Startup accelerators, also known as seed accelerators, are fixed-term, cohort-based programs that include seed investment, connections, mentorship, educational components, and culminate in a public pitch event or demo day to accelerate growth. Most startup accelerators in Silicon Valley and globally are privately funded as an investment fund that take equity and focus on a wide range of industries.
In contrast, business incubators (different from accelerators) are government-funded, generally take no equity, and focus on biotech, financial technology ("FinTech"), medical technology ("MedTech"), clean tech or product-centric companies. Unlike business incubators, the application process for startup accelerators is open to anyone, but highly competitive. There are specific types of startup accelerators, such as corporate accelerator, which are often subsidiaries or programs of larger corporations that act like startup accelerators.
The main differences between business incubators and accelerators are:
- The application process is open to anyone, but highly competitive. Y Combinator and TechStars have application acceptance rates between 1% and 3%.
- A seed investment in the startups is usually made, in exchange for equity. Typically, the investment is between US$20,000 and US$50,000 (or GB£10,000 and GB£50,000 in Europe)
- The focus is on small teams, not on individual founders. Accelerators consider that one person is insufficient to handle all the work associated with a startup.
- The startups must "graduate" by a given deadline, typically after 3 months. During this time, they receive intensive mentoring and training, and they are expected to iterate rapidly. Virtually all accelerators end their programs with a "Demo Day", where the startups present to investors.
- Startups are accepted and supported in cohort batches or classes (the accelerator isn't an on-demand resource). The peer support and feedback that the classes provide is an important advantage. If the accelerator doesn't offer a common workspace, the teams will meet periodically.
The primary value to the entrepreneur is derived from the mentoring, connections, and the recognition of being chosen to be a part of the accelerator. The business model is based on generating venture style returns, not rent, or fees for services.
Seed accelerators do not necessarily need to include a physical space, but many do. The process that startups go through in the accelerator can be separated into five distinct phases: awareness, application, program, demo day, and post demo day.
The first seed accelerator was Y Combinator, started in Cambridge, Massachusetts, by Paul Graham in 2005, and later moved to Silicon Valley. It was followed by Techstars (in 2006), Seedcamp (in 2007), Startupbootcamp (in 2010), Tech Wildcatters (in 2011), several accelerators of SOSV, and Boomtown Boulder (2014).
With the growing popularity of seed accelerator programs in the US, Europe has seen an increase in accelerators to support a growing startup ecosystem. Top-rated seed accelerator programs in Europe as of 2011 included Seedcamp (based in London) and Startupbootcamp (pan European accelerator with program locations and office spaces based in Copenhagen, Amsterdam, Berlin, Israel, Eindhoven, Istanbul and London).
Forbes published an analysis of startup accelerators in April 2012. Since 2010 there has been substantial growth of Corporate Accelerator programs, which are sponsored by established organizations but follow similar principles.
In 2011, Matthew Clifford and Alice Bentinck, formerly management consultants at McKinsey & Company, co-founded Entrepreneur First, a London-based accelerator which guides promising tech graduates and those already working in technology firms to design and run their own startups. Entrepreneur First differs from other accelerators such as Y Combinator and Wayra in that it works with individuals rather than companies.
Accelerators have become a major source of startups for traditional investors. In 2015, one-third of U.S. startups who raised a series A went through an accelerator. However, more recent research indicates that, in some countries at least, investor-backed accelerators are being overtaken by corporate- or publicly-backed models.
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