Since March of 2005, when Paul Graham, Jessica Livingston, Robert Morris and Trevor Blackwell founded Y Combinator, which is most likely the first accelerator you’ve heard of, there has emerged about 7,000 incubators and accelerators- this is data from Hackernoon, and the International Business Innovation Association, as of 2019. The reason for the rapid increase is not far-fetched, seeing the successes recorded by Y Combinator as per their portfolio companies: Airbnb, Reddit, Dropbox, Scribd, Zapier, Twitch, Stripe, and over 2000 other companies, and the successes of accelerator programs, such as that of 500 Startups, TechStars, Co-creation Hub, DreamIT, Ventures Platform, AngelPad, Hebron Startup Lab, SeedCamp, Wennovation Hub, and other top accelerator programmes.
There is a difference between Accelerators and Incubators. Accelerators speedup growth of an existing company- statistically, accelerators increase the success rate of small businesses from 38% to 98%, while incubators brood disruptive ideas with the hope of building out business models or companies. Incubators are included in the statistics because a vast majority of them now also include accelerator programmes in their offerings. The reason is simple: the business model of an incubator is not good enough to generate profit. In fact, incubators are usually non-for profit, as not much money can be made from providing affordable work spaces and those other services they offer. So, it’s only logical to combine both services, right? Also, there is the fact that there’s an increase in investment into startups. In 2019, for instance, in Africa, startups raised $1.34 billion in early stage investments alone, On the global scene, Crunchbase also projects that $75.6 billion was invested across 9,100 Venture Capitalist deals as at Q3 of 2019. Some of the people who set-up accelerator programmes probably consider these investments as a large piece of pie they must take a bite out of. The motives are many different and it’s difficult to tell.
The increasing number of accelerators programmes is not the source of the worry, here. As a matter of fact, joining an accelerator is a nice-to-do for any startup founder, and the experience is a nice-to-have, that’s if it does not end up killing your startup — because sometimes, speed kills. Also, a lot of these accelerator programmes are run by sincere people who really want to help startups thrive. This would have been enough, if good intentions were all that is required to help a startup succeed. So, you know this article is not aimed at running down any accelerator programme or minimizing the efforts of anyone, but to help startup founders determine what to look out for before joining an accelerator, and to see what alternatives exist to joining an accelerator programme.
7 Things To Look Out For in an Accelerator To Avert The Death of Your Startup
It is important to emphasize that joining an accelerator programme is not a compulsory step in accelerating your business. Read this again: joining an accelerator is not a compulsory step in accelerating your business. Infact sometimes all it offers is what Mark Cuban refers to as “the incubator inflation”. It is just the feeling of accomplishment that comes from being able to get into an accelerator programme. You have absolutely no business joining an accelerator programme if it does not have any value it brings to you, especially at the particular time or stage in your startup’s life. What many founders do not realize is that the relationship between a startup and an accelerator should be a mutually beneficial one, not a helper-helped relationship. What I mean is: the accelerators need you as much as you need them, except if your startup is trash, of which they won’t even waste their time investing in you, because accelerators are actually designed to find potentially successful startups. If you and your team think that you need an accelerator at the stage in your startup’s life, then the same way accelerators do their due diligence when recruiting startups into the accelerator programs, you must also do your due diligence when selecting the accelerator programme to join. It is important to check for these seven things:
1. The Management
One time in 2013, David Cohen shared a mail he received from a startup founder who had not done due diligence on the accelerator she relocated to another city to join. It was a very sad one. Apparently, even though the managing director of the accelerator programme worked for a reputable startup company, she was personally not a transparent person. This founder after relocating from his city only got to find out that investment was not going to be coming from the accelerator and that a lot of the members of the management team were in for their selfish reasons. At the end of the 4 months accelerator programme, the founder discovered that total time invested in them by the accelerator was 45 minutes, and that in fact, nothing that was promised on the promotions was delivered. Thankfully, the startup didn’t die because the founders left before it was too late — they didn’t even wait for the demo day.
75.63% of startups ever incubated by Techstars are still active, and another 13.54%, acquired because of a solid management team.
2. The Alumni Network
When Quora joined Y Combinator even as a company already worth around $900 million, CEO Adam D’Angelo took to his company website to state three reasons for the decision. First, he mentioned the benefit of having YC’s president and all the other partners, then he said, “We get to be part of the YC community/alumni network of founders” and then lastly, that they get access to all the resources of YC. The alumni network is a critical resource that can be tapped into for growth and support. Also, from the Alumni networks you can find out the kinds of startups that have succeeded with them, how they benefitted from the programme, and more. You make sound decisions from historical data, don’t you? Look into their records before you sign up for the accelerator programme. If you join an accelerator programme that does not have a record of helping startups like yours to succeed, or do not have the capacity, your startup may not be around for longer.
If you are joining the accelerator as a part of the pioneer cohort, then you must look more carefully into point 1-the management. You must find out if they have experience (for instance, coming out of a reputable accelerator, or things like that).
3. How Much They Request in Equity
Accelerators will usually provide mentoring, market access, funds and for some, talents, in exchange for some equity in your startup company. It becomes a very bad idea to join a startup accelerator when they are requesting too much in equity. You already know that joining an accelerator does not guarantee the success of your startup, and at some point, you may need to raise more rounds of funding from investors, but not having enough equity in exchange for more rounds of funding could totally kill your startup, and diluting your co-founders too quickly is usually a bad idea.
