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What are the main drawbacks and main benefits with startup accelerators?
Hello! Thank you for your question about the main drawbacks and benefits with startup accelerators. The benefits include access to expertise, a larger mentor network, and external validation. Drawbacks include equity and opportunity costs. Below you will find a deep dive of my findings.
MAIN BENEFITS WITH STARTUP ACCELERATORS
There are many benefits to using startup accelerators that vary based on the experience of the founders. It is said that first-time founders and experienced entrepreneurs will get the most out of these programs. Some of these benefits include access to the accelerator's expertise and network, as well as external validation.
Accelerator networks generally include experienced entrepreneurs, mentors, and experts that can bestow wisdom on founders. These experts have likely learned a lot through their failures and successes when creating a startup. Some of these mentors may even be C-level executives that can provide insight others may not have.
Startups usually have to rely on fundraising to get money to launch. Accelerator programs have access to investors and venture capitalists who can assist with business cases, startup pitches, and additional funding.
Using a well-known accelerator can make a startup look more worthy and reputable. It's become more competitive to be accepted into a program, so this external validation makes a startup look more desirable to other investors and potential teams.
MAIN DRAWBACKS WITH STARTUP ACCELERATORS
As startup accelerators have become more popular, the field has grown and become saturated. They are 7,000+ accelerators globally! It may become more difficult for founders to feel confident they found the right one to fit their needs. Additionally, newer accelerator programs may not have the kind of reputation that carries weight.
Some other cons of using a startup accelerator relate to cost. Startups must use equity to pay the accelerator, which is usually the only currency they have. They often use 5-10% of pre-seed equity to pay for the program, which may be a large cost to a less mature startup. They must have faith the positive impact will be worth the equity.
There are also opportunity costs to consider. The accelerator program can last several months and may even require a temporary relocation. There may have been benefits to using an alternative method that doesn't require as much of a commitment, but the startup will never know.
POSSIBLE SOLUTIONS TO PROBLEMS/PAIN POINTS
One way to ensure a startup chooses the right accelerator is to be selective and time the program around when fundraising will begin. They should review their own commitment to being an entrepreneur, their needed mentors and resources, costs, and funding needed after they exit the program. They will ultimately be on their own after the program is over.
CONCLUSION
To wrap it up, there are several known benefits and drawbacks to using a startup accelerator. Benefits include access to expertise, a strong network, and external validation. Drawbacks include equity and opportunity costs. Thanks for using Wonder! Please let us know if we can help with anything else!