Friday, June 3, 2016

Every Startup Gains From An Incubator Or Accelerator

Paul_Graham_at_Y_CombinatorA question I often get as an adviser is whether or not to join a business incubator or accelerator as a way to move forward faster and smarter and increase the odds of business success. The simple answer is always yes, but like any other resource, finding the right one depends on your implementation stage, your own expertise, and what’s available in your geographic area.

According to recent statistics from the International Business Innovation Association (InBIA), there are about 7,000 business incubators and accelerators worldwide, with over 90 percent being non-profit and focused on incubator programs for community economic development. I find that this type offers the most value to new entrepreneurs or startups in the early idea stage.

On the other hand, if you can qualify for membership in a top-ranked accelerator, such as 500 Startups, AngelPad or TechStars, you will get a rigorous development program, top-quality professional guidance, and some seed funding to move you ahead of the crowd.

Most advisers agree that only serious and established entrepreneurs will likely qualify or survive the more rigorous accelerator programs, while first-time entrepreneurs at the idea or early implementation stage will benefit most from less demanding local incubator programs. Here are some of the key parameters that will help you decide where you fit in this spectrum:

  1. Your commitment to the entrepreneur lifestyle. Most incubators start their program with some aptitude and business acumen tests. If you are still “testing the waters” of starting a business, these tests and discussions with peers will give you a reality check on your passion, determination and real dedication to the startup lifestyle.

  2. Direction, mentoring and resources required. Most serial entrepreneurs are beyond the capabilities of incubators and all but the best accelerators. They already have relationships with outside experts and advisors, and should evaluate organizations based on funding potential, connection to key people and access to members of interest.

  3. Costs, returns in equity and funding access. A few incubators and most accelerators provide some seed funding for startup entrants, ranging from $10,000 to $150,000 and expect a chunk of your equity in return. The best ones also charge an up-front participation fee for services provided. Costs may limit your interest or ability to join.

  4. Credentials of the accelerator organization. In my experience the value received from any incubator or accelerator is highly correlated to quality of the leaders and the people in the accelerator. I recommend that you do your “due diligence” with prior graduates before applying. Good facilities and support services are not enough.

  5. Access to funding partners after exit. Y Combinator was able to groom so many successful startups that they could virtually assure later venture capital investments to their graduates. TechStar graduates have about an 80 percent funding rate. The average startup has only a 3 percent chance of find funding with no help.

Once a startup decides which accelerator would be a good fit, the next challenge is the application and selection process. The process is often competitive and very difficult. The quality of the team is usually more important than the product or the business plan. Most look for diverse, fierce, coachable and execution-oriented teams first and foremost.

During the most recent cycle at Y Combinator, only 126 out of 6000 teams that applied were accepted, so incubators and accelerators can be very selective. All recommend that you be focused and specific on the market problem you solve, have a truly unique solution and be able to describe in detail how you will acquire customers. No surprises in this advice.

Thus my conclusion is that every startup can benefit from the right incubator or accelerator, if they are realistic about their current support, mentoring, and funding requirements. But the application process can be very competitive, and expensive in terms of equity and cash. Your challenge is to make the right tradeoffs, with limited resources and time. Your future as an entrepreneur depends on it.

Marty Zwilling

*** First published on on 05/25/2016 ***



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