Alejandro TauberFormer Editor-in-Chief, TNW
The amount of new startup accelerators has gone through the roof. Since they first entered the scene in 2005 over 3,000 accelerators were advertised globally in 2021. It all started with accelerator programs backed by a venture capital fund, such as Y-Combinator. Now accelerators are run by governments, corporates, universities, ex-startup founders, or in partnership with the venture capital(VC) ecosystem.
This isn’t surprising, as accelerators are proven to have a positive effect on startup success. Research shows startups that ‘graduate’ from an accelerator program have a 23% better survival rate. This is considerable seeing as an estimated 90% of startups fail.
Moreover, a glut of investor liquidity has fueled the accelerator industry, with a record-shattering $49 billion dollars in funding going to early-stage startups in the first three quarters of 2021. It’s these programs, with their network of VCs and partners, that can provide an efficient inroad to capital.
This begs the question; should your startup join an accelerator? And, if so, how do you weed through the literally thousands of options to find the right program for your business?
While there are many factors to consider, it all boils down to fit, timing, and commitment.
Find your fit
“The number one tip for founders is: Do your research! Founders should be a bit cautious when picking an accelerator, and before you apply to any, you should look at their track record,” Nataly Schammel tells me. As a program manager for the Future of Finance Accelerator backed by a partnership between Techstars and ABN AMRO Bank, she’s seen many startups go through this process. Her advice is to vet an accelerator by, “reaching out to founders who went through the program previously,” Schammel added.
Another question founders should ask themselves is: “what’s my main motivation for joining a specific program?” You shouldn’t just be looking at whether or not an accelerator fits the industry you’re in. Also consider what you and your fellow founders hope to gain from it.
A corporate accelerator, for example, is a great way to get access to industry expertise, assets, and a network of clients and partners. Take this as an opportunity to build long-lasting relationships within these organizations. These people can help you beyond the three months accelerator program. As Schammel explained:
Don’t join an accelerator if you’re just looking to run a pilot with the corporate partner as most likely you won’t be ready. Moreover you won’t have time for it during the program anyway.
Another way to find the right accelerator program is by checking the quality of the mentors. How involved are they, and which ones would help your business most?
Research by the University of Georgia found accelerators that offer more interaction between mentors and startups yield more successful batches, especially if the mentors and programs stay involved in the long term.
Is the timing right?
The second factor to consider is if it’s the right time for your startup to join an accelerator, both in terms of how mature the business idea is and what stage of funding a company might be in.
“Some early-stage startups are still in the idea stage. Meanwhile, some are already mature businesses, often applying for the wrong reasons, like getting a shortcut to procurement,” says Laurens Hamerlinck, who as Innovation Partnership Lead, oversees the Future of Finance accelerator at ABN AMRO Bank. “In my conversations with founders I try to figure out whether the program can deliver the support they seek and truly accelerate the business.”
A startup should be somewhere in the sweet spot between having an idea and product that shows promise, and before the stage of being an established company with a proven business model and existing pool of mentors.
This is also important in terms of the ‘hard’ skills founders can learn during an accelerator program; these can be services in the legal domain for IP protection, help with financial modeling, and support in necessary due diligence processes. None of these are useful if a startup is at the idea stage, nor when already mature and growing their customer base.
And then there’s the money question. Investment maturity should also play a role in considering whether to join an equity-basedaccelerator. Accelerators often provide seed funding in exchange for equity, or as convertible debt or a stipend. Founders should weigh the value of the program and consider in advance how much equity they’re willing and able to give at this stage in your startup’s development (keeping in mind future angel investment). Hamerlinck adds:
If you’ve already raised more than $10 million, then 6% is alot and you probably don’t need an accelerator anymore. Although valuations are now sometimes going crazy, especially in DeFi.
That’s why coming up with a clear future funding strategy will help.
Startups pay the Future of Finance Accelerator 6% of equity for access to the program and get $20,000. “If you consider that as a valuation event that would be a bad deal,” Schammel says.
There are definitely easier ways to find that kind of money, with the EU pushing grants and subsidies for technology startups. “The reason startups give us 6% equity is for the network. We want to become fellow founders, get skin in the game, and startups that graduate from the program will get lifelong support from Techstars and ABN AMRO. You basically give 6% tous as a co-founder.”
On this note, one thing that startup accelerators can and should really help founders with is finding the right investors for their business. If you thought there were a lot of accelerators to choose from, there are even more VCs. First-time founders in particular tend to need help with finding the right investors and negotiating favorable terms.
The right accelerator programs will help their cohorts with this by providing shortlists of investors, making those connections, and educating them on what they need to know about the deal-making process.
Commitment is everything
If you actually want to reap the full benefits, joining a startup accelerator is a full-time commitment. They often take three to six months during which founders are exposed to an intense program and attend daily sessions with mentors and coaches. Running your business as you go through the program can be challenging and tough. Nataly Schammel says:
At the Future of Finance Accelerator we focus on teaching founders to do more faster. It’s an intense three months where you also need to run your business, but all founders graduate being a more efficient entrepreneur.
One of the authors of the University of Georgia study, Christopher Bingham, said that, “Founders might experience ‘mentor whiplash’ in that process, but after dozens of meetings common themes start to emerge, providing useful insights.”
This time investment can inevitably be a time-saver. Co-author Susan Cohen said:
What founders soon learned is they had the seed of an idea, and sometimes they had to pivot quite substantially to make the idea work. Those interactions helped them to figure out both that they needed to learn and what they needed to learn.
The intensiveness of the program makes it harder to complete as a solo founder. There are in fact many accelerators out there that limit the number of solo founders accepted. Y-Combinator’s founder Paul Graham famously said, “Starting a startup is too hard for one person.” Schammel agrees, saying there have been successful solo founders in the program, but,
If you have to do everything on your own during these three months, it might be overwhelming.
Then again, why not try? Research conducted by Wharton in the USA concluded that, even though startups with multiple founder teams tend to raise more venture capital investment, startups with solo founders often lasted longer and achieved higher revenue. The researchers suggest this might be due to the increased agility of having a single decision-maker.
Join or not?
“In the end, it should be a deliberate business decision. If you find a program that fits your business, the stage of your company, and you dare to commit and take a leap it will be a life-changing event,” Hamerlinck says.
So if you’re in fintech and have a focus on sustainability and digital assets looking for an Accelerator with a strong mentor pool, a highly engaged corporate partner, a global network, that also has a high-level track record of its 2600+ portfolio companies, then wait no longer and apply here.
The Techstars + ABN AMRO Future of Finance Accelerator takes place in September-December 2022 in hybrid format in Amsterdam. You can register until May 11th.
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This post is brought to you by ABN AMRO.