Startup Accelerators

A Field Guide

Richard Busulwa, Naomi Birdthistle, Steve Dunn

• Publisher: Wiley
• Year: 2020
• ISBN:
  9781119638605
• Edition: 1
• Topic: Business
• Subtopic: Entrepreneurship
• Index: Business

The must – read guidebook for entrepreneurs looking to get into accelerator programs and to build and scale their startups with speed

Accelerator programs have become one of the most powerful and valuable resources for entrepreneurs seeking to learn rapidly, build powerful networks, raise capital, build their startups and do this at speed and scale. In recent years, the number of accelerator programs around the world has grown at an incredible rate, propelling startups such as AirBnB, Uber, DropBox, Reddit, and others — many to billion-dollar valuations. The number of accelerators, the differences in accelerator program offerings and the unique benefits and costs of different accelerator locations makes choosing the right accelerator a challenge. Selecting the wrong accelerator, failing to be accepted in the right one, or not fully taking advantage of all the accelerator has to offer can be costly, sometimes fatal. With the stakes so high, entrepreneurs need to understand all their options, choose carefully and do the right things to maximize their chances of success.

Startup Accelerators is the go to guide for any entrepreneur, providing a firsthand look into the acceptance criteria and inner workings of different accelerator programs. Written by entrepreneurs for entrepreneurs, this indispensable resource explains what different accelerator programs offer, how to get accepted, what to do during the program, how to raise money during accelerators, what to do after the program ends, and much more. Packed with real-world case studies and advice from leading experts on startup accelerator programs, this one-stop resource provides step-by-step guidance on the entire accelerator process.

• Reveals how accelerators help founders navigate different challenges in the startup journey
• Describes the differences in the benefits and costs of different accelerator programs
• Explains how to prepare accelerator applications
• Discloses what actions to take during an accelerator to make the most of it
• Depicts case studies of entrepreneurs' accelerator applications, experiences and outcomes across different accelerators
• Features interviews with accelerator program managers, founders who went through accelerators, and investors in companies going through or having gone through accelerators
• Includes insightful data and reflections from entrepreneurship education researchers and academics

Startup Accelerators: A Field Guide will prove to be invaluable for startup founders considering or going through accelerators, as well as aspiring entrepreneurs, educators, and other startup accelerator stakeholders.

CHAPTER 1
The Emergence of Startup Accelerators

The accelerator model has become a “graduate school” for startups.

Alex Friedman, co-founder and president, Ruckus; Member, Forbes Councils

Emergence

In 1995 Paul Graham and Robert Tappan Morris co-founded Viaweb. They sold the company three years later to Yahoo for $49 million. Prior to founding Viaweb, Graham had received an undergraduate degree in philosophy from Cornell University, a Master of Science degree, and a PhD from Harvard University. Robert Tappan, on the other hand, had graduated from Harvard University and attended Cornell as a postgraduate student—before being suspended¹ and becoming one of the first people to receive a criminal conviction for hacking.² In early March 2005, almost seven years after the sale of Viaweb, Paul Graham was in conversation with Robert Morris and Trevor Blackwell (who had also been part of the Viaweb team) about possible ways of continuing to work together.³ At that same time, Graham had been contemplating becoming more involved in angel investing. Later that week, he was discussing the venture capital business with Jessica Livingstone, a friend who was contemplating moving from investment banking to work for a Boston-based venture capital (VC) fund. In this conversation, Graham had been pointing out all the things that were wrong with the VC business and that needed to change—investors needed to make smaller investments, they needed to be funding hackers rather than suits, and they ought to fund younger founders. While walking with Jessica between Harvard Square and his house one day, the idea hit him to start an investment firm with Robert and Trevor and ask Jessica if she would work for that firm instead of the Boston VC firm she was contemplating working for. He discussed the idea with Jessica, and they decided to do it. Graham agreed to put in $100k, and he would later recruit Robert and Trevor, who each put in $50k. Their idea was to do seed funding with standardized terms. They based their model on a Viaweb investment arrangement they had in which a friend of theirs, Julian Webber, had invested $10k, provided support to set up the company, and provided them with early business education in exchange for 10% equity in Viaweb. The idea and model became Y Combinator. Y Combinator experimented with its first startup investments through summer job−style startup acceleration programs. Y Combinator soon had success from four of its first eight cohort companies, with Reddit (acquired by Conde Nast in 2006 for between $10 and $20 million) and Loopt (acquired by Green Dot for $43.4 million) being the biggest exits at the time. Y Combinator's success only improved with subsequent cohort programs.

