What is a Startup Accelerator?

In this informative article, we explain what accelerator programs actually do, who they help, the pros and cons of joining one — and some new alternatives to the traditional startup accelerators.

July 27th, 2022   |    By: The Startups Team

Startup Accelerators are programs that invest a small amount of capital into early-stage companies while providing programming and mentorship over a period of 3-6 months.

While startup accelerators have become wildly popular among early-stage startups, the answer to "What is an accelerator?" has morphed quite a bit over time. We hear about startup accelerators providing seed capital, mentorship with the business model, and ultimately introductions to venture capital at a "demo day" but how much of that is truly valuable?

Let's dig into what accelerator programs actually do, who they help, what benefits they provide, and what are some of the cons to joining them - and some new alternatives to the traditional startup accelerators.

What's the Business Model for a Startup Accelerator?

As a startup Founder it really helps to understand how the business model for a Startup Accelerator works, because essentially, you're the customer.

A seed accelerator acts as both an early investor in a startup but also an incubator program that facilitates some key milestones such as a "minimum viable product" and some early customer traction as you seek your competitive advantage.

Accelerator programs typically raise their own outside capital to make investments in (ideally) successful startups, so really, they act as an investor.

They are looking for participating companies that can successfully raise more rounds of capital after this seed funding - they aren't interested in startups that simply need a little bit of capital to get started and that's it.

Lots of little bets.

Startup accelerators use what's called a "spray and pray" method, which simply means they invest across a very broad number of early-stage startups in hopes that a few will achieve rapid growth, attract substantial investment capital, and ultimately provide an exit opportunity.

For early-stage companies who don't achieve that kind of traction just a few months after the program, they tend to be pretty much on their own to figure it out.

Do startup accelerators invest outside of tech startups?

Not really. That doesn't mean that you won't see direct-to-consumer or consumer packaged good (CPG) companies in accelerators, but since they also act as investors, they tend to follow investment opportunities that will likely scale with more funding opportunities.

It's mostly tech startups.

As it happens, the companies that typically follow the "Silicon Valley" playbook of most accelerators are the ones most likely to get follow-on funding, and therefore most startups within their portfolio companies tend to be tech startups.

If you look at the portfolio of venture capital firms, which are primarily tech startups, it pretty much tells you where accelerated startups are going to head post-graduation.

The fact that so little investment capital exists in the venture capital world outside of tech is why startup accelerators tend to focus there.

What is the typical Application Process for a Startup Accelerator?

The programs vary in requirements but nowadays most application processes for startup accelerators are deliberately short with a quick window for decisions. That's because they are flooded with startups in the application process and the "batches" of startups for each accelerator program have become enormous (100 - 300 per cohort).

Extremely restrictive

Almost all of the accelerator programs accept submissions online and most claim they only allow 1-3% of accepted startups into the program.

Online Application Process

You'll start with the online application process to provide a rough overview of your startup and business plan fundamentals, which will then be reviewed by a team that will schedule a call to pitch the accelerator.

Pitch Calls

Pitch calls are usually very brief, from 5-10 minutes and a decision will usually be made within a week. Since these are very small investments that the typical accelerator is making, they can afford to pick startups with a small amount of information.

What are the Commitments to a Startup Accelerator?

Most accelerator programs will expect a few commitments:

  1. The management team joins a three to six-month program either online or in-person. This commitment may not be a fit for many teams if they are working a day job or cannot travel.

  2. Weekly check-ins with mentors or alumni founders who tend to guide successful founders down a structured path, or with one on one mentorship for specific issues.

  3. Plan to pitch at a "demo day" with the intent to gain access to potential investors who are affiliated with the program.

How much Equity do Traditional Startup Accelerators take?

There's a small deviation in the investment terms for startup accelerators but many programs take between 5-7% of startup equity as part of their investment. Top accelerators can command more equity, but often provide more capital than other accelerators who may be smaller with less investable capital.

How much Capital do Traditional Startup Accelerators provide?

The most typical check size is $100,000 which commands a 7% stake in a startup that will receive funding. That implies a valuation of about $1.5m which for many early-stage startups is a good deal in and of itself. Depending on the startup accelerators' investable capital, they may also provide "follow-on" funding to participate in later rounds as well.

What are the Drawbacks to a Traditional Startup Accelerator Program?

The average startup accelerator program offers a ton of benefits; however, there are quite a few drawbacks that don't get a lot of attention.

  1. Very tech industry specific.

    As we discussed earlier, most startup accelerators are primarily focused on tech startups since those tend to attract the most amount of follow-on capital. That leaves many Founders across a wide variety of industries without any help. Try starting a design agency and see how many startup accelerators will fund you! Outside silicon valley? Another strike against you.

