This article was originally posted at Betaspring.com, and is republished with permission.
Written by Jon Bittner, Co-founder of Splitwise
If you are thinking about an accelerator, you're probably asking yourself: Is it worth applying? What value do accelerators add? Why should I pursue one accelerator versus another?
The answer to these questions comes down to something more basic: what am I trying to do, and what will help me get there?
Accelerators like Betaspring and TechStars seek companies focused on building high-growth businesses. In start-up slang, people often ask "does this scale?" — meaning, is it creating something of value that can be sold to a huge market. This doesn't mean the initial market must be huge; it means the core technology or insights must apply to a big market.
Let's assume that you share these goals, though this is a large assumption. The first question you should ask yourself is "What will I need to achieve that goal?" The challenges or risks for a high-growth startup usually can be broken into a few categories:
- Market challenge — Will enough customers want this product?
- Technical challenge — Can we build the product, and will it work?
- Team challenge — Do we have the right people, can we hire the right people, and will we hang together?
- Funding risk — Do we have the capital / money required?
- Competitive risk — Will competitors be able to beat us?
- Legal risks — Do we have the intellectual property? Will regulations hinder us?
Of course, you wouldn't be a start-up founder if you didn't think you could overcome these challenges, somehow. But it's useful to be realistic: which challenges could you use help with, and which can an accelerator help with?
My company, Splitwise, participated in Betaspring in 2012 and MassChallenge in 2011. Our experience is that accelerators are best at adding value by reducing the product/market and funding risks. Finding "product-market fit" is very challenging for most start-ups, and a community of mentors and peers focused on providing feedback and sharing wisdom should shape your idea for the better. For us, discussions around Splitwise's product and business model helped us to design a better app. Our user base has grown massively since we joined Betaspring, and our plans for monetization have sharpened.
Companies that need angel or venture capital to fulfill their mission also have a lot to gain from accelerators. Warm introductions to investors in the Greater Boston community have been crucial for us. The accelerator lifestyle, with its constant pitches and introductions, also helps you polish your approach and test strategies for presenting your ideas to these investors.
Accelerators are investors themselves (essentially, micro-VC portfolios). They don't want to take on too much technical and team risk. As much as possible, you need to have your own house in order. Be careful investing your own time into your startup when you don't have the right team for the job, are worried about the depth of your relationship with co-founders, or have no clear proof-of-concept for your technology.
Accelerators can often help with routine legal issues (Betaspring and TechStars both do), but at the end of the day, you will be paying lawyers to deal with any specific IP or regulatory challenge. And lastly, working with competitive challenges is your job.
If you believe that an accelerator makes sense for your goals and the challenges you face, then you have to consider the benefits and costs in more detail.
The cost of a Betaspring or a TechStars is about 6% of the equity of your company. This is not a huge deal for many companies, but given the investment in services and cash, it still values your company at a relatively low valuation. Is it worth it?
The answer to that question will depend on your stage, and how much value you believe the mentor network, community of fellow entrepreneurs, and funding connections will add. Any time you give away equity, I believe you should do so only if it increases the marginal chance the venture will succeed. Specifically, will it save you enough time and money, and give you enough new opportunities, relative to other ways to spend that equity?
The best way to judge is by applying, meeting the partners and "alumni" of the accelerator, and researching the mentor network. It was clear to Splitwise, even with a publicly launched product, that Betaspring was worth it once we came to Providence and met the community. We met key advisors in real-estate and financial services, and liked the vibe from the alumni who had been part of the program. Providence seemed way cooler and closer to Boston than we expected. In the end, it was a no-brainer. TechStars also has an excellent mentor network, and I have tons of respect for them too.
Which accelerator should you pick? That is too much for one blog post. But in general, I would encourage you not to overvalue brand: for instance, don't be tempted to wait for the next Y-Combinator session. The brand of an accelerator is only important insofar as it helps you find funding faster and attract better mentors. Y-Combinator may be the most competitive program on the planet, and this certainly helps with the valuations you might achieve during funding, but many, many of its companies still fail. And the hype of the Valley (even the hype of NYC) is bad for focus.
As a start-up founder, don't fall into the temptation to compare obsessively between cities or accelerators or competitors. Your job is to build a scalable business. Don't wait if you think that an accelerator would be helpful to your company now. You need to get your company as much momentum as you can as fast as possible. Make sure you've got the resources to do that; nothing else matters.
Jon Bittner is the CEO and co-founder of Splitwise. Splitwise is the easiest way to share bills with roommates, friends and family. We help our users organize and split costs on our expense-sharing platform, so that money doesn't put stress on relationships. What makes us unique and distinct from other social money apps is our focus on fairness. Our "fairness calculators" provide unbiased advice to resolve disputes based on our proprietary research. You can check out Splitwise's free apps on your mobile phone or on the web at Splitwise.com.