Key Takeaways

  • Startup accelerators follow a structured, cohort-based format with fixed timelines and mentorship-driven programming.
  • Legal considerations are a crucial part of accelerator program structure, including equity terms, IP rights, and investment agreements.
  • Key documents include convertible notes, SAFEs, and equity agreements, each with implications for founders’ control and dilution.
  • Founders should understand the difference between incubators and accelerators and evaluate the suitability of each based on their business maturity.
  • Startups should seek legal advice before committing to accelerator programs, especially regarding long-term implications of equity and funding terms.

A startup accelerator structure is a program that helps startup companies during their early years by offering business training and guidance.

Startup accelerators provide startup businesses with financing, education, and mentorship to increase their chances of success. Accelerator programs are organized for cohorts of startup companies. Companies that enter the accelerator programs are subjected to a rapid, intense, and encompassing education designed to fast-track the lifecycle of innovative companies by teaching them in a few months what would have taken them years of trial and error to learn.

Features of an Accelerator Program

According to the University of Richmond's Susan Cohen and Rice University's Yael Hochberg, accelerators have four unique features:

  • They are cohort-based.
  • Emphasis is placed on mentorship.
  • They have a fixed term.
  • The program ends with a graduation or demo day.

These attributes are absent in other early-stage institutions, such as incubators, seed-stage venture capitalists, and angel investors. While accelerators also have the same purpose as other early-stage institutions, their approach, incentive structures, duration, education, intensity, and business model are different from the rest.

Legal and Equity Structure in Accelerator Programs

Startup accelerator program structure typically includes legal and financial frameworks that participants must navigate from day one. Founders entering these programs often sign agreements that outline equity stakes, intellectual property rights, and funding instruments. Common legal instruments include:

  • Equity Agreements: Many accelerators receive 5–10% equity in exchange for capital, mentorship, and program participation. This equity is typically non-negotiable and is transferred upfront or vests over time.
  • Convertible Notes and SAFEs (Simple Agreement for Future Equity): These are popular financing tools used by accelerators to defer valuation discussions. They allow the accelerator to convert its investment into equity during a future priced funding round, usually with a discount or valuation cap.
  • Board Rights and Control: While most accelerators do not seek board seats, some may require information rights or observer roles.
  • Intellectual Property (IP): Accelerator agreements may include clauses about IP developed during the program. It’s crucial to ensure the startup retains full ownership of its core IP.
  • Exclusivity and Non-Compete Clauses: Some programs may include restrictive clauses that prevent participation in other accelerators or collaborations with competitors during or after the program.

Founders should consult a startup-focused attorney before signing, as the legal implications can significantly affect ownership, fundraising strategy, and future exits.

Accelerators in the United States

The first seed accelerator program in the United States was launched in 2005 by Y Combinator, a Silicon Valley company. The next year saw Boston-based TechStars launching the second accelerator in Boulder, Colorado. Over the years, both have grown to become the top accelerator programs in the world.

2008 was the year of accelerator programs in the U.S., similar to the unprecedented growth of venture investments, startups, and early-stage capital. Between 2008 and 2014, the U.S. accelerator industry grew at an average rate of 50 percent per year. From 2005 to 2015, there were 172 accelerator programs in the United States, culminating in investments in over 5,000 US startups.

Within this period, the accelerators raised a total capital of $19.5 billion, and the industry shows no sign of slowing down as new companies join and recent graduates of the program find their footing in their respective industries.

During this period, the median valuation and average company valuation of accelerator program graduates that raised more venture capital investments were $15.6 million and $90 million respectively. Dropbox, Airbnb, and Menlo Ventures are some of the popular companies in this category.

Why Startup Accelerators?

Despite being latecomers, accelerators have become the preferred support organization and early-stage investors for startup companies.

  • Accelerators provide an intense and immersive learning environment that allows company founders to learn years' worth of vital business skills within a few months.
  • Research shows that accelerator graduates were more likely to reach critical milestones, such as gaining customer traction and raising capital, faster than graduates of other support organizations do.
  • The intensity of the accelerator environment provides real-life benefits to participants.
  • Accelerators enhance regional entrepreneurial environments by providing a conducive financing ecosystem.
  • Accelerator programs across the world have proven they can provide a significant boost to the success rate of their graduates.

