How to Jumpstart Your Startup Fundraising
How do you stand out, gain traction, and importantly, attract the funding you need to take your startup to the next level? One method could be to join an accelerator program. With their numbers exploding and some high profile successes that the top programs can point to, accelerators are gaining an ever bigger profile in developing startups. And for the few that make it into a top program, accelerators offer a potentially faster and smoother path to raising follow-on funding. Here’s how:
- Providing seed funds — The first and most obvious way accelerators help is by providing small amounts of funding to help you develop your idea into a viable product or take your existing product to the next level, in return for a small equity stake. Exact splits differ widely by program, but here are typical ones for some of the top programs. TechStars: $18,000 in exchange for 6% of common equity; Y Combinator: 2–10% in exchange for $20,000; 500 Startups: $50,000 in return for a 5% equity stake, but startups pay program fees of $12,000-$15,000.
- Lining up investors — Accelerators can juice your funding by functioning as a source of deal flow for angels, VCs, and corporate venture departments. AngelList’s Classes allows investors to back the entire startup class in selected accelerators. Think of it as a concentrated sector fund. The significant investor funds channeled through AngelList have a direct impact on startup funding: AngelPad raised its funding amount for new entrants from $50,000–80,000 to $100,000. Meanwhile, operating as both an accelerator and a venture fund, 500 Startups now runs three seed investment funds open to accredited investors, venture capital firms, and corporations. Y Combinator’s StartFund offers a $150,000 convertible note backed by investors to companies in its classes.
- Granting access — The best programs get you access to an extensive, concentrated, and high caliber range of talent that can’t easily be replicated. This includes funders, influencers, and seasoned entrepreneurs with a track record of launching and successfully growing companies. The advice and mentoring can help you leapfrog in terms of building your business and lining up later stage and larger funding rounds. Plus the often direct introduction to investors mean you’ll have the benefit of being a known quantity, which exponentially increases your chance of securing funds when the time comes.
So how do you get in?
- Target, aim, shoot — I won’t pretend this is easy, but it really helps to focus your efforts on the right ones considering your specialty and your stage. Don’t take a willy nilly approach, applying everywhere, but do apply to more than one program after you’ve thoroughly researched the relative strengths of the different programs. Consider things like track record, expertise in your chosen product/service area, the quality of the resource network, including how much face-to-face time you’re likely to get with experienced and high-quality mentors, and tight links with potential funders.
- Have an attractive value proposition — It’s not just your idea. Be sure you also have a credible business plan and an addressable market. Find a co-founder; not having one significantly decreases your chances of getting accepted. And many accelerators talk about the quality of the founding team as the biggest factor in who gets in because a bad idea can always be substituted or a shaky business model retooled. Do what you can to stand out even, especially, if it’s simply conveying your passion. Approach the application process with the same attention to detail and preparation that you would for an investor pitch, and be persistent.
- Build and leverage your network — Like so much in life, it’s not always how good you are, it’s how good people think you are. Your network can be a huge advantage in getting noticed and ultimately into a program. Raise your profile by being a thought leader in areas where you have special expertise, be that via your blog, professional associations, or conferences. Go to any event that you think you can learn from and/or contribute to. Actively seek mentors and advisors, and of course, plan to give as much as you receive. If you are adding value, your network will also be spreading the word — but you should still be actively leveraging it, whether it’s putting in a good word for you or making an introduction to a founder who completed the same program you’re looking to get into.
By the way, these are the same methods that will attract VC investors. That said, accelerators aren’t for everyone, and acceptance rates are insanely low. Still, understanding what it takes to get into a program can help you get strategically positioned to ace the fundraising process.