Startup Accelerator Overview
What Is a Startup Accelerator?
Startup accelerators are programs that provide education, coaching, and funding to early-stage, growth-oriented businesses. Startup accelerators are designed to accelerate the life cycle and growth of early-stage startups that need mentorship, support, and investment development in order to succeed.
Startup accelerators often choose a cohort of startups at the same early stages of their life cycle to nurture and support on a regular basis. Accelerator programs provide education, coaching, community, network access, and even investments. Most accelerator programs also conclude in "demo days," which are opportunities for entrepreneurs to pitch their startups to a large number of investors.
Accelerators typically accept applications for fixed-term, cohort-based programs. Once a startup is accepted, startup accelerator programs last anywhere from three to six months and involve a fast-paced, rigorous, and immersive education and coaching experience on all things growth. Although each accelerator program is different, many programs will accept applications two to three times per year.
The application process for startup accelerators can be exceptionally competitive, with some accelerators receiving thousands of applications for a limited number of slots. Top-tier accelerators such as Y Combinator and Techstars are extremely difficult to get in, with acceptance rates as low as 1%-2%.
Although accelerators do not guarantee a startup’s success, entrepreneurs who participate in a startup accelerator benefit greatly from the education, mentorship, and connections — compressing years’ worth of learning into just a few months.
Startup Accelerator vs. Incubator
Before describing the differences between a startup accelerator and a startup incubator, we first need to know what a startup incubator is.
What Is a Startup Incubator?
As the name suggests, startup incubators are collaborative programs constructed to incubate, or nurture, innovation. Incubator programs are designed to support startups in developing their ideas and the earliest stages of their businesses — providing education, mentorship, assistance with design and tech issues, physical workspaces, and sometimes even seed money and working capital.
Incubators vary widely in their offerings and program models. Many incubators accept applications into their programs, while others only take referrals from their trusted partners. Incubators also may be cohort-based — running for a specified time — or have rolling admissions. Incubators also vary greatly in their length: some programs are a few weeks long, and others help startups for years.
Check out our list of the best startup incubators.
What Are the Differences Between a Startup Accelerator and an Incubator?
Startup accelerators and startup incubators are often confused with one another. While the goal of both startup accelerators and startup incubators is to help startups succeed, there are some key differences that distinctly define each one.
Simply put, startup incubators concentrate on the earliest stages of a startup, where sometimes the startup is little more than an idea. Incubators focus on idea development, survival, and scale.
On the other hand, startup accelerators are designed to propel the growth of early-stage startups that are already or near operating. Accelerators, then, focus on growth and expansion.
Here are some of the key differences between startup accelerators and startup incubators:
- The Stage of Your Startup
- Length of the Program
- Training, Mentoring, and Resources
- Business Model and Profit Motives
The Stage of Your Startup
One of the major differences between startup accelerators and startup incubators is the stage of startups to which they specialize in and support.
Startup accelerator programs are designed for startups with visions that are fully realized and need assistance with scaling and growth. Accelerators prefer to work with startups who already have a minimum viable product (MVP) and are (or are near) operating capacity. Accelerators then help them scale and grow. Therefore, accelerators are most advantageous for startups in the early and middle stages of their life cycle.
Startup incubators are constructed to help entrepreneurs in the earliest days of their startups. Incubators help startups develop their ideas into business models, create business plans, and move entrepreneurs toward launching a business.
Length of the Program
Another notable difference between startup accelerators and incubators is the length of each program. Accelerators are fast-paced, intense programs designed to rapidly boost growth and development and usually range from three to six months long.
In general, incubator programs mentor and train startups over longer periods of time, typically ranging from one to five years. In fact, the average time a startup spends in a startup incubator is about two years.
Training, Mentoring, and Resources
Startup accelerators and incubators each utilize different approaches to training, mentoring, and access to resources. Most startup accelerators incorporate a rigorous training program with seminars, workshops, and courses, combined with hands-on coaching and mentoring to teach entrepreneurs the skills to develop and grow their startups.
As opposed to a rigorous training program, startup incubators utilize a longer program that is less hands-on and allows entrepreneurs time to explore and develop their startup ideas. Although incubators often offer training through events, mentorship, networking and other ad hoc support, they are more tactical and less hands-on.
Business Model and Profit Motivation
Another key difference between startup accelerators and startup incubators is their business model and profit motivation. Startup accelerators are profit-focused, and most accelerators operate as for-profit businesses. They invest in and provide resources to companies in exchange for equity in the startups that they support. Accelerator programs focus on increasing the value of the startup so that they can yield a profitable return on their exit.
Startup incubators, on the other hand, are generally nonprofit organizations. Startup incubators are typically sponsored by universities, government agencies, and local economic development organizations. Many receive the majority of their funding from government programs, corporate and investor sponsorship, participation fees, and office rent. While they do provide a network for startup companies to solicit funding from outside sources like angel investors and venture capitalists, incubators do not typically provide seed funding or require equity in your startup. Their motivations are the creation of a startup ecosystem, the nurturing of innovation, and general economic development.
