6 Pros and Cons of Joining a Startup Accelerator
- by Karthik Sridharan
Over the past few years, awareness of startup accelerator programs like AngelPad, Y-Combinator and 500 Startups has skyrocketed. Typically, startup accelerators periodically select a batch of companies, usually in the same early stages of their lifecycle. In return for a small portion of equity, they offer advice, investor connections and mentorship. Programs can culminate in events much like debutante balls called a “demo day” where the startups have a chance to pitch to many investors at the same time.
Sounds amazing, right? It certainly can be. Our company Kinnek participated in the fifth cohort with AngelPad in San Francisco, and it had a transformative effect on our business. Kinnek has gone on to raise $33 million in subsequent years, and we have AngelPad to thank for helping us out during a critical juncture in our company’s history.
Despite the trend, many early-stage entrepreneurs remained misinformed about the benefits of going through accelerators.
Here’s a condensed version of some of my key insights about what can be helpful (and not so helpful) about such programs.
1. Not all startup accelerators are created equal.
There has been a huge proliferation of accelerators across North America over the past few years. This phenomenon brings advantages to the tech community; accelerators often inject a renewed sense of excitement into local startup scenes. However, the sad truth is that very few accelerators are actually worth participating in. Most accelerators have pretty weak relationships with investors. When the time comes for their demo day, there won’t be enough legitimate investors in attendance, and this will make it difficult for participating startups to jumpstart their fundraising process.
An additional issue arises due to the newness of many accelerators. For accelerators that have only been around for a couple years (or even less), this doesn’t provide enough of a gestation period for the program’s reputation to fully flourish. That means it’s nearly impossible for them to have a proven track record of producing several startups that have gone on to become massive successes. This causes investors to be extra cautious about investing in their companies.
2. Accelerators are most helpful during fundraising season.
While this may be different than the official party line at most accelerators, my personal experience shows an accelerator’s impact on your business increases dramatically around the time when you start to think about fundraising for your startup.
Why? The simple answer is that most accelerators are structured to culminate in that massive demo day where their companies can pitch to many investors simultaneously. This represents a golden opportunity to jumpstart a seed funding round, but its benefit is lost on companies that do not care to raise funds.
The best accelerators have deep relationships with a wide network of investors. By plugging into one of those networks, your company can benefit from exposure to a range investors it otherwise would not have.
3. Accelerators can have a negative impact on your company.
As with most business decisions, there’s usually an upside and a downside to evaluate. Participating in an accelerator program can potentially have its downsides, too, such as:
Many (not all) accelerators offer unhelpful distractions. This can include requiring participation in multiple daily social events and forcing startups to meet with dozens of tangentially relevant “mentors” and “friends of the program.” While on the surface this seems really great, there is diminishing utility to these types of meetings and conversations. While you’re hustling to make sales, engineer your product, pitch investors and generally save your startup from extinction by the time demo day comes along, it can be a big time sink to deal with these types of mentor meetings and events.
Then there’s the aforementioned detail that accelerators are usually designed to help their startups fundraise. If your company is not ready to fundraise or is the type of business that will never need funding, you may still get caught up in the social pressure to pitch investors and try to fundraise at the wrong time. This can have a detrimental impact on your company’s focus and could lead you down a very dangerous path in the long run.
Thirdly, participating in an accelerator does take up valuable time in your company’s lifecycle. Programs often range from 10 to 16 weeks, and that is like an eternity in the fast-paced startup environment, where even a few days can mean the difference between your company’s survival or demise. If you do not capture enough value from your time at an accelerator, it could really result in a massive time loss for your company. For early-stage startups, that is often more devastating than a financial loss.
4. Accelerators can provide positive signaling.
Earning a degree from a top university like the University of Pennsylvania can provide a signal to potential employers that you meet a minimum level of intelligence and general awesomeness (despite your exact course of study or your GPA).
In an analogous way, going through a prestigious accelerator can act as social validation for potential investors. It adds that rubber stamp to signal to investors, hires and even customers that your startup has cleared some basic hurdles to test proof-of-concept and has some semblance of legitimacy.
Don’t overestimate this positive signaling however. I’m not saying, for example, that mentioning you participated in AngelPad will have investors throwing blank checks at you. A more likely scenario is getting your foot in the door at more places, and that more investors would be willing to start conversations with you. The rest of the work is still up to you.
5. Accelerators help you benchmark your company against other startups.
At the pre-seed stage, building a company can be a very insular existence. It’s difficult to get a perspective on whether or not you’re growing fast enough and approaching problems in the right way.
For Kinnek, one of the most helpful aspects of participating in Angelpad was the ability to compare ourselves to other startups at similar stages of evolution. We got some idea of where we needed to improve and where we outperformed relative to similar startups.
There was also a healthy amount of social pressure within the accelerator. No one wanted their startup to be the one that pitched poorly on demo day, got the fewest investor meetings or was acquiring the least number of users. That provided a nice amount of pressure to hold our feet on the gas pedal, something that’s difficult to maintain when you’re working by yourselves in a coffee shop.
6. Accelerators can plug you into an awesome network of founders and ex-founders.
Participating in an accelerator (and the ensuing fundraising process) is an intense experience, but it helps forge strong bonds between cohort members. We are still great friends with many of our fellow AngelPad startups, something I’m personally very grateful for.
We also regularly dip into the goodwill accumulated across the founder network for advice on everything related to running our company. From hiring strategies to revamping sales processes to finding new office space; the AngelPad network is a huge source of advice and support. Friends who’ve participated in other accelerator programs have grown similar friendships and networks.
So, should you and your startup join an accelerator?
Ultimately, participating in an accelerator can be helpful to your startup. Make sure you’re extremely selective with which program you choose and try to time your participation in such a way that fundraising starts immediately after the program ends. A great accelerator can absolutely be an once-in-a-lifetime opportunity to kick your company into a higher gear. Don’t expect the accelerator to be a silver bullet that automatically catapults you to fame, fortune and fundraising glory though. Remember that it’s just an opportunity, not a guarantee. The onus is still on you to make it worth your while.
Editor’s note: The original version of this article appeared on the Wharton Entrepreneurship Blog on Jan. 12, 2016.