The Pros and Cons of Startup Accelerators

By | December 3, 2015
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Startup accelerators are an excellent gateways for early stage startups to speed up the growth, stabilize in the market and raise external funding. With the drastic increase in the number of startups globally, the number of startup accelerators have grown dramatically in the past few years by targeting various types of startups. Accelerators serve the startups with the perfect blend of mentorship, finance, access to technology, office space and an innovative community in a stipulated time period. But it cannot be said it serves the same blend for every startup and the units of support the startups get from the accelerator also varies. Also, it has its own pros and cons which are listed below:
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PROS:
*Structured Curriculum:
Startup accelerators offer programs that run for a time period of three to six months. It includes lectures, speaker series, professional workshops and interaction with investors that give lot of exposure and learning experiences to the startups in a particular time frame. The curriculum is based on the wants and the needs of the startups and what is needed for their survival in the market. The curriculum is updated over time as and when needed which keeps the startups updated and ready for the real market. Most of the accelerators culminate to the demo day where the startups debut their products and services to a set of audience who are a mix of potential investors, entrepreneurs and press. With a structured program and classes, it allows the young entrepreneurs to stay focused and reinforces the need to be agile and go forward. The system also them to mould their idea and business models into a feasible market-ready business.

*Mentorship:
Mentorship is one of the key elements that attracts startups to the accelerators. For lot of startup founders, it may be their new and first business and they may be clueless regarding operating business, managing finances or attracting customers. For such young entrepreneurs, the accelerator programs offers a great deal of knowledge and mentorship, not from any random person but from top experienced entrepreneurs. Many program offers them with one-to-one sessions and ongoing support from industry experts in that field. These mentors also have a vested interest in making the business succeed. Apart from imparting knowledge, they also offer contacts and very useful introductions that would help the young founders taking their business to the next level.

*Marketing and PR:
The young entrepreneurs can bank on the accelerator to be one of the biggest advocates to the outside world. The program helps one in developing and improving the marketing strategy and help in positioning the product in the market. It also helps in channelizing the new products or services to the right outlets to publicly launch the company. If part of a well reputed accelerators, tech reporters and bloggers would be very interested in the company and the news. When graduated from a top accelerator like Y Combinator or TechStars, the tech bloggers and tech reporters would take care of the company’s PR. It is why well-renowned accelerator programs are very much in demand and sought after.

*Collaborative Environment:
Accelerator program brings together lot of other like-minded, energy-fuelled, creative young entrepreneurs from various fields together at one place. Having access to a shared space filled with these individuals could be very valuable. Working together creates a team spirit and becomes a place to exchange lot of valuable information and experiences. It creates a backdrop where ideas, creativity and innovation are readily shared between peers. Some shared spaces are huge where the new startups race in and race out to kick start their business. There are many other that are smaller and have members that stay in for quite a period of time to trigger their business off the ground. No matter if its big or small, it serves as a diverse pool of ingenuity and ideas to tap into.

*Raising Capital and Funding:
Almost all the programs provide an injection of funds to develop and grow the business, some also offers interest free/low interest loans as well. These days, the accelerators offer each startup at the end of the program a seed capital of $20,000 to $50,000 in exchange of equity stake from the company. Different accelerators have different policies. Some offer lesser funds but offers other special privileges. Apart from direct funding, it organizes demo day at the end where the startups pitch in their company to many prospective investors from whom they can raise external funds.

The startup entrepreneurs have to keep one important thing in mind while choosing an accelerator. Do not choose one accelerator over another just because it offers more seed capital. The decision should be based on the quality of the program, partners, network of mentors and the history of the graduated startups. Some programs may offer valuable contact and other special privileges that other high funding accelerators may not offer. So always look at their offering as a whole, don’t just look at the money.

*Networks:
Apart from the unique opportunity to build professional relationships with other early stage startups and make possible strategic partners, the entrepreneurs get chance to network with experiences business officials in the field. The founders may be introduced to lot of new people in the due course of time, who may serve very helpful in the later stages, even after exiting the accelerator program. Networking is very very important and successful businessmen always say more the networks better for business. The process of networking may be through unearthing cheap or unique suppliers, discovering processes that build efficiency or simply the opening of a right door to get those crucial first leads in. Without entering the accelerating program, getting top contacts may not be a simple task.

