Why you shouldn’t join an accelerator

A few years ago, accelerators provided a lot of value for upstart entrepreneurs.  Someone with no startup expertise that needed real guidance and mentorship regarding business formation, business models, processes, and investor introductions could get all of the above from a boot camp style accelerator.  But as the accelerator model has become more popular and accelerators have diluted every startup ecosystem in every city, their value-add has diminished substantially and in most cases actually harms the entrepreneur and startup communities.

 

At this point, the only time you should join an accelerator is if you get into a top tier brand name like Y-Combinator, Techstars, or 500 Startups.  Even then, the only reason to join one of these three is because of the cache their brand names provide: graduation from them instantly open doors to investors you may not otherwise have access to.   Aside from the investor access a top flight accelerator provides, it’s not worth the equity you have to give up to join a local accelerator.  Most accelerator take 7% to 8% equity for anywhere from a $25k to $100k investment (and oftentimes those investments have strings or the money is delived via garbage "in-kind" services).  At the low end this will value your business at ~$300k which is cheap in today’s frothy startup environment.  Unless the accelerator can add real value from an investor introduction standpoint, it’s not worth it.    

 

But what about the guidance, business model help, and advice? These are all things that a curious entrepreneur can learn about from studying their industry and the history of tech companies in general.  There is nothing you can’t Google or read about on a good blog, so why hand over 8% of your business for someone to tell you that a SaaS model with recurring revenue is the most valuable? Spending an afternoon reading http://autopsy.io/ will teach you way more than any 'accelerator mentor' ever could. I can’t tell you how many entrepreneurs I’ve talked to that tell me the experience at their local accelerator wasn’t worth the cost.  Additionally, it is very rare to see any business whose business model doesn’t change materially from the time they graduate the accelerator to the time they go into their Series A: it's highly likely that whatever business model tactics you applied from your accelerator are going to be the wrong ones.   

 

Most accelerators don’t just hurt entrepreneurs by taking their equity, they hurt investors and the startup community as whole by screwing angel investors.  When you come out of an accelerator, your most likely investors are angels that you haven’t yet met.  These angels are asked to invest in a SAFE with a $5mm to $10mm cap, whereas 3 months ago the accelerator invested at a valuation of $300k.  It makes absolutely no sense for the angel investor and as more of them realize what horrible terms they’re getting, it turns them off from angel investing altogether.   Angel investors are the seed corn of startup ecosystems, and accelerators are destroying them.  

 

While I’m sure there are some accelerators that provide great value and there are probably lots of happy graduates, there are now so many accelerators that it’s ‘buyer beware’.  Before you join one, make sure you speak to as many alumni as you can about their experience, look up reviews, ask how many exits the accelerator has had, and even then do everything you can to avoid it.  VC at the Series A level are far more impressed with entrepreneurs that bootstrap than those that name drop an accelerator.  And one day, you’ll be glad you saved the 8%.

See more posts at http://www.danfundllc.com/blog.php

Eduardo Antonio Hope Jr

Montessori educator & language consultant

7y

I think the emphasis on 'incubation' rather than on 'acceleration' bears more and better fruit; during the former, an entrepreneur hustles and bootstraps the idea while at the same time acquiring a deeper and broader set of skills for making it happen. For instance, I can see someone getting a good handle on Dorf and Blank's customer development process (i.e., customer discovery, customer validation, customer creation, company creation) in an incubator program than in an accelerator program.

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Josh Woodcock

I dance when no one's watching

7y

Agreed. What about up and coming accelerators? How can we make more accelerators like 500 startups, YC, etc if we don't have less successful ones too?

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Fraser Liscumb

Thinking outside the box to help make a difference

7y

Unfortunately, the accelirator youa re taling about is one based on 20th century thinking, create some good for a few, but usually not much for the community.

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Max Whitemyer

Father, Explorer, Business Builder, Day Trader

7y

Finally someone posts what we all are thinking. I have been saying the same thing for the past year that these accelerators out there are going to cause problems for entrepreneurs and investors moving forward. To me its all about results and experience. If you have never started a company, I mean really started a company from the ground up. Then you probably shouldn't be running a start up accelerator. It's like having that professor in college that tought marketing, but never did a day of marketing in his life. They have no idea what they are talking about. This is why you are seeing result like 5 out 70 successful exits and those exits didn't result to much. As an investor my thought is avoid accelerators and invest right into companies and as a startup bootstrap it until you absolutely need capital then start seeking it. I always say your thoughts when starting a business should be not how much money can you raise to start a company. It should be how do I start a company with the least amount of money. Great post Sammy Abdullah

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