Are Startup Accelerators Really Worth the Hype?
When Y Combinator launched their first 3-month accelerator program in 2005, it was something that had never been done before.
Their plan was to do seed funding with standardized terms and teach potential founders how to start startups, and while they had no hope for these new companies to succeed, the three-month program resulted in the birth of Reddit and the shaping of a group of highly-successful tech entrepreneurs. The YC founders quickly realized they were onto something. Bringing together driven young entrepreneurs, giving them seed funding, mentorship and a network turned out to be a brilliant idea.
Now, over a decade later, accelerators have proliferated across the world. According to the Global Accelerator Report 2016, $206,740,005 USD was invested in 11,305 startups by 579 accelerator programs in that year. Among these accelerators are major players like Techstars and 500 Startups, that are now running programs in various formats on almost every continent. Not only have the programs grown and changed, but funding and support for early-stage companies have also proliferated, whether through non-profits, governments, in the form of loans and tax credits, or through programs and grants at universities and colleges. Given all of these options, it’s now worth asking the question whether or not the “traditional” three-month smaller-cohort accelerator model pioneered by Y Combinator is the best way for new companies to learn, scale and thrive.
In many cases, the answer is yes. In the U.S. where the major players launched with this model about a decade ago, there have been massive alumni successes like Dropbox, Airbnb, Sendgrid and 9Gag. Here in Canada, “traditional” accelerators have propelled scores of companies with huge potential. Thalmic Labs, an alumnus of Toronto’s Next36 raised $120 million in their 2016 Series B. Younger Montreal-based companies like Transit ($5 million Series A) and Sonder ($10 million Series A)—both FounderFuel alumni—have set themselves apart as international leaders in their verticals (transit and hospitality, respectively).
That said, accelerator programs aren’t for every startup. Before applying to one, it’s important that founders consider whether or not their company is ready for this type of program, or if it’s the right choice at all.
What do startups get out of these programs?
Accelerators are about preparing companies for the venture path. While most accelerators do include seed funding, the financial investment is a small part of the value companies get from participating. At FounderFuel we break this into three parts: we push startups to refine their vision, expand their network and rapidly accelerate their output. We help companies shape a compelling story about their mission, introduce them to a strong and broad community of mentors, alumni, and service providers, and help participants set and reach ambitious goals while establishing an operational cadence that can scale. They also get workspace at Notman House—Montreal’s tech ecosystem hub—for the duration of the program and introductions to investors with an eye to future fundraising.
When should a startup apply?
Before applying to an accelerator program, founders need to feel certain it’s the right moment in the lifecycle of the company to commit to a three-month program. If the startup doesn’t have a product ready, it’s likely too early. If the founders have already raised $2 million and have a strong network in the business community, then it’s possible they won’t benefit as much as a first-time founder.
While there’s no one-size-fits-all answer to this question, most accelerator programs cater to companies that have a functioning product and at least some sort of proof of traction to work with. Some companies won’t have raised any money prior to participating while others may have raised small rounds from friends and family or angel investors.
How do founders choose the right accelerator?
Given the range of choice, companies don’t need to stick with accelerators in their city, but may benefit from a strengthened local network should they choose to. A major consideration should be whether or not the team behind the accelerator program has the right expertise for the startup. If a hardware company is located in a city where the accelerators have a strong software focus, then the founders may benefit from looking farther afield. A strong accelerator program also has the potential to open doors into new networks and markets.
What do the accelerators look for in potential startups?
Different accelerators will have different criteria, but overall they’re likely to be similar. At FounderFuel we’re mainly focused on a few key issues. First, do the founders seem like people who could build a massive company? Second, is the company attacking a big problem that we can relate to? Third, is the product awesome? Can it deliver 10x value vs. other options? And finally, is the company at the right stage to benefit from our program?
If a startup fits all of these criteria, then we’re going to have to weigh them up against hundreds of other applicants. Not all of the companies we like and see potential in will be selected. That doesn’t mean the founders shouldn’t try again or look elsewhere. It means they weren’t the right fit for our current cohort, or maybe they need to develop their product or user base a bit further before they can get the most out of the program.
For founders with a great product, the accelerator model can be a fantastic springboard for a startup. What’s important is that the founders are ready for the commitment and believe in their team and product enough to take the next steps.
FounderFuel is an intensive, three-month, mentor-driven program that helps companies expand their network, accelerate their output and shape their fundraising story. You can apply for this year’s program here. Applications close on Sunday, March 11, at midnight. We encourage early applications and will make offers on a rolling basis.
Lauren Jane Heller is the Director of Communications at Real Ventures.
