Boom or Bust: Does Your Startup Need An Accelerator?

By Robert McGarvey | Friday, 18 November 2022 | Feature

You know the startup gloom and doom forecast — 70% will fail in the first five years — but here’s the question: will participating in an accelerator increase the odds of survival? Or does your startup more properly belong in an incubator?

There are upwards of 2,000 accelerators and incubators in the US, but do accelerators and incubators deliver any value? Research on that question is thin, but a 2015 paper by University of New Orleans professors reported that startups that were alums of accelerators had a 23% higher survival rate than other new businesses.

“We can conclude that the accelerators are doing really well for the startups,” the professors said.

Brookings Institute senior fellow Ian Hathaway, writing in Harvard Business Review, added this insight: “Accelerators can have a positive effect on the performance of the startups they work with, even compared with other key early-stage investors. But this finding is not universal among all accelerators and so far has been isolated to leading programs. Early evidence also shows that accelerators may have a positive effect on attracting seed and early-stage financing to a community.

Incubate vs. Accelerate

The simple dividing line is that startups suited to an accelerator have an MVP — a minimum viable product. Companies at an earlier development stage don’t and, for them, an incubator is usually better suited.

But don’t get hung up on MVP. In many cases, what matters is how coachable the executive team is; if it is open to criticism and fresh ideas, the right accelerator could be a perfect fit, said many experts.

Besides, better accelerators have single-digit acceptance rates of applicants. At NewChip Accelerator in Austin, Texas, they get around 25,000 applications yearly and each month start a new cohort of companies that is not more than 200. Expect similar selectivity at many accelerators.

There are also many different kinds of accelerators. Some charge fees, and a few give money to successful applicants. Some demand an equity share of participating companies; many don’t. A few require participating companies to relocate to a specific geography. And a few — sponsored by single companies — pick startups working in areas that potentially would benefit the sponsor. Shop carefully. 

Some common characteristics show up in accelerators. For instance: they are fixed-term, perhaps as short as a month or as long as six months. They are “cohort-based,” meaning a group of companies enter at the same time and end at the same time. They usually are mentor-based, meaning the startups get intensive access to experts. And most culminate in a “pitch day,” something of a dress rehearsal for presentations to investors, and, in many accelerators, real investors, in fact, attend the pitch days.

Inside an Accelerator

As the number of accelerators has grown, their specialization also has increased. 

Here are quick looks at three:

StartUpNV: Jeff Saling, executive director of StartUpNV, said that since its founding, this accelerator has mentored 56 companies, 33 have been funded, and $76.6 million has been raised. A focus is on companies with fast-to-market technology, especially software. Companies need to be in Nevada or willing to relocate to the state. 

Saling offered insight into the companies that did not prosper in the program. In many cases, “the CEO wasn’t coachable,” that is he/she was closed to the feedback offered by program mentors. 

A plus is that StartUpNV offers a free pitch review with written feedback from four to six reviewers. Those who are at a high level are invited to pitch again for consideration for admission to the accelerator. About 10% make that cut. 

K2bio: The mission of this accelerator is clear: “It’s helping early-stage life sciences companies develop next-generation therapies,” said Andrew Strong, chairman. Some accelerators blend many disciplines under the same roof. Not K2bio — its focus is tight, and that’s because it is built around providing access to lab spaces and specialty equipment that life science companies need as they ready products for clinical testing. Strong says K2bio has 14 companies presently working in its building and “now has a waiting list.”

Newchip Accelerator: The big Newchip difference is that this is a virtual program. Most other programs require a physical presence in a specific location. Not Newchip. The other difference: “The Newchip Accelerator Program was developed to operate like an Executive MBA program, running after work hours each week, and with all of the assignments designed to be done at your own pace,” said the company.

The Accelerator Success Stories

The benefits enjoyed by accelerator grads are manifold, and strikingly, they often are very different. Here are two instances:

Ted Brown: Digital Onboarding

Ask Ted Brown, CEO of Digital Onboarding, what he got out of his time in the DCU Fintech Innovation Center — a fee- and equity-free program sponsored by Digital Credit Union in Boston — and he will tell you that’s where he got the idea that has powered his company to success. 

He went into the program with one idea, but while there, a DCU executive said that what the credit union really needed — what most financial institutions need — are tools that engage and activate new members. A lot sign up, make a small opening deposit, then vanish. That is an opportunity lost. And what Digital Onboarding has created is a tool kit that helps engage and activate that new member — and it’s proven to work for many financial institutions.

Think about that. At some accelerators, the idea that fuels a startup’s success can sometimes come out of a stint in an accelerator.

Alyse Nicole Dunn: CareCoPilot

Ask Alyse Nicol Dunn what she got out of her participation in Amazon’s Impact Accelerator for Underrepresented Founders — Dunn is African American and also a woman — and she did not mention the $125,000 in funding plus up to $100,000 in Amazon Web Services (AWS) credits that she did get.

That’s because the one-time software engineer at Venmo who took the plunge and launched her own company, CareCoPilot, after she personally had spent eight years watching first her father die, then her mother, and throughout she was a caregiver, got one more very big plus out of the program: a polished pitch deck.

Amazon’s experts worked closely with her on her pitch deck, she polished, and she practiced, and she polished more. She was even taught how to incorporate dramatic pauses. The payoff: she recently walked away with $325,000 in investment money after placing second in Fearless Fund’s pitch competition in Atlanta.

She now is going full speed on developing CareCoPilot, which will provide caregivers tools, support, and community to help them through the draining experience of caring for a dying loved one. 

Incidentally, at about the same time as the AWS accelerator, Google offered a similar program, one aimed at Black founders, and there are many other specialty accelerators provided by Google. Dunn said she did not apply to Google, only to AWS, and that was because she was wrestling with some AWS issues in building her company and wanted to be able to pick the brains of real AWS experts. “At the accelerator, we solved it in a day,” she said.

The Accelerator Naysayer

Accelerators are for many — but not all — startups.

A startup does not need an accelerator to succeed. In fact, the nation’s first accelerator is said to be Y Combinator which launched in 2005 in Boston (and later migrated to Silicon Valley). Of course, there were plenty of startups that succeeded before then. An accelerator is not a necessity.

Chris LaFerla, founder of Tatem, a developer of task management tools, ruled out going the accelerator route for his company. His reasons were plentiful. He had been an early employee at a startup that had gone the accelerator route — with Y Combinator — and had had concerns that some of the company’s best ideas seemed to be poached by other startups in the program. He also did not want to pay up the equity share that most of the better accelerators demand.

Lastly, he believed that a principal plus of a good accelerator is exposing a startup to potential investors — and he thought he could connect with investors without an accelerator because he had been doing that in previous startups where he was involved.

So LaFerla put up $50,000 of his own money to get Tatem launched then began knocking on doors. How did that go? LaFerla said he raised $2.5 million in Tatem’s seed round (Caffeinated Capital was the lead investor).

He has no regrets about not going the accelerator route. Remember: he had personal cash on hand and prior experience with venture capitalists and seed investors. Not every startup has those advantages.

But it’s up to you: to accelerate or not. And either choice may be exactly right for your business.