Startup accelerator programs are 3-to-6-months journeys backed by VC companies.
Accelerators invest in early-stage startups giving them the support they need to skyrocket and show tremendous growth. In return for their investments, accelerators get a share of the company. Starting from 3%, share size isn’t limited and covers financial and expert support, as well as assistance with infrastructure and valuable business connections.
There are three ways to make a profit for an accelerator:
- Management fee is just enough to help it break even, reducing the risks for a fund that provides the investment support.
- Trading startups shares is based on selling your share right after a company’s exponential growth.
- Startups paying dividends is the least frequently used option.
The key features of acceleration
In most cases, accelerators focus on software development startups. By the end of the 2010s, the price of launching such projects has become significantly lower largely due to the well-established VC landscape. In such a system, the accelerator’s part is to choose the most promising projects and prepare them for fundraising.
Before being accepted, the team is likely to go through a couple of interviews. It’s challenging to get into some of the hot accelerators, such as 500 Startups or YCombinator, as the number of applicants reaches hundreds of thousands and only 10 or 20 of them become participants.
The whole program is a simultaneous mentoring of startup team members (usually the founders) during the lectures, workshops, and co-working. There are famous businessmen, investors, industry experts, and mentors involved as lecturers there, thus motivating startuppers and enabling them to share their experience, network, and receive the much-needed support. But the most significant thing for a startup to take out of the accelerator program is a tailor-made business model.
Main benefits of a startup accelerator program
- Seed funding. The initial investments are usually insignificant. They’re supposed to cover the relocation of the team, three to six months of living in the accelerator’s city of operation, basic expenses, and hiring of key specialists, such as the CEO. This way, accelerators provide startups with the opportunity to focus on their growth.
- Credibility. Investors and mass media are excited about the top accelerators with graduates who raised millions in capital. Those participating in such programs get early access to media and investments. Moreover, being a member of a top-notch accelerator is considered a seal of excellence in the VC industry. This environment is so competitive that a project should be truly extraordinary to get a place.
- Feedback. Whilst being a part of an accelerator program, the team gets access to insights, experience, and help from rock-star businessmen and investors. During the program, a startupper can make up a business development plan and have their company audited.
- Mentoring. Training sessions are focused on the key areas: communication with investors, marketing, sales, legal and financial issues. The accelerator assists in product development and introduces teams to the most advanced business practices, from agile methods to scrum to lean startup.
- Introduction to investors. At the end of the program, on a so-called demo day, teams pitch their startups to interested investors. Particularly successful projects can raise the next round of funding. On top of that, investors and angel funders constantly monitor accelerators’ activity to stay on track with the most promising young projects.
Target audience of startup accelerator programs
We don’t recommend considering accelerators for their investment possibilities: their conditions are usually unprofitable, i.e. modest infusions in exchange for a large share. For example, the most favorable terms of the TechStars and Y Combinator programs offer no more than $140 000 for 7 %.
Accelerators have a specific target audience. These programs are perfect for your startup when you:
- notice the lack of skill in your startup because your team is not qualified or staffed enough,
- think that your business is missing the network connections to enter the next level,
- want to make your company more appealing for investors,
- want to study the methodology of developing startups,
- constantly postpone working on your startup or can’t find the strength to do it.
If none of it matches your situation, it’s highly likely you do not need an accelerator program. Apart from that, the programs are not suitable for experienced entrepreneurs who are able to build a startup on their own.
What is not an accelerator program
A startup acceleration program is often confused with other organizations supporting startups, such as incubators or mentorship, especially in the Russian-speaking environment. The U.S. Department of Commerce Economic Development Administration defines acceleration as follows.
Business accelerator is:
- a late-stage incubation program, assisting entrepreneurial firms that are more mature and ready for external financing; or
- a facility that houses a modified business incubation program designed for incubator graduates as they ease into the market.
Thus, an accelerator is either the next stage or part of incubation, but these are not interchangeable concepts. Primarily, incubators provide the infrastructure for long-term (from 6 months) startup growth. That includes an office, their lawyers and accountants, CEOs, etc. For incubation, expert support is secondary, which cannot be said about accelerators. The latter are laser-focused on introducing the founders to the top market experts.
Incubation is a long-term process resulting in full-fledged teams rather than unique projects.
A startup accelerator program is not an educational service. Companies conducting training sessions and courses based on some accelerator materials cover only a tiny part of the process. The most crucial components of proper acceleration programs are connections to media and investors, funding, mentorship, and reputation benefits. Without those, the whole concept of “accelerating” is lost.
Finally, accelerators are not trivial VC-events, such as conferences and hackathons. They are certainly important for the market, but still have very different goals. Obviously, the organizers of startup conferences do not take a share in exchange for seed investments and do not offer the support that the accelerator provides.
The leading startup accelerator programs in Russia and around the globe
Any venture builder is familiar with the world’s largest accelerators. Here are the top 10 companies based on the number of IPOs according to Crunchbase. It’s only natural that more than half of them are based in the US.
