As a mentor for several accelerators, an investor in accelerator participants, and the co-founder of MergeLane, an accelerator for high-growth startups with at least one woman in leadership, I often find myself explaining the ins and outs of startup accelerators. I recently invited University of Colorado Law School Professor Brad Bernthal, one of the world’s leading experts on this topic, to join MergeLane for the launch of Onramp Live for a session called “The Startup Gas Pedal: What Is an Accelerator and Is It for Us?”. Bernthal recently published extensive research on accelerators and here are just a few of the key points we shared.
What is an accelerator?
Startup accelerators are short-term programs that offer intense mentoring by experts and other resources for a select group of startup companies. These companies are selected through a competitive application process, and enter and exit the program in “cohorts.”
As Bernthal outlines in his research, there are two main types of accelerators:
“One is the for-profit private investment accelerator (the “IA”). The IA takes an ownership stake in a portfolio of companies in exchange for services and a modest amount of capital. A second type of accelerator is the non-investment accelerator (a “NIA”). A NIA seeks an impact that is measured in terms beyond a startup’s direct pecuniary gains. NIAs do not take equity ownership in startups and, instead, often rely upon public or private charitable support to fund operations. A NIA’s objectives may include economic development, entrepreneurial education, or another social purpose goal.”
What are the benefits of an accelerator?
Accelerator programs offer startups a chance to dedicate a focused period of time to capitalize on advice, education, connections and, in the case of investment accelerators, investment capital. From my experience with accelerators, I’ve seen companies make tremendous shifts as a result of these programs.
In the last MergeLane cohort, for example, one company determined that the founders needed to completely change their roles. Making that shift made a huge difference in their ability to raise capital and acquire customers. Another company realized they needed to change their market focus, and within weeks, they saw tremendous interest for their product and were able to sign 13 large companies as users including Nordstrom, American Express and Deloitte.
The Accelerator Network
Accelerators broker relationships to a broad network of stakeholders including startup mentors, angel investors, venture capitalists and service providers such as law, accounting, PR, and technology firms, which often provide discounts and in-kind support for participating companies. Accelerator participants also benefit from the connection to the other participating companies and alumni. This network facilitates tremendous information sharing and connections to potential customers, investors, acquirers, employees, co-founders and more.
The most popular type of accelerator is called a mentor-driven accelerator. With this, each of the startups accepted into the program are matched with volunteer mentors with relevant experience.
Mentors offer tremendous value from everything from making an introduction to a potential customer to helping to completely re-design a product. To give a few specific examples from our last MergeLane cohort, one of our companies was looking for a celebrity to endorse their product, and their mentor was able to introduce them to Pink. Another company was a mapping technology and we were able to match them with a mentor with 30 years of technical and M&A experience in their industry. The mentor was able to help the company uncover a $4 billion market opportunity and walk them through the requisite milestones for success for their business.
The Accelerator Team
The people running the accelerator can offer significant value to participating teams. I’ve seen this in working with other accelerators such as Techstars when I’ve had the opportunity to see what 30 minutes with someone like Nicole Glaros can do. With MergeLane, I think the best benefit of our program is the opportunity to work with my partner Sue Heilbronner. She’s the most talented startup mentor I’ve ever met.
Accelerators can have a big impact on companies’ ability to raise capital. While only an estimated 1% of the companies who aspire to raise venture capital are successful in raising it, 59% of accelerator graduates raise follow-on funding. From my experience as an investor, I can say that accelerators can greatly increase a company’s credibility. Perhaps more importantly, accelerators help companies address all of their issues to increase their chances of raising capital and of actually being successful.
Accelerators are often featured in the media and host large public events such as the typical “Demo Day” culmination event at the end of the program. Being part of an accelerator can result in tremendous exposure to the media, investors, customers, potential employees and more.
How can you determine whether an accelerator is right for your business?
Think about the value of an introduction.
As I mentioned earlier, the accelerator network is one of the greatest benefits of participating. I’ve noticed that some entrepreneurs associate accelerators mainly with investor introductions, but for many businesses, introductions to strategic partners and customers can be even more meaningful. I would encourage startups to think about what types of introductions could make a difference in their business and what the value of an accelerator introduction could be.
Consider the stage of your business.
Accelerators focus on companies ranging from the idea stage to fully operating companies with material revenue and previous outside investment. However, most of the companies that participate in accelerators can be classified as “startups”. Our 2015 MergeLane cohort ranged from pre-revenue to as much as a $2 million run rate. Some of our companies had never raised capital while others had raised meaningful capital (nearly $3 million in aggregate) before completing the program.
