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How Startup Accelerators Work to Grow Early-Stage Businesses

The Strategic Value of Startup Accelerators

Startups need money to, well, start up. In order to get money, fundraising is a likely path on which most startups will travel. 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 uniquely benefit early-stage businesses, here are the most common fundraising sources:

  • Founder Capital: These are the founders’ own funds. The founder invests in his or her 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 in an attempt to build out its product/service.
  • 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 up an early-stage business for growth. Some 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 product/services proven in a market. This funding facilitates growth and scaling.
  • Private Equity: Private equity investors are later-stage ones, and they can provide an opportunity for employees and earlier-stage investors to exit their positions.

When considering different sources, founders should consider: 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 it is giving up is worth the capital contribution. Further, the company has to evaluate whether the investment it is receiving is strategic, or “smart money.” Or, what additional value does your investor bring your business aside from 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.

These mentors have built and sold venture-backed businesses. They have taken companies public, been enterprise executives and more. 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, and that is how startup accelerators work to add strategic value to a business.

How Startup Accelerators Work as Support Systems

Accelerators provide businesses with an added support system for growth. Solid Accelerator programs are usually behind urban entrepreneurial ecosystems that develop quickly. Consider accelerators as the center of gravity for innovation environments.

Accelerators have innovative co-working spaces to house their business operations. They have non-profit organizations. These nonprofits can provide entrepreneurial grants focused on economic development that infuse money without diluting shareholder value.

What else do startup accelerators provide? Larger scale investment capital options, customers to pilot products and services and community from the surrounding startups—to name just a few.

Accelerators and New Markets

One thing that can be tricky for startups is testing out their product/service in new markets. This is a great reason to leverage an accelerator, especially if the founder is coming from out of state. Capital Innovators has global connections, but their ties to St. Louis are very strong. Their local connections and resources allow the owner to test their business in a new market. This results in invaluable exposure to new customers.

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.

[Editor’s Note: To learn more about this and related topics, you may want to attend the following webinars: Raising Capital – Negotiating with Potential Investors and What Every Founder/Entrepreneur Must Know. This is an updated version of an article originally published on November 16, 2018.]

©All Rights Reserved. July, 2020. DailyDAC™, LLC d/b/a/ Financial Poise™

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About Brian Dixon

Brian is the COO and Managing Director of Capital Innovators where he has helped raise tens of millions of dollars for investment funds and assisted its portfolio companies in raising over $375 MM; provided venture investment and management to more than 130 companies in the technology, consumer products, and energy-tech verticals; launched new business lines…

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