A startup accelerator (also known as a “seed accelerator”) is a unique program for early-stage startup companies to help them attract new investors. These startup accelerators can be found in major tech hubs around the nation, and are specifically designed for a particular type of startup company: one that can scale very quickly within just several months.
In terms of overall structure, accelerators are most similar to incubators, which are much more common in the startup industry. Both are cohort-based programs, in that they aim for accepting a diverse group of companies that can learn and grow with each other’s help. They also both typically provide physical office or lab space for companies, such that a lot of top upcoming companies might all be working in very close proximity of each other. The connections, the networking, and the educational components – they are all significant in nurturing growth in these startups.
However, there are several fundamental differences between accelerators and incubators. For one, incubators typically do not take an equity stake in the companies they accept into the program. Accelerators, however, usually do invest capital in these companies, primarily because they are at an advanced enough stage where it is possible to see that they can get over a revenue or profitability hump in a rather short period.
Timing, too, is a big difference between incubators and accelerators. When you get accepted into an incubator program, you might spend anywhere from 12 to 18 months within the safe, nurturing confines of the incubator. Contrast that to an accelerator, where you are only signing up for 3-4 months in residency. At the end of that period, you are expected to make a public pitch to investors on “demo day,” at which time, you could be rewarded with term sheets from interested VC investors.
Moreover, in terms of geographic reach, there is a big difference between accelerators and incubators. Most incubators are local or regional in nature and are usually found located near a major university town or major corporate R&D center. Accelerators, though, typically take a national approach when they call for applicants. Instead of only focusing on a particular city or specific region, they are making a nationwide casting call for potential startup stars. In part, this is a simple matter of supply and demand: there is a somewhat limited supply of high-tech companies that would be a good fit for an accelerator.
So what kinds of companies are accepted into accelerators? The best prospects are capable of catapulting to unprecedented growth in a concise period of time. Thus, startup companies thinking of joining an accelerator should already have a finished product that needs to be fine-tuned and tweaked before it’s shown to the marketplace. And the overall market the company is targeting should be one that is capable of supporting very rapid growth.
Accelerators are a relatively new addition to the startup scene but now play a significant role. They play an important role for VC investors, by essentially cherry-picking the best investment opportunities and doing some of the required vetting and due diligence. And, more importantly, they provide a platform for the “best and brightest” to learn from each other before making the most important pitch of their lives on demo day.