What Value Do Startup Accelerators Have?

It’s 8:47 PM, and I am writing this in a bustling workspace much like the above prompted image, with thoughts swirling around my head on how best to scale my startup to profitability.

I look at the event room, a capacity of fifty people that just held an accelerator program last Tuesday. I bring out my laptop and I start researching: what values do startup accelerators have? I dove into the impacts that accelerators create on startups.

Having gone through an accelerator myself at Accelerating Asia in 2019 with Loop Freight, I can say that putting yourself through the paces of a program like that forces you to be efficient in limited time.

So what are accelerators actually?

Accelerators are structured programs with a fixed timeframe, such as 3-6 months where startups go through a series of mentorship events, workshops and networking sessions. They are meant to accelerate your startup’s growth by getting your business ready for scale.

How do accelerators add value to your startups?

What makes them mostly attractive is typically seed investment they provide. This could range from $10,000 to $150,000 or even more in return for equity in the company. This maybe a direct purchase of company share or a convertible note like SAFE (simple agreement for future equity), which invests on the condition that the startup converts the money invested as debt, into equity at a future round. SAFE is typically one of the safest ways to fund a startup. The startup offers a discount at the next valuation it receives from future funding, for the SAFE investors. I’ll explain it more below:

Say Accelerator A invests $150,000 in Startup X on a SAFE note. The term sheet may say that the startup is taking the money at a 20% discount on valuation on whatever price per share the startup gets at the next round of funding. SAFE note were popularized by Y-Combinator and are regularly used by investors and startups to raise funding.

A startup accelerator also provides mentorship. While initially it may not look as valuable as an investment, truth be told mentorship for early-stage startups are even more valuable than funding sometimes. This isn’t to look down on funding as a number two, but it’s more to emphasize how important a mentorship can be in the pre or early-stage revenue stages of a startup. Why so? Because ventures with just an idea and a team with a little traction, can completely go bust within the first few months of operations. Accelerators recruit experienced corporates to founders who can pass off their knowledge onto the startups.

One of the most significant value additions of an accelerator is that they provide workshops and seminars that range from product development, market fit, educating on different business models, pitching, legal boundaries and other issues. For first-time founders, it’s critical to fine-tune their skills to run their startup. Think of as rowing a boat for the first time in your life through a swamp, not knowing what lies underneath or whether you’ll reach your destination. A workshop on fundraising would teach first-time founders on what to include in a pitch deck, calibrate their business model and calculate their serviceable market.

Networking opportunities is another crucial service you get out of an accelerator. You get to connect with other entrepreneurs, alumni of the program, potential investors and customers. Networking opportunities are the best for startups looking to get introduced to angel investors and venture capitalists. They are also used to meet industry experts and potential customers. Networking opportunities occur in the form of weekly ‘Open Houses’ where guests come in the form of investors, experts and potential customers are invited to check out the startup’s that are part of their cohort and listen to their pitch. After pitching sessions, guests are invited mostly invited to have food and drinks and chat with founders, so they get the chance to know the teams 1:1.

There are also resource and support you can tap into. An accelerator typically provides workspace for the program’s duration, as well as logistical support. In addition, you may also get accounting and legal services to set up your company in the jurisdiction you want to operate. When starting out, setting your company up legally may save you months of setbacks. As I found out from Loop Freight, incorporating your vehicle for fundraising is critical for investor confidence and for legal compliance. A company with an active bank account in a jurisdiction that is investor-friendly may be the difference between fundraising and failure. If you want advice on incorporating overseas, ping me at the email at the end of the article.

Demo days are where your accelerator program gives you the center-stage to pitch your startup to a large audience, typically consisting of investors, media representatives and potential customers. This happens at the end of the accelerator program and provides the startup founders the exposure it needs to a curated group of public.

Lastly, accelerators provide an alumni network to tap into. Startups can find guidance and mentorship, generate leads and get warm introductions to investors through the accelerator’s alumni network. I remember my LinkedIn and Facebook DMs blowing up after we were accepted in the program. I was approached by quite a few aspirants after our first cohort at Accelerating Asia, simply because I had knowledge on how to get successfully get through the program.

Early-stage startups can benefit a lot from accelerator programs. A lot of them come with funding their pre-seed or seed round and are a launchpad for your startup to grow. You also get the validation and focus. What you lose out is on equity and program fees. If you think an accelerator is a fit for your startup, get your applications in. Let me know if I can help you as an early-stage at [email protected].