What is an Accelerator and how can it help you?

What is an Accelerator and why should you care?

Business is not a level playing field. Some start-ups enhance their likelihood of success by joining accelerator programs; intensive short courses for young businesses that usually include early funding, education and mentorship. The most famous of these is Y-Combinator which has backed the likes of AirBnB, Reddit and Dropbox. According to Quroa there are over 400 accelerator programs globally, leaving plenty of choice for the discerning entrepreneur.

On a recent trip to Silicon Valley I went to check up one of the largest accelerators 500 StartUps (http://500.co/). They have two programs one located in Mountain View California and another in Mexico City. 500 are interesting because they focus on ‘business to consumer’ companies and have a strong interest in niches such as E-Commerce, Consumer Tech, Ad Tech and BitCoin.

When I got to top floor rather trendy office I was warmly greater by Sean Percival, who was sporting a fresh cup of fruit smoothie in one hand and a firm handshake in the other! (http://500.co/seanpercival) Sean is a successful entrepreneur and now a partner at 500 he gave a talk about how their program works.

The first thing to understand about accelerators, competition is tough! With over 1000 teams applying per session it’s hard to very get in. Sean normally only accepts teams of two or more that have an existing testable minimum viable product. Key milestones that 500 look for in businesses are: $5k-10k per month in revenue for e-commerce businesses and 10k-100k downloads for apps.

This should give you a good idea your business is at a stage that merits applying to an accelerator program.

As with many other accelerators joining gives you access to over 200 mentors as well as the founders of the 800 companies that have previously been funded. 500 boasts that due to it’s expansive network companies are only ever 1 degree of separation away from any notable person within Silicon Valley. The value of such a large network is unquantifiable. There is a strong focus on education during the program, primarily in marketing and customer acquisition. 500’s main objective is to maximise a company’s traction. When there is stable growth they will then prepare founders to pitch for the follow on funding needed to take their businesses to the next level.

Tell me about the money! So 500 invest $100,000 for a 7% equity stake in a company, this is similar to what many accelerators offer. Sean says most founders spend a chunk of this money surviving in Silicon Valley. Rent per person is normally around $3,000 per month! Aside from just the capital injection the investment provides a legitimate valuation of the company at around $1.4million. Sean believes that after the four month program is over the majority of companies will go on to raise further funding, with an average valuation of $3m. So in just four months the accelerator program provides companies with the community, education and resources needed to double the value of their venture and keep on growing. With so many significant benefits I can’t help but feel sorry for the businesses out there that don’t take advantage of an accelerator program!