👋 Hey, I’m Jamie, and I’m here to share actionable advice to help you raise money and grow your startup.
The first accelerator was Y Combinator.
When it started in 2005, it spawned first dozens and then hundreds of copycats in every sector and flavour imaginable.
The YC experience was pretty low-key at first. A small group of founders would gather once a week at Paul Graham’s house for dinner and he and Jessica would offer advice and guidance. This format of weekly “group office hours”, remains the core tenet of the YC experience. Every week founders gather as a group - now in the YC offices rather than at PG’s house - to set goals for the week, get advice, and share updates.
At YC you get to work with incredible group partners, you get a decent investment, and you get to be part of a community of killer founders. If you can get in, it’s a no-brainer.
However many accelerators are not worth it - there’s a lot that are not great.
Its impossible to look at every accelerator and tell you if it’s a good deal or not - but what I can do is give you a decision framework for how to think about whether it’s worth applying or not.
Let’s get to it 🚀
There are three critical questions you want to ask when you are considering an accelerator.
1. What’s the deal?
Most accelerators make an investment in your company - and although the investment is (hopefully) not the biggest value add, you should think carefully about the terms.
Some (for example Startupbootcamp) are still asking for 8% of the company for €15,000 ($16,103) in Europe.
This investment is valuing your company at €187,500 or $201,299.
Let be be blunt, you are giving away equity far too cheaply.
Looking at the 500 Global deal for comparison. 500 invests $150k for 6%, valuing your startup at $2.5m. This is not too bad for an accelerator.
To generalise the point, the main thing you have to do is calculate how much equity you are giving up when you join an accelerator.
Accelerators invest at lower valuations, so if you think you can get going without an accelerator, better terms can potentially be found just raising directly. The average pre-seed investment valuation is around ~$10m in the US and €7m in Europe. So you’re going to give away less equity in general if you don’t go through an accelerator.
The other thing that isn’t widely appreciated is that you can sometimes negotiate the terms of joining an accelerator.
Accelerators want you to believe they have standard investment terms, but if you are doing very well already, they need you just as much, if not more, than you need them.
If you find yourself in that position of strength, you can negotiate.
2. What are you going to do?
The next thing you want to think about is what sort of experience you are going to have.
Many accelerators have copied the YC model, which runs over 12 weeks.
A normal week includes a group office hours, perhaps a couple of individual office hours, and a speaker.
That’s about it for core obligations.
This is surprising to some people. But the important point to understand is that most accelerators are not school - you’re not there to have your hand held and be told what to do every hour of the day.
That said, there are some accelerators that try to be more like school - for example A16Z Crypto Startup School. This program includes more intensive learning, with lectures taking up a big chunk of most weekdays.
But this is unusual - the majority are closer to the YC model.
Some are more specialised - for example the famous insurance market Lloyds of London runs an accelerator for insuretechs. They don’t take equity but they give you free space in the Lloyds building which gives you access to key people in the market.
When you are looking at accelerators, think about what you want out of the experience. Do you want more hands on support, or do you want to get on with building your business?
If this is your first venture and you are not confident in what you are doing, you might prefer a program that is more hands on or more specialised.
If you are more experienced and confident, you might be more suited to a YC style program.
3. Who are the mentors
Mentors are where the a lot of the value of accelerators lie - that and introductions to other investor networks.
Mentors are what make the difference between being an accelerator, and just being an investment.
They might be called partners or group partners or advisors or whatever, but what matters is who is going to be giving you advice about your business.
The best mentors are those that have been in your shoes and can speak from their own experience.
For example, my first company was in the livestreaming space, and at YC I got to be mentored by Justin Kan, who had sold Twitch to Amazon for more than $1bn.
That’s the sort of mentorship that you want. It’s worth more than the investment frankly.
Many programs will include a bunch of sweeteners such as office space, AWS credits etc. Don’t be swayed by this. This may be to make up for weak mentors. Don’t fall for it.
Ask who the mentors are. Think about whether they are really relevant for you. Do they have real experience running companies? Do they have experience for the stage of company you are? Do they have experience in the sector you are in? If you will be mentored by generic ‘business advisors’, give it a miss.
Good mentors make or break an accelerator.
Bonus question: What do alumni say about it?
If you’re still on the fence about an accelerator, reach out to some alumni. If you can’t find any on Linkedin , ask the accelerator for an intruduction. Though bear in mind that the people that they send you will be the ones they think are going to give you a good review!
Accelerators for the most part are a mixed bag. Some are just straight up bad deals, a couple are great, but most fall somewhere in between.
For these, I hope this helps you think more strategically about which to apply to, and which to avoid.
Until next time,
Jamie
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