Setting up a Startup Accelerator

Notes from How to Build a Seed Accelerator Programme

Business Model

Seed accelerators are primarily investment vehicles. They have to make money. Accelerators control the return on investment by controlling the quality of the incubation process and leveraging media attention to attract outside investors to boost traction of the incubated startups.

The overheads for an accelerator or incubator are large. Some obvious ones are rent for a large space which usually needs to be located centrally to be attractive, staff overheads, branding, marketing and PR expenses, as well as the actual seed investment.

An Accelerator needs to set and meet clear targets at management level, at the portfolio level, and at the programme level. Also, the incubated startups need to meet targets and objectives too. In short, a Seed Accelerator needs a business plan, a revenue model including targets and smart people that can execute at the highest level.

Depending on the business model of the Seed Accelerator, whether the exit is planned at series A stage or later, and the risk profile of the portfolio, Accelerators usually exit after 2-4 years.

After having defined the actual exit strategy of the Seed Accelerator and at what point the investors intend to cash in, one needs to back engineer the entire ecosystem including value chain, PR/media, mentor base, startups, skill programme, conversion funnel and application process. A laser sharp specialisation in line with the ultimate accelerator portfolio exit goal on all levels and at all stages of the incubation process is key.

An excellent Seed Accelerator needs to be engineered all along the value chain, from talent, branding, marketing, startups, mentors, investors, management team, to the acquirers. If the Seed Accelerator hasn’t built that value chain or if one component has been neglected, it impacts all other elements. A Seed Accelerator is a complex undertaking. It works under the assumption that by applying a certain level of quality control on all aforementioned elements one can mitigate the risk that comes with venture capital investment activities and drives better investment returns as a result.

Important Questions

Are the researchers interested in building a business? Will they give up their careers and switch to entrepreneurship full-time? Who's responsibility is it to commercialize the research?
How much investment ($) in each startup? Invest the same amount in each?
How much equity in each startup? Will it be the same across each startup?
At what stage do startups enter the program? What are the prerequisites?
The number, type of business, degree of preparedness, market potential, team composition, etc. all determine the risk profile of the portfolio of an Accelerator, and consequently its success.
At what stage do startups exit the program? What are the criteria?
This one one of the most crucial decisions: what is the role of the accelerator? What does the program help the startup achieve?
Is the program length predetermined? How long should it be? Is it the same for all startups?
A startup needs to spread its wings at some point, therefore being part of an accelerator for too long may be detrimental to the business success of a startup.
Is there rolling admission, or do startups enter fixed number of times a year?
What is the ideal portfolio size? How many startups will enter the program at one time?
At the end of the day, it’s all about quality which should not be compromised for quantity to fill quotas. It's best starting small and high quality. Once the first cohort has received follow-up funding and thrives, reputation and application numbers will increase and thereby it will become easier to spot the diamonds.
Who will provide the follow-up investment? What about acquisitions?
A strong partner ecosystem is vital for every Seed Accelerator. Without good relationships with angel and venture investment communities, and corporate partners, an Accelerator will not be able to exit profitably.

Facilities and Features

A Seed Accelerator should offer a theoretical framework, skills, a community, and provide a safe home for early stage businesses as they’re very vulnerable taking their first steps into the world of business.

Ideally startups should be able to fully develop their business model including verticals, route-to-market, revenue streams, test and validate their business assumptions through rigorous testing and data analysis during the program.

Some of the necessary facilities and features of an accelerator are:

Basics for the startups: desk space, communal space, a community, parties, food and drink — anything that will enable the participants to maintain a laser-sharp focus on the goal. Personal development for founders, public speaking training (for demos, pitching) is important.
Accelerator Management: business networking, ecosystem development, and strategic business development skills are key for the management team. Ideally, a team of experienced founders that have started startups before should run the acclerator as they are the best to validate and select founders for the cohort.
Corporate project managers, six-sigma jockeys, back office administrators, and other rather process-oriented trained folks are not Seed Accelerator material as you need hands-on, experienced entrepreneurs that understand what it’s like to start, grow and navigate a company.
Large mentor network comprising practitioners with a background in medical services, healthcare services, healthcare entrepreneurship, venture and angel investing. Mentors need to be actively involved in the incubation process in order to add actual value to the equation.
A carefully vetted mentor base, mentor training sessions, specific mentoring experience plus a matchmaking process should be part of the package. Mentors and startups need to understand each other’s challenges and find ways to leverage everyone’s strengths and mutual fit in terms of business model, background, and network.
Dedicated and driven staff. Create a purpose-built team for each company drawing from a variety of skills — strategists and experience designers, technologists and branding experts. They then work intensively alongside the founders, to help young companies build better products and brands.
Network of partners who act not only as mentors but also as advisors, partners for pilots and POCs (proof of concept), paying customers, and investors.
For the partners, to keep them interested, they have to be provided services such as analysis, diligence, and consulting with engagement, partnership, and investment to provide a comprehensive and effective methodology to achieve strategic innovation.
Technology services partners services such as free cloud space, technical feasibility and consulting, usually provided by likes of Amazon, Google, or Microsoft.