Everyone knows that you need funds to start up any business. Luckily, several funding options exist for people looking to start a business, from crowding to taking a loan, getting investors, bootstrapping, and even accelerators. You may be familiar with all the options listed, but your concern is particularly on one. And that is why you are reading this article on what is an accelerator in business.
The good thing is that this is the best place to learn about this topic and everything relating to it.
Here, you will learn what an accelerator in business means, how it works, the different types of business accelerators, the difference between an accelerator and an incubator, and so much more.
And you can only learn all these things if you read this article to the end.
Meaning of Accelerator in Business – What is an Accelerator in Business
When you hear the word accelerator, what exactly comes to your mind? What image does your mind paint?
Chances are you’d see a vehicle moving at top speed; this is the best analogy for what a business accelerator is all about.
A business accelerator is an organization that provides startups with resources that would help them grow faster than they initially would have.
These resources include funding, peer mentorship, access to professional advisers, and practical support like marketing, workspaces, technology, etc.
A startup can become a member of an accelerator by applying.
If the accelerator accepts the application, the startup will become a member and have access to all the resources the accelerator offers.
Many accelerators specialize, and this specialization can be based on business types, geographical locations, and so on.
Accelerators often have cohorts, and every accepted startup will be a member of one cohort or the other.
This will ensure that they are grouped with other businesses with similar characteristics.
These similar characteristics could be the target market, product type, when they got admitted into the program, and so on.
Accelerator programs usually last anything from 3 months to 6 months.
At the end of this period, there would be a Demo Day.
This is where program graduates would present their business demo to potential customers, investors, and the press.
Brief History of Accelerators
The concept of business accelerators originated in Cambridge in 2005 by Paul Graham and Jessica Livingston.
They both decided to run a 3-month boot camp for founders.
This program had about 8 startups; that is how the idea of business accelerators came to be.
However, it wasn’t until 2008 to 2014 that this concept became more popular.
During this period, the number of accelerator programs in the United States rose from just 20 to about 200.
This saw the spread of these programs in different states in the country.
Since then, the concept has grown so much that it has become a global thing that investors and entrepreneurs benefit from.
How Business Accelerators Work – What is Accelerator in Business
Now, you may wonder why accelerators would endure all that stress to offer startups this support.
Well, it is nothing more than a business deal.
Accelerators give startups support to grow in exchange for equity.
So, it is a win-win for both parties.
Accelerators only invest in startups that they have strictly scrutinized so they would get their ROI once the business becomes established.
They would typically ask for attestations such as the company’s estimated capitalization, whether or not it is incorporated, intellectual property, ownership, outstanding equity, etc.
On the other hand, the business enjoys all the support the accelerator offers.
Since the business has access to professional advice, it will easily overcome most hurdles that may have brought it down.
So, it is not all about finances, it is about the pool of resources that startups can enjoy from these organizations.
And a percentage of the business equity is a small sacrifice to get all these benefits.
The accelerator often determines the percentage of equity; however, it is usually about 7% and below.
Types of Business Accelerators
While the key functions of accelerators are often the same, there are still some differences in how some accelerators operate.
And a particular type of accelerator would be best suited for your business depending on the kind of business you are running and the stage your business is at.
With that being said, let’s take a look at some common types of business accelerators below.
Seed
Seed accelerators are also known as early-stage accelerators.
And as you can already guess from the name, this type of organization focuses on startups still in their early stages.
They offer seed funding to startups that are not fledged out yet.
Most accelerators under this category are nonprofit.
They are often funded by investors that want to empower budding entrepreneurs and large companies (especially tech firms).
Early-stage companies usually need help improving their marketing strategies, products, technology, etc.
So, aside from funding, seed accelerators provide startups with resources that can help them in these aspects.
These resources include peer networking, professional advisers, mentoring, etc.
Second-Stage
Accelerators under this category focus on businesses that aren’t exactly brand-new but also not mature enough to stand firmly on their own.
These kinds of businesses want to grow beyond where they are.
They want to increase their customer base, launch a new product, enter a new market, and become more competitive and profitable.
So, they need guidance on how to do these, and the accelerators under this category provide the resources to help achieve their goals.
Hybrid
Some accelerators act as both accelerators and incubators.
They have elements that make them a fine blend of both.
Organizations like these can nurture startups that are in their earliest stage and can, at the same time, work with businesses in more advanced stages.
The good thing about these kinds of organizations is that they can see a business through the various stages that it goes through.
They can also provide the support the business needs when it is at its budding stage and the support it needs when it is more advanced.
Why Do Businesses Need Business Accelerators
Starting up a company is not an easy feat.
A little mistake can take months of hard work to go down the drain.
It goes beyond having a good funding source.
This is why startup founders need all the help they can get from accelerators.
These programs provide startups with great opportunities that can help them grow quickly and steadily.
Business owners that do not have a strategy can become members of a seed accelerator and learn how to make the most for their businesses.
And businesses with an MVP and strategy can gain a lot from this kind of program to help take their business to the next stage.
Business Accelerator Vs Business Incubator
Some people confuse business incubators with business accelerators.
While others think they mean the same thing and would use the terms synonymously.
And as you have seen in the above section, some programs combine elements of both to make hybrid programs.
Sadly, this adds to the whole mix-up between the two programs.
While incubators and accelerators are similar because they both provide support for startups, there are still key differences between them.
Let’s take a closer individual look at both of them to help you understand how they differ.
Business Incubators
These programs accept businesses that are at their earliest stages.
That is even before the business has a minimum viable product (MVP) or marketing plan.
Business founders can be a member of an incubator program for several years.
