Five Questions Every Start-Up Should Ask About Accelerators
First off, and full disclosure, I operate an accelerator program (Sputnik ATX) and have strong opinions on this subject as a participant in the “helping startups” market. I put that in quotations, because, as I’ll expound, there is a start-up industrial complex that is designed to fleece novice founders from their seed capital with predatory fees, terms, etc. Also, I’m going to start just writing accelerator, because writing accelerator/incubator over and over just reads poorly. OK, enough with disclosures. Read on!
If you’re a breathing human, you’re confused by the veritable potpourri of accelerator and incubator options clogging your inbox. Need help evaluating which one is right for you? How to know which one may or may not help you out? I’m here to help. Here’s a list of questions you should ask to see if your start-up benefits from a program:
Does the accelerator write checks or take checks? Accelerators that give money, usually as equity investments and sometimes as a grant (whoo-hoo if you can get it), are often those who have real “skin in the game” and want to align their interests with the founders. They’re willing to put their money where their mouth is, and back your company. It is important to also ask how they help you get your next check. Some, like Sputnik ATX (yea us!) also write follow-on checks and will lead or participate in seed rounds or A-rounds beyond the pre-seed investment typical of most programs. Programs that do not write checks to the start-up may also be helpful, but you should expect them to add a lot of value in other ways if they are asking for money or even equity (yikes), without making an investment. For example, it may make sense to give up a few points of equity or pay a fee if you have very high confidence that the program will help you double sales, get major traction, or something else that is material to your success, and not just helping you prepare a nice pitch, some simple introductions, etc.
Does the accelerator help me do something I can’t do for myself or speed up a hard thing? Good accelerators identify and invest in companies where they can add value and have experience to offer the founders. Ask the accelerator how they’re going to help you, and be specific. If they can’t tell you how they can help you solve a tough problem or complete a hard thing, move on. Too often, startups believe that just getting into a program will raise their profile, and so they sign up for something that wastes time and money doing things they could have done faster for themselves. It is OK to recognize that a program isn’t going to accelerate you as advertised. One program here in Austin that really does this well is SKU, an accelerator to help CPG start-ups. SKU has a focus niche where they have deep expertise and networks that help companies get onto store shelves, something that is quite hard to do without the industry know-how and experience.
Is the program just trying to get me to buy something? What I mean by this is some accelerators are just trying to sell startups other services, and offer little in the way of help. Good accelerators don’t see you as a customer, you’re a partner that they want to help. A generative relationship should exist between the startup and the accelerator, where the accelerator is spending its time helping you to succeed. If you’re just there to buy products and services from the “accelerator” then the program may just be a marketing channel used by a business to sell coworking space and other advisory services to start-ups without offering much value added. Some coworking spaces may have excellent accelerators, and you’ll only know if they’re awesome when you compare the cost of the required stuff you’ll buy versus the benefit from the space and program.
Is the program merely providing free access to services I can get elsewhere? Some accelerators take equity in exchange for providing services like desk space, credit on cloud services, or “free” consulting. Let me address some of the more common services one by one: Desk space – if you have a place to sleep, you have an office. Giving up equity for a desk is a sub-optimal business decision. If you really need a desk, drive Uber/Lyft for a day and use your earnings to pay for that workspace without diluting your equity. As a bonus, you might meet a cool VC while driving (I met a cool company or two this way, the founders pitched me while driving). Credit on Cloud Services – accelerators get this free from Amazon, Google and Microsoft, so they’re not paying for the perk they offer you. Plus, if you attend some of the Amazon, Google and Microsoft cloud events, you can get this same perk for free directly, without selling your soul. “Free” consulting or advisory work is garbage. Advice should always be free to founders. Anyone who has successfully founded and exited a start-up will usually help you out for free because they know how hard it is to launch. Anyone who needs a paycheck from you is not legit, and is usually someone who is preying upon start-ups to make a living because they failed to do so as an entrepreneur or flushed out of corporate life and have no clue how to successfully start their own company (or they’d be doing it already). For this reason, Techstars has a policy of not permitting advisors or partners helping companies in their program from charging any fees to the company while they’re in the program. If they have value, prove it first. A good policy.
What do the program alumni have to say about its worth? Ask program alumni companies if it was worth it, and then ask yourself if that company has a credible opinion. For example, someone may say a program stinks, but may just be blaming the accelerator for their own business failure and faults. On the other hand, if a successful founder who built a nice business tells you the same program didn’t help them that much, that opinion has more gravitas. Then, find out why it did or didn’t help them, to better understand if the program will help you.
Overall, take some time to learn more about the program, how they add value (if at all), and if that value is what you require at this time. If the value is there, then ask yourself if the cost is worth it.
There are some great accelerators out there, so go find the one that works for you.
By: Joe Merrill Partner at Sputnik ATX