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How to Raise Funding: Investing in Accelerator

Monday, October 25, 2021

Startup Jedi

We talk to startups and investors, you get the value.

Raising investment is a perennial question for startups, especially in the early stages, when investors are reluctant to invest in a risky project. Accelerators can help solve this problem. They help you improve the project, strengthen the competence of the team and raise the first investment. In today’s article we’ll talk about how accelerators work and what will help a startup increase the chances of getting funding.

What’s Hard About Raising Startup Investment?

There are several stages in the work of any startup:

Startup stage is the most difficult one. This is where you come up with the idea, check your MVP and create the first prototype. According to statistics, only one out of 10 startups at this stage survives.

Finding Product-Market Fit. It takes a team many attempts to find a suitable market offer and a business model that will bring growth. A startup successfully passes this stage if it demonstrates constant growth, which indicates the possibility of scaling the business idea.

Growth. The company is growing, expanding its audience and geographical presence. At this stage, it is already steadily making a profit and competing with other companies for leadership in its market segment.

Further Growth. This is the end of the startup history where the company either goes public or becomes part of a large corporation.

The difficulty is that a startup needs investments already at the first stage for the development team to check the MVP, launch the first advertisement, and just earn their living. And for many complex tech projects (for example, the production of VR equipment or unmanned devices), even making the first prototype costs a lot of money. At the same time, investors take their time to invest in an early stage start-up as the risks are the highest here. Most investors prefer companies with proven Product-Market Fit and with some kind of profit, because this means that the demand for the product has already been confirmed by the market.

An accelerator is a good way to solve this problem. During the accelerator program, the team will finalize its product, learn how to sell it, receive resources and connections, and most importantly, it will be able to participate in DemoDay, where they can receive the first seed investment.

Accelerators: Concept and History

Accelerator is a training program that helps startups scale their product in a few months, get their first investment, and immerse themselves in a community of experts and other entrepreneurs.

YCombinator launched by Paul Graham in 2005 is considered to be the first of modern accelerators. Back then there were already business incubators for startups and venture funds, but the YCombinator format with its 3-month startup preparation program followed by giving them a chance to raise seed investments was new. The format quickly proved effective, with Airbnb and Stripe among the first exits of YCombinator, followed by dozens of other successful startups.

There are a great many accelerators in 2021. Universities and commercial companies, private funds and government organizations have their own accelerators. There are mixed type accelerators that combine an accelerator and an incubator or an accelerator and a startup studio. Some accelerators have their own investment funds, others act as intermediaries, connecting startups with potential investors.

Kinds of Accelerators 

University. Accelerators organized specifically for students (some also accept external projects). Selection rules tend to be simplified here. The project can be accepted at the stage of the developed MVP, and university experts participate in the educational program. One example of this is ITMO Accelerator.

State. Accelerators that are government-funded and support a certain type of start-up (for example, a specific market or teams from a specific region). State venture funds are involved in DemoDay, and startups are often offered grants and subsidies. One example of this is the Skolkovo Online Accelerator.

Private. Accelerators that are also a business: they can be paid or exist through a share in alumni companies. Fastlane Ventures.

Corporate. These accelerators select projects that can be useful to the parent company. As a rule, they are easier to join. The startup must meet the interests of the company. Successful accelerator startups can be offered a job in the company or investment in their startup with its further purchase. One example of this is Sberbank Accelerator. 

How Can I Join Accelerator?

Proven MVP. As a rule, there are many people who want to get into an accelerator, so first you need to go through the selection process. Most often you fill out a questionnaire, prepare a presentation and present your project at a face-to-face interview. For the accelerator, projects with a proven MVP are a priority, but if the experts liked the idea or saw the potential in the team, a startup can be accepted at any stage.

Team. Many (though not all) accelerators require a team of two or more people. Having a team really gives a certain guarantee that the project will not fall apart after the first difficulties, which means that the resources of the accelerator will not be wasted.

