Time to Startup!

The BizFilings blog covering business tips and trends.

Small Business Accelerator Programs Can Put Your Business in High Gear

Published on Aug 21, 2012

Summary

Read our article, 'Small Business Accelerator Programs Can Put Your Business in High Gear' at 'Time to Start Up,' the small business blog by BizFilings.
Steve Jobs' garage. Mark Zuckerberg's dorm room. Popular lore has it that many world-beating businesses - especially in the tech sector - start out in the humblest of circumstances, only to hit it big after introducing a revolutionary product or service. In reality, there are many stages of growth between conceiving of a great concept and launching a successful business. One way to think about these stages of growth is in terms of dollars and cents: How much capital do I have, and how much do I need to take the company to the next level? Securing the funds necessary to grow big enough can be a frustratingly long and complicated process of piecing together investments from family, friends, financial institution lenders and other sources. One potential way to speed up your company's growth is by working with an accelerator program. What are small business accelerators? Accelerators are selective, intense programs that enroll early-stage small businesses and provide them with a modest amount of capital and a variety of resources, enabling them to grow substantially in a short period of time. For example, one prominent three-month accelerator program invests $18,000 in seed money, connects its enrolled businesses with mentors, and furnishes a variety of perks worth hundreds of thousands of dollars, including website hosting credits, PR services and legal advice. They are typically run by small groups of angel investors and most focus on businesses in the technology sector, where products can be developed and even launched during the period of the program. However, the model is catching on and versions of accelerator programs may soon be options for startups in various sectors through organizations like Startup America, which offers a "Speedup" program to fast-growing ventures.  Although they are sometimes referred to as business boot camps, this is not really an accurate description, according to the website of one well-known accelerator. Unlike boot camps, most accelerators are not highly regimented. If your business is chosen to participate, you will have to be in the program's home city during the program, but you are free to structure your days in whatever way you think is most productive, selectively taking advantage of the accelerator's resources. How much funding do accelerators provide? A five-figure investment for a small ownership stake in your business is average for accelerators. Bloomberg puts the typical number at $25,000 for a 6 percent stake, although two of the top-rated accelerator programs as ranked by Tech Cocktail and the Northwestern University Kellogg School of Management list their average investment as less than $20,000. That said, both these programs partner with venture capital firms, which offer $100,000-$150,000 convertible debt notes to all accepted startups. While a startup is not likely to sniff at a five-figure investment, the more substantial monetary benefit of accelerators stems from the exposure they bring to their enrolled businesses. Often, an accelerator program will culminate with a presentation day, when a class of startups has a chance to pitch to venture capitalists and angel investors. These pitches have usually been refined thanks to the help of accelerator program mentors, and the products have been developed over the course of the program. A captive audience of potential investors is a dream of many entrepreneurs, and these investors are likely to come into the room predisposed to being excited about what you have to offer, because you have already won the accelerator program's endorsement. How effective are accelerators? The best accelerator programs have gained a reputation for being very effective at helping startups achieve success. The accelerator ranked No. 1 by Tech Cocktail/Kellogg breaks down some numbers on its website:
  • 84 percent of its current or previously enrolled companies are active
  • 7 percent have been acquired
  • $1 million average funding raised per company
  • 571 employees, on average, per company
How do I apply, and will I be chosen? The application process for accelerators is often very straightforward, consisting of an online application that does not require a business plan or many of the other documents that other early-stage investors want to see. However, because of the relative ease of the application process, many startups submit themselves, meaning the percentage of accepted applicants is low. The acceptance rate is also low because accelerators are investment groups, and so it is in their interest to identify high-value applicants and be very selective in which startups they accept. One prestigious accelerator only accepts 10 companies per class, making its acceptance rate lower than that of Ivy League colleges. However, other equally reputable accelerators accept larger classes of several dozen businesses at a time. On their websites, some of the best accelerators point out that there is no age limit for applicants and businesses at various stages of growth have been accepted, ranging from those in the idea stage to those that have already raised upward of $1 million in funding or revenue. That said, there are a few things you can do to improve your chances of acceptance:
  • Create a prototype product or make headway in developing a product prior to applying.
  • Take other steps to get the business off the ground so you can describe those actions, as well as your overall vision, in your application.
  • Build a strong team. Single founders are chosen to participate less frequently than businesses that have a well-rounded team in place.
The third tip might be the most crucial. Like other investment firms, accelerators are not only betting that a product will succeed, but that a business will outperform competitors. Therefore, before you try to step on the accelerator, it's shrewd to gather a group with complementary skills to come along on the ride