Should you do an accelerator or should you just raise VC?
From a VC turned founder who's now been on both sides of the table
I’ve gotten asked this more lately, especially given the wars among YC, HF0, Neo, and more, especially for the best AI startups 😏 (what else is new)
I’ve done an accelerator and I also now have dozens of founder friends who have — from YC to Sequoia Arc to TechStars to Neo, and more. Here’s my best advice for understanding the pros/cons and figuring out whether it’s best for you.
Side note, our amazing head of content at PIN (Ivelina) is helping put together a giant database of the 100 best accelerators. It’ll be coming out in the next week or so. Subscribe if you want to be alerted about it (and future posts, like 'how to be the hot startup at demo day’, ‘how to choose a startup to work at’, ‘how to execute your first angel investment’ and more):
The pros
The money + perks. Besides the investment itself, being a part of an accelerator usually comes with helpful perks that make startup costs more reasonable - particularly credits for things you’re likely to use like AWS, Airtable, Twilio, or [insert your vendor here]. A lot of these places require verified investment from a legitimate institution they’ve already pre-vetted and partnered with - almost all VCs have them, but so do accelerators which is a huge bonus.
Community of other founders. Building a startup can be lonely, even if you have a co-founder or team that you love. The community of other founders, especially those who are at a similar stage, is hard to find & cultivate in the wild (people pay lots of $ to find this in a formal program), and I find this to be one of the main non-financial perks of being a part of an accelerator.
✨Friendship✨ (and shared commiseration) is important, but there are lots of professional/company-building benefits too. There’s usually a level of (positive) social pressure and even friendly competition - everyone is at the same stage and shares the same goal of getting their startup off the ground, raising their next round, etc. Some accelerators even lean into this by having programming or check-ins that foster this. It’s a great for discipline.
Lastly, my founder friends are by far the best resource for answering questions, especially when it comes operational questions that come up all the time or reference checks. Which payroll provider/tax firm do you have (and how has the experience been)? What’s your hiring process like for [insert position here] - what’s worked well vs. not? I’m talking to this investor and saw you were on their website - what do you think of them?
(Side note - you should invest in your founder friends and let them invest in you. Founders from YC & Sequoia Arc are using PIN to make it easy! Reach out 😏)
Credibility, especially for non-traditional founders. Similar to my thoughts on business school, my thoughts on accelerators is that people from non-traditional backgrounds benefit the most. Signaling is hugely helpful when fundraising and hiring (see meme below), and having a familiar brand name on your cap table could make investors/potential candidates more likely to engage.
Side note: I just learned what the word sheeple meant in the last few months and think it’s an underutilized word. Absolutely brilliant.
Connections to VCs and investors. The whole point of doing an accelerator is to ~accelerate~ towards raising your next round, usually. Accelerators typically only give a small amount of money ($125k to $500k, maybe a little more), which is rarely enough to capitalize a tech startup in perpetuity. Accelerators should be helping you, at the bare minimum, get exposure to VCs and investors at a demo day or through programming. Even better if they provide you with warm intros.
Connections to potential customers. It depends on what space you’re building in, but especially if you’re a B2B company, this is something worth asking. YC batches are famously supportive of one another (aka customers of each other’s products), for example. Other friends I know who have been in industry-specific accelerators found their connections to be exceptionally helpful for recruiting first design partners and customers.
Programming. Depending on how well it’s done, this can be a positive or a neutral. Some bring in successful ‘name-brand’ investors and founders. (This is maybe a hot take, but I think usually it’s more ‘cool’ and inspirational than actually helpful. 90%+ of what people feel comfortable saying in a large audience will be on the internet in a podcast/video they’ve done anyway. Unless you’re in a tiny group or 1 on 1, I don’t think this changes, but I digress…) Others will bring in people to help with specific things - hiring, sales/GTM, press, etc. It’s cool, but just a baseline for ultimately finding your own personalized advice and making your own decisions.
The cons
More dilution. Most accelerators invest at a smaller valuation than is considered ‘status quo’ for most institutional investors at pre-seed/seed. Accelerators have corrected, like YC announcing last year that they were changing their famous $125k at 7% deal to now also including a $375k investment on an uncapped safe with MFN (’most favored nation’) clause.
In the wild (aka among institutional investors in a traditional fundraise), caps are more like $5M at the minimum and go up to $10M or $20M or more. The argument is that accelerators take companies that are even earlier (a team, maybe even with no idea) and help a lot more than a traditional investor. I think that’s fair, but that’s extra reason to make sure that the dilution you’re taking on is worth it.
Opportunity cost. Some programs are more strict than others and require you to go to all the programming or face steep penalties (not getting the second half of your investment - the most extreme I’ve heard - for example). Time is valuable if you’re a founder, so the last thing you’d want to do is feel like you’re wasting your time (and paying in both time and equity for it).
How to decide whether it’s a good fit for you
Talk to alum. Any alumnus will be helpful, but if you have a choice, talk to a)
recent alum, since things can change, and b) alum who are in a similar space to you or at least have similar business models (i.e. B2B or B2C).
Besides the “was it helpful” “were they good people” kind of questions (which you should certainly ask), consider asking things like:
How were the other people in the program and did you get to interact with them much? How did the program facilitate relationships among founders?
Did you successfully raise a round after (if that was your goal)? How did the program help (or not) with intros or coaching?
When things weren’t going well (team issues, growth slowed, down weeks), what were the program leaders like? Were they encouraging/helpful or did they add stress to your plate?
How much did the program impose their own opinions on you, whether that was company directions to pivot to or how you ran your day to day? (Motivation/pushing is great; control/forceful suggestions are not - beware)
Ask about the program’s stats. Some to consider:
How many companies do they have each year? (If it’s a large group, do they have the staff/resources to support you?) What’s the acceptance rate?
What % of their companies go on to raise a seed or beyond after their program?
What’s their NPS? Every accelerator should collect reviews/feedback from former founders. The best will know this or at least stats that can guide you to what you want to get at with this question
In what ways have you improved the program in the past based on founder feedback?
Have founders participated more than once? (Always a good sign if someone chooses to return)
Conclusion
Accelerators can be amazingly helpful, especially for first time founders and/or founders from untraditional backgrounds. Diligencing is straight forward - aka ask founder alum from those programs - and evaluate whether the tradeoff of time/equity is worth it for you
Found this helpful? Subscribe for future posts talking about the most interesting and helpful things for founders and early stage operators of the moment. Also, we’re working on a database of the top 100 accelerator programs and will be e-mailing that out when we’re done. Subscribe to be alerted: