Strapped in? Alternatives to cash accelerators
The number of startup accelerators has grown year-on-year for the past fifteen years, and as concerns around success rates, data transparency, and homogeneity grow with them, alternative accelerator models have sprung up – although you may not know it.
The classic model, which is a seed investment made in exchange for equity, is predominant but has its drawbacks. Some argue it takes control away from founders and cookie-cuts according to the accelerator’s existing portfolio, while ignoring other key factors to startup success – talent and technology.
With that in mind, less common or conversed models have emerged– each with their own pros and cons. The new models offer an alternative to traditional accelerator programs and can potentially foster a more mutually beneficial relationship between startup and accelerator than traditional revenue models.
Some accelerators put the focus on building equity, rather than the initial monetary investment. In certain arrangements, part of the cash given is used to pay for the program itself. In this model, equity is less tied to a number or KPI, and ultimately relies on the founder’s ability to turn something for the accelerator – generally a riskier move for the accelerator, but gives more freedom to the startup itself.
While a potentially good leg-up for lowly valuated, early stage startups, the amount of equity given over upfront may dissuade others. See if the resources and network offered by this type of accelerator are worth the trade-off.
Emphasis on expertise
Some accelerator and incubator programs do not invest in their startups – rather they offer general support, advice, and resources in exchange for cash and equity upfront. The focus isn’t on a return or specific business result, but on offering workshops, mentoring sessions, and classes to help cash-strapped startups get off their feet.
One watch out – these models typically can’t offer niche or specialist services that may prove more relevant to your startup. Again, the solution is research beforehand into the services offered.
Free to join, charges later
One of the most mutually beneficial accelerator arrangements to both sides is a model which offers free services upfront, in exchange for possible charges later.
In this model, the accelerator doesn’t guarantee investment in all of the startups which go through the program, however certain startups are selected throughout on their performance to be invested in. Above most other offerings, this model best aligns the interests of both parties.
Private, public, and not-for-profit
A whole range of government-run and not-for-profit incubators exist, offering programs with zero upfront cash or equity charged, although these tend to focus on specific projects or need-areas over open-ended ventures. In-residence programs also exist for startups run by local or municipal government bodies and designed to solve a particular problem in the community, as do co-working spaces with some level of mentoring.
Corporate accelerators set up within a larger enterprise are similar ins, often focused on innovating within the parent organisation. While money is not the focus, some of these programs have been criticised for seeding less your startup, and more their parent company’s software ecosystem in your startup.
Money isn’t everything
If money isn’t your sole concern, and you’re considering utilising an accelerator or incubator program, know these options are out there and thoroughly research them to see which is right for you.