*Extra Privileges:
The perks offered by the accelerators vary from one program to another. But in general they offer, apart from shared working space, free legal advice, financial planning support, access to design agencies, discounted packages for web servers, social events and many more. Other free offerings may be free Wi-Fi, IT equipment may look small but may be significant in the early days when the time and budget are tight.

CONS:
Though there are such interesting and attracting advantage of being part of accelerators, it is not free from some disadvantages. They are:

*Company Equity:
For the amount invested in the startup, many accelerators take a percentage of equity stake of the startup. This may be tough for the startups at the early stage and may look like everyone who helps asks for a slice. It has to be understood that though it may look like a small percent of 5 to 8%, it is a lot of company equity. Also, offering too much of equity at the seed level itself would make the startups to raise funding in the next level as there would not be much to offer the venture capitalists. So it is important to have conducted a proper research to know if giving up the equity is worth it. There are some accelerators that are ready to negotiate with the founders if the company is in the later stages of development. Also, there are others who get funds from government that charge monthly dues rather than equity. Either way, there is something to be given in return and so a good amount of research is mandatory.



*Funding not the only reason:
Accelerators do invest a decent amount of cash for the startups, though this may be useful, there are various other sources of funding options available. A startup should not choose to be part of accelerator just because they could raise funding. There are many banks through which loan can be availed for a smaller interest rates. Or, funds can be raised from regulated crowd funding platforms like Funding Tree or online business networks like Tradeshifts, which offers loans on the back of data collected from within its network.

Inappropriate Networks:
Not all accelerators are same or created equal. Some may have right networks to benefit the business but some may not. For instance, an accelerator may have reasonable amount of experience in building e-commerce businesses but may not have the needed in scaling mobile apps. Good accelerators should not offer a seat if they know they cannot provide the entrepreneur with what is needed. Some just gives a seat in the interest to make money. So do not alway bank on them to make the call. As already, only research would help.

*No Support After Graduation:
Though accelerators offer great number of support while at the program, one cannot expect the same level of support after graduating from the program. The offered support should be used to the maximum extent during the program itself which is around 3 to 5 months. The day you move out of the shared working space, one may only get fewer opportunities. On the practical aspect, it is not possible for the accelerators to offer same level of opportunities to all the graduated startups.

*Tech is available without being part of accelerator:
The cloud, internet and apps have drastically reduced the need for physical hubs and workspaces. Nowadays, a business can be run from anywhere, consultancy and inspiration can be drawn from numerous online sources and leads can be generated by just popping a laptop down and working from a coffee shop. It makes sense to operate many micro businesses from an office for which an accelerator may not be required. There are various online tools that will help one manage cash flow, find investors and manage the entire organization. Accelerators do offer ideas, connections and a helping hand but with the right technology and support one can run the show anywhere. It is all about figuring what is right from the business and what is needed.

*Commitment & Risks:
Just with enrolling in an accelerator does not guarantee success, an important point every startup founder interested to join accelerator must note. For many, it requires to leave family behind for few months, relocating to a different city or taking out more loans to support themselves. When the target is to accelerate growth of the business, there are many other options to do so. Many companies after joining the program, drop out of the program of fail to complete building a product that meets market demand. So it is vital to understand that accelerators can help you to a great extent but do not eradicate the risks of failing.



*Opportunity Costs:
It is important to consider the opportunity cost associated with the accelerator program. The opportunity cost is associated to the advantages the startup could realize if they had taken an alternative decision to participate in an accelerator. Accelerators demand serious time investment that can become a major deciding factor. Pre-revenue startups may find it easier to spend so much time and relocate but the same may not be applied to the post-revenue startups which may it more difficult to manage their operational priorities with less number of staff.



*Accepting Rejection:
The accelerators are very choosy in selecting their startups they take in and being rejected by them can affect the self esteem of the young entrepreneur.  It can lower the confidence which he or she is trying to build. Not all are strong enough to accept rejection. For some, it may mean end to their business.