Taro Araya, founder of gaming platform Goama based in Myanmar advised, “You’ve just got to watch out for yourself”. Count the cost of whatever the accelerator is offering you. Araya says she knows an accelerator in Myanmar that asks for 12% equity, giving 12 mentors, 1% each for absolutely nothing. 12% equity for mentoring only is outrageous, in my opinion.
There’s something else: before signing any contract get a professional lawyer or adviser to look through your contract to ensure there are no hidden clauses that might take more out of your equity than you know. These hidden clauses could kill your startup later.
4. The Mentors
A startup mentor is somebody that has walked in your shoes before and done that successfully. That person brings experience, expertise and enthusiasm to see others grow. Mark Zuckerberg greatly benefitted from the mentorship of Steve Jobs, Bill Gates and Warren Buffet. Efosa Ojomo also benefitted greatly from the mentorship of Professor Clayton Christensen. If you check well, their relationship was organic. The best form of mentorship is one that comes organically. This is something that many accelerator programs do not ensure. Once you have the wrong mentor — someone who has not walked in your shoes, who sees mentorship as a job, or who would force his opinions on you, then you might have serious problems. I have many startup founders who come to me for mentorship, and I humbly decline some of them, because it is a relationship- there must be a chemistry, and it must be organic. You can call it organic chemistry.
5. Their Investors Network
Who are their Investors? Do they have Investors that are beneficial to you or one that you are actively looking for? Some startup accelerators do know how to manage and grow their investors networks, which serves their portfolio startups well. Others do not, and it negatively affect their startups as well. Lots of investors and even the media, wait to get access to many promising startups at top accelerators. Often, if you find a startup accelerator with good investor network and a lot of good press around them, they are most likely doing it right, otherwise, remember that as far as startup acceleration is concerned, if it doesn’t help you, it is most likely killing you. You can find out about accelerator’s investors network by attending their demo day. Some accelerators have a list of their investors on their brochure, websites and other places.
6. Their Success Metrics
Would you recognize your success if/when you see it? You should be able to, and you should know what success means to your startup accelerator too. Startup success is defined and measured in different ways by different accelerators. For some, success is awards and media recognitions. For another set, success is basically staying alive after demo day. For yet another set, success is about the amount of funding received, and for some, it is how well the product is doing in the market and how much significant improvements are made on the product offering. The definitions and measurements are many different. What’s important is to ensure that your accelerator knows, understands and believes in your success metrics.
Since success is a journey and not a destination, you want to make sure you have; activity metrics, process metrics, knowledge metrics, people metrics, business metrics, and you can create metrics for other things you consider elements of your startup success. One wiseman said, “the worst use of time is climbing a ladder only to discover that it is leaning against a wrong wall”. You need to ensure that you are not living in the illusion of growth while the startup is dying.
7. The Training
From the development of the curriculum to the delivery styles, a startup accelerator should avoid taking a solely academic approach. Startup accelerators need to make sure to focus on what is important and to employ a practical approach to its delivery. An accelerator training should cover the essentials for running a startup successfully. Something on value creation, marketing, sales, value delivery and finance. Even some technical skills could be added.
Some startup accelerators run micro versions of the full programme, Hebron Startup Lab, for example. You can attend the micro venture acceleration programmes, and then decide if the full programme is right for you or not.
If you don’t get the right training at your accelerator programme, it will show in your startup- a negative impact that could lead to the death.
There are Alternatives to Accelerators
Let me mention here again that joining an accelerator programme is not a compulsory step in accelerating your startup. Instead, you could do one, some, or all of these:
(i) Engage the services of startups consultants.
You could share equity with a startup consultant, if your worry is where to get the money to hire one, or you plain put it in your budget. Either ways, hiring the services of a good startup consultant could be an effective alternative to joining an accelerator. The consultant’s expertise must be earned and valuable. Due diligence has to be done before hiring a startup consultant to ensure that the services are useful to your startup.
David Thorton of Thorton & Lowe, Rune Johansen of Nomore and Oliver Roth of TimeLapse are examples of founders who have benefited from the services of startup consultants.
(ii) Put together an active board of advisors, made up of experienced startup founders.
Imagine what would happen if you had some or at least one of: Steve Jobs, Richard Branson, Michael Dell, Larry Page, Mark Zuckerberg, Daniel Ek, Brian Chesky, Jack Dorsey, or Shim Shagaya, Iyin Aboyeji, Vinny Lingham, Justin Stanford, Kola Aina, Yomi Adedeji, Oluyomi Ojo, Mark Essien, Victor Asemota, Idris Ayo Bello, Yele Badamosi, Seun Osewa, actively working with you, advising you on your startup. If this was the case, will you still need an accelerator? No? I guessed as much!
(iii) Do it your way.
Mikko Jarvenpaa shared the results of a survey of 151 startup founders, in his book “Speed up your startup”. One main point to take away from the survey is that sometimes, accelerator think that a few workshops on subject matters are enough — for instance, about design, branding, marketing, etc. What Mikko however found from that survey is that founders who rather prefer to have a top designer on hand during the program than having to take lectures. Accelerators can also become a distraction, when you begin to try to combine many meetings with many mentors and different perspectives, with actually building your startup. It is okay to go ahead and do it your way, trial and learning style. As you embark on this, arm yourself with enough knowledge from books, seminars, and other resources. Prepare your mind, it will be more challenging going this route, but success is very possible.
It is common saying that speed kills, but I think that the kind of speed that kills is the blind and careless speed. You need speed, and if you watch out for the 7 itemized areas, you would have to a large extent averted the death of your startup.