We are early-stage investors in London and believe that we are some of the most hands-on and value-adding investors in the city, however, we constantly find ourselves being compared to accelerators (both positively and negatively). If you were to start a business why would you/wouldn’t you join an accelerator? The equity they take? the network they provide? the desk space they gift you? the mentors that guide you? or the cash?
I think it really depends on two elements:
1. the nature of the product you’re building
My previous company (I wasn’t a founder) was accepted into 500 Startups. It was an e-learning product that allowed IT professional to learn cloud computing technologies (AWS, MSFT Azure, Google Cloud). The product was already enterprise-oriented and although the overall experience was very enjoyable, it acceleration-period wasn’t very valuable in terms of mentorship, gift, network.
2. the stage of the company
When a company gets accepted into 500s/YC/Techstars the valuation is usually around $1-2milions. If you’re already cashflow positive, you probably won’t need to accept their money ($100k to $150k) for a 5/7% ownership.
In my last company, PlainFlow we’re building a product which is totally early-stage-company oriented. In this case the network they provide it’s game changer and an accelerator might make much more sense.
So, in short, the decision would be in some way skewed to how much you can leverage the network and convert into customers rather than the other areas mentioned. Makes sense and would totally agree with you, especially with the 3 accelerators mentioned. More and more we see companies, especially international companies using YC as a platform to bring their product to the US - the name escapes me, however, I recall reading that they were doing something like ~$3m revenue and happy to give up that equity for a fast-tracked roll out in the US. Is this a pivot that will continue to put YC out of reach of early-stage companies?
So, in short, the decision would be in some way skewed to how much you can leverage the network and convert into customers rather than the other areas mentioned.
More and more we see companies, especially international companies using YC as a platform to bring their product to the US - the name escapes me, however, I recall reading that they were doing something like ~$3m revenue and happy to give up that equity for a fast-tracked roll out in the US. Is this a pivot that will continue to put YC out of reach of early-stage companies?
Yes, that would make much more sense.
Accelerators like YC/500s are very popular and have strong brands. I don’t think they will find any particular problem in attracting early-stage-companies (1/2years from incorporations).
I, as a Start Up have not considered any outside VC, accelerator or investor to join, all my own money. I think new Start ups should take their time in making a decision to bower money or sell equity.
I agree the previous comments - the decision definitely should be case by case depending on your startup. As @1geniusmind4u said, it can be a great choice to bootstrap yourself to success without raising outside capital. Many startups don’t have that option as they need capital to scale/hire/build prototypes, etc. For these folks, I would highly recommend joining one of the top accelerators like 500, YC or Techstars if you are able.
I recently applied to YC with my startup Pindragon (a location-centric social communications app). Pindragon is not launched so I have zero traction, but I do have the it nearly ready and young people that are generally the early adopters like it. I didn’t get selected but what I like about YC in order of precedence:
120,000 USD for 7% of a pre-traction company seems reasonable given my research on Pitchbook, Crunchbase and elsewhere of seed stage valuations. I like that they created and use a SAFE and they don’t tell you what to do with the money they invest. That is a demonstration of trust in the teams they’ve chosen. I kind of like that they don’t provide any office space, it’s up to you to find your own. I like that to get mentoring or advice one just schedules a time slot on their calendar. And the weekly dinners sounds like a nice way to get comfortably acquainted.
One is going to be fast-tracked to more rounds of funding if there is strong traction and retention. Their introductions will make this happen quicker. There are many people doing similar startups and those who get funded faster are at a strong advantage.
Access to talent. I feel like they get so many applications that there would be some that applied who’s idea isn’t great, but their talent is. So for example, I thought maybe I could find another great co-founder or attract a great co-founder while being in YC. (Background: My friend and I co-founded Pindragon but our business dynamic was not working as things proceeded so he gave up half his shares and resigned. The irony is that it was his idea, but I was the one doing all the coding so it made sense that I was the one to continue. We remain personal friends still.)
Mentoring. I don’t think I need mentoring, but I do see a lot of value in having advice and a sounding board. There are many times I wish I had people who understood startups to talk to and ask their opinions. That said it is difficult to find really good advisors.
What would prevent me from joining an accelerator is the following:
- If they are only providing mentoring then I wouldn’t join. The Accelerator must make an investment of at least 100,000 USD at a reasonable valuation. I think YC’s 7% for 120,000 USD is about as low as I would go. I’m soon to launch and if I have strong traction and retention (>100% organic growth MOM for the first few months) an Accelerator will be off the table, if it is less than that then it will be still of interest. Since I have young people that have seen Pindragon asking me when it will release I’m thinking that I’ll have strong traction, but the proof will be whatever is the real case. (Another aside, I plan to target SF Bay Area first precisely because I’ll get on the radar of VCs quicker. My son is at SF State University, and I’ve been building my connections there. I live in Santa Barbara so I will also focus on it.)