  2. No guarantee of follow-on investment.

    While an accelerator program can provide startup founders with some initial seed capital for their small businesses, they don't have any direct influence over whether a company draws in investment from outside investors.

    There's a lot of talk of a "demo day" funding but realistically, most startups need much more time to evolve their offer before raising, which 3-6 months usually don't provide.

  3. Short window of attention.

    Since the accelerator program culminates in the "demo day" in 3-6 months, the long-term success of a startup is only treated within a short-term window. Once a "batch" of startups has completed the program, all attention then goes to the next batch. That's just a limitation of the startup accelerators' resources.

Given the often difficult commitments and potential drawbacks of the traditional startup accelerator programs, we decided to lean back and revisit the concept as a whole.

We asked, "What is an Accelerator for Today's Startup Environment"?

It turned out there were a lot of things missing in the top startup accelerators, and most of it is rooted in their role as a very narrowly focused investor. This isn't to say the startup community doesn't need these accelerators, it just means there's a really big gap to fill.

Only "Accept" 1-3% of Startups.

While top programs brag about how low their acceptance rate is, we see this as a huge red flag! What happens to the other 97-99% of Founders? It would be as if college was only available to those that could get into Stanford.

That filter eliminates a huge swath of incredible Founders that need a ton of support, so we built an accelerator program for all of them - not just the silicon valley set.

Need to Support All Industries.

Every early-stage startup deserves to be accelerated, not just young tech startups (who we also love!) Whether you're a solo founder running a design firm or someone trying to build the next Starbucks, the fundamentals of an accelerator program - learning, community, support - should be ever-present. The Startups.com Online Accelerator helps all startups in all industries.

Need Help for the Long Term.

Most incubators and accelerator programs are set up to drive a specific function (usually getting a product ready for funding) and that's it. Within 3-6 months, once demo day is done, they are on to the next batch. That's silly! Founders need support through their entire journey, not just for a brief moment in time, and we're built to help at every stage of evolution.

Not Just about Funding.

There's an overwhelming focus in the seed accelerator community on getting to the next round of funding. While that's obviously important for startups for a moment, it's more important for the accelerators because it's how they get an ROI on their initial investment.

But, startups need help everywhere, from customer acquisition to staffing to just fundamental emotional support of the Founders. Our Startup accelerator is designed to expand your team with experts at every position and through the entire lifecycle of your startup company.

10x the Help at 0% Equity.

Startups shouldn't have to pay an "equity tax" by taking low valuations from incubators or a seed accelerator when they are super vulnerable. All of the help they need from how to raise a funding round to how to find those valuable first customers is available for less than $100 and ZERO equity.

Think of Startups.com as the "Accelerator for Everyone"

We don't care if you build an incredible business in your guest room or launch the next IPO (we've had 15 so far leverage our platform, and we'd love to see more!) What we care about is aligning the help you need with your personal objectives.

Statistically, 99.9% of early-stage startups are not going to become the "IPO Success Stories" that we all love to read about - and that's perfectly OK. So long as you've got a great idea and the passion to build something you love, we're here to help.

And it's not just "us" at Startups.com, it's the entire startup community here of Founders, Industry Experts, Subject Matter Experts, and more.

By engaging such a wide band of startups we are able to bring a huge amount of knowledge and support that many well-known accelerators miss out on because they are so singularly focused.

Can Startups.com Help me with Seed Investment?

Yes, actually. While we're not seed investors ourselves, we work with nearly every notable seed investor and micro VC on the market today, and all of them want to hear about innovative startups to fund!

And with no equity tax!

You really don't need to pay the "equity tax" of a startup accelerator to get access to capital, nor do you need to assume that if a few early-stage investors aren't interested in your innovative solutions (including startup accelerators) that there isn't investment capital to be had. Often you're simply asking the wrong people!

We can help broaden your search and connect with other Founders and mentors who have been through the same process you have.

We're Funding Experts

We've helped startups raise over $600 million in investor commitments through the entire fundraising process, from how to lay out the pitch deck to which investors to talk to understanding the best terms for a deal — all the impactful events.

What does it cost to join the Startups.com Accelerator?

It's ridiculously inexpensive because it's designed for a "Founder's budget" (read: tens of dollars). You can join the community for free to get a feel for all of our workshops, discussion threads, industry groups, and more, and once you're ready to level up a bit, you can upgrade for less than $100 to a premium subscription which gives you access to the entire community.

There's Room for Everyone.

We don't prevent anyone from joining the program although we are mindful of making sure that those that join are a good fit for the community at large, which really comes down to their willingness to contribute as well as receive.

Where do I apply for the Startups.com Accelerator?

You can get started right now (it's free to join).

About the Author

The Startups Team

Startups is the world's largest startup platform, helping over 1 million startup companies find customers, funding, mentors, and world-class education.

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