Incubators and Accelerators
Accelerators provide startups with business strategy, networking, and sometimes provide temporary office space. In exchange they take a slice of equity in your startup. Some accelerators are much better than others.
Y Combinator 1 and Tech Stars are highly regarded, as is Angelpad. While there are many useful accelerator programs, there are others that will help themselves to a slice of your equity without providing much in return. You need to know what kind of deal you are getting from your accelerator or incubator.
Y-Combinator will invest $120k for 7% of your startup (about a $1.7 million valuation). The techstars deal is similar, except (a) the terms are more complicated, and (b) if you’re not happy TechStars will give you back your equity. The valuations offered by both YC and TechStars are somewhat low, but the value of the advice, the prestige, and the network are quite high.
Here’s a comparison from a founder who has gone through both YC and Techstars, and recommends them both. Weiting Liu, 2015.
For other accelerators, check out the Seed Accelerator Rankings Project from Professor Yael Hochberg.
Startup Accelerators: The Legal Terms. By Jose Ancer, 2014. Depending on the accelerator, the legal terms can sometimes be aggressive and give the accelerator undue influence over your company’s trajectory.
Startup Accelerator Anti-Dilution Provisions; The Fine Print. By Jose Ancer, 2015. “All major startup accelerators have uniquely strong anti-dilution protection in their stock purchase agreements. These provisions are serious, can have a material impact on cap tables, and founders should be aware of what they mean. Many of them are also structured in ways that really don’t make sense economically, and are unfair to founders. Some better approaches are out there and worth considering.”
Be careful of accelerators attached to VC funds. If your startup goes through a VC’s incubator, and the VC fund doesn’t invest at the end, it sends a negative signal to other potential investors. So before you sign up, ask “How many companies that the sponsor passed on went on to raise money from other sources?” The Most Important Question to Ask Before Taking Seed Money from a VC incubator. By Chris Dixon, 2009.
Applying to Accelerators
What to Expect in Techstars Final Interview?. Digital Ocean cofounder Moisey Uretsky shares some useful guidance in this Quora post.
Y Combinator now calls itself a ‘seed fund’ rather than an ‘accelerator’. ↩