by Emily Savage
In recent years accelerator programs have sprouted up all over the world and gained immense popularity.
Twenty years ago, there were over 600 incubator programs in the United States alone. Now, in addition to incubator programs, conservative estimates are there are some 200 accelerator programs that have opened their doors worldwide.
Prominent graduates, representing the ideal for companies participating in an accelerator program, include Airbnb and Dropbox from the Y combinator accelerator.
While accelerators have demonstrated they can have tremendous upsides for startups, producing very high-value results, there is also controversy about their downsides and, in the worst case, the risk that they can actually reduce the momentum and have a negative effect on the value of an otherwise promising startup.
In Part One of a two-part series, we explore the question “Are Accelerators Worth It?” beginning with the affirmative argument for accelerators.
What IS an Accelerator and How Is It Different?
The terms “accelerator” and “incubator” are often be used interchangeably. However, in fact, they are distinct in their intent. The accelerator concept is a more recent phenomenon, primarily coming into vogue in the last decade, whereas the incubator concept has been around for many decades.
Accelerators have a structured curriculum and specific duration, and often involve (not always) founders of the participating startups trading a percentage stake of the equity ownership of their company in return for a certain amount of funding.
Incubators, in contrast, are more focused on providing unstructured advice from its professional staff, tailored to the startup’s needs, without a specific duration. Incubators may also provide low-cost office space and access to a support network that can help with growing the company.
According to the 2010 State of Small Business report presented by the U.S. government, the Great Recession of 2008 caused a drop in startup businesses getting funding through traditional bank loans or investors.
Then, and now, startups often struggle with a lack of general business knowledge and the ability to get sufficient funding for company essentials, like access to affordable office space, internet, and more.
Accelerators provide startup companies that may be struggling to get off the ground with the ability to develop their product and business plan in a rapid period of time.
What Good Are Accelerators?
An accelerator allows entrepreneurs to spend less time on mundane business tasks and more time developing their company or product. One alumni of theStanford-based StartX accelerator estimated he saved over 1,000 hours of general business work over three months by being a part of the program.
Others have compared accelerator programs to graduate school, because of the immense business practice and educational benefits they can provide, with one even referring to their program as a “startup MBA on steroids.”
Among other benefits, entrepreneurs are granted validation for their idea. They are accepted into selective development programs and are given personal help and resources.
It also helps to push a business along, due to the time-constrained and goal-driven nature of accelerators.
Above all, however, the most valuable benefit of accelerators is the interpersonal networking opportunity. In a study done of five of the most well-known accelerator programs, all participants cited some sort of networking as the most valuable asset of their program. One-on-one face time with experienced entrepreneurs is extremely beneficial for startup companies.
Many accelerators only accept mentors who have extensive entrepreneurship experience themselves. When asked, the majority of mentors very often say they are less motivated by the financial benefits of accelerators for themselves, instead being more motivated by the opportunity to give back to the startup community by helping others avoid the pitfalls that the mentors, themselves, experienced along the way.
As the popularity of accelerators has grown, the program themes, funding alternatives, and other services offered for startups have begun to vary widely. So, more than ever, due diligence on the part of a startup’s founders, is important before committing to a program, to make sure it’s the right fit.
But due diligence aside, something must be working, because according to a report published by the Small Business Institute Journal, 90% of participants in the top fifteen accelerator programs globally said they would participate in an accelerator program again. That’s good news, for entrepreneurs, accelerator directors, and advocates of disruptive innovations.
Emily Savage edits the NCtheBook blog. She is an intern with Powershift Group and will be a junior at Vanderbilt University in the Fall 2015.