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The Pros and Cons of the Startup Accelerator Trend

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By Barbara Beauregard   |    July 23, 2014   |    5:23 PM

Accelerator programs have been popping up across the country for years. While not an exactly new concept (incubator programs have been around since the late 1950s), the number of accelerator programs have increased in the last few years.

Part of this has to do with great success stories from these programs, i.e. Reddit, Dropbox and AirBnb. Now, more and more startups want access to these programs, especially the big ones like 500 Startups, Y Combinator and Tech Stars.

What is an Accelerator Program?

An accelerator program is basically a training class designed to help startups get off the ground. These generally only last for a few weeks or months. Accelerator programs also provide startups with mentors and capital as well as the opportunity to network with other entrepreneurs.

The provided capital can be used for new ideas and innovations. Plus, the founders of the program usually help promote the business via the accelerator demo days, which are usually attended by investors and business professionals.

Benefits of Startup Accelerators

The major benefit of the accelerator program is building a network of people within the business world, especially angel investors, advisors and mentors. Entrepreneurs can see that other startups are working just as hard as they are, which provides a moral support system.

The accelerator program also provides the startups with resources that they wouldn’t normally have access to as well as some startup capital. Finally, many of these accelerator programs are extremely difficult to get into. Startups can use their association with an accelerator program for branding purposes to distinguish the company from others within their market.

Drawbacks of Startup Accelerators

The major downside of accelerator programs is that they’re extremely difficult to get in to. For example, TechStars only accepts 1% of the applicants that apply to the program. Another issue is that the startup is giving up – in the form of equity – a large portion of their business “to a program that will only have six months of influence on your business”. This could scare away other investors down the road.

Accelerators also require their startups to scale up quickly so the program can get some of its money back. For businesses that would prefer slower growth, this could be an issue. Finally, some accelerator programs require a lot of legwork from its startups, including attending many high-profile events. While this gets the business in front of plenty of new eyes, it also keeps the entrepreneurs from focusing on their main objective – their startup business.

Tips for Picking an Accelerator

Deciding to apply to an accelerator program is a big decision. Before going full-force into trying to be accepted, consider the following items:

  • How much equity does the accelerator take? According to Mashable, an accelerator that takes too much might be a red flag. Yet, if an accelerator program doesn’t take any equity, then they may just be looking to promote “local business growth rather than generate financial returns”. Most good accelerators take less than 10%, but some will take up to 50% equity. If a startup is giving a large amount of equity to the accelerator, then they won’t have much to give to other venture capitalists.
  • Does the accelerator program fit the startup’s niche? Certain accelerator programs focus around particular niches. Find one that is a good fit for the product or service being offered.
  • Determine the startup’s resources. Many accelerator programs can be located halfway across the country from the startup’s home base. This requires entrepreneurs to live in the area where the accelerator program is located. This might be a financial drain on resources.

Entrepreneurs should consider their options before signing up for an accelerator program. They should think about what they’re willing to give up to advance their business and what is simply out of the question.

Have you or your business used a startup accelerator? What was your experience with the program?

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