Y Combinator Demo Day meeting 2013
If you are a business startup and need help raising angel or seed capital to grow and build a structurally sound organization so that it is investor-ready you should strongly consider a startup accelerator. First, let's start by defining what a startup accelerator is. A startup accelerator is an organization whose purpose is to help take startups to the next level of their development. Startup accelerators can help young companies in many ways. Here are just a few:
- Leverage their initial traction.
- Fine tune their business models for sustainability.
- Develop a plan and strategies for scaling the startup.
- Strengthen their management teams.
- Meet, pitch and demonstrate their products or services to potential investors.
There are more than 7,000 startup accelerators worldwide; here are some of the best startup accelerators in the US and around the world.
According to Seed-DB, the Top 20 accelerators in 2019 ranked by no of exits, funds raised and average funds raised were as follows:
Top 20 Accelerators Ranked By No of Exits
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Silicon Valley's Y Combinator, founded in 2005, and one of the earliest accelerators, ranked No 1 with 1801 successful exits worth nearly $6.2 billion as of 2019. Techstars, founded in 2006 in Boulder, Coloado, ranked No 2 with 1,336 successful exits. As of 2019, Techstars had accepted over 1,600 companies into its programs with a combined market capitalization of $18.2bn USD. Less than 1% of applicants are accepted. AngelPad ranked No 3 with 153 successful exits with a combined market cap of nearly $1.5 billion.
Top 20 Accelerators Ranked By Funding Raised
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Y Combinator dominated all accelerators and was ranked No 1 for the year 2019 based on the amount of funding raised by its startups with nearly $39.9 billion raised. Techstars ranked No 2 for the year 2019 with nearly $9.7 billion raised by its startups. 500Startups ranked No 3 for the year 2019 with nearly $3.2 billion raised by its startups. AngelPad ranked No 4 for the year 2019 with nearly $2.2 billion raised by its startups.
Top 20 Accelerators Ranked By Average Funding Raised
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Microsoft Ventures Accelerator (Tel Aviv, Israel) ranked No 1 based on average funding raised by its startups with an average of $67 million. SynBioaxir8r (Cork, Ireland) was No 2 with an average funding raised by its startups of $42.6 million. Mucker Lab (Santa Monica, Ca) ranked No 3 with an average funding raised by its startups of $23.3 million. Y Combinator (Silicon Valley) ranked No 4 with an average funding raised by its startups of $22.1 million.
What Startup Accelerators Bring To The Table
A number of highly successful startups never joined a startup accelerator, so you are probably wondering why your young company should join one. We have already highlighted what startup accelerators do for startups (see first paragraph above). So what do startup accelerators bring to the table?
In my opinion startup accelerators offer a young startup a certain amount of credibility with investors who rely on startup accelerators for deal flow. Startup accelerators offer investors the perception of lower risk because the startups have undergone a vigorous selection, mentoring and vetting process. Having the "seal of approval" from major startup accelerators like Y Combinator, Techstars and 500Startups can certainly help a young startup accelerate its growth and sustainability through a rigorous process of mentoring that injects positive energy and reinforcement of ideas and successful business practices.
Accelerators also offer young startups an opportunity to make contact with other startup founders, develop working relationships and alumni ties. Startup accelerators also offer young startups an opportunity to meet and hear famous startup founders, venture capitalists and experts in entrepreneurial fields. Bill Gates, Jeff Bezos, Elon Musk and Mark Zuckerberg have all spoken at notable startup accelerators like Y Combinator, Techstars and 500Startups.
The Downside of Startup Accelerators
Is there a downside to joining a startup accelerator? Many accelerators are geographical in nature and may require startup teams to travel long distances or even relocate so they are close to the startup accelerator. If the accelerator is located in Silicon Valley, New York or Los Angeles, the cost of temporary housing could become prohibitive.
Joining a startup accelerator also requires total commitment of the startup team. If you are already gaining some traction with your startup, joining a startup accelerator can affect your ability to adequately manage the business during critical times or hire key employees and staffers.
As a general practice, startup accelerators inject small amounts of seed capital ($50K to $150K) into the startup in exchange for a small stake of equity (5% to 7%). This results in immediate dilution of the founders holdings. If the startup founders believe their startup is worth $5 million, and you are offered $150K by a startup accelerator for a 5% stake, this implies the startup is only worth $3 million. That's a $2 million drop in your startup valuation. So you have to ask yourself, is it worth it to reduce your startup valuation this early in the game, especially if you are starting to gain traction or been granted new patents. Dilution also affects how much equity you can offer new employees interested in working for you. The startup accelerator is immune from dilution in most cases, so the more equity you grant employees, the more dilution the founders will experience.
Not all startup accelerators are created equal. They differ in the types of industries they prefer, knowledge and experience of their mentors and contacts that they bring to the table. You may have the greatest toy ever invented, fill a need in the marketplace and have no competition, but if the startup accelerator only selects high tech startups, you may be out of luck. Unfortunately, most of the startup accelerators concentrate their efforts with high tech startups. This graphic depicts the central focus of most Silicon Valley startup accelerators.
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If you are a young startup we hope this information about startup accelerators provides valuable insights and information to assist you in your decision-making about whether to join an accelerator or go it alone. Remember, no all successful startups joined a startup accelerator. If you are already gaining valuable traction and have confidence in your management team to plan and execute according to your business plan, there is nothing wrong about going it alone.
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