Should You Join a Startup Accelerator? What Are the Pros and Cons? Should You Join a Startup Accelerator? What Are the Pros and Cons?
When founding a startup, many entrepreneurs are looking for both investor relationships and mentorship opportunities. Startup accelerators are a common solution founders turn to in order to meet both of these needs. Startup accelerators offer founders an array of benefits in exchange for a small portion of equity.
Below, we'll explore what a startup accelerator is, the differences between a startup accelerator and an incubator, what a startup accelerator can offer entrepreneurs, when accelerator programs are most helpful, and more.
Quicklinks:
- What is a Startup Accelerator Program?
- What is the Difference Between Startup Accelerators and Startup Incubators?
- What are the Pros and Cons of Joining a Startup Accelerator Program?
- When Should Entrepreneurs Consider Joining an Accelerator?
- What Other Resources are Available to Startups?
Key Takeaways:
- Startup accelerators select a batch of companies that are all in early-stage growth and offer them resources to help them grow in exchange for equity.
- Accelerators can provide startups with mentor relationships, investor networking opportunities, and even small amounts of funding.
- Startup programs often end with a demo day during which each startup pitches to an assembled group of potential investors.
- The best time for a startup to consider joining an accelerator is at the start of a fundraising cycle.
What is a Startup Accelerator Program?
As the name suggests, accelerator programs select a batch of companies that are in early-stage growth and offer them resources to get this -- accelerate -- their growth in exchange for equity in the companies. These resources range from mentor relationships, networking opportunities with angel investors, and even small amounts of funding.
Some of the more prominent accelerator programs include AngelPad, Y Combinator, Techstars, and 500 Startups all of which have been integral in helping startups grow into brands we likely all know and have used -- Postmates, AirBnB, DoorDash, and Canva all worked with one of these three accelerator programs before becoming the ubiquitous services we're familiar with today.
In addition to providing guidance, networking, and funding to startups, most accelerator programs culminate in a demo day, which serves as an opportunity for companies to pitch an array of investors at the same time to try to secure additional funding as they transition out of the accelerator program.
What is the Difference Between Startup Accelerators and Startup Incubators?
You may hear the phrases startup accelerator and startup incubator used interchangeably, but they serve different purposes for entrepreneurs and their fledgling companies. Incubators support new ventures during their earliest stages with access to office space (often shared with other startups). The services they provide to startups are crucial in creating an environment that helps new companies achieve a Minimum Viable Product. While some incubators provide similar services to accelerators such as mentorship and networking opportunities, incubators are generally structured more like a corporate office with mandatory meetings, strict deadlines, and direct supervisors.
On the other hand, companies join an accelerator program once they have at least some sort of track record in terms of initial traction as well as a team in place to help facilitate growth. These programs have established timeframes -- usually somewhere between a few weeks and a few months -- during which the participating startups get access to mentorship and networking opportunities, funding, and the demo day pitch session with potential investors.
TLDR -- both incubators and accelerators are designed to provide important support to startups, just during different stages of their early development.
What are the Pros and Cons of Joining a Startup Accelerator Program?
If you are wondering whether participating in an accelerator program can help your business it's important to consider the pros and cons. Let's start with the benefits of joining an accelerator.
Startup accelerators can be invaluable to early-stage startups in that they can provide direct access to some of the most brilliant business minds in the world. Entrepreneurs will be able to receive constructive feedback from professionals that they may otherwise not have access to. Founders who participate in an accelerator also get access to important fundraising opportunities, either directly through the accelerator or through the accelerators’ networks of investors.
It's also important to think about the cons when trying to determine whether an accelerator is right for you. Despite the positives we highlighted above, it's important to note that accelerators are not right for every company. The most obvious con associated with joining an accelerator is that you will have to give up equity in your company to do so. A second potential drawback is that it is extremely difficult for startups to get accepted into an accelerator, especially the most prestigious accelerators mentioned at the top of this article. The argument here is that the time and energy required to apply to accelerators could be spent growing your business and seeking funding through other channels. Another other con is that as accelerators have become more common in recent years, the results for participating startups have become more diluted -- not all accelerators will offer the most competitive investor and mentorship networks.
When Should Entrepreneurs Consider Joining an Accelerator?
While there isn't a single right or wrong time for a startup to join an accelerator, it's generally considered prudent for a company to do so when it is ready to enter a fundraising cycle. Because most accelerators conclude with a demo day where startups can pitch to investors, a business will likely see the most impact if it joins an accelerator around the same time it is looking to start a round of seed funding. A new business can also struggle if it doesn't have a strong cohort or peer network, and if your company is in that position it could be an opportune time to consider the accelerator model.
Another thing to consider before joining an accelerator is whether or not you are willing to give up equity in your company. If you're in a position where that feels like a concession that you're able to make (each accelerator will have different equity requirements, but in general expect to give up between 5-10% of equity in your company if you're joining one), it might be the right time for your business to consider an accelerator.
What Other Resources are Available to Startups?
Leader Bank is proud to offer startups innovative deposit account products with the technology and convenience of a large bank and the personal touch of a community bank. Leader Bank’s dedicated, veteran team specializes in both startup and venture capital banking. In addition to personal, concierge-style banking, Leader Bank's Startup Banking team offers educational workshops, venture capital and startup showcases, partnerships with accelerators and local strategists, and an innovation toolkit with handpicked resources and discounts to grow your business.
Some of the services our team offers to help your business include:
- No monthly fees
- No minimum balance requirements
- Unlimited transactions and transfers
- Mobile bill payment, ACH, and wires
- Remote deposit capture
- Same-day ACH approval
- IntraFi Cash Service sweep accounts for expanded FDIC coverage
- Integration with Quickbooks/Quicken
- Ramp corporate charge cards
- Lending solutions
- Capital call lines
Our team is ready to help your startup achieve its growth goals, so don't hesitate to reach out if you have any questions or if we can be of any assistance!