And the support founders get from incubators is often material assistance.
This can include free or cheap workspaces, enabling technology often at a considerable discount, and even helping them apply for patents and incorporation.
An incubator can link a business with a venture capital or angel investor.
Finally, incubators are non-dilutive.
This means they do not take equity in return for all the services they offer startups.
Business Accelerators
Most accelerators only accept startups that are more defined and advanced.
That is, they have an MVP and business plan.
Although, you may still find some programs that specialize in seed-stage startups.
Unlike incubators, accelerators aren’t open-ended.
There is usually a time frame for the program, usually between 3 to 6 months.
Once this period is over, the founder will no longer be a member of the organization.
This is unlike an incubator, where you can be a member for a prolonged time.
However, like incubators, accelerators provide their members with ample mentorship and resources to help them improve.
They may also help the business hire executives, get a board of executives, and even get new customers.
But all of these are done in exchange for a percentage of the business equity.
Let’s run down the similarities and dissimilarities between these two programs.
Similarities
- Both programs offer a wide range of legal, marketing, technical, operational, and financial support.
- Admission into both programs is selective and based on certain criteria. These criteria include geographic location, company type, founder demographic, etc.
- Both programs offer peer networking, mentoring, and training.
Differences
- Incubators have an open-ended timeframe, while accelerators typically last about 6 months or lesser.
- Incubators are non-dilutive and may charge just a modest fee or rent. Accelerators take equity, most commonly via stock.
- Incubators take startups in their very early stages. Accelerators take companies with an MVP and strategy.
Should You Incubate or Accelerate – What is Accelerator in Business
Whether you should incubate or accelerate your business depends on the stage of your business.
Accelerators are mostly meant for businesses that already set themselves up to a certain standard.
These programs seek businesses with a market-viable product and marketing plan.
That means your business needs to have customers, steady growth, and a great business plan for accelerators to consider it.
If your business is already operational with these factors in place and you are just looking to take your business to the next stage, you can accelerate.
However, if your business is still in its earliest stage, with no business plan or MVP, it is best to incubate.
The great thing about incubators is that you can stay in the program for as long as possible.
You can use this period to learn all you need to take your business to that stage where it can become operational.
When Should You Accelerate – What is Accelerator in Business
If the following are true about your business, then you can decide to accelerate.
You Need Access to Mentors and Networks
As you have learned so far in this article, one of the major things you would enjoy from this kind of program is access to professional advisers/mentors and peer networking.
If your business is at the stage where you believe you would benefit from other professionals, then you should accelerate.
In this case, you should be sure that your chosen program has the type of professionals your business needs.
Connecting with mentors who do not know much about your field would be a waste of time.
You Have an MVP and Marketing Plan
If your business is already operational with customers, an MVP, and a marketing plan, then it’s most likely the best time to accelerate.
At this stage in your business, you are likely looking to further your business growth.
And a good accelerator program can help you do this.
The good thing is that, at this stage, you most likely have the criteria these programs seek.
You Have the Enough Time for the Program
As a startup owner, you need to be at the helm of affairs most of the time.
But at some point, you should be able to leave other people in charge for a while.
If you have reached that stage in your business where you have enough time to give to other things outside your business, consider a business accelerator.
These programs are intense and require your uninterrupted attention.
If you do not have the time to devote to the program, then now may not be the best time to apply for it.
But if you have the time and know you can devote it to learning and networking, you can accelerate.
Your Business Can Afford to Give Off a Percentage of its Equity
You can accelerate if you are willing to give off a portion of your company’s equity in exchange for what the program is offering.
You should know that this also means you may stop having full control over certain business decisions.
You are Open to Constructive Criticism
Even though you have an MVP and business plan, you should know that it may not be a hundred per cent good.
The program involves mentorship and professional advice.
If something is off about your product or market plan, you may receive some constructive criticism about it.
And you may even need to modify your plan or product.
To accelerate your business, you should be open to constructive criticism.
You Have Researched Different Programs
Applying to the first program you find would be a bad idea.
If you have decided to accelerate, it should be after researching different programs.
Before you apply for a program, ensure you find out all you can about it.
Talk to an alumnus and find out if the program will suit you.
Factors to Consider When Choosing a Business Accelerator
If you have decided to accelerate, then you need to make sure that you choose the right program for your business.
Below are 4 important factors you should consider when choosing a business accelerator.
Considering these factors will ensure you choose the right program for your business.
Your Location
You should look for a program that is within your location.
Choosing a program far away will not just be stressful but can also be time and money-consuming.
Whether or Not You Are a Member of an Underrepresented Diverse Community
If you belong to a diverse community that is underrepresented in the business world, you need to find a program for people in these communities.
Many programs specifically address the needs of black Americans, Native Americans, women, disabled, and veteran founders.
Equity
You should consider the percentage of equity you are willing to give up and then choose a program accordingly.
If you cannot find a program that matches the percentage of equity you can give up, opt for other options like angel investors and incubators.
Your Business Field
If your business is in a highly specialized field, you need to look for a program that can cater to your business.
There are a lot of specialized accelerator programs out there, from agribusiness to cryptocurrency, cybersecurity, and so on.
So, finding a program that suits your niche should not be so difficult.
Conclusion on What is Accelerator in Business
A business accelerator is an organization that provides startups with funding, peer mentorship, access to professional advisers, practical support like marketing, and so on to help them grow faster.
The stage of your business is a key determiner of whether you should accelerate or not.
You can apply for this program if you have an operational business with customers, a solid business plan, and an MVP.
However, you have to ensure that your chosen program fits your business needs.
And you can do this by considering the factors discussed in this article.
