Should you apply to a Startup Accelerator Program?

A 2019 study found that 28% of startups that raise a Series A have gone through an accelerator, a marked increase from 10 years ago.

If you are very early stage startup, participating in an Accelerator Program such as Y Combinator, TechStars or 500 Startups can be a good option for you. These are 2-6 month programs (often in person) that support you in building out your MVP (minimum viable product), culminating in a Demo Day. Startups apply to be part of the program, and successful applicants receive a small amount of funding in exchange for equity in their company and access to the program.

Pros

• Investor Network: Usually the most important thing you will get out of the program is the network of investors who you will meet throughout the program and who will come to the Demo Day.

• Peer Network: You’ll also build relationships with other founders, who tell you about their experience with specific investors, and are generally great for helping you work through similar challenges (e.g. "does anyone know a great graphic designer for xyz"). Your peers might also be among your first clients if you have a B2B business.

• Marketing and PR: Being part of a good accelerator is a signaling mechanism for investors. You can also plaster the accelerator’s brand all over your fundraising materials. The Demo Day is a great marketing opportunity that generally gets good media coverage. This marketing can be useful for both clients and potential investors.

• Curriculum and Skills Development: Most accelerator programs offer you a crash course in building a business with workshops, resources and speakers. They’ll help you cover the basics you need like Sales, Marketing, Finance and prepare you for taking investor meetings. Also the courses are more structured which can be really helpful when you are starting out on your own. They'll teach you growth hacks, what tools to use, and bring in speakers from successful alumni (former founders).

Cons

• Equity: These guys take a pretty big chunk of equity (5-10%) in exchange for not that much cash. This is a lot of equity, so you want to be sure the benefits are worth it to you.

• Could be the wrong network: The network of investors you’ll get introduced to might not invest in companies like yours. Research previous companies who have gone through the accelerator and investors who have invested in them (Crunchbase is your friend here). There is no guarantee you'll go on to raise money after coming out of an accelerator.

• Commitment & Relocation: If you are going to do one of these, you’ll want to be able to fully dedicate your time to it so you can make it worth the equity you are giving up. Also they generally want you to relocate, which is in your best interest so you can meet your cohort and potential investors in person.

My two cents

These programs are ideal for first time entrepreneurs who do not already have an in with VC investors. It is an expensive way to get access (in terms of equity), but if your only other alternative is to fund your company yourself, you may decide it makes sense to give up a bit of your business to avoid mortgaging your house. I personally know several other Stanford MBAs and former Uber employees who have gone through these programs, despite already having a lot of the skills, personal branding and network that they provide.

It really matters which accelerator you get into. You are doing this for the network and the reputational value, so if the accelerator has the wrong network for your company or isn’t a top program, it's probably not worth it, unless you just want to go for the learning experience.