Are you a startup founder who wonders whether or not you should give up equity to join an accelerator program? Here are some things to consider.
What is an Accelerator Program?
The terms “business incubator” and “business accelerator” are sometimes used interchangeably. Be aware that these two types of programs have important differences.
Fernando Sepulveda describes the differences between the two models as being similar to the differences between childhood and adolescence:
“Like a father to a child, an incubator provides shelter where the child can feel safe and learn how to walk and talk by offering office space, business skills training, and access to financing and professional networks. The incubator nurtures the business throughout the startup phase (childhood) and provides all the necessary tools and advice for the business to stand on its own feet.”
“…business accelerators help companies get through adolescence and prepare them to enter adulthood, providing them with strong arms and legs, sound values and a clear mindset (strategy) for the future. In other words, while incubators help companies stand and walk, accelerators teach companies to run.”
So, are you ready to run?
Why choose an accelerator program?
The money: Accelerators may offer seed money in exchange for equity in the company.
But a good accelerator can provide the new company with much more than needed funds. A business acceleration program is a gold mine of contacts and resources. The individuals who run business accelerator programs are highly experienced and successful entrepreneurs. Connecting with these individuals allows you to obtain introductions to other successful businesspeople. Your efforts towards building your own powerful network will be turbo-charged. Additionally, you will also have opportunities to discuss concerns with knowledgeable people, and receive honest, constructive feedback.
Sounds good, doesn’t it? Read on…
Mentors offer a deep understanding of your customer, your journey, and the problems that may crop up along the way. It is likely that others have experienced successes and challenges similar to those you will encounter as you build your business. By sharing how they overcame challenges, mentors are able to guide you through the steps of growing your business while reducing common and costly mistakes.
Achieve speed and momentum
A mature company might see the term “fast” as being counted in months, or even years. In the startup scene, however, a company may need to be able to respond to opportunities in a matter of weeks, or even days. Sometimes being first to act is critical. On the other hand, sometimes it is in your best interest to exercise caution, and wait. Having mentors to help assess risks, recognize genuine opportunities and answer operational questions helps to keep entrepreneurs focused and on track.
Increase your startup valuation
Startup valuations can be difficult to calculate. One item that many investors agree upon is the notion that a strong team increases the valuation of a startup. If a business accelerator holds equity in your company, they will be highly motivated to help your new business through rough spots in the road. Investors will be much more impressed by a company that shows depth of field rather than being just a one-man-band.
Mutual support and fellowship
Just as participants learn from the official mentors, they also learn from each other. Don’t underestimate your value to the group. You might provide that piece of information that helps someone else make that big breakthrough they’ve been looking for. Likewise, a participant may do the same thing for you. Additionally, you will meet people who can figuratively (or even literally!) hold your hand during difficult times. Support comes in many forms, and everyone ends up being enriched by the experience.
Business acceleration programs are not free
Keep in mind that the people who run business accelerators are looking at your business as an investment. Sooner or later, they will want something back from you. If you are not comfortable with this thought, consider carefully before you sign an agreement.
If a business acceleration program turns down your application to join, pay close attention to their reasons for doing so. They are not rejecting you. They are telling you something important about your business that you need to know. Embrace the feedback, act upon it, and help your business thrive!
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If you would like to learn more about how to build a minimum viable business with as little out-of-pocket cost as possible, check out our blog on Entrepreneur Resources. We offer great advice and tips that you can use to build your business and marketing funnel.