What is an Accelerator?

Generally speaking, accelerators, as the name suggests, aim to expedite the growth stage of startups, providing them with a stable work environment, mentorship, and funding in exchange for equity and certain company rights. We say “generally speaking” because, as a result of their rapid proliferation and relative novelty, accelerators are effectively unregulated, and their entrance requirements and offerings can differ significantly. In almost all cases, however, accelerators are best suited to those who’ve secured their product/market fit and gained some traction. If these milestones have not been achieved, applying to an incubator program is likely the better option. 

The Rise of the Accelerator

Y Combinator, one of the world’s first accelerators, established in 2005 by Jessica Livingston and Paul Graham, epitomizes the rise of these programs. Born out of its founders’ desire to create a funding model more efficient than that embodied by venture capitalists, Y Combinator marked the beginning of a boom.  “Over the next decade, a total of nearly $207 million was invested [in] 11,305 startups via 579 accelerator programs,” (Techstars, Global Accelerator). Top tech corporations, hoping to mimic the success of these independent operations, founded their own accelerators, many of which were discontinued after a couple of years. Since their inception, accelerators have given rise to famed startups like DropBox, AirBnB, and Quora (Arkenea). The success of these companies has only increased the popularity and number of such initiatives. 

What to Expect

Mentorship

Personalized feedback from connected businesspeople is many companies’ primary reason for joining an accelerator. In addition to the opportunity for one-on-one networking with high profile investors, accelerator participants often have the opportunity to learn about customer development, design principles, sales, and much more. Accelerators will also help companies understand success metrics, prepare for financing, and pitch their company successfully (Hackernoon). 

Competition

            Accelerators take startups in batches; therefore, the environment is likely to be collaborative and competitive. Some of the best known accelerators have acceptance rates of about 1% to 3%. In addition to the pressure of your surrounding cohort, there is also the pressure of the program itself, which, as its name implies, will push you to grow your business faster than would otherwise be expected. 

Events

            Accelerators generally culminate in a demo day, where graduating startups pitch their companies to investors. In addition to this final event, most accelerators host weekly talks, dinners, and workshops, which may or may not be optional. 

Compromises

            As with all business agreements, entering into an accelerator requires a contract. Because of the competitive nature of most accelerators, there will likely be little room to negotiate this contract. The accelerator could potentially claim equity, antidilution rights, preemptive rights, future equity investment, or ongoing rights (VC List). Though most of these claims are born out of accelerators’ desire to protect their investment in a company, these claims have the potential to do as much harm as they do good, limiting the future growth of the company in question.

The Naysayers

It is because of these compromises—and the unchecked proliferation of startups more generally—that many industry players have become disillusioned with the concept of accelerators. As ex-managing director of Techstars David Tisch said in an interview with Fast Company, “The majority of accelerators are not good for companies and will fail. There are too many of them,” (TechStars). Forbes backs up this statement with stats, claiming that “...the top three global accelerators Y Combinator, 500 Startups, and Techstars report about ten percent of their portfolio companies as successful exits...The percentage of successful exits quickly drops to one to two percent in the case of the top 10 global accelerators such as Plug and Play, SOSV, Startupbootcamp, MassChallenge, Wayra and NDRC” (Forbes). Tisch encourages companies to do their homework when applying to accelerators, but ultimately says that, “[o]utside the vertical accelerators–the ones that cover, say, health care or energy–I would hesitate to do any accelerator other than TechStars or Y Combinator” (Forbes). 

How to Identify Your Best Funding Options

Fortunately for those who share Tisch's doubts, accelerators are are not the only option for those with the right connections. Friends and family, angel investors, and venture capitalists are also good sources of monetary support. That said, by far the best alternatives for pre-seed startups—the kind of company typically looking to enter into an accelerator—are government tax credits and subsidies. 

Of course, for those without these connections, an accelerator may still be the best option. A few years back, we compiled this list of notable Canadian accelerators and incubators, which we encourage you to check it out. Alternatively, creating an account on Fundica.com is an easy way to identify your best funding options.