Accelerators are one of the first stops on the journey of many startups.
There are now hundreds of these these cohort-based programmes — which usually give mentoring and support over a few weeks or months, plus potentially a cash injection — around the world. Arguably the world’s most famous startup accelerator, the US’s Y Combinator, counts Stripe and Monzo among its alumni.
But are accelerators really a stepping stone to startup success? And how much equity are founders giving away to join them? We heard from 137 founders in our recent anonymous community survey on startup accelerators. And their response was mixed.
While one first-time founder “wouldn’t have launched my startup without taking part in an accelerator”, others were critical of generic advice from bad mentors.
From networking opportunities and mentoring to investor exposure and equity demands, here’s what they had to say.
The majority of accelerators take more than 7% in equity
Many accelerators take ownership in the businesses that they accept into their programmes. 55% of respondents told us an accelerator they were part of took equity, and nearly two thirds of those felt the amount they took was fair.
One founder who gave away 7% to 10% equity to take part in an accelerator said they thought that was "fair because the accelerator I took part in took people before the idea stage — who probably would not have started a company otherwise. But it’s also tough because once you are working on an idea that has traction, it’s a lot to be giving away.”
Many founders also accepted that while the amount of equity many accelerators take might feel like a lot at the time, the value they provide at such an early stage — like in finding a cofounder and validating an idea — makes them worthwhile.
But a number of founders also told us that having an accelerator own such a large chunk of a startup from the beginning makes the company less of an attractive proposition to future investors. “Equity should be contingent on successful investment,” said one. “Having a 4% to 7% ‘zombie’ shareholder can have a dramatic impact on cap tables.”
The biggest reason to join an accelerator: to find funding
The most frequently cited reason founders joined an accelerator was to get funding more easily, followed closely by networking.
For solo founders that joined on the hunt for a cofounder, accelerators were often the perfect place to find that special someone.
“Talent matching is a real gamechanger, and there's no way I would have found a cofounder of this calibre without an accelerator,” said one. Others told us how difficult it was to find a suitable cofounder — who provides a complementary skill set and wants to start a business at the same time — outside of an accelerator. “It’s rare to be in a room of 60 people who are all in the same phase of life where they are ready to start their own company and have some startup ideas.”
Taking part in an accelerator is like “networking on steroids”, said one founder, because everyone’s so committed to building a startup.
But others felt that networking was lacking when it came to potential investors, and of the 28% who didn’t find their accelerator useful, nearly half said it was because they didn’t secure funding after the programme.
“Most startup founders don't need classes on how to find product-market fit — we can look this up on YouTube,” one respondent told us. “What we do need is introductions to investors.”
“Any programme which does not give you a really solid exposure to future potential investment is very rarely worth doing,” said another. Some founders felt like the accelerator they took part in didn’t provide this, with one saying the 15-minute calls they had scheduled with investors were often with “disenchanted” VCs.
Others felt that they weren’t properly prepared for pitching in the real world. “At the end of the accelerator we went out to pitch and were getting rejections because we were trying to raise too much,” said one. “Lots of wasted effort and time could have been avoided if the accelerator had helped us get pitch ready in a practical sense.”
But a number of founders said the accelerator they took part in did give them access to opportunities to raise and accelerated the process. One described the accelerator they took part in as a “fundraising bootcamp”, because it taught them the strategy they needed to prepare a fundraising round from day one to getting money in the bank.
Founders complain of generic advice from bad mentors
Nearly half of respondents said they joined an accelerator to draw on the expertise and experience of mentors. First-time founders said that support from their mentors played a key role in shaping a minimum viable product (MVP) and go-to-market plans, and many told us it helped them avoid a number of costly mistakes.
But founders weren’t positive across the board, and 71% of people who told us their accelerator wasn’t useful said it was down to their mentors not having the right experience to help them.
For many, generic startup advice that wasn’t relevant to their particular sector was to blame. “The prospect of some generic class on scaling with an 'expert mentor' who doesn't know our startup fills me with dread,” said one.
Others found that mentors on their programme were corporates who had little to no experience in startups. “It was like going back to school, only to find you know more than the teachers,” said one respondent.
Not enough financial support for founders from underrepresented backgrounds
Three quarters of respondents told Sifted that they thought accelerators played a role in opening up startup funding to founders from underrepresented backgrounds — but the jury was out on whether they did enough to involve those founders in the programmes themselves.
Many thought there wasn’t enough financial support for founders from underrepresented backgrounds, telling us that taking part in an accelerator is just too risky for founders from underrepresented backgrounds who don’t have a financial support network.
One respondent said that while the accelerator they took part in did have a diverse range of people in the cohort, the vast majority came from comfortable socioeconomic backgrounds. “More could be done to really help those that may need more security to work on building a startup. We were given significantly less than the living wage in London and expected to invest our own money in the business to start and cover legal fees if we got funding.”
Others told us that accelerators they participated in just played lip service to diversity and inclusion. “Our accelerator reached out to me and asked for help in finding more female founders, but when I asked them what they had done so far it was basically zero,” said a founder. “They’re not working with role models or public figures that women actually listen to or follow.”
But one respondent did feel the accelerator they took part in helped to level the playing field. “As someone from a low socioeconomic background, I had very limited options. I wouldn’t have started my startup without it.”
The vast majority of founders would recommend accelerators to others
The general feeling among founders is that it is worth taking part in the right accelerator, and 86% said they would recommend the experience to others.
One respondent told us that accelerators can be “brilliant” if they have a laser focus on the sector or the part of the business a founder is looking to develop, but warned against being drawn to one without a clear idea of what you want to get out of it. “Otherwise you will end up resenting it almost immediately, because of the huge time demands.”
For many first time founders, accelerators sped up the learning curve, and one told us it “opened doors we didn’t know existed in the first place”.
Being around a group of other founders going through the same experience was another hugely valuable aspect for many. One respondent said that the usefulness of mentor support and learning resources was limited, but the opportunity to create a network of peers to learn from and bounce ideas off made the experience worthwhile.
Want to be part of out next community journalism project? We want to know what you predict for startup Europe in 2023.
