I’ve posted previously about how accelerators don’t have a lot of value for serial entrepreneurs. But for newbies, that’s a different story.
Shourjya Sanyal‘s article in Forbes, 5 Reasons Why Your Startup Should Join An Accelerator does a good job of outlining the benefits. As usual I’ll annotate his points.
1. Provides an ecosystem of support
This is generally true, but entrepreneurial ecosystems are to be found around the country from Silicon Valley, to Austin, to New York and Boston and places in between. However, the support can certainly help first time founders. Other startups and mentors may well be willing to give your product an off-Broadway tryout before you try to take it to the Great White Way. And new founders, don’t underestimate the time an effort saved by providing infrastructure, though new co-working spaces like WeWork do an even better job than accelerators. In fact they can be co-working spaces can be a good alternative to an accelerator, which are often quite selective. Where accelerators can really add value is when they are designed to focus on a particular industry like Dreamit Health, Luminate, RebelBio.
2. Develop skills for the founding team
The one skill I do believe accelerators develop in founders is how to pitch, as most accelerators culminate in a demo day. But otherwise it’s BYOS – Bring Your Own Skills. If you don’t have engineering or sales chops you won’t develop them in the three to six months you spend in an accelerator. What you will find out is what skills and experience are lacking in your management team and how to recruit to find those necessary complementary pieces for the startup puzzle. And don’t underestimate learning how to pitch. Most people are terrible at it. Founders need to pitch from day zero to an exit, be to a potential acquirer or to bankers on the IPO roadshow.
4. De-risks future investors
In my experience in the startup world, no one likes to go first. By gaining a modest investment from an accelerator your venture gains more than money, it gains credibility. The accelerator goes first, even if that first investment is only in 5 figures. Angels and early stage VCs may follow on, depending on how your demo day pitch goes. There’s a reason VCs like founders who went to Stanford, Harvard, MIT or other elite schools. It’s a stamp on the founder’s startup passport that they have been chosen by a highly selective institution. And VCs are highly selective.
Not only do accelerators invest actual cash for a small amount of equity, they provide non-cash value by providing office space, discounts on cloud platforms and software tools, and other amenities – all saving founders not just money, but also the time it takes to spin up necessary tools and infrastructure for a new venture. According to the author accelerators can also help with grants. MIT does this with its I-Corp program, a program of the National Science Foundation.
In addition to pitching to traditional VC firms, accelerators often mentor founders on how to apply for government grants (Such as Small Business Innovation Research grants in U.S. and Horizon2020 in EU). Such grants are often the seed round of funding for technology or social startups. In-fact business accelerators and incubators based out of universities are particularly designed in helping startups to secure these grants.
Way back before anyone but Bill Gross of Idealab had heard of the concept of an accelerator or incubator I was running one with my friend Kevin Donahue, called HyperVest. We even had VC money from Morningside, the venture arm of Chinese billionaire Gerald Chen, an acquaintance of Kevin’s. The .com bust busted us, but I did learn a bit about accelerators, including that our idea of finding CEOs to run with Kevin’s startup ideas was not a good model. Founders generally want to found and follow their own vision, not follow someone else’s vision.