Building a successful startup is challenging. But the chances of success could be greatly enhanced through participation in a startup accelerator program. Entrepreneurially minded universities and research institutions have run incubators on or near campus where startups receive office space, shared facilities and services, but no capital. Over the last several years, a new breed of startup incubator has emerged, commonly referred to as a startup accelerator, which combines space and back-office services with hands-on mentoring, access to valuable networks and seed money. The money is not free of course, but rather provided in exchange for a small amount of equity in the company, sometimes in shares and sometimes as a convertible note priced at or discounted to the next round of funding. Another distinguishing feature of accelerators is the intensive duration of their program, typically three months rather than the multiple year model of the traditional incubator. Admission has become enormously competitive, with the top accelerators accepting as few as only 1% of applicants. It’s harder to get admitted to some of these programs than it is to an Ivy League business school.
|Long term: multiple years
|Intensive: 3-4 months
|Seed money for some equity
|Limited; no formal program
|Strong ongoing program
The first modern accelerator was Y Combinator, formed by entrepreneur Paul Graham in 2005 after selling his startup Viaweb to Yahoo for $49 million a few years earlier. Since its inception, YC has helped launch over 600 companies, including multibillion dollar startups Dropbox, a cloud storage and sharing company reportedly valued at $10 billion, and Airbnb, an on-line booking service for short-term stays at private residences also reportedly valued at $10 billion. The startups in the YC program move to Silicon Valley for three months, during which the mentors work intensively with them to get the companies into shape and refine their pitch to investors. Each cycle culminates in Demo Day, where the startups present their business plans to a carefully selected, invite-only audience of investors. In exchange for 7% of the equity, YC provides each startup with $120,000, a portion of which comes from a fund YC manages which has limited partners.
Another nationally known accelerator is Techstars, which runs programs in seven major startup cities: Boston, Boulder, Chicago, New York City, Seattle, London, and Austin. It boasts as its mentors such startup superstars as Foundrey Group Managing Director Brad Feld, Union Square Ventures Partner Fred Wilson and Twitter CEO Dick Costolo. Techstars’ website offers a helpful set of practical ground rules for the application process that entrepreneurs violate at their peril. For example, entrepreneurs should not apply and then immediately email Techstar’s mentors. According to the website, doing so in order to try to influence the mentors before being accepted into the program will hurt the entrepreneur because the mentors will complain about it. Entrepreneurs should also not visit Techstars’ offices without an appointment because it’s “not a good example of persistence … and it will negatively influence [the] application”.
Even Disney is getting in on the act. Last February, the creator of Mickey Mouse, Goofy and Donald Duck launched its first-ever startup accelerator, a three-month program pairing ten teams of entrepreneurs with mentors including CEO Bob Iger, and giving them access to the company’s IP. Disney’s accelerator is accepting applications through April 16, will be hosted in Los Angeles and be managed by Techstars, which has run similar corporate programs for Sprint, Barclays and Nike.