Startup growth isn't always easy to achieve. Even with a great idea and a proven need for your product or service, it can still be difficult to boost sales and make a profit when you're first starting out. Growth can and does plateau, too, leaving more established businesses wondering how to break that next barrier.
For some companies, the answer to overcoming these challenges is to seek the help of an accelerator — a highly selective, intensive program that offers the funding, mentorship, education and networking necessary to jump-start growth, typically in exchange for equity in the company. If you're thinking about applying to an accelerator program, here's what you need to know and some options to consider if you decide it's the right path for you.
Accelerators versus incubators
You may have heard the terms "accelerator" and "incubator" used interchangeably, and it's true that they are similar. Both are interested in helping startups and small companies achieve growth, and may even offer some of the same perks, like office space and a powerful network of mentors and advisers. However, businesses interested in these two options should be aware of some important differences between them. [15 Creative Financing Methods for Startups]
Accelerators usually invest money in their selected participants in exchange for a share of equity. They work to speed up the business development process during a restricted period of time, typically three to four months. Incubators, on the other hand, are less structured, and are generally focused more on building viable ideas and business models. In a TechRepublic article on the subject, author Conner Forrest wrote, "If an accelerator is a greenhouse for young plants to get the optimal conditions to grow, an incubator matches quality seeds with the best soil for sprouting and growth."
Who should apply to an accelerator program?
The startups best suited for accelerators are the ones that want to grow by learning and sharing experiences with others, said Mark Lawrence, co-founder and CEO of on-demand parking app SpotHero and a graduate of the Techstars Chicago accelerator program.
"You have to be willing to talk not only about your successes but your struggles," Lawrence said. "You also need to have a solid idea for a product or service and understand where you want to take your company and what goals you want to achieve."
The typical applicant is in the early stages of business development and has either just launched or is getting ready to do so. Many companies have a finished product or concept, and may have even raised capital; others may only have an idea and no funding whatsoever. These startups can benefit greatly from the resources and assistance an accelerator can provide, and the program mentors work with them to get their product ready for customers and investors.
But don't think that you can't participate in an accelerator if you're beyond the "startup" phase. In fact, there are numerous programs designed specifically for companies that have overcome the initial hurdles of starting up and want to take their business to the next level. One such program is Interise, a nonprofit organization that accelerates small business and economic growth.
"Small businesses achieve first-stage growth by focusing on quality and direction," said Jean Horstman, CEO of Interise. "Second-stage growth [is about] management and leadership. As a second-stage growth accelerator, we work with businesses that have hit a wall, and what worked before isn't working now. In a peer learning group, [Interise participants] acquire the know-how and management techniques to achieve second-stage growth."
What are the requirements for applying?
Each accelerator has its own set of requirements, and some are more selective than others — the most competitive ones have an acceptance rate of less than 5 percent. The application process usually includes a lengthy series of questions about your business idea, your market and competitors, the work you've done so far and potential challenges. Specific qualifications — such as a certain development stage, whether you've raised funding before and intellectual property agreements — vary greatly by program.
If an accelerator is interested in your company, you'll be asked to come in for an interview. Chris Tsai, founder and CEO of preordering platform Celery, said that when his team was applying to the popular Y Combinator accelerator, conducting mock interviews with program alumni was immensely helpful.
"[Y Combinator holds] rapid-fire, short, intense interviews," Tsai said. "We practiced, [and then] interviewed with four partners in a short period of time — about 10 to 15 minutes. We found out that day that we were accepted."
Lawrence advised asking questions before and during the application process — especially about the program mentors — to determine if a particular accelerator is what your business needs.
"You should ask how much time you will get to spend with them, how many there are and what career fields they come from," Lawrence said. "You want to be sure that you will be able to get to know them and vice versa. They should also have some expertise in the area of your business that you feel needs the most attention."
You should also make sure that the program is right for you on a broader level.
"Do your needs align with what the accelerator offers?" said Thea Chase, director of Telluride Venture Accelerator. "Can you commit to the requirements of an accelerator [such as] their residency and time requirements, [since] this is critical to attaining the benefits promised? Is it the right time for you and your venture?"
What can you expect from an accelerator?
