Choosing a startup accelerator program.
In 2021, there are many startup accelerators to choose from. How do you choose which one is right for you and your startup?
So, you have an awesome startup idea and you want some help getting it launched, funded, and on a path to success? In the old days you’d go out and find a business mentor in the community who could help with that. Or maybe just a rich uncle.
Back in 1972, Eugene Kleiner decided he could combine the roles of “business mentor” and “rich uncle” together into one thing, so he took the money and experience he had gained during his career at Fairchild Semiconductor, rented some office space on an obscure stretch of Sand Hill Road in Menlo Park, and founded Kleiner Perkins to invest his money, time, and expertise into helping new young entrepreneurs.
Make sure the dog wants to eat the dog food. No matter how ground-breaking a new technology, how large a potential market, make certain customers actually want it. -Eugene Kleiner
The venture capital industry that Eugene Kleiner started in Silicon Valley is thriving still, of course, but the Sand Hill Road of today is less about nurturing new entrepreneurs and more about deploying large tranches of capital on proven ventures that are ready to scale.
So then how does a new entrepreneur get to a “proven venture that is ready to scale”?
Well, in 2006 a guy named Paul Graham decided to create Y-Combinator to help with just this. He saw that venture capitalists were no longer making small investments and providing mentorship to young entrepreneurs so he created a new kind of firm that would fill the gap that had emerged. He founded YC to be what is now called a “Startup Accelerator” — a program to get early-stage startups from infancy to venture capital readiness.
It was a big success. And today there are hundreds of startup accelerators around the world, offering a variety of programs and experiences with a wide variety of admission requirements and participation terms. So how do you choose the right one for your startup?
Generally speaking, startup accelerators operate on one of six different business models:
- Seed funding and mentorship in return for equity. The most well-known examples are Y-Combinator and Techstars. These tend to be very selective (aka hard to get into) because they are providing funding. For entrepreneurs these are a very expensive source of capital (YC provides $125K in return for 7% of the company, which is a pretty high cost-of-capital).
- Corporate accelerators for business development. An example would be Barclays bank, which runs an accelerator program for Fintech (financial technology) startups as part of their corporate strategy to be close to innovation happening in their sector. Terms on these vary, but their goals tend to be around creating a startup ecosystem the sponsoring company can benefit from.
- University-based accelerators. When I got my MBA, most business schools couldn’t even spell entrepreneurship; they were focused on training corporate executives, not entrepreneurs. Today, my alma mater and many others have some version of a startup accelerator program. At Stanford University, I teach a Stanford Continuing Studies course that is structured similarly to a startup accelerator and I also serve as a mentor in a Santa Clara University program focused on accelerating social ventures.
- Economic Development accelerators. Many states, cities, and other municipal entities run startup accelerators associated with their economic development (and diversity development) efforts (see this report from the Brookings Institution). The Mayor’s office in LA runs one, Baltimore has an excellent one called Innovation Works, as do even some small towns like Telluride, Colorado.
- Impact-Driven accelerators. These tend to be donor-supported organizations wanting to create social impact through entrepreneurship. An example is Thought for Food, an international organization that promotes innovation and entrepreneurship in the sustainable food production sector.
- Fee-based startup accelerators (disclosure: I run one of these). For entrepreneurs who do not want to give up any of their startup equity, fee-based accelerators promise the benefits of a Y-Combinator without diluting the founders by taking some of their equity in the venture.
In the startup world, you’re either a genius or an idiot. You’re never just an ordinary guy trying to get through the day. — Marc Andreessen
As I said, there are lots and lots of startup accelerator choices available to entrepreneurs in 2021. It’s a great time to be an entrepreneur. So how do you choose which accelerator is right for you?
I think there are really five main things to consider:
- What do you want to get out of it? Is it just funding that you care about? Or mentorship? Knowledge? Connections? Synergies from other participants? As with anything, being clear on your desired outcome is the most important component to making a good choice.
- Your own finances and the value you place on your startup equity. If you have money, and you want to protect your startup equity, then obviously the fee-based accelerators that don’t take any equity may be the right fit.
- Stage and Sector Fit. If you have a Fintech startup, there may be some value to being in an accelerator cohort run by a bank for Fintech startups, for example. Also some accelerators tend to focus more on early-stage startups whereas others are more focused on growth stage.
- The other participants. A startup accelerator is a cohort-based experience, where a good chuck of the value is going to come from the cross-pollination with the other participants. Ask if you can talk to the others in the cohort before you commit. Cross-pollination is where the magic happens.
- The pedigree. When you are out on the fundraising trail, there is undoubtedly some value to being able to say to investors that your startup went through Y-Combinator (which is said to be more difficult to get into than Harvard). There is much less fundraising value to being able to say you’ve been through Bob’s Diner Accelerator in Iowa (no offense to all the awesome people in Iowa).
Above all, do your due diligence. Research all the options available and then do deep-dive research into each of the individual accelerator programs before you apply. If accepted, ask to talk to some references before you commit. Find out whether graduates say they got out of it what they wanted.
Be clear on what you want to get out of a startup accelerator program and then make sure you make an informed choice.
Or just go find a wise, rich uncle. Either way.