Accelerators and Incubators

I recently wrote a short article, published in BCS, in response to a question raised, about the benefits of accelerators and incubators.  

I share it here because I touch on something that I don’t think gets enough attention.

While we are very quick to promote the successes of the growing startup scene in London and speak of it only in terms of pride, optimism and potential, we need to shine a light on the less scrupulous operators, masquerading as enablers in the market.

I am privileged to be a mentor to startups on  a number of accelerator platforms and I am genuinely enthused by my involvement and proud of our achievements.  However, not all accelerator programs are equal. Many are a lot less noble and we need to talk and raise awareness of the more self-serving operators, really only enriching themselves and, ultimately, harming a startup’s chance of success .

Article follows.

Accelerators can be incredibly good for a startup. Or incredibly bad.

There can be no doubt that there is a need for startup assistance and that there is a ready market for the money and the mentors they present.

So naturally, in response to the booming tech environment, there has been a proliferation of enterprises move in, naming themselves accelerators or incubators.

However only a few are good – and only very few, also provide good terms to entrepreneurs. The remainder, frankly, operate as exploitative self-serving vehicles, that take much more out of a company, than they put in.

I urge company founders exploring the option, to look beyond the headline numbers offered, and pay attention to the small print.

Some may offer up to a 6-figure cash injection which, to a bootstrapping entrepreneur, may sound like a Godsend.. but, as well as the equity sacrifice you make for it, you may be asked to pay a fee (which can be in the thousands) to access it – of which a considerable element, is often a repayable loan.

One well-known operator for example, offers £100k up-front, for 15% equity.

Now that’s a pretty chunky equity slice but things don’t look really bad, until you look at the details.

Of the £100k outlay:

£30k must be paid to access the loan. Leaving just £70k in the kitty.

Of which £40k is a repayable loan. Leaving £30k in the kitty.

Congratulations, you’ve just ‘won’ a place on an accelerator that cost you 15% equity for a net cash injection of just £30k.

You get my point.

Beyond the money, just as important as the cash element of an accelerator’s offering, is the mentor network it can provide you with. These are of equal – if not greater value to your company.

It’s very easy to get cash for good ideas these days, via the smorgasbord of crowd funding platforms available.

But you should be more discerning.

It’s not just money – it’s strategic money that you should be after. The differentiating feature – and one that can undoubtably, be worth the equity premium, is the network that accelerators can introduce you to; the brands, the industry contacts, the access to information and even the boring things like advising on valid grants and tax reclaims.. the potential relationships and business education, is worth measurably more than what faceless investor money can secure.

So succinctly, I would recommend the entrepreneur strip out the components of the offer. And look at them carefully, answering the following, before making any decisions:

Do you have to sacrifice equity? How much?

Is any element a repayable loan? How much?

Do you need to pay a fee to access it? How much?

Who are the mentors? Are they appropriate for your product?

..And then look at it not just from an entrepreneur’s perspective, but also an investor’s. Would I still want to invest in you after what you have agreed to?

PM with questions.