There's no such thing as a "standard" accelerator experience. Chase said that accelerators are not one-size-fits-all, and this is becoming more apparent as niche programs continue to emerge.
"Many accelerators are choosing to go very deep into a particular vertical, [and] their industry connections are a huge value to participating companies for intelligence, proof of concept and first customers," Chase told Business News Daily. Others focus heavily on mentor engagement and particular verticals, Chase added.
Chase noted that in mentorship-based accelerators, companies get a crash course in launching startups and fundraising, as well as develop close ties with successful entrepreneurs and subject experts. Accelerators also vary considerably in the amount of capital invested and available up front, as well as in their fundraising track records, Chase said. In addition, you likely will be required to live in the accelerator's home city for the duration of the program.
One element that is common to most accelerators is "demo day" or "pitch day," the culmination of the program where participants are able to present their businesses to a group of potential investors, mentors and customers.
Horstman warned potential accelerator candidates that these programs aren't "quick fixes," and if your business is already established when you apply, you need to be prepared to spend some time away from your business to fully immerse yourself in it.
"You have to prepare your staff so they're aware of what you're doing and why," Horstman said, adding that they should be supportive of your efforts and be prepared to take on responsibilities in your absence.
While each individual accelerator varies, companies that graduate from these programs find that their time spent there was intense, challenging and, ultimately, rewarding.
"The beauty of the system is that it's a cross between summer camp and boot camp for startups," Tsai said. "All you're doing day and night is living and breathing your startup and your growth."
Ready to explore your accelerator program options? In alphabetical order, here are 10 of the top-ranked U.S. accelerators according to sites like Forbes, TechCrunch, Inc. and Tech.Co.
- AngelPad– AngelPad's twice yearly, 10-week intensive mentorship program helps a dozen startups in different stages. Most have not raised money and are within six to 12 months of starting up.
- Dreamit– This three- to four-month program is hosted in multiple major U.S. cities and gives each participating startup an assigned entrepreneurial coach, access to the Dreamit extended network and up to $300,000 in seed capital.
- Launchpad LA– Launchpad LA says it's "the top startup accelerator in Southern California," and invests up to $100,000 in each accepted company. The four-month program includes free office space, perks/discounts and access to its network of mentors, advisers and investors.
- Mucker Capital– This seed and "pre-seed" stage venture fund invests in scalable Internet software, services and media startups that typically have raised at least $250,000. Each class accepts up to 10 companies, and the program duration can range from three to 18 months, depending on the needs and progress of each individual company.
- RevUp by Betaspring– This year, Betaspring, a top-ranked tech accelerator founded in 2009, launched RevUp, the first accelerator for companies whose primary goal is growth through revenue. RevUp invests $75,000 in each participating company, and instead of taking equity, companies return the investment as a percentage of its revenue over a three-year period.
- StartX– This educational nonprofit is open to any company with a Stanford University-affiliated founder, although it does "make exceptions in exceptional cases." While this narrows the applicant pool significantly, StartX is unique in that it requires no application fees and takes zero equity from its accepted startups.
- Techstars– Whether you just have an idea or you're ready to sell a fully developed product, Techstars' three-month program can help your tech startup grow with a $118,000 seed investment. To level the playing field, Techstars does not fund directly competing startups during the same program cycle.
- Tech Wildcatters– Another tech-focused accelerator, Tech Wildcatters is a seed fund that offers B2B startups education, mentoring and networking during its 12-week program. All of its mentors are accomplished entrepreneurs who are heavily involved in the development of Tech Wildcatters participants.
- Y Combinator– One of the best known accelerators, Y Combinator invests $120,000 in a large number of startups to help them shape and refine their investor pitches during its three-month program.
- 500– Startups accepted into 500's four-month program receive a net investment of $100,000, along with office space, hands-on support and learning sessions taught by a wide variety of business experts.
When deciding which accelerator to apply to, businesses can develop a decision matrix to help them narrow down the options, Chase suggested.
"There are hundreds of accelerator programs throughout the world," Chase said. "Consider your particular personal and business context, and determine which accelerators would best serve your needs. Check out the key people, the graduates and the mentors. Look at the accelerator's track record and reputation, and ... have conversations ahead of time."