Startup Accelerator Structure: Everything You Need to Know
A startup accelerator structure is a program that helps startup companies during their early years by offering business training and guidance.3 min read
2. Accelerators in the United States
3. Why Startup Accelerators?
4. Incubators & Accelerators: Which Best Fits Your Needs?
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.
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.
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.
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.