What is a Start-up Accelerator?

The past decade has seen a rapid increase in the number of start-ups. There are more companies which start up every year now as compared to a decade earlier! As a result, there are numerous new kinds of players which have come into existence in the start-up universe. One such type of company is called the start-up accelerator.

Start-up accelerators are often confused with incubators. According to a recent survey, about 33% of all start-up founders are unable to differentiate between an incubator and an accelerator. However, they are quite different from each other. In this article, we will have a closer look at what an accelerator is and how it helps start-up companies become more successful.

What is a Start-Up Accelerator?

The purpose of a start-up accelerator is to help early-stage companies to achieve high growth rates within a short span of time. They do so by providing education and mentorship to such companies. This may seem a lot like an incubator. However, there are certain very relevant differences between an accelerator and an incubator.

  1. A start-up accelerator is like a start-up school that lasts for a very small period of time. Many start-up companies apply to start-up accelerators. Some of these companies are chosen over a period of time.

  2. The chosen companies then enter the accelerator as a part of a cohort of companies. The accelerator provides focused guidance to these companies for a short span of three to six months. After the guidance program is completed, the companies are considered to have graduated and a new set of companies comes under the guidance of the same accelerator.

  3. Start-up accelerators focus on intense mentorship to the selected companies. The idea is to ensure that years’ worth of knowledge that is possessed by the accelerator is passed on to the start-up company within months. Ideally, the accelerator helps the company in setting up a basic structure. Once the business model has been designed, companies are expected to give a demo on graduation day.

Benefits of Start-Up Accelerators

Accelerators are preferred by investors as well as entrepreneurs. This is because they provide a lot of advantages. Some of the important advantages have been explained below:

  • Immersive Learning Experience: The process of undergoing accelerator-led training is an immersive education experience within itself. The leaders of start-up companies are both busy as well as inexperienced. Hence, they do not have the time or knowledge to ask the right questions.

    Start-up accelerators are led by highly experienced entrepreneurs and investors who have gone through this same stage several times. Hence, they know the right questions to be asked at this stage. This helps start-up companies have a better fundamental design that is more conducive to the external business environment.

  • Mentorship During the Initial Phase: It needs to be understood that the initial phase of a start-up business is extremely important. The decisions taken at this stage can have a very long impact on the future of the company. Hence, mentorship is critical at this stage. Start-up companies do not have the financial resources to enlist the services of marquee advisors. However, the accelerators do help them get some crucial advice that has a long-lasting impact on all the stakeholders of the firm.

  • Higher Chances of Success: There have been many studies conducted that show that firms which enroll in an accelerator are more likely to succeed as compared to their counterparts that don’t. These studies have studied similar business models in similar markets and have concluded that the advice and other services provided by the accelerator significantly increase the chances of the start-up surviving in the long run. This is very helpful since odds are stacked against start-ups that have an 80% chance of failure!

  • Ease in Raising Funds: It has also been observed that companies which have attended an accelerator program are far more likely to obtain funds from professional investors. This is true in the case of early-stage funding as well as in the case of late-stage funding.

    Accelerator programs teach start-up founders to approach fundraising in a systematic and methodical manner. Hence, these start-ups know how to build a position wherein they have a strong bargaining power so that they are in a commanding position when it comes to fundraising.

The bottom line is that accelerators are an important participant in the new-age financial ecosystem of start-up companies. In most cases, they add tremendous value to the start-up. However, it also needs to be understood that in some cases, they may not be able to add value at all. Also, there are some accelerators that are far more efficient than the others. This skews the data in the favour of accelerators.


❮❮   Previous Next   ❯❯

Authorship/Referencing - About the Author(s)

The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.


Startup Finance