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Technology

Startup accelerator business model - everything you wanted to know and wasn’t sure who to ask

Ronen Menipaz

Ronen Menipaz

11.12.2019

If you’re looking at a viable business model for your startup, I’m sure you’ve found out by now there are different choices with some fundamental differences. One of those choices that everyone fancies is a startup accelerator business model which provides everything a startup founder dreams of:

  • Financing
  • Education
  • Mentorship

All of it is condensed in a very limited time span, which makes this particular choice an intense experience. Despite all the buzz they receive, these seed accelerators (their other moniker as they support seed and early-stage startups) are not a great fit for every aspiring startup out there. 

Why? Let’s start with the basics:

What are accelerator programs?

One way would be to define them as hybrid models focused on the development of early-stage startups through mentorship, education, and support during a (typically) three-month period. In other words, tech startup accelerator programs “accelerate” the growth (hence the name) of an established business (one that already has a team, proof-of-concept, market validation, and so on) by providing everything necessary to scale. In exchange for the seed money they offer, they take equity in the business (some are non-profit). 

Money Cash GIF
It’s more like the other way around.

How do startup accelerators work?

First, there is a rigorous application process where the acceptance rate is only 1-2% for the more popular and established programs, while the percentage is just a teensy-weensy higher for the less prestigious accelerators.

Once accepted, a startup enters an accelerator on-site for a precisely defined/fixed period which is typically three months but can also be half a year. You also become part of a cohort of companies, which is another plus because a great deal of the connections you make during the process can turn into long-term, meaningful relationships – not to mention lead to potential funding-related introductions.

Because the accelerator experience is aimed at accelerating the life cycle of a young startup, it’s very intense and immersive with educational seminars and workshops, group and individual mentorship meetings, investor pitches, networking events, and everything else needed to fine-tune the product/service and business model. You are thrown into a highly compressed cycle that would usually take a few years so it’s vital to be able to focus, learn, and make progress at a rapid pace. 

Finally, the speedy learning-by-doing experience comes to an end with a ‘demo day’ – a business version of college graduation where startup founders present their business model. Each startup in the cohort gets an opportunity to publicly pitch to the investors and community, with the possibility of private and follow-up presentations. 

The entire startup accelerator structure is what makes all of this an enticing proposal. There are distinct collective elements that make this form of cultivating early-stage startups fairly unique: 

  • Fixed period
  • Cohort-based
  • Mentorship and education-driven
  • ‘Demo day’ exit

And with that, we reach the question that’s on every founder’s mind:

Are startup accelerators worth it?

With its ever-growing importance in startup communities across the globe, it’s easy to see why the startup accelerator business model is often perceived as the predominant way for scaling and securing funding from investors. While some programs actually provide limited funding or guarantee it in exchange for an equity stake, it’s important to note they aren’t suited for every startup. 

The thing is – they are not mandatory for building and growing a successful business. While not every program works in the same way, the high-pressure environment is one constant you’ll find in every accelerator. Arguably, not everyone is equipped both emotionally and cognitively to thrive under such conditions, which is a must in this case. 

clapping student GIF
This guy knows what I’m talking about

There are plenty of alternatives where you can reap largely the same benefits without devoting yourself to the exhaustive pace of an accelerator. That being said, the truth is these programs have literally transformed promising businesses like Airbnb, Stripe, Dropbox, Udemy and many others into global companies. Plus, the value of accelerators is reflected by the fact that all parties involved (investors, startups, end users, even the economy) benefit from the intensive learning regime. 

Once more, I’ll reiterate: learning-by-doing is critical to scalability, and accelerators make a point to speed up that process by stuffing years’ worth of learning into a few months. As such, they are great opportunities to quickly grow early on but also to attract other investors. 

How do you know if your startup is ready?

Most accelerators follow a similar process so before you decide to apply for one, you need to ask yourself a few key things:

  • Are you in the right stage of development? If you’re growing quickly, have a minimum viable product (MVP) and some form of competitive advantage, you’re likely ready to go a step (or two) further.
  • Can you and your team move on-site for 3 to 6 months? In order to be admitted into the program (and take full advantage of it), you must be on-site, even fully relocate your startup in some cases. 
  • Are you able to dedicate yourselves 100% to your startup during that time? The majority of accelerators require a full-time effort from the entrepreneurial team
  • Can you thrive in a frenzied, highly demanding environment? Because not everyone is suited to handle learning organized in such a fashion, not everyone is coachable in the eyes of experts who lead the accelerator.

On a side note – do you know how to clearly articulate what you (c)are about? Paul Graham of YCombinator, probably the most successful startup accelerator around, says most of the applicants don’t present their startup concisely, poorly explaining what they do and ultimately, conveying little to no relevance and importance. There’s something to think about.

Final thoughts

The startup accelerator business model is designed with an aim to help entrepreneurs of all walks of life scale their business and make an impact. From verifying your idea or concept to validating the market to securing financing and everything in between, there are many benefits that, in the end, significantly improve a budding startup’s chances for success. 

Do note this: addressing these key issues doesn’t automatically make much of a difference as these programs can differ in their success. My advice to you is to take your time, evaluate both accelerators and other options, and think long and hard about your ability to fully commit. Understand both the value you’ll be receiving and gamble you’ll be making.

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