Selecting the Right Accelerator Structure

Choosing a startup accelerator should involve evaluating the specific program structure and how it aligns with your startup’s goals. Key factors to consider include:

  • Industry Niche: Some accelerators specialize in sectors like fintech, biotech, or social enterprise, offering targeted mentorship and investor access.
  • Geographic Scope: Consider whether the program is remote-friendly or requires relocation. International accelerators may provide broader exposure but may complicate legal compliance.
  • Program Customization: The more structured programs may have rigid curricula, while others offer flexible tracks tailored to startup needs.
  • Follow-on Funding: Top-tier accelerators often include follow-on investment opportunities or help secure venture capital during demo days.
  • Alumni Network: A robust alumni network can provide long-term value in terms of introductions, credibility, and collaboration opportunities.
  • Reputation and Terms: Investigate the track record of the accelerator—past successes, investor connections, and fairness of equity terms.

Assessing these dimensions helps ensure alignment with your growth strategy while avoiding programs that may impose restrictive legal obligations.

Incubators & Accelerators: Which Best Fits Your Needs?

Entrepreneurs are often undecided about whether to join an accelerator or incubator program. Making a choice is difficult as both programs have huge differences. It is essential to consider the elements of both to ensure you choose the right option. The following are key features of accelerators:

  • Objective/Focus: The focus of accelerators is to scale and grow startup companies. They offer design, branding, and strategic advice through an educational and mentorship program. Accelerator programs also prepare the startup for investment.
  • Duration: Accelerator programs have an average length of 12 to 20 weeks, although they continue to offer mentorship and networking for longer periods.
  • Structure: Accelerators are "For Profit" or Private/Public Partnerships.
  • Programs: Accelerators offer highly structured programs, and the Accelerator designs the agenda for cohorts. Most accelerators also provide a small seed investment and get a modest equity position in the startup. Most accelerators are less selective than incubators.
  • Community: Because of their "For Profit" structure, accelerators focus more on their business objectives and less on the community. Additionally, the structure of the accelerator determines whether the startup needs to relocate or otherwise. Provision of office space depends on the structure and philosophy of the accelerator and its programs. Cohorts generally can get their own space.
  • Mentorship and Networking: Furthermore, accelerators provide extensive networking and mentoring services based on the schedule and structure of their program. At the end of the accelerator program, there will be a Demo Day with a Cohort Pitch and investors and the media in attendance.

Common Legal Pitfalls to Avoid

Understanding the startup accelerator program structure also involves anticipating common legal missteps. Founders should watch for:

  • Overreaching Equity Demands: Avoid programs that require disproportionate equity in exchange for minimal services or capital.
  • Lack of Clarity in IP Ownership: Ensure contracts specify that all intellectual property created during the program remains with the startup.
  • Non-Dilution or Anti-Dilution Provisions: These can limit future investment flexibility.
  • Ambiguous Participation Terms: Vague clauses on commitment, exclusivity, or future obligations can cause disputes.
  • No Legal Review Before Signing: Many founders skip legal review due to time pressure, but this can lead to unintended loss of control or future conflict with investors.

A startup attorney can review the accelerator’s terms and help you negotiate better outcomes without burning bridges with the accelerator community.

Frequently Asked Questions

  1. What is the typical equity stake taken by startup accelerators?
    Most accelerators take between 5% and 10% equity in exchange for funding and program access.
  2. How does a SAFE differ from a convertible note in accelerator programs?
    A SAFE is simpler and doesn’t accrue interest, while convertible notes act as debt with interest and a maturity date. Both convert into equity later.
  3. Can joining an accelerator affect my intellectual property rights?
    Yes, some programs include IP-related clauses. It's essential to ensure you retain ownership of any IP your team develops.
  4. What should I look for in accelerator program terms?
    Key areas to review include equity share, IP rights, follow-on funding, exclusivity clauses, and any obligations after the program ends.
  5. Do I need a lawyer to join a startup accelerator?
    While not mandatory, having a startup attorney review the terms can protect your interests and ensure you understand your legal commitments.

If you need more information about startup accelerator structure, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.