8 reasons to join an accelerator (and 5 reasons to avoid it)

So you’re thinking about joining an accelerator. But will it suit your startup? Check out the pros and the cons below to make an informed decision.

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The following is an edited excerpt from Accelerate This!: A Super Not Boring Guide To Startup Accelerators And Clean Energy Entrepreneurship by Ryan Kushner. The excerpt was provided by Createspace Publishing. You can buy a copy here.

So you’re thinking about joining an accelerator. But will it suit your startup? Check out the pros and the cons below to make an informed decision.

Reasons to join an accelerator

Funding

Cash is financial energy, and usually somewhere near the top of the list for reasons to join a program. See more in the “Funding and Grants” section, but the flavors are generally investment for equity, or a grant with no equity taken. In terms of the traditional cash-for-equity model, this comes in many forms. Some programs have a range and each deal is negotiated (Elemental Excelerator, for example, is 1 percent to 6 percent).

Others, like Techstars and Y Combinator take a standard amount (6 percent and 7 percent, respectively) from every company. EnergyLab Accelerator in Australia takes between 1.25 percent and 10 percent, depending on the track. What’s fair here, and what can you expect? Also, if you’re going to negotiate, how can you benchmark?

These points cause a lot of stress in folks looking to join a program – they certainly did for me! When I joined my post-MBA accelerator program, I built a whole spreadsheet to compare rates and make sure I was being treated fairly (and ended up renegotiating after the program when I felt like I wasn’t). A much more thorough job was done by [business accelerator] Seedstars: across the 44 programs they looked at, equity taken ranged from 3 percent to 22 percent and cash given ranged from US$10,000 to US$150,000. If you boil this all down, you get an average of about US$5,700 for every 1 percent of a company if you subtract program fees, and about US$10,500 if you don’t, with a range from US$800 to US$35,000. This is helpful to know if you’re going to negotiate or just want to benchmark, but be aware that geography, industry, and company maturity are all factors, so find the closest comp you can.

Beyond that, much of a negotiation comes down to leveraging some distinguishing aspect of your company, or something that makes it less risky, or maybe less so than the typical companies your counterparty is choosing from. Successful team, maybe with exits? Patented tech, or contracts in hand? More than average money raised? As [best-selling author] Tim Ferriss likes to say about deals, “He who cares less, wins,” so having options and the ability to walk away is always powerful.

Quick note about “program fees” here. Some programs charge you for being in their program, and this is generally an outright fee if there is no investment, or it’s deducted from the investment (arguably a way to inflate, or at least not damage, your valuation). Overall, think about investment and grants in terms of how much runway it gives you versus how much time the program itself will occupy in your life. Seedstars says to “consider the program as an investment that you want to get 3 percent return on within a year,”but there is no hard and fast rule around this, as it’s all quite subjective.

Intros to investors

This is bread and butter for most accelerators, and it’s worth really digging into and thinking about since the quantity and quality of intros need to be strong to result in an actual investment. Fundraising is a pretty analog process that relies on a ton of human intelligence to do matching (“Oh, you should talk to these guys!”) and then a lot of social connectivity for intros and someone (like the accelerator staff) to vouch for you. Ask the program who their circle of investors are, who comes to their demo days, and research the alumni of the program and who has funded them. Look at the logos on invites and decks from previous events and demo days and the website to see who is buying into the program.

Intros to customers

Particularly in a business-to-business environment, this is critical. If your accelerator can facilitate relevant introductions to customers for your product/service that brings in cash [and] momentum (for fundraising, morale, and beyond), and can start you down the road toward a possible acquisition. Be bold. Ask a prospective program who they have in their network that could be a customer for you (it’s also a good test to see if they understand your business… or if you do). Customers are your business.

Reasons to not join an accelerator