Ascendance

Given Y Combinator's success with its first few cohorts, it's not surprising that competition soon followed. In 2006 David Cohen, Brad Feld, David Brown, and Jared Polis started the Techstars accelerator. More and more accelerators started to emerge. U.S.-based competition grew slowly to 16 accelerators within the first 3 years before starting to really take off at the end of 2008. After 2008, the number of U.S.-based accelerators grew by nearly 50% per annum before flattening out at around 170 accelerators in 2014.⁴,⁵ Similar growth was replicated globally, so that by the end of 2016, there were 579 accelerators globally. As at that point in time, these accelerators had invested over $206 billion in 11,305 startups with 178 exits that year alone. Bart Clarysse, professor of entrepreneurship at the Swiss Federal Institute of Technology in Zurich, observed that most accelerator programs that emerged were modeled on either the Y Combinator or Techstars format.⁶ (See Figure 1.1.)

Why was Y Combinator and its accelerator model such a runaway success? Without a doubt, Y Combinator needed and had an enviable founding team, with stellar education, skills, and experience; and the team had also previously founded and exited multiple startups. But while this may explain part of Y Combinator's success, it does not fully explain the runaway global success of their model. Other factors and trends that may explain some of the model's success include growing availability of access to capital globally, growing number and success of digital technology companies, and growing government interest in entrepreneurship globally. Although these parallel trends explain some of the model's success, our research suggests that Y Combinator did two critical things that, in the main, ensured the success of its model. First, it addressed a major gap in the support available to startups in entrepreneurial ecosystems. This gap is best conceptualized by Figure 1.2, which maps a startup's evolution (on the x axis) against its funding needs⁸ (on the y axis). Figure 1.2 also depicts the risk faced by a startup as it goes through the six stages of startup evolution, and the types of entities that are typically a source of funding and funding related support. Between stages 1 and 2 (the Ideation/Preparation and Customer Discovery stages), founders usually fund the startup themselves or receive funding from family and friends (as Y Combinator founders Paul Graham and Robert Morris did for both Y Combinator and for their earlier startup, Viaweb). From stages 2 to 3 (the Customer Discovery and Customer Validation stages), startups may also source funding from grants (e.g., government or philanthropic grants), competitions (e.g., business planning competitions), and prospective customers (e.g., the problem a startup is solving may be so important to a customer that the customer funds the startup to develop the solution). More recent funding vehicles such as crowd funding and initial coin offerings (ICOs) also fall into this category; notwithstanding that these now offer entrepreneurs the opportunity to raise significantly greater amounts of money, and often without having to give up equity. From stages 3 to 4 (the Customer Validation and Strategy/Operational/Financial Validation stages), startups can usually successfully access angel investment (i.e., investment from high-net-worth individuals who invest their own money, along with their time and expertise, directly into private companies in which they have no family connection, in the hope of financial gain).⁹ And from stage 4 (Strategy/Operational/Financial Validation) onwards, startups can usually access early-stage and late-stage venture capital funding (venture capital funds come from sources such as pension funds, banks, and foundations—there is a duty of care for how these funds are invested which may influence when VC firms can invest).¹⁰ Of course, there are exceptions to the accessibility of each type of funding—depending on the founders, the nature of the startup, and the nature of the funding environment. And, needless to say, there are many overlaps—or points at which more than one funding source can be accessed. Below the startup evolution or development stages, we show other terminology often used to describe these stages and the overlaps within this terminology. For example, stage 1 (Ideation/Preparation) can also be referred to as the Idea/Concept stage or the Pre-seed stage. The term startup is sometimes used to describe the activities between Customer Discovery and Strategy/Operational/Financial Validation. Other times it is used to describe the full journey from stage 1 to stage 6. The term growth is sometimes used to describe the Scaling stage. Stages 1 to 2 can sometimes be referred to as Formation, and stages 3 to 4 can sometimes be referred to as Validation. Stages 2 to 4 can sometimes be referred to as the Seed stage, with stages 4 to 5 often referred to as the Early stage, and stages 5 to 6 as the Late stage. The overlapping terminology can often create confusion, so we clarify it here prior to further unpacking the startup support gap addressed and the success of Y Combinator's accelerator model at addressing it.

FIGURE 1.1 The Number of U.S. Accelerators Grew Dramatically between 2005 and 2015

Source: Adapted from Hathaway (2016).⁷

FIGURE 1.2 Startup Evolution and the Introduction of “Smart” Money

As Figure 1.2 shows, “smart” money (funding that also comes with the expertise critical to helping entrepreneurs maximize startup development speed, scale, and odds of success), is usually accessible from stage 3 onwards. It is ...

Table of contents

• Cover
• About the Authors
• Acknowledgments
• Preface
• Introduction
• CHAPTER 1: The Emergence of Startup Accelerators
• CHAPTER 2: What Happens in an Accelerator
• CHAPTER 3: Is Your Startup Ready for an Accelerator?
• CHAPTER 4: How to Prepare the Accelerator Application
• CHAPTER 5: How to Handle the Accelerator Interview
• CHAPTER 6: Should You Give Up Equity to Get into an Accelerator?
• CHAPTER 7: Choosing an Accelerator Program
• CHAPTER 8: How to Get the Most out of an Accelerator
• CHAPTER 9: What to Expect after the Accelerator Ends
• Appendix: Founder Resource Directory
• Index
• End User License Agreement