I think startups of any stage can benefit from an accelerator. If a company is still in the idea phase, an accelerator can be tremendously valuable in launching the product and developing a go-to-market strategy. If a company is more established, it can be easier to execute on the connections and the advice obtained. From my experience, the most important thing companies should consider is whether they can commit to being curious about new possibilities and directions.
Understand how much time will be invested.
Accelerator programs are typically three to six months in duration. MergeLane is a 12-week program, which is similar to most of the accelerators with which I’m involved. In his research, Bernthal found that accelerator participants spend an average of four to six hours meeting with mentors each week. Time commitments vary from program to program. Some accelerators require more of an intense, all-focused in-residence “bunker” approach. At MergeLane, nine of our 12 weeks are held virtually, and others, like Y Combinator, offer more of an independent study model.
As an entrepreneur, I understand how hard it is to make time for anything other than keeping a business afloat. However, I’ve also learned how important it is to be able to take a step back and look at the business from 100 different angles. Accelerators force businesses to make room for innovation and game-changing shifts, and from my experience, these are success-essential things for entrepreneurs to make time for.
Consider the dollar investment (for investment accelerators).
Investment accelerator programs typically offer $15,000 – $25,000 as well as the value of the accelerator program in exchange for 5-7% equity. Certain high-prestige accelerators offer portfolio companies the option of additional financing in the range of $100,000. Depending on the stage of the company, 5-7% equity may be worth far more than $15,000 – $25,000, but it is important to consider the value beyond the dollar investment. I’ve seen this value first-hand and am a strong proponent. I have encouraged many of the companies in which I’ve invested to apply for accelerator programs. (More on that here.)
If I’ve convinced you of the value of an accelerator and your company has at least one female in leadership, we’d love for you to apply to MergeLane. Our applications for our 2016 program open on September 1, 2015 and our admissions are rolling, so I highly recommend applying ASAP.
We’re also hosting a MergeLane information session on September 9th and this Onramp Live event next week:
How to Get Accepted into a Top-Tier Accelerator
9/1 from 12:30 – 1:30 pm MDTEvent will be held via WebexJoin a panel of application reviewers and graduates from some of the world’s leading accelerators to learn how to make your application rise to the top.Login Details and RSVP
Hope you can join us!
At MergeLane, we’ve been thinking about how changing market conditions may affect our fund in the future. I know many of our listeners are asking themselves that question as well. Our guest, Liza Benson, thrived as a VC through both the dot-com crash in 2000 and the 2008 financial crisis.
Beezer Clarkson invests in early-stage venture funds at Sapphire Partners (the division within Sapphire Ventures that invests in venture funds). In this episode, Beezer shares her perspective on venture capital trends, VC firm differentiation, and nonobvious mistakes for VC fund managers to avoid.
As an entrepreneur and startup investor, I have had many moments of feeling like I am pushing water uphill with a rake. Sometimes, I have kept pushing and have succeeded out of sheer grit. Sometimes, it was time to admit defeat. Two years ago, I had one of those moments.
Elizabeth Yin, co-founder and general partner at the Hustle Fund, shared her thoughts on how to assess a startup’s ability to “hustle”. Her thoughts are applicable to venture capitalists, startups and anyone who wants to work with hustlers.
Nearly every email I receive starts with “Sorry for the delay.” Our always-on culture has set an unwritten expectation that an email should be responded to within 24 hours. To prevent the perpetuation of this cultural expectation, I would like to make my thoughts clear.
We asked our Fund81 forum for venture capitalists to nominate portfolio companies to participate in a startup showcase. We received over 50 nominations. Four of those startups are featured in this episode.
Jocelyn Goldfein from Zetta Venture Partners joined the Fund81 podcast to share her approach to investing in artificial intelligence (AI). With the cost of creating software continuing to decline, Zetta believes the companies of the future will need to build more than just great software to thrive.
I love being active, but I also have high professional aspirations. I’ve spent the last 16 years trying to find a productive balance between the two. In this episode, Nicole DeBoom, pro triathlete turned CEO of Skirt Sports, and I share our thoughts on how to fit fitness into a startup schedule.
Fundraising doesn’t come naturally to David Cohen, founder and co-CEO of Techstars, but he’s learned how to leverage his strengths and team to successfully raise the funds that power the Techstars network. In this episode, he shares his honest and authentic reflections from this experience.
I practice the principles of Conscious Leadership, a methodology and toolkit that accelerates self-awareness. It’s being taught at companies like Yahoo, Goldman Sachs and Ebay and has forever changed every aspect of my life. I estimate that it has bought me about five hours of extra time each day.