- Y Combinator (USA) — 3301 investments, 321 exits
- Techstars (USA) — 3125 investments, 260 exits
- 500 Startups (USA) — 2525 investments, 253 exits
- MassChallenge (USA) — 1,340 investments, 92 exits
- Plug and Play (USA) — 1118 investments, 90 exits
- SOSV (USA) — 1828 investments, 46 exits
- Wayra (UK) — 1165 investments, 33 exit polls
- Startupbootcamp (UK) — 538 investments, 29 exits
- Start-Up Chile (Chile) — 875 investments, 24 exits
- Internet Initiatives Development Fund (Russia) — 438 investments, 1 exit
The acceleration landscape in Russia is predominantly occupied by state programs. According to the map of the Association of Accelerators and Business Incubators, in 2018, private and corporate acceleration made up 46 percent, while 19 percent accounted for university programs. That increases the risk of monopolization and governmental control within the industry that is initially expected to protect both competition and cooperation between public and private projects.
The Russian state programs include:
- the Skolkovo foundation and technopark,
- Russian Venture Company (RVC),
- the GenerationS accelerator,
- the Foundation for Assistance to Small Innovative Enterprises (FASIE) — the Bortnik Foundation;
- Internet Initiatives Development Fund (IIDF).
In the list of the private accelerators that hold regular programs, we can include GVA, Numa, YellowRockets, Loga Group, FinTech Lab, iDeal Machine.
Interaction between a startup and an accelerator
If you are going to apply for a startup accelerator program, keep in mind that nothing will pan out if you’re not obsessed with your idea. The organizers do not like the founders who hardly ever spend time and effort on their projects but expect to be supported anyway. If you are constantly putting aside your business, it means that you hardly believe in your idea or its profitability.
Another factor is that you will be able to keep up with the accelerator’s pace only when you’re enthusiastic and have faith in the startup. Some hard work will be needed and you won’t be able to cope without proper zeal.
Be ready to move to another city or country. Since traveling is now restricted, this is more relevant for the period when the threat of COVID will take a back seat. Even some local accelerators can send you to participate in international programs, conferences, and training sessions.
What not to expect from an acceleration program
It’s not some spell that will solve all of your problems at once. It’s an effective tool that can skyrocket a startup to a new dimension, but it’s up to the founder whether their business makes it or breaks it.
It is important to adjust your expectations in advance and realize that the organizers won’t do your job. You’ll get access to new ideas and skills, understanding how it all works and what your next steps should be. However, connections, a business network, and access to investors are just a means to get funding and find your key employees.
The result depends only on your diligence. Like any other businessman, you should be able to use any resource.
How to evaluate the quality of the program
A startup accelerator cannot be “bad” or “good” — it either suits you or not, which depends on your expectations and needs alone. In order to understand whether a particular program is a good fit for you or not, follow these steps:
- Analyze how your expectations comply with the program. Review if the accelerator’s offer meets the startup’s needs.
- Ask those who have already accelerated their businesses. Meet the graduates of an accelerator, find representatives of portfolio startups.
- Check out the reviews online. If you have not heard of this accelerator before, then there is a chance to run into scammers.
- Study the organizers’ portfolio. Pay special attention to the mentors’ achievements.
Top 5 misconceptions about accelerators
Only losers and those who do not know what to do turn to accelerators. On the contrary: accelerator programs are interested in businessmen who can seize the moment and find the missing resources. Participating in the accelerator is a great opportunity to double and even triple the pace of a startup’s development. No founder would say no to that.
I will join the program for the hell of it and later decide if I need it at all. Startuppers often come to accelerators with small goals: to grasp a couple of skills, to catch a seed investment that will be spent on pizza and coffee instead of business, or to observe others without making any effort to change. Thus, the founders waste both their own and other people’s resources. You can definitely wait for inspiration or a better moment, but try not to miss the opportunity.
If you join the accelerator, you will definitely thrive. This is not true: no program can make promises. What they do is only increase your chances for rapid growth. That statistics of exits and investments show that many startups never reach exit at all.
It’s only useful because of the money that I get there, but nothing else. As we’ve repeatedly mentioned before, the conditions for seed investment are usually unprofitable for a startup. Usually, founders lose a significant share of their businesses for just $100 000. Therefore, instead of funding, you should seek for the connections and skills that an accelerator provides.
What’s the point if it’s impossible to get there? Indeed, the competition for a place in the acceleration program is very high, especially if your ambitions are at the level of Y Combinator. But the largest share of applications is rejected for insignificant reasons, such as incorrectly filled-in applications, or not meeting the initial requirements. In this case, all you need is to select among the available programs carefully and pitch your business in the best way.
Let’s wrap it up
A startup acceleration is a short-term (3-to-6 months) support program for VC-backed companies created by an accelerator company. Often, it goes right after the incubator and its main goal is to help startups with their rapid growth.
Accelerators offer seed funding to their participants in exchange for a share, a dividend, or a commission fee. In the future, they earn money by selling the acquired startup shares. In addition to the initial investment, startup accelerator offers expertise, key skills training, lectures from top entrepreneurs and investors, business network, and leverage in the market.
The competition for accelerator programs is usually very high, so only well-thought-out, promising projects with an enthusiastic team end up being accepted.