What Are the Pros and Cons of Accelerator Funding?

Are you an entrepreneur who is currently making plans for a startup and considering accelerator funding? Accelerator funding is a common source of early capital for many startups, and accelerators can have the added benefit of providing other forms of business support to help you as you structure your business and plan its growth. Like any method of raising capital, accelerator funding has benefits and limitations that you should consider, and that you should discuss in detail with a startup lawyer before committing. Consider the following information.

What is an Accelerator?

To fully consider the benefits and limitations of a startup accelerator, it is important to have a clear understanding of how this type of funding works and what this type of program involves. In general, a startup accelerator is a program that is designed to provide rapid growth — as the name suggests — to startups in their early stages. In addition to providing funding in exchange for equity, accelerators also provide mentorship, networking opportunities, and other resources. Accelerators typically have a specific focus, such as a particular industry (e.g., tech) or a particular geographic focus, and they bring in a cohort after reviewing applications.

Accelerators usually run for a set period of time — typically a specific number of months — and usually require that you have a minimum viable product (MVP) at a minimum. Selection for accelerators occurs in cycles, and selection depends on various factors. There are hundreds of accelerator programs in the country, from corporate programs to university-sponsored startup accelerators. It is important to be aware that the terms “accelerator” and “incubator” are sometimes used interchangeably, according to Harvard Business School, but the terms are actually distinct from one another.

Benefits of Accelerator Funding

The primary benefit of accelerator funding is that it comes with additional forms of support, as we noted above. In an accelerator, you can have access to educational opportunities, mentorship, networking, and other resources.

Not only does your startup obtain funding by being selected to a startup accelerator cohort, but you also have access to other benefits that can allow your business to grow quickly and successfully.

Limitations of Accelerator Funding

While accelerators can have many benefits, there are also limitations to consider. Primarily, in exchange for funding, the accelerator will have a stake in your company. Often, accelerators will require a higher percentage of equity in your business than other funders.

Contact Our Startup Lawyers Serving Washington, DC, Northern Virginia, and New York for Assistance with Questions About Raising Capital 

If you have questions about raising capital, or general structure and funding questions concerning your startup, it is important to seek legal advice. Many of the decisions you make early on will impact your business for the months and years to come, so it is crucial to make the decisions that are best-suited to your startup’s needs and aims. One of the startup attorneys serving Northern Virginia, Washington, DC, and New York at Triumph Law can answer your questions and can work with you in more detail on matters concerning business structure, funding sources, and more. Contact us for assistance.

Source:

online.hbs.edu/blog/post/startup-incubator-vs-accelerator