How Startup Accelerators Work To Grow Early-Stage Businesses

The Strategic Value of Startup Accelerators

Startups need money to, well, start up; this process usually starts with fundraising. Whether through venture capital or a startup accelerator, there are many different funding sources available, and the usefulness of each one varies depending on the stage of the business. But before we explain how startup accelerators work and how they can benefit early-stage businesses, here are the most common fundraising sources:

• Founder Capital: These are the founders’ own funds. The founder invests in their own idea at the initial stages of the business.
• Friends/Family: This is usually the first outside money available. A business will take these funds to build out its products or services.
• Angel Investors: Typically, angel investors are high-net-worth individuals. They will invest in attractive opportunities as a part of their alternative investment portfolio.
• Accelerators: Accelerators provide seed capital, perks and benefits, office space, and some form of a structured program that sets an early-stage business up for growth. Some accelerators have larger funds that can provide follow-on funding to their existing portfolio companies. Alternatively, they may opportunistically invest in attractive deals outside of their portfolio.
• Venture Capital: These are larger scale checks that fund companies that have their products/services already proven in the market. This funding facilitates growth and scaling.
• Private Equity: Private equity investors are later-stage investors, and they can provide an opportunity for employees and earlier-stage investors to exit their positions.

When considering different sources, a question founders should consider is: How much strategic value is this investor going to provide?

At each level of fundraising, the company must make certain decisions. It must decide if the equity possible at each level is worth the capital contribution it is giving up. Further, the company has to evaluate whether the investment it is receiving is strategic, smart money, or is bringing any additional value besides the capital.

The Added Value of an Accelerator: Spotlight on Capital Innovators

Accelerators are far more than just investors, perks, and mentors to help guide your business’s growth. They are true innovation ecosystems. Adding value other than capital is a huge advantage to your start-up.

These mentors have built and sold venture-backed businesses. They have taken companies public and been enterprise executives. Consider the value of adding these individuals and their combined expertise in growing a business. That alone is far more valuable than other fundraising sources.

Also, consider the networks of these mentors. Such networks provide a massive database of potential funders, customers, and employees. The combined expertise of these individuals alone is far more valuable than other fundraising sources, giving a strategic leg up for your start-up.

Startup Accelerators as Support Systems

Consider accelerators as the center of gravity for innovation environments. They provide businesses with an added support system for growth and are usually behind urban entrepreneurial ecosystems.

Accelerators usually have innovative co-working spaces to house their business operations. They have non-profit organizations, which can provide grants focused on economic development without diluting shareholder value.

Startup accelerators also provide larger-scale investment capital options and customers to pilot products and services — to name just a few.

Accelerators and New Markets

One thing that can be tricky for startups is testing out their products/services in new markets. This is a great reason to leverage an accelerator, especially if the founder is coming from out of state.

Choosing Your Partner

As shown, there is a lot to consider when a company is looking to raise investment. It’s essential to consider the type of partner you want to have as an investor. Based on their ample resources and connections, entrepreneurs should also recognize how startup accelerators work as strategic and valuable investors. Every investor source has its place at different life cycles of a business, and accelerators offer hard-to-come-by benefits for early-stage companies.

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[Editors’ Note: To learn more about this and related topics, you may want to attend the following on-demand webinars (which you can view at your leisure, and each includes a comprehensive customer PowerPoint about the topic):

1. Legal Issues for Innovators & Inventors
2. What Every Founder/Entrepreneur Must Know
3. Raising Capital: Negotiating with Potential Investors

This is an updated version of an article originally published on July 8, 2020. This article was most recently updated by the Financial Poise Editors.]

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