Many startup founders come to believe that the best way to get a big boost at the beginning is by becoming part of a startup accelerator. Accelerators generally offer between $25,000 and $100,000, as well as mentorship and valuable connections. But the competition for acceptance can be intense, with valuation requirements increasing to an almost unreachable level for some of the most popular accelerators.
The good news is that you don't have to be part of an accelerator to launch a successful business. In fact, startup accelerators are actually a bad choice for some new businesses. Here are a few reasons a startup accelerator may not be the best option for your small business.
Benefits in Question
Before applying to be part of an accelerator, be aware that some investors question the value of being part of one. Only a select few programs are considered highly reputable in the industry, with Y Combinator being the most notable of all. But some investors point out that even Y Combinator is an "overfished pond," with startup valuations driven up by too much investor interest. With so much noise surrounding the companies participating in accelerators, it can be easy for a participant to get lost, especially with so many accelerators turning out "graduates" each year.
Giving Away Equity
The hefty investment an accelerator offers comes with a price. You'll be asked to give up between six and ten percent equity in your company, which may hurt you in the long run if you're not one of the startups to gain from your accelerator experience. Some companies have complained that accelerators over-promise and under-deliver, which means you may be giving up equity without getting the rewards you expect.
The Right Idea
Accelerators are ideal for certain types of startups, often those that are customer-focused. When you apply to an accelerator, you'll need to be able to capture the interest of the applications committee. If yours is a concept that frequently gets the response, "That's a great idea," you may stand a better chance. If your business is one that satisfies a very specific niche or has a highly-technical concept, you'll likely have a better understanding of your target audience than that applications committee would.
Accepting Criticism and Change
In order to participate in an accelerator, you need to be prepared to have your entire business broken down in order to be built back up again. You may not even end up with the same product you went in with. Even if your mentors believe your idea is sound as is, they'll inevitably have more than a few suggestions as to how you can improve it. Some people do not respond to criticism well. Even though the negative comments may seem painful at first, you have to be prepared to enter the experience with an open mind and consider every suggestion carefully.
The Ability to Disappear
If you're chosen for an accelerator program, you'll be expected to spend three to four months at the accelerator's offices in order to fully focus on building your business. Chances are, you won't be able to find an accelerator in your own hometown, so this means you'll have to uproot yourself from friends and family for this period of time in order to participate. If you have a business partner, that person will also be expected to temporarily relocate. Depending on where the accelerator is located, you may even like this idea. Just be sure you can and want to commit to this time away before applying.
If you do decide to try for an accelerator, follow insider advice to improve your chances. You'll need to have a detailed business plan as well as solid market research into customer demand for your product. Be prepared to be consistently answerable to the accelerator about each phase of your business's growth.