Note: In addition to nonprofit startup incubators, for-profit incubators with equity-based business models have also become popular. Many of these for-profit incubators offer seed money and working capital, in addition to their other services, in exchange for equity in the venture.
Startup Accelerator Pros
Now that we know a little bit about what a startup accelerator is, it is time to weigh the pros and cons of applying to and participating in an accelerator. Here are some of the biggest advantages of participating in a startup accelerator:
Community, Connections, and Networks
One of the biggest benefits of participating in a startup accelerator or startup incubator is the huge network of people that you will get plugged into. Not only are accelerators intense programs that help form strong ties among cohort members, you also get connected with mentors, advisors, alumni, and potential investors.
Coaching, Mentoring, and Skill Development
Another huge benefit of participating in a startup accelerator is the coaching, mentoring, and skill development provided by the program. In their quest to propel startup growth, accelerators provide speakers, workshops, and courses on sales, marketing, finance, communications, and technology along with a plethora of other skills.
Access to Capital and Investors
One more benefit of participating in a startup accelerator is access to capital. First, most accelerators offer capital to startups accepted into their programs. This can be an important source of funding in the cash-strapped growth period of a young venture. In addition, accelerators also connect startups and investors. And, the majority of accelerators culminate in a Demo Day — a showcase event that provides entrepreneurs the opportunity to pitch their startup to a room full of potential investors.
An added benefit of participating in a startup accelerator is credibility. A startup’s graduation from and relationship with a startup accelerator sends a signal of legitimacy and lends credibility to your startup. This acts as a form of social validation, sending the signal that others see the value in you and your startup.
Startup Accelerator Cons
Along with all of the upside, there are also several disadvantages to applying to and participating in a startup accelerator. Here are the biggest drawbacks:
Finding the Right Accelerator
Finding, applying to, and getting accepted to the right accelerator is no simple task. All accelerators are not created equally in terms of the help and support they provide, their connection with investors, and their track records of success. Some may not even have a large network of entrepreneurs and investors, leaving startups with little options on demo day. With hundreds of accelerators in the US alone, it can take a significant amount of time and effort to research accelerators and find those that are the right fit for your startup. Researching programs requires time and effort that could be spent working on your startup.
The Startup Accelerator Application Process
Another con of startup accelerators is the application process. Not only can the application process itself be arduous, but startup accelerators are also exceptionally competitive. With accelerators receiving up to thousands of applications, the chance of getting accepted to a top-tier accelerator (1% to 2%) is lower than the chance of acceptance at an Ivy League university.
Startup Accelerators Cost Equity
One of the major cons of accelerator programs is that they cost your business equity. Most accelerators require startups to give away anywhere from 6 to 10% equity to participate in the program. This may seem like a fair amount, but depending on which accelerator program you choose, the costs may outweigh the benefits, especially when you consider the distribution of equity in a high-growth startup.
Examples of Startup Accelerators
With over 200 startup accelerator programs in the US and hundreds more globally, startup accelerators vary nearly as much as startups. Many startup accelerators, like Y Combinator, Techstars, and 500 Startups, are investor-funded and invest in a variety of high-growth ventures. Others are funded by corporations and may be very narrow in focus or industry. Still, others are funded by colleges and universities, operating with their ecosystem.
Here are the three most popular startup accelerators, each having helped accelerate thousands of startups:
- Y Combinator: Y Combinator is a startup accelerator that runs two accelerator programs every year, investing in a wide range of high-growth startups. Y Combinator programs are three months long and are accompanied by an investment of $125,000. Y Combinator programs are extremely popular due to their success and extensive networks. Since its launch in 2005, Y Combinator has helped launch more than 2,000 startups, including Airbnb, DoorDash, Coinbase, Dropbox, Reddit, and Twitch.
- Techstars: Founded in 2006, Techstars runs startup accelerators all across the globe. Techstars accelerators are highly specialized, often held in partnership with industry leaders, and specifically focused on one sector or industry. Techstars’ accelerators also run for three-month periods, and the size of the investment is determined by each specific accelerator. So far, Techstars accelerators have helped more than 2,500 startups, with an all-time graduate market cap of more than $50 billion.
- 500 Startups: Another successful startup accelerator is the 500 Startups accelerator program. 500 Startups accelerators focus on helping high-growth potential startup companies scale and grow. 500 Startups accelerators serve a diverse set of tech companies for their three-month programs, investing $150,000 in the standard accelerator deal. Founded in 2010, 500 Startups already has invested in 2,500+ startups in over 77 countries.
Is a Startup Accelerator Right for Your Startup?
If your startup has an MVP and is operating or is near operating and has high growth potential, a startup accelerator might be right for you. Accelerators provide a plethora of help, including capital, resources, training and mentoring, and access to their networks.
If you do decide that a startup accelerator is right for you, it’s best to take the time to do your research to find the right accelerator. You should consider how many resources the accelerator can provide, the quality of their resources and network, the accelerator’s track record of success, and how much equity the accelerator will take.