Choosing a program that is worth it for you (or deciding if you should skip them altogether), and finally
How to get in.
This article was NOT sponsored by Startup Chile, DreamIt Ventures, or 500 Startups. Not directly, at least. But all three of them invested in Slidebean and helped us get our company to where it is today.
My co-founders and I all went through these programs as we started the company. We ended up living in Santiago Chile, then New York City, and finally, the Bay Area, aka Silicon Valley.
The first thing accelerators will appreciate is that you don't get them confused with the concept of an Incubator.
An Incubator is a mostly outdated model where companies can benefit from the program for a significant amount of time. Incubators can still be seen in academia, where students or graduates get access to office space and mentoring.
What is a Startup Accelerator
An accelerator, on the other hand, is usually a 3-4 month program that looks actually to accelerate companies. Most accelerators provide some capital so that the startups can invest more freely, and take a percentage cut on the company either as equity or as future equity in the form of a SAFE. Go watch our video on that.
The infrastructure of a startup accelerator is typical:
One or more physical offices where companies can work for the duration of the program (though programs like YC don't offer one).
Managing partners and/or Entrepreneurs in Residence, which work directly with the founders by meeting with them every week.
A network of mentors, some closer than others. The closest ones are regularly in the office and can assist companies with specific topics such as ad management, pitch or design practice, analytics. The rest are available for occasional one-hour calls on a first-come, first-served basis.
Finally, a network of investors. There is by no mean a guarantee that you will receive funding from these investors, but you can get intros to most of them through the accelerator staff, which does open a lot of doors compared to trying cold emails.
Choosing the Accelerator Program
As I said, we've been through Startup Chile, DreamIt Ventures, and 500 Startups. The latter two, according to this diagram by seedrankings.com, fit into the Silver and Gold categories.
Startup Chile provides companies with a grant, funded by the government of Chile to promote entrepreneurship in their country. Chile seeks to become a startup hub in South America, so the government allocates about $35,000 for each company, for founders to get their ideas off the ground. Over 200 companies are accepted each year, which means that this a government investing about $8MM/yr in building this startup hub.
We were part of batch 8 of SUP, from November 2013 to June 2014, a six-month program. Actually relocated the team to Chile, which is a requirement.
Most companies coming into the program are early on the idea stage- so if you don't have any traction yet, this might be away to get there.
The program is more of an incubator, where you get free office space for six months, some access to mentors and investors, but you are mostly on your own. Each company makes the most out of it in their way, but it's essential that you come in with your objectives and your expected milestones very clear.
You don't have to give any equity in exchange for the grant- but you are expected to get involved with the local community by organizing meetups and events: a very fair deal if you ask me.
You'll likely be able to find other government grants like this one in nations that are just getting started with their tech ecosystems. I don't know any specific ones, but feel free to share any you know in the comments.
DreamIt is classified as silver in this chart. Having been through it, I can speak first hand about what they do, which I expect will be comparable to other programs in that stage.
DreamIt used to invest $25,000 in exchange for 6% common stock. They used to target early-stage, pre-revenue companies, and focus on their pitch decks, their story, and product launches. This was when we went through it.
They have since evolved and doubled down on some specific industries where they have the connections to make a difference. Urbantech, Healthtech, and SecureTech.
Companies are no longer required to relocate; instead, the program is remote, and they go on a customer sprint, about halfway through the program, and then an investor sprint towards the end.
The industries Dreamit serves require a network, to be able to find the right person inside a large company to become interested in the product.
Their investment and equity requirements vary from company to company, but they have focused their model on coming in at the same terms as the investors they help you find. To be able to get in front of customers by week 7, companies need to have a live product by the time they come into the program.
DreamIt is a much more structured program than Startup Chile. Also, of course, more selective. They only take about ten companies from each industry each year.
When Slidebean went through Dreamit, I used most of my professional time to meet with their investor network. Most of my time went to getting meetings and pitching investors. While that experience served me well for what Slidebean has become today, it didn't get us any funding during the program. We got out of DreamIt with about $1,500 in MRR, which was, of course, not enough traction to prove that we were going in the right direction.
Which brings me to 500 Startups. We had our doubts about applying but ended up going for it. At the beginning of October 2014, we were three weeks from running out of cash when we got a call from 500, inviting us to the interview. At this point, it wasn't a question on whether or not we needed another accelerator- 500 Startups' $100,000 investment was really the only cash we had access to.
The deal back then was a $100,000 investment, out of which $25,000 were 'paid back' for the actual accelerator program. They have a SAFE-type document that guarantees them 7% of company stock, using the same preferred stock terms as the next qualifying round of financing. I believe these terms have changed to about $150,000 these days.
500 Startups ended up being the last push we needed to get the company off the ground. Their growth-focused program consists of two weekly meetings with an 'Entrepreneur in Residence.' EIRs are successful entrepreneurs or early employees of successful companies who have first-hand experience in companies at this stage.
There's also a weekly meeting with the Growth Council. That's not their name, but that's what they are — a team of 4-5 growth hackers that help you crack your head about growth tactics for your business.
500 Startups expects their companies to come in with a few thousand dollars in revenue, and to scale that exponentially during the program. A hockey stick chart is an expectation.
Our friends from Headout, a company from India, came into the program with ~$30K/mo and got out with close to $100,000/mo. In just three months!!
On the other hand, their philosophy revolves around giving opportunities to 'unlikely' entrepreneurs: foreign founders, women-led teams. There's no non-profit, altruistic reasoning behind it; on the contrary, they believe that they can get more for their buck by investing in companies that might be overlooked by other firms and VCs.
Raising funding after the program ends is not guaranteed. 500 Startups get you good press and credibility, but in the end, it's up to you and your metrics.
Now looking at that chart- I have never been through a Platinum level program, but my perception for, say, 500 Startups vs. YC Combinator is that YC provides,
A much stronger brand name.
Access to a stronger network of investors.
Since YC incubated so many successful companies, you are inevitably pre-filtered as you start getting into these meetings.
By the number of applicants and acceptance rates, it is harder to get into YC and even 500 than getting into Harvard.
Now choosing the program that is right for you relates exactly to getting in. On a failed Youtube show we launched a couple of years ago called Startups & Spirits, we asked Elizabeth Yin, a former managing partner, why we got in. Here it is:
So there's your answer. It's about finding the program that is right for your stage, knowing your numbers, your unit economics, having some proof that the product is needed, and, very importantly, being able to tell that story- for which you will need a Pitch Deck.
We help companies with their pitch deck, either with our self-service AI design platform, or by getting involved in the writing and design- which is done by me, even though we have a team of 25+ people.