Downsides of Startup Accelerator Programs – Pitfalls Entrepreneurs Must Watch For
Getting accepted into a startup accelerator program can be just the launching pad new entrepreneurs need to get their ventures off the ground. Starting a business requires more than an interesting idea or Intellectual Property. Several other nuances go into transforming that idea into a viable product or service and selling it for a profit […]
Getting accepted into a startup accelerator program can be just the launching pad new entrepreneurs need to get their ventures off the ground. Starting a business requires more than an interesting idea or Intellectual Property. Several other nuances go into transforming that idea into a viable product or service and selling it for a profit in the market. That’s where accelerators step in.
They offer tangible and intangible resources that founders can use to set up the business and have it running efficiently. Mentoring, expert-driven training, workshops, seed capital, support teams, and the infrastructure, along with cohort-based programs, are only some of the benefits. However, before you commit to an accelerator, do the necessary research and understand what exactly you’ll get into. Read ahead for some of the pitfalls entrepreneurs should be aware of and how to get around them.
Choose the Right Kind of Accelerator Program
Accelerator programs can be of two kinds. Seed programs are designed specifically for founders who have zero experience with the corporate world. These opportunities last for two to four months and assist entrepreneurs with building the basics of their companies, like, say, product prototypes or a founding team and production processes. The objective here is for the founders to reach the stage where they can deliver a pitch to investors and convince them to invest in the startup.
Then you have second-stage programs designed for more mature companies that are established but need that added boost to propel them toward greater success and growth. You can expect that this opportunity will last at least six months and provide you with a full scope of support and resources.
Before signing up for an accelerator program, you’ll determine the stage where your company is at and then apply to the appropriate organization.
Choose the Right Industry and Sphere
Most startup accelerator programs are industry-specific and support business concepts in a specific field. That’s because their partners and networks also operate within that particular sphere. Make sure to research ongoing programs and successful companies that have benefited from their support. That’s how you’ll ensure that at the end of the workshop, you’ll connect with investors likely to be interested in the products and services you’ve developed.
For instance, if you’re creating a new software application to streamline digital marketing, you’ll look for a startup accelerator that supports the eCommerce industry.
Expect to Relocate and Dedicate Six Months of Your Time
Since the startup accelerator provides physical premises and workshops, entrepreneurs should apply only if they are prepared to relocate. Or, you can pick out a program that operates in your city or state. Further, expect that the program will be intensive, requiring candidates to dedicate their entire time for the duration of four to six months. If your company is at the second stage, taking off for this interval may not be feasible. Weigh your options before you sign up.
Work Out the Equity Share & Other Terms
All accelerator programs are not created equal. Some of them are non-profit agencies run by public enterprises, while others are organized by private entities. Before you enter the program, you’ll check its terms and conditions. You might be required to sign over 5% to 10% equity in the company. This agreement may not seem substantial at this point but could translate into a significant chunk down the line. Of course, you can expect that although the accelerators will maintain their stake, they’re unlikely to demand voting rights or interfere with the company’s decision-making processes.
As a new founder unsure of how to start a new business, signing up with a startup accelerator can prove to be highly beneficial. But, make sure to research the program carefully and determine if it is a good fit before you make the final decision.
BIO
Alejandro Cremades is a serial entrepreneur and the author of The Art of Startup Fundraising. With a foreword by ‘Shark Tank‘ star, Barbara Corcoran and published by John Wiley & Sons, the book was named one of the best books for entrepreneurs. The book offers a step-by-step guide to today‘s way of raising money for entrepreneurs.
Most recently, Alejandro built and exited CoFoundersLab, which is one of the largest communities of founders online.
Prior to CoFoundersLab, Alejandro worked as a lawyer at King & Spalding, where he was involved in one of the biggest investment arbitration cases in history ($113 billion at stake).
Alejandro is an active speaker and has given guest lectures at the Wharton School of Business, Columbia Business School, and NYU Stern School of Business.
Alejandro has been involved with the JOBS Act since its inception and was invited to the White House and the US House of Representatives to provide his stands on the new regulatory changes concerning fundraising online.