Startup accelerators are designed to help young companies quickly enter the market and attract investor attention. These boosting programs typically last several months, during which teams receive mentorship, access to educational events, and use of office resources. Moreover, startups are often provided with initial funding in exchange for equity. This type of collaboration is a solid system that helps many projects grow from raw ideas to first sales, but investors should also consider the risks associated with how accelerators operate.
Is the system as ideal as it sounds? Dmitrii Khasanov, investor and founder of the Arrow Star investment fund, explains common pros and cons of investing in startups using accelerators and their programs.
Why Accelerators? And for What?
“The main goal of an accelerator is to create conditions for faster startup growth. Entrepreneurs undergo intensive training, test different hypotheses, develop business models, and gain access to potential clients, partners, and investors. By the end of the program, many teams reach their next investment round with a certain level of expertise and either a prototype or a working product. Ultimately, these accelerators are focused on ‘streamlining’ the creation of successful companies while increasing the value of their own equity in these startups,” states Dmitrii.
Here are a few great advantages of working with accelerators.
- Project Screening: Accelerators typically run a competitive selection process, accepting only a small percentage of applicants. This means projects have already passed an initial vetting stage and received professional support, reducing the risk of failure.
- Mentorship and Education: Startups gain access to mentors and experts who help shape effective strategies, improve products, and manage finances wisely. Upon graduation, teams often have a more mature view of their business, lowering the risk for investors.
- Rapid Growth and Hypothesis Testing: The intensity of accelerator programs speeds up business idea validation, highlights weaknesses, and allows for testing across various markets. Investors are able to observe the startup’s progress in real time, aiding in more informed decision-making.
- Network Access: Accelerators typically maintain a wide network of partners, investors, and alumni. This environment helps projects scale faster and attract clients or close lucrative deals more quickly.
- Additional Expertise: Many accelerators focus on specific industries, such as IT, healthcare, or green tech. For investors seeking specialized knowledge and access to targeted markets, choosing an accelerator with domain expertise can be a key advantage.
According to Dmitrii Khasanov, the main potential risks when accelerator-related investing include high internal competition, strict deadlines, and often pretty limited resources. Young companies should compete with one another for the attention of mentors, investors, and media, and if a project fails to generate sufficient interest, it risks being overshadowed by louder, more visible teams.
In addition, the accelerator’s compressed timeline may not be suitable for industries requiring long research cycles or complex technological development. Not all accelerators have the staff and infrastructure necessary to provide in-depth support, meaning that teams sometimes receive only limited guidance and may not unlock their full potential.
Finally, there is also the risk of overvaluation: some accelerators may deliberately overpromote the most eye-catching projects to increase the value of their own equity stakes, even if the startup’s actual business model is worth less than claimed.
How to Decide?
To make the right decision about dealing with a startup that has completed an accelerator program, Dmitrii advises taking into account the following factors:
- The accelerator’s track record.
- Startup progress during the program.
- The team.
- Post-acceleration roadmap.
Investing in startups that have signed up for an accelerator program can definitely be a good way to reduce risk and gain access to mature teams that have already tested their ideas and received seed funding. However, acceleration does not guarantee that the project will be able to compete effectively in the open market.
In all cases, it is essential to carefully analyze both the accelerator and the specific startup. For some investors, fast growth and strong networks will be seen as advantages. For others, the “nurtured” environment and program-driven development may seem artificial. A balanced approach to investment strategy and thorough due diligence will help make the most rational decision.
