By Fernando Berrocal
Should I Join a Startup Accelerator / Incubator?
“Startup Accelerators” can be a crucial part of a startup's journey: they can give your startup legitimacy and help you transmit a favorable signal in the overall market, and their alumni networks can help connect you with significant investors and customers of all levels in the industry. However, joining or applying to an accelerator is not a simple decision: there are valid reasons why an accelerator is not suitable for every brand-new startup. In this article, we'll try to explain the benefits and drawbacks of participating in a startup accelerator / incubator.
What are the Functions of Accelerators?
The accelerator's objective is to give mentoring and other resources to startups that would otherwise be unavailable. Each accelerator is unique in terms of size, location, and emphasis, but they all have one thing in common: they are structured into cohorts and enrollment is through a specific application. Some accelerators are exceedingly competitive: Some accelerators accept fewer than 3% of startup applications. Accelerators invest a different amount of money in startups in return for a varying percentage of stock once it has been accepted. Some accelerators take up to 20% of the business, while others take no stock at all.
Why is the process so competitive if you're handing up a significant portion of your business? There are two reasons for this: signal and network. When you graduate from a top-tier accelerator program, you're signaling to potential investors that you and your concept have been extensively examined. It also indicates that the concept is viable in the eyes of those who are well-known in the startup and Venture Capital (VC) communities. Many of the members on these accelerators' selection committees are founders or key recruits of some of today's greatest technological businesses, and their approval is very important.
- Network: Joining an accelerator exposes you not only to a quality peer network of businesses that are comparable in size and purpose to your own but also to a network of alumni startups who can provide you with vital advice and important referrals. Many individuals believe that the most useful aspect of the accelerator is the network you can develop in it. If you're from a smaller location and want to tap into the Bay Area, New York, or LA's stronger financial and entrepreneurial cultures, an accelerator might be a lifesaver for you and your business. Accelerators provide marginal value to organizations that already have a strong regional or professional network.
- Industry: While networking is crucial regardless of the sector or the product emphasis, selecting an accelerator that is tailored to your individual demands is a critical choice. Some industries, such as hardware and healthcare, demand more product knowledge than others. Most startups in those sectors have accelerators dedicated to their respective areas. Other sectors, more common in the market, have accelerators that approach a broader focus.
- Stage: Another key factor to evaluate is if the accelerator's focus matches the stage of your business. Some accelerators specialize in supporting startups from the very beginning of their development. They cater to entrepreneurs who may not even have a business strategy. Other accelerators need at least some proof-of-concept execution. It's critical, to be honest with yourself and your team about where your business is and how much assistance an accelerator can provide.
- Downside Risk: Joining an accelerator has a lot of benefits, but it also has some drawbacks. For once, when you join some accelerators, you give up a significant portion of your startup. Keep in mind that founders often control 16-20% of their business at the time of sale. According to this logic, if you have another co-founder, you will own 8-10% of the business when it is sold. Giving up a part of your ownership to an accelerator might be expensive in the long run.
The accelerator must deliver exceptional value to justify such an ownership percentage. The greatest method to ensure that you will benefit from the accelerator's services is to be a good fit for the accelerator. Joining an accelerator brings with it certain inevitable complications: if the accelerator is located in a different part of the world than your headquarters, the expense of transferring personnel and being out of the office must be factored in.
Furthermore, there is a risk of product distraction since accelerators aren't perfect: they might give you bad advice that leads you away from your main objective. It's critical to have a high-quality accelerator that will add exponential rather than an incremental benefit in the long run.
In conclusion, when it comes to the question of, "Should you join an accelerator?", there is no simple answer. Accelerators bring good value for the most part, but it's crucial to be aware of the tradeoffs in terms of equity and product focus. It's also crucial not to get too caught up in accelerators' prestige: many up-and-coming accelerators don't have the same brand recognition as the AAA tier but deliver significant value to their cohorts.
At MassLight, we don't just advise startups, we help build them. MassLight supplies capital and a dedicated tech team and take equity in return. Ready to bring your startup to the next level? Apply to MassLight’s next batch. MassLight supplies capital and a dedicated tech team. We take equity in return. Have questions? Refer to our FAQ page.