Source | FastCompany : By LUKE TANG
As startup accelerators multiply, some argue that they do a better job of serving their own interests than those of the businesses they’re supposed to help launch. But that suspicion glosses over the diverse range of business models that more and more accelerators are adopting—even though they may not be getting quite as much attention.
Traditionally, accelerators tend to see money as the driving force behind startups’ success, and make cash their top focus. Talent and technology become secondary priorities. In reality, though, those two things are more often what leads to success for accelerators and startups alike—then the money follows.
But the accelerators that recognize this aren’t the ones that tend to get the most attention. A money-focused model is spreading instead as cities launch their own accelerator programs in a bid for a slice of Silicon Valley status. These accelerators invest money up front, tipping the scales in favor of the accelerator. Where X = accelerator, Y = startup, and Z = financial investment, the equation changes from X = Y (with accelerator and startup on equal footing) to X + Z = Y (where money plays the decisive role).
It’s important to look beyond accelerators that think this way, though. Here are four other kinds of accelerator that every entrepreneur should consider.
Revenue models among accelerators can vary. They may require money upfront but differ when it comes to structure. Some accelerators are now focusing on building equity as opposed to making a specific monetary investment. For example, 500 Startups has a global accelerator program that provides a cash exchange to the startup for 5% equity upfront. The startups then also pay for the program with part of the cash exchange they receive.
While this model focuses on a monetary investment, the equity component isn’t so closely tied to an exact number, and it relies more on the startups’ founder to really make it pay off for the accelerator—equity is only worth something if the startup succeeds.
This model may make sense for some startups, but founders should consider how comfortable they are offering equity and whether or not the accelerator’s resources might benefit them enough to justify it. After all, the equity loss for startups in these arrangements can be quite high, so it’s usually only suitable for very early-stage businesses with lower valuations. What’s more, it can be a challenge for accelerators working under this model to attract high-caliber startups that may be more reluctant to give up substantial equity upfront.
Some accelerators focus on a combination of cash and equity. For example,Founders Space offers an accelerator and incubator program that doesn’t invest in its startups but instead offers services in exchange for cash and equity upfront.
For startups with limited resources, this may be the best model—but this type of accelerator usually isn’t focused on a specific niche and is instead offers more general support like mentoring sessions, classes, and workshops. Startups looking at this model need to consider what assistance they need before deciding whether trading services for cash and/or equity is a good move.