The Most Essential Things You Need in a Business Accelerator
When Chris Bergman entered Cincinnati-area startup accelerator The Brandery in 2011, he wasn’t sure exactly what the program could accomplish for his company.
“I was a skeptic. My hope was that if it taught me something about how to raise money, that would be good enough,” says Bergman, cofounder and CEO of ChoreMonster, which has developed an app to reward kids for helping out around the house.
Bergman is still reaping rewards, financial and otherwise, from his three-month stint with the accelerator. “I’ve had conversations with investors that have turned into capital, I’ve made invaluable networking connections and I’ve learned a lot about how I want to manage my company,” he says. “Our business wouldn’t exist today without The Brandery.”
Startup accelerator programs are popping up every day, available to a wider range of entrepreneurs than ever before. They’re no longer limited to Silicon Valley, and no longer just for tech companies; there are industry-focused programs centered on fashion, food and socially conscious endeavors as well.
Although most accelerators provide tangibles such as funding, mentorship and access to potential investors, they’re not a golden ticket to success. A positive experience depends on setting realistic expectations and understanding what these programs can and can’t do.
Cash and counsel
For many startups, the initial draw of an accelerator is the potential for securing capital to refine their concept or get their business up and running. Companies can expect to receive some funding to get started or gain traction, but the amount varies, as does the amount of equity the accelerator receives in return. Yael Hochberg, associate professor of finance and entrepreneurship at Rice University’s Jones Graduate School of Business, estimates a range of 5 to 8 percent equity in return for a $15,000 to $40,000 stipend, with the median offer around 5 percent equity for a $20,000 stipend.
The money is certainly a boost, but the real draw for startups is the exposure -- to knowledge, experts and funding -- accelerators can provide. One of the marquee benefits is access to mentors who can offer experienced insight and advice in a concentrated amount of time.
“For every aspect of building our company, there was a specialist on hand to help us learn very quickly what otherwise would have taken a long time to learn,” says Robert Leshner, cofounder of San Francisco-based internet-privacy protection service SafeShepherd. His team joined Mountain View, California-based accelerator 500 Startups in October 2011. “When we needed to learn about something like SEO,” he explains, “there was a mentor who was incredibly knowledgeable about it.”
Both Leshner and Bergman say that just as valuable as the mentor connections were the relationships they developed with their program peers. “Being able to speak with so many people about their experiences and bounce ideas off them is invaluable,” Leshner says. “So is having this incredible network built for you of friends you can trust.”
Despite all the support, entrepreneurs still need to think for themselves. One common misconception of accelerator programs is that advisors will give participants all the answers they need to succeed. Accelerators do provide access to informed opinions and data, but participants need to process them wisely.
Ultimately, it’s a receptiveness to feedback that’s key to getting the most out of the accelerator experience. To glean the full benefits of the program, entrepreneurs need to check their egos at the door. “It’s a prestigious thing to be accepted into an accelerator, but the reality is, you still haven’t done anything yet,” Bergman says. “If you come in thinking you’re already a success, you’ll miss out on learning a lot of valuable things.”
The accelerator perk that gets the most headlines is access to financing information and investors. “A huge benefit for us was going through the process and understanding what raising money looks like, and all of the details of building a business with investment,” Bergman says.
The potential to connect with investors -- often hundreds of them -- at an accelerator demo day is a huge draw, albeit one that can lead to pitfalls for participants. Hochberg says many have the mistaken perception that going through one of these programs guarantees funding at the end. “Entrepreneurs need to recognize that even 75 percent of venture-backed firms fail completely,” she says. “It’s true even at the top programs.”
Focusing too much on financing was a pitfall for Leshner and his group during their time at 500 Startups. “There’s a lot of investor interest for companies in the top accelerators, and that became a distraction for our team and took a lot of time away from building our company,” he says. “We finally realized we should be focusing on our product instead of the money.”
That’s not atypical, according to Jen, whose AlphaLab minimizes discussion of financing for the first half of its program. He says such talk can lead startups to put the cart before the horse. “If they don’t have the product and some early market traction, they’re not going to get very far in the funding anyway,” he says, “so the best thing they can do to work on their funding is work on the product.”
When it comes to accelerator programs, a strong team is everything. With acceptance rates to some of the country’s top-tier accelerators hovering around 1 percent, a standout application is integral to getting one’s foot in the door. Of course, pitching the product and the market it serves is important, but insiders agree that portraying a strong business team is even more crucial.
“In addition to your product, you’re also being judged on your team,” says Hochberg. “Your idea or product can change quite a bit as you go through the program, in terms of the business model or even what exactly you’ll be producing, so there’s also a lot of evaluation of the team and whether there’s a sense that you fit together well, understand the challenges ahead of you, and will be able to be successful entrepreneurs.”
“A lot of it is convincing the accelerator that as a team, you have the passion, the commitment and the drive to make this company happen no matter what,” Jen says. “Then you need to show you have the capabilities to execute on what you want to do.”
The same is true at the end of the program, on demo day. “Communicating a sense of your team and why you’re capable of being successful is much more important than communicating the details of your product,” says Leshner. “Your product or idea is likely to evolve, but the team is a constant.”
Jen defines a true accelerator as a time-specific, mentorship-driven program designed to provide startups with critical resources to help them make rapid progress on product and customer development. “There are a lot of incubators and shared working spaces that are incorporating a lot of the elements of accelerators, but it’s a smaller universe that applies to the definition of a true accelerator, and even a smaller number that have been around and have a proven track record,” he says.
“To help founders,” Hochberg adds, “you have to be very good at screening so that you’re only taking in groups that really have a chance of succeeding. And I’m not convinced that all of the accelerators out there are equipped to do that.”
Quality funding sources are also a concern. It’s important to verify that an accelerator can bring valid investors to the table. “With the top programs, everybody in the VC community will be looking at you,” Hochberg says. “But with some of these newer accelerators, especially regional ones or those in nontraditional verticals, you need to be sure that serious VCs from outside your area see its alumni as serious possibilities for funding.”
For assurance about any of these issues, applicants should conduct thorough research online and talk to past participants to verify exactly who’s involved in the program, what kinds of connections they have, and how many of the accelerator’s alumni have received funding and at what stage.
Making sure an accelerator is a good fit for your business is also important. “If you’re a health-care startup, it doesn’t matter if they’re the best consumer internet VCs on the planet and the mentors are all consumer internet gurus; if you’re doing health care, that’s not the right fit for you,” Hochberg says.With the pool of accelerators expanding daily, doing the research and making decisions is crucial to choosing the program that will benefit your business the most. “Equity is an extremely precious thing to be handing away,” Hochberg points out. “You need to make sure you’re handing it away to an organization that will truly b