Compliance with the accelerator program. Before submitting an application, you need to carefully read the conditions: does your project meet them? Many accelerators launch theme streams (for example, they only accept fintech projects), and corporate accelerators only accept those who develop a product that is interesting for the company. Do not hesitate to contact the organizers and ask questions as they are usually sociable and explain everything in detail (if not, then it must be a strange accelerator).

Tip: Don't look for the most prestigious accelerator and don't stop at one option. Apply to several places at once. Firstly, this will make you more likely to get in at least one of them. Secondly, you will complete your presentation and receive a lot of valuable feedback during the interview process. Third, you will expand your contacts. 

How Does Accelerator Work with Projects?

Edu Program. Now accelerators are trying to move away from the classic lecture format and introduce the most interactive and practical training, in which startups can improve their product during the class. The training is aimed at preparing the team as much as possible for managing a growing product. The team of founders is trained to calculate the economics of the project, delve into the legal intricacies, hire employees correctly, position the product, and so on.

Communicating with successful entrepreneurs. Successful accelerator alumni who have already established themselves as businessmen often come as invited guests. They also willingly share their contacts. You can use this opportunity - text them and pitch your product.

Assignments. The startup team performs tasks related to the project: test various Product-Market Fit hypotheses, prepare a presentation, calculate the unit economy. There is often some kind of informal competition between teams.

Tracker’s support. Tracker is an experienced mentor who helps the team move from MVP to a full-fledged business, avoiding unnecessary mistakes and time losses. Working with a tracker is one of the most valuable things you can get in an accelerator.

Preparing for the DemoDay. Presenting your project to investors is the key event, so a lot of time is devoted to preparing a good presentation and an effective speech. And that's right as you will have to constantly pitch your project in the future!

Why Work in the Accelerator

Knowledge and Experience. Startups constantly pitch their projects, test different models, get feedback and experience. Lectures and seminars are led by real experts who you can always reach out to with a question. All that is left for you to do is to absorb all this knowledge!

Boost. Thanks to work with a mentor, competition with other teams and a rigidly built accelerator schedule, the startup team does so much work in 3-4 months that could have taken years without an accelerator.

Connections. The most important thing in the accelerator is informal chats, useful contacts, personal phones of speakers and emails of investors. Everyone here is as friendly as possible, so you must not be afraid and present yourself and your project (you will learn how to do this in the accelerator).

Community. In the accelerator, the founder of the startup can see that they are not alone. As Paul Graham said: "When you take some ambitious people and put them together with other ambitious people, they bloom like dying plants given water." And the opinion of the founder of the best accelerator in the world is worth listening to! Synergy of entrepreneurs is more than beautiful words: it is about communication, exchange of experience and friendship between entrepreneurs that helps them ultimately achieve success.

Brand. Taking part in an accelerator gives the project some credit in the eyes of investors and can significantly increase the chances of raising investment.

How Do I Boost my Chances of Raising Investments in Accelerator?

Prepare for the DemoDay. Watch the recordings of previous teams' performances, rehearse and ask the tracker for advice. Investors will rate a good, confident, competent presentation with possibly not the most obvious product higher than a brilliant, but indistinctly presented idea. Because venture investments are, first of all, investments in people.

Calculate the Economics of Your Project. Investors note that most start-up teams fail to do so. They do not consider unit economics well and come up with the most impressive numbers instead of relevant indicators. Take this part especially seriously - try looking at the presentation as if you were an investor.

Talk to Experts. Do not limit yourself to listening to lectures: contact the speaker directly after the class, ask a question and exchange contacts. You may receive valuable advice or direct contact with investors. Experts participating in the accelerator program are willing to make contact, but few people turn to them.

Take Advantage of the Opportunities. While working in the accelerator, you may receive messages about grants, subsidies and hackathons. Make sure you don’t miss them.

And the Main Tip…

Be prepared to give it another try. Do not bet everything on a single project pitch: it may well happen that your project will not be on the list of winners, which, however, does not mean it is bad. An accelerator is a useful and necessary step on the path to success. You need to step over it, make the most out of it, and keep going!

25 Oct 2021

 

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