than they can handle, which could cause the quality of their mentorship to plummet.
No obvious funding path after the accelerator program
During the accelerator program, startups can surely expect a flood of funding. This is not surprising at all since people who run accelerators are professional fundraisers and that’s simply a part of their job. However, what happens after this initial phase? Well, the majority of companies start struggling with securing a continuous flow of funds. It can take your startup a while until it can fund itself and having enough for just the first stage would most probably be unsustainable. Unfortunately, it is quite improbable that you will hear this from anyone before the crisis actually occurs.
Aligning business needs with accelerator plans
Numerous cases have proven that one of the major problems is that the needs of a startup don’t match the accelerator program. For example, numerous accelerators focus on fundraising and getting investors. Obviously, that’s amazing if that’s what you need. However, what happens if you’re interested in some other aspects of your new business? That’s why you need to be informed and choose wisely.
Done well, accelerator programs can be effective at helping some of the companies with the most potential reach goals more effectively. Of course, there are many pros and cons with any startup accelerator program. This is exactly why it is important for you to know and fully understand the terms and conditions they provide before you decide to apply. This is the only way to decide whether a program is adequate for you and, most importantly, whether you’re giving your startup all that it needs to succeed.