Entrepreneurs should seriously consider participating in an accelerator program to jumpstart the growth of a start-up company or as a potential funding source.
At FoleyTECH Chicago 2016, the speakers on the “Exploring the Role of Accelerators in the Entrepreneurial Ecosystem” panel discussed key considerations for an entrepreneur seeking to leverage an accelerator partner. Specifically, an entrepreneur should understand what an accelerator accelerates and how an accelerator can help to raise capital for a start-up company.
An entrepreneur seeking to partner with an accelerator should understand what the accelerator accelerators and whether its value proposition fits the goals of the start-up company. Generally, accelerators may promise to help entrepreneurs with (i) mentorship and matchmaking and (ii) product growth and development.
Many accelerators will give entrepreneurs access to their local, national, and even global networks of mentors. These mentors may include successful entrepreneurs, past graduates of the accelerator program, corporate partners, service providers, university staff, technical partners, and investors. Mentors play a crucial role for any start-up company. Thus, an entrepreneur should understand how a potential accelerator partner selects and assigns mentors in its program.
Through the help of mentors and an accelerator’s own expertise, an accelerator can help grow and develop a start-up company’s products and services. They often facilitate such development through boot-camp style programs of varying lengths. Some accelerators are becoming more specialized and focus on a particular subset of industries. An entrepreneur should understand if a prospective accelerator’s program fits the stage and goals of the company.
Accelerators represent an evolving form of seed capital. Some have vertically integrated to move from simply an accelerator program to add a seed fund as well. Often, an entrepreneur utilizes an accelerator as a funding source, whether via direct investment by the accelerator, introductions to the accelerator’s investor network, or leveraging the credentials of graduating from an accelerator program to obtain investment. An entrepreneur should understand the capital needs of the start-up company and how a specific accelerator can help achieve these needs.
Many accelerators, but not all, will invest a modest amount of cash for five to seven percent of common equity in their portfolio companies. Additionally, many accelerators also participate in the financing during or following the completion of the accelerator’s program.
Mainly, accelerators foster introductions between its network of investors and the entrepreneur. Accelerators may offer informal introductions to investors, organize structured investor swarms, and invite its investor network to demo day pitches. Depending on the breadth and depth of an accelerator’s investor network, an entrepreneur may be able to leverage an investor for its financial and human capital. A well-connected accelerator may be able to help an entrepreneur find a strategic investor that is able to offer more than just a checkbook.
Just as universities help qualify its graduates with employers, accelerators help credential entrepreneurs with investors. Certain investors are familiar with the quality of start-up companies graduating from certain accelerators and are more apt to invest in such companies.
Overall, an entrepreneur has the opportunity to leverage accelerators as a valuable resource. An entrepreneur seeking an accelerator partner should understand what program best fits the specific needs of its company. This could be a critical step in jumpstarting a start-up’s growth.
This piece originally appeared in the Milwaukee Journal Sentinel’s OnRamp blog.