Years ago, accelerators provided a lot of value for upstart entrepreneurs. Someone with no startup expertise that needed real guidance and mentorship regarding business formation, business models, processes, and investor introductions could get all of the above from a boot camp style accelerator. But as the accelerator model has become more popular and accelerators have proliferated startup ecosystems in every city, their value-add has diminished substantially and in many cases harms the entrepreneur and startup communities.
At this point, the only time you should join an accelerator is if you get into a top tier brand name like Y-Combinator or Techstars. Even then, the only reason to join one of these is because of the cache their brand names provide: graduation from them instantly opens doors to investors you may not otherwise have access to. As Antonio Martinez (YC alumni) puts it his book, Chaos Monkey, “This is how Y Combinator works. For three months, the selected startup founders meet weekly for a dinner with some eminent startup personage. The dinners are not relaxed social affairs: they’re competitive demos in which founders try to one-up each other with increasingly developed products, upward-sloping user graphs, or funding news, within a context of techno-camaraderie and shared suffering. The real YC selling points were the following: access to the YC partners, access to the network of YC founders, a bankable patina of prestige, and Demo Day.”
Aside from the investor access, it’s not worth the equity you have give up to join a local accelerator. Most accelerator take 7% to 8% equity for anywhere from a $25k to $100k investment (and oftentimes those investments have strings or are paid as “in-kind services”). At the low end this will value your business at ~$285k. Unless the accelerator can add real value from an investor introduction standpoint, it’s not worth it.
But what about the guidance, business model help, and advice? These are all things that a curious entrepreneur can learn about from studying their industry and the history of tech companies in general. There is nothing you can’t Google or read about on a good blog, so why hand over 8% of your business for someone to tell you that a SaaS model with recurring revenue is the most valuable? I can’t tell you how many entrepreneurs I’ve talked to that tell me the experience at their local accelerator wasn’t worth the cost. Additionally, it is very rare to see any business whose business model doesn’t change materially from the time they graduate the accelerator to the time they go into their Series A. Your business won’t just evolve from its early days; it will radically change, and all the learning will take place ‘on the job’.
Accelerators don’t just hurt entrepreneurs by taking their equity, they hurt investors and the startup community as whole by screwing angel investors. When you come out of an accelerator, your most likely investors are angels that you haven’t yet met. These angels are asked to invest in a SAFE with a $5mm to $10mm cap, whereas 3 months ago the accelerator invested at a valuation of $285k. It makes no sense for the angel investor and as more of them realize what horrible terms they’re getting, it turns them off from angel investing altogether. At BSV many of our investors are former angel investors who won’t go back to pre-seed/seed stage investing because the terms these accelerators tell entrepreneurs to seek just aren’t attractive.
While I’m sure there are some accelerators that provide great value and there are probably lots of happy graduates, there are now so many accelerators that it’s ‘buyer beware’. Before you join one, make sure you speak to as many alumni as you can about their experience, look up reviews, and even then do everything you can to avoid it. You’ll be glad you saved the 8% one day.
Visit us at blossomstreetventures.com and email us directly with Series A or B opportunities at firstname.lastname@example.org. Connect on LI as well. We invest $1mm to $1.5mm in growth rounds, inside rounds, small rounds, cap table restructurings, note clean outs, and other ‘special situations’ all over the US & Canada.