What are the goals of startup companies participating in the accelerator program?
The goals of startup companies participating in the accelerator program are to achieve sustainability through the acquisition of additional capital for continued development and growth or to achieve cashflow breakeven through revenues. Some companies may also be acquired directly out of the program.
What are the goals of the accelerator’s management and investors for the program?
The accelerator’s management and investors are active angel investors who are making a bet on the companies that are accepted into the accelerator program. Our goals are to achieve a competitive return on our investment through the launch of successful, growing, self-sustaining companies. Also, we want to establish the accelerator as an excellent avenue to deploy capital into new ventures.
Can I be a student or have a fulltime job while participating in the accelerator program?
An accelerator program is an extremely intensive, immersive on-site, in-office 3-month experience for dedicated startup founders who have made a complete committment to getting their new venture launched. It is not, therefore, suitable for individuals who are currently fulltime students or working in a fulltime job. Also, the accelerator’s seed investment component is intended, in part, to provide startup founders with the resources to support themselves during the period of the acceleration program.
Are there any preferred types of companies or an industry focus for the accelerator?
VentureSpur has recently announced our industry focus areas, based on the backgrounds of our entrepreneurial mentors. However, we look at all applications and all startups, so please do not hesitate to apply, even if your company falls outside the focus areas. Any startup with the ability to address a large market quickly, the ability to scale its business model, and the ability to achieve significant investment returns are likely to be considered for acceptance to the acceleration program.
How far along do startups need to be in order to apply to the accelerator program?
Startups need to be at a point where they can benefit from mentorship and business model development, at least. This means that the startup is further along than “an idea on a back of a napkin” but probably has not raised significant amounts of capital and does not have revenues. Here are some examples, but certainly not a complete list, of potential scenarios:
• Startup is licensing a technology from a university technology transfer office; Startup has a letter of intent with the university to option the license upon funding and a letter of intent with the inventing professor to participate in the new startup; Startup has two additional co-founders including an operations specialist and a marketing specialist. Startup has researched the invention and feels it can demonstrate a market need; Startup is ready for acceleration!
• Startup is developing a new consumer mobile app; Startup has two founders, a software developer and a marketing expert; Startup has researched the market and knows that the idea is unique; Startup has begun talking to specific content providers about exclusive agreements but hasn’t signed any agreements; Startup is ready for acceleration!
• Startup has a proprietary algorithm for sorting good widgets from bad widgets quickly and economically; Startup has researched the market and written an internal study suggesting that production efficiency could be improved by 10X using the algorithm embedded in manufacturing inspection equipment; Startup has registered one provisional patent, but not considered what follow-on patents or additional claims might be useful or warranted; Startup is ready for acceleration!
• Startup has begun developing desktop business software to dramatically decrease the amount of time it takes to complete task X; Startup has two developers and an industry veteran as founders; Startup has a simple beta of the product ready to demonstrate, but has not yet approached industry buyers; Startup has a marketing and growth plan, but has not completed a financial model to achieve the growth plan; Startup is ready for acceleration!
Why doesn’t the accelerator execute an NDA with startup companies that are applying or admitted to the program?
Companies applying to an accelerator are planning to participate in a collaborative acceleration process, with multiple public events, public presentations and with outside mentors and champions coming in to participate in helping to build the startup company. Making everyone involved sign a non-disclosure agreement would be both unenforceable and counter-productive to the acceleration process.
More generally, in the venture capital industry, most VC firms will not sign NDAs for two reasons: First, it does not make legal or business sense to take on the potential liability of an NDA when a VC firm is likely to see hundreds or even thousands of business plans in a year. Second, there is very little value in a “secret” business idea. VC firms often take the philosophy that an idea is virtually worthless, while execution is valuable. And the primary challenge for most startups is not hypothetical competition, but is getting anyone to notice or care about the startup. NDAs do not help in overcoming this primary challenge.
What is the nature of the 10% equity stake accepted by the accelerator from the startup?
The 10% equity stake accepted by the accelerator from the startup in exchange for participation in the program is founder’s common stock and is a non-controlling interest in the company. It is the same type of stock held by the startup’s founders. By taking founder’s common stock, the accelerator places itself on the same side of the table with the founders in any negotiation with new investors, including new angel and venture capital investors. The accelerator’s stock is diluted in the same way and to the same degree as that of the founder’s stock. This is non-controlling stock and the accelerator has no special rights or privileges in the management of the startup.
Why does the accelerator take 10% of a startup for participation in the program?
Accelerators accept an equity stake in the startups they help to launch in return for a cash investment, boot camp program, mentorship, advising, free services, free office space, and the Pitch Day experience. This equity stake is the accelerator’s only avenue to achieve a return on investment for its investors.
Even though my company hasn’t been accepted to the accelerator, can you advise my company and introduce me to investors anyway?
VentureSpur runs on a very lean model, with a very tight budget in both time and money. This means that all of our efforts must be focused exclusively on the companies admitted to the accelerator. That’s the commitment we’ve made to our board and investors, and that’s our operating mandate. Believe me, we use every minute and every penny allocated to try to boost the value of our startups. Starting companies and making them successful is hard!
