Since the seed accelerator model was launched 10 years ago, Seed-DB has identified over $10 billion that has been invested in accelerator graduates. These accelerators -- sometimes also called incubators -- offer entrepreneurs perks, mentorship, and funding in exchange for a nominal amount of equity. More than 200 seed accelerator programs have funded nearly 5000 companies globally, and over 300 companies have already exited for a total of over $3.5 billion. Read more about this development here.
The saturation of accelerator programs is beginning to reach an all time high, to the point where I stumble on a new “innovative” or “disruptive” program offering "the best training, mentoring, seed capital, amazing office space, and founder snacks" on a monthly basis. Not to be left out of the party, many major corporations are now offering their own incubation programs, including Vodafone, Microsoft, VISA, MasterCard, and others.
From my work in youth empowerment and social entrepreneurship, I see this is a welcome trend in terms of opportunities offered to new entrepreneurs to develop themselves independently. Programs, frameworks, support groups, and capital offer founders everything they need to make their project happen, and are in relatively ample supply.
But are these opportunities equally good for the business, and the founders as equity-holding participants?
I still believe a lot more needs to be demanded of our startups and of the work being done to support them. For the entrepreneurs, here are considerations that may be helpful before jumping into any of the programs out there.
Firstly - Why do you want to join an accelerator?
Hopefully not because it'll sound nice. Obviously being part of a trendy program is an ego booster -- but don't forget the hard work you're signing up for, and the achievements that lie ahead of you (rather than behind you) when you get accepted.
There are doubtlessly some really great programs out there, including Y Combinator or 500 Startups that command average valuations of $22.5 million for incubated startups, which definitely earn your team some street cred. But is the program critical to your success? Not necessarily. They are there in order to act as launchpads for you -- little more. They can and usually do help you to turn your concept into a viable business, with a refined value proposition and a path to revenue.
However, I have noticed that for some entrepreneurs joining an accelerator is an achievement or “show-off” in itself. According to data spanning the last 12 years from the UKBI (a professional body for incubators), incubators can increase the success rate of small businesses from 30% to 98%. However, I think that some entrepreneurs have a tendency of forgetting the main reason for why they are joining these programs.
First, if an accelerator doesn't have a clear way of helping you reach your market and customer, then it does not make any sense to join it.
Next, if an accelerator takes the majority of your equity and basically hinders your future growth opportunities through bad advice or useless mentorship, then it does not make any sense to join it.
Last, it doesn't matter how fancy their program sounds or how awesome their mentors are: if your accelerator doesn't have a track record of building successful companies, beware.
My main point: there are a lot of opportunities out there. Be demanding of what you choose and choose wisely.
5 To-Dos Before Joining an Incubator
1. Visit the Incubator
Get a feel of the atmosphere. Talk to the startups there. See the people behind it all. Is it run by entrepreneurs? If they did it, then you can probably do it, too. Frankly, I don’t want to have a fresh Harvard or Stanford graduate as my mentor. I want some somebody who got her or his hands dirty as an entreprenuer and knows what it takes to make things happen - someone who will act as an inspiration and push me to go beyond my own abilities.
The community, too, should understand the loneliness of being an entrepreneur and the struggles that we face when choosing this path. The founder family should appreciate what it feels to be sleepless at night because you don't know how you'll hit your investor goals or how you'll scrape enough money together to pay salaries this month or what it feels like to fire the people who are holding the startup back.
We've all see accelerators with mentors who haven't had any entrepreneurial experience, but still wanted to "do some good and lend a hand." Entrepreneurs don't need to be pandered to by well-meaning corporate drones. There is a long void between theory and reality when it comes to being a founder -- and there are many who haven't crossed the threshold whose advice you should take with a very large grain of salt.
Find a home for your startup that has the right structure, family, and visiting mentors for your business.
2. Discuss and Understand the Level of Engagement
How will they be supporting you? Ask for the specific skills and resources with which they plan to provide you. What network do they have access to, and how have they leveraged it to help previous startups?
Remember, in the startup world, relations and people are key. Would they be able to make a valuable introduction to someone in the industry you’re targeting? Can they introduce you to the right investors?
Want to make sure? Ask past batch participants about the network access they were actually able to realize while with the accelerator, and if this access changed once they graduated.
3. Understand the Motivations Behind the Money
Most accelerators offer funding to their startups -- which means they're seeking some type of return. Learn who the investors are, what they've invested in previously, how they've made their money, and why they're looking to back ventures like yours. Is it just to look good in the USAID books, to diversity their investment portfolio, or to impact the local entrepreneurship community? Whatever their motivation, make sure you're able to align with it -- or risk being ostracized even after receiving funds.
Above all, realize you'll likely be giving up a piece of your venture - between 0% to 10% - for an accelerator like this. Make sure you're comfortable with this exchange, as it will become a marriage of sorts for the length of your venture's existence.
4. Aim to Learn Hard Skills
In no way am I saying that soft skills are unnecessary - but, honestly ,you may get that “leadership” session or “cross-cultural management” session at a lot of different places.
However, the hard skills are the ones that are expensive, needed, and most challenging to get. Will they give you legal support? Can they help you with financial modeling? Can they provide help related to investment management or due diligence? Do they offer any help in terms of hacking together your MVP or growing it past the first 1,000 users? Maybe they have some special public relations access? Know how your venture will qualitatively benefit from this experience, and how you can take these skills to your next venture even if this one doesn't work out. Play the long game when it comes to improving as an entrepreneur.
5. Discuss and Understand the Success Metrics
This is really important. How do they measure and evaluate their entrepreneurs? If you are not sharing the same success metrics they may push you in a direction into which you do not want to grow.
Several programs do not have a clear definition of this, which can be positive as it can it allows you to grow in multiple ways -- or it can be negative, as it may indicate they lack the expertise to steer you towards the right track, or to help you speed up your growth on that track. For example, if you need to scale, enter a new market, want to achieve a certain user adoption size, or launch a new product, it'd help to have an accelerator at hand that can and have accomplished these goals for their batch inductees.
It may not be easy to figure their metrics out, but if they do not provide you with a clear answer then perhaps it can help to look into their former startups - ask them about their experience and how they believe that the program benefited them.
At the end of the day: the company is YOUR baby - take care of it and do not compromise on things that can hurt it long term or will not help it in growing and developing.
Let me know in the comments below if you have some other advices/ considerations for the entrepreneurs out there! Besides that, good luck out there!