As we head into the fall and programs around the world are recruiting talent, a question that a lot of founders ask and MDs of accelerator programs around the world end up answering centers around program value when looked at against the investment offer that most programs provide.
This process often prevents companies who should go through programs from applying or rejecting acceptance offers on the basis of (what I believe is) bad advice.
Here is a good way of looking at it:
Do you have a better offer than ~$120k for ~6% of your company on the table right now or a high level of certainty that you will be able to raise capital in short order at a more favorable valuation?
If no …
Yes, apply. You job as the CEO is to fund the business and until you have a better option on the table you should be applying to EVERY program you can find and are eligible for until that dynamic changes.
Ultimately, applying for programs is a great exercise that forces you to:
- build better collateral,
- answer investor questions in a low stress environment (you fill out forms and submit videos as opposed to pitch in person in the first stages),
- and gives you a solid perspective of who else is out there competing for the same capital (you can see who made it then moment the cohort is announced)
Don’t delay this process. Even if you don’t get in the first time, many great companies and founders make it into the top programs on their second try!
If yes …
The answer is a bit more complicated. When we were recruiting for Techstars Dubai last year, we were frequently fielding concerns from founders around dilution.
We found it helpful to frame the investment in the following way:
The company’s implied valuation improves when you look at the reduction of burn due to benefits of participating in a program.
Does the accelerator provide cash value to my company besides the investment that the company would otherwise not be able to secure?
For example, the top programs in the world (Techstars, 500, YC) provide a range of perks that the startup would not have access to but would ultimately need to spend money on.
If you have a compute intensive company (IoT, transcode, ML, etc), the AWS/Azure/etc credits that you get through these programs are higher than your typical free tiers and perks of incubation spaces. Additionally, because accelerators send cloud providers so much business, they frequently lend implementation expertise as part of the program curriculum.
AWS Tier 1 support is expensive. Getting a technical architect involved to figure out your LAMBDA integration is more expensive. You get this as part of the package.
Other valuable perks may include killer office space (with Techstars and 500, there are spaces around the world full of friendly people where you can hot desk for free!), tactical support (our program staffed full time financial modeling, design, marketing and IR resources available to the founders), legal support, and others.
You have to be thoughtful which perks you will actually really use — going through this exercise will give you a dollar figure that you now don’t have to spend.
Network of peers
Entrepreneurship is hard. Having peers who share the cognitive load and you can rely on is valuable. While it’s hard to place an exact value on this, we’ve seen companies introduce clients and investors to each other — so there is that.
The very same network is also highly valuable for recruitment. Besides the broad networks, companies frequently join forces or restructure around new concepts within these programs and having readily available human capital has a time value component thats hard to beat.
The biggest potential impact of being part of a community is sales. If you have a business that sells to startups (dev tools, HR software, PM software, security, … the list is long … think about the “GSD stack” at your company), companies within your accelerator network will be much more receptive to being beta and paying clients than cold calls. The major programs all have large private social networks that give you access to CEOs and executives of companies of various sizes, from startups like yours to pre-IPO unicorns.
While there is no hard numbers available here, I would hypothesize that most companies will see a tangible reduction in cost of sales.
Lots can be said about the value of having seasoned executives as mentors. Connecting with business leaders in your market is something all great programs provide. I won’t spend a lot of pixels on this as its a no-brainer.
If you are an academic or a hardcore engineer solo founder, the density of financial, investor relations, sales strategy, and other information that you will receive as part of a program is unparalleled. Call it a “useful MBA”.
If you actually put a value on all of these components, the implied valuation changes. All of a sudden you don’t need to raise that extra $x to pay for AWS or get your documents done. Not placing a value on the perks is ultimately a poor way for accounting for the value that participating in a program will bring to your company.
With that said … there are tons of programs out there recruiting all year round!
Our awesome team from Techstars Dubai is now running Techstars Abu Dhabi (just an hour away!) and working with Vijay and Dania is an absolute pleasure. I can’t recommend applying for the 2020 program at Hub71 enough!
… and please … remember to have a good time!
Thanks for taking the time to read this! If you are curious about building accelerators or whats it is like to go through one (I’ve done both!), don’t hesitate to DM me - sheynk ✈
If you liked this post, please be so kind to share/clap. Its also cross posted to Linkedin!