That being said, we do make efforts to foster the larger entrepreneurial community wherever we go. We have several concrete ways we do this, including hosting our Open Office Hours during which we provide free consulting to startups; our Happy Hours, during which we introduce entrepreneurs and investors to each other, provide informal advising, and otherwise help to foster community; and our free Lunch-and-Learn programs, whereby anyone can attend a free luncheon covering an important entrepreneurial topic. And, of course, our ultimate service to the community is our free Pitch Day event, including our pitches, keynote speakers and discussion panels. Pitch Day is the ultimate opportunity for every entrepreneur in the community to mingle, talk and learn from the best. Don’t miss it!
Why can’t you give me an answer on my application to the accelerator right now?
Admission to the accelerator of a startup and winning a seed investment from the fund is a competitive process. We cannot admit any company to that year’s program without first going through our review process. This includes accepting applications up until the deadline, selecting finalists from among those applications, seeing startup Quick Pitches, reviewing with our management and investors, and then negotiating admission with the winning startups. To remain fair and competitive, this process has to proceed according to the published schedule.
How does my company win follow-on convertible note investment, after admission to the accelerator program?
Startup companies winning admission to the accelerator are provided with a spot in the program, including event participation and mentoring, and a seed investment, in exchange for equity in the company. In addition, we also reserve part of our seed fund for follow-on investment in the most promising startups admitted to the program. These follow-on convertible note investments are made entirely at the discretion of the accelerator’s management. We will be looking for companies that are consistently meeting their business milestones, holding themselves accountability, successfully developing their product or service, developing their business process, and identifying specific growth opportunities for which an additional investment would be crucial.
How does a convertible note investment work?
A convertible note investment is a loan to the company that can be converted from a debt into a purchase of equity in the company at a later date, usually upon closing of an additional equity funding round by the company. By structuring the investment as a loan, the investor can avoid the need to negotiate a share price and valuation of the company, and allow the next equity investment round, usually a venture capital round, to determine the company’s fair market valuation. This allows smaller interim investments to be made into a company, prior to a larger venture capital round, without significantly hindering or complicating that next investment round. For more details please contact us, and also be sure to review the implications of a convertible note with your company’s legal counsel.
How is the VentureSpur accelerator different from an incubator that I recently heard about or the university accelerator that I’m considering?
There are a wide variety of resources available in the marketplace to help startup companies. We strongly encourage entrepreneurs to look around, learn about these resources, educate themselves about the differences and decide what combination might be best for their startup.
At VentureSpur, we believe that almost all of the resources available have their place and their use for different types of startups and different stages of the startup lifecycle.
For example, it’s not unusual for a startup to begin in a university accelerator, rent some space in a state-sponsored or certified incubator, take some entrepreneurship classes, apply to an accelerator, win a place in the accelerator and a seed investment, go back to the incubator office afterwards, raise some venture capital investment to follow on the accelerator seed investment, and then go into growth mode in a larger office with an advisory board or board of directors. Or any other sequence using those same resources. That’s why they exist and you should take advantage of any of them!
Generally, “incubators” are sponsored and subsidized by some kind of economic development agency. Sometimes that is a state, county, or university system, or through simple tax subsidies to a non-profit or for-profit incubator corporation.
Generally, incubators are required by their funding entity to provide some amount of educational and mentoring resources to their tenants and will usually be charging rent. A few incubators are entirely subsidized by their sponsoring organization and can forgo requiring rent payments from the startups.
In addition, some incubators help to qualify their tenants for special tax benefits. You’ll have to check with each individual incubator on these special tax conditions.
In addition, there are a variety of academic and private startup resources in the marketplace that don’t exactly fit the definition of an incubator. These vary widely, but are usually either paid commercial services, like Tech Ranch in Austin, or are subsidized by tuition and tax dollars for economic development and educational purposes, like the CCEW program at the University of Oklahoma. (These are great programs run by friends of ours! Check them all out!)
Typically, when you call something an “accelerator” or a “mentor-driven seed accelerator,” you’re talking about an organization that follows the model pioneered by TechStars and YCombinator. These accelerators, including VentureSpur, invest in startups through a venture capital seed fund and then put the startup company through some kind of structured venture development program with a strong emphasis on networking and mentorship.
All of these typical-model accelerators exist to create a return on investment for their fund and to raise follow-on investment for fantastic, highly-competitive, fast-growth startups. These accelerators primarily exist as the forward, bleeding-edge branch of the venture capital markets. Unlike the incubators and other programs referenced above, accelerators must produce at least a few highly successful startups each year that promise excellent returns to their investors through acquisition events, IPOs, or dividend distributions.
As a result, accelerators have a strong incentive to invest their resources only into companies that have a good chance of growing quickly and being backed by venture capitalists with a major funding round. Accelerators survive by picking only the best, fastest-growing, most-likely-to-succeed companies and then pouring resources, introductions, beta testers, and the kitchen sink into those companies.
One question helps to distinguish between types of programs quickly: Venture accelerators are typically investing money into startups while incubators and academic programs are generally either charging the startups rent or paying the bills with tuition and taxpayer dollars. Incubators and similar programs have a focus on economic development in support of a particular city, county, state or institution while accelerators are focused on return-on-investment for their investors. Its really that simple.
Finally, one important note: We would caution entrepreneurs to avoid any program or organization that claims to be “the only” organization of its kind, claims to have “exclusive access” to resources, or claims that it is “the only path to success” for your startup. No one organization has all the answers and any organization that makes these claims is misleading entrepreneurs for its own benefit. At VentureSpur, we firmly believe that entrepreneurship is a team sport!