Referring to our case from Austin’s Capital Factory, the accelerator’s portfolio companies will be guaranteed advantages in attracting investors, talent, customers, and advisors depending on the company’s reputation and experience. Practically, startups are offered cash and coworking space at one of the nation’s highest-priced real property markets, hosting credits for cloud infrastructure services, other tech companies, and advice from the group’s network as well as a trade-off for equity or future investment options.
The founders also get the most valuable resource: time. The Capital Factory’s rigorous programs last for three months, and during that time, the companies that are part of the portfolio have, in accordance with the accelerator, access to:
- Leaders in business and technology, such as investors who visit and VIPs
- Video lectures, educational lectures, and workshops
- A team of investor relations focused on helping companies get the next round of funding
- Six months of complimentary workplace memberships to employees
- Potentially, more than $250,000 credit from tech companies which the accelerator claims can last for up to two years
Following the rigorous three-month course, businesses can keep drawing on the program’s benefits and the fundraising experience.
Different accelerators come with other models.
Fast Forward accelerator, which is located within San Francisco, Calif. It accepts only early-stage healthcare and tech nonprofits that have developed MVPs. Its program is also for three months and comes with similar benefits as Capital Factory. Still, enrollees in the accelerator get grants of $25,000 and assistance specifically tailored to the sector of nonprofits. The accelerator does not take equity.
In New Mexico, the American Indian Business Accelerator program provides Native American entrepreneurs in fields ranging from agriculture to art and mental health care services. The benefits include workspaces with access to equipment and software and expert advice. Although the accelerator does not offer funds, it can help members obtain grants, government contracts, and low-cost loans. Additionally, it can provide patients with which businesses can license.
The Michigan Rise Pre-Seed Fund III invests in Michigan’s startups. The companies can be for-profit LLCs, C-Corp or S-Corp, that have been operating for at least seven years and reside in Michigan. The investment can range from $50,000 to $250,000 for a company in the portfolio. It could be made in equity, convertible debt that is a combination of equity and loans, and SAFE (simple agreement for future equity), where the accelerator investors receive the right to purchase shares in the coming equity round. This is an appealing alternative for entrepreneurs because it doesn’t bind them to the early stage.
Who Invests in a Business Accelerator
Business accelerators with financial investors include angel investors, venture capitalists, education institutions, and federal, state, and local government officials. These investors profit from the accelerators’ work to find and assess young businesses.
In-kind investors include companies that offer technology that offers free or reduced costs software or services credits and, sometimes, mentorships and pro bono services by their employees and executives.
Some cloud providers provide hosting credits for accelerator businesses, and providers of essential business tools such as ERP, financial productivity, and eCommerce typically offer free access or lower cost to the software they offer.
Startups benefit from this as they gain tools similar to those that more established companies in their respective vertical industries employ. The software companies aid in the economy’s growth and, on a more concrete level, expose promising businesses to their offerings with the hope that they’ll become customers who pay.
Who Uses Business Accelerators?
Entrepreneurs who utilize business accelerators typically seek a network of advisers and peers to help them develop as business leaders. Due to its openness to the application process, businesses that are not located in tech hubs or with no database of investors may be able to receive funding for their ideas.
Other essential characteristics of businesses who use accelerators for business:
They have MVPs and workable business plans, but they need an injection of cash, assistance in strategic planning recruitment, cash flow, financial management, acquisition of customers, and the technology to enable it.
They are open to improving their offerings and strategies. Entrepreneurs who utilize accelerators for business must be available for new ideas. They might hear harsh but constructive feedback from experienced advisors.
They are willing to give equity to accelerate and, in certain instances, control over growth and future investment choices.
They can dedicate all founders their time during the course of the cohort to network, learn, and create their product. These are intensive and intense.
The founders of diverse groups are joining accelerators in more significant numbers and with good reason.
“Today, 80% of black-owned businesses fail within the first year, compared with 20% of all businesses,” said George Ploss, director, NetSuite Business Accelerator. “We’re missing a market opportunity to grow a large segment of our economy.”
