Stepping on the accelerator

Continuing his series exploring ways to obtain funding for your business idea, David Langer looks at seed accelerators

"Seed accelerators" are investment funds that supply small sums of capital (typically up to £50,000) to extremely early-stage start-ups in return for small amounts of equity (typically up to 10 per cent) and provide an organised support program for a limited time period following their investment.

Launching in the summer of 2005, Silicon Valley-based Y Combinator (YC) is the pioneer of the seed accelerator model. Following in YC's footsteps, there have been more than a dozen other such programs created since 2005, all of which have focused on the Internet, software and mobile industries due to the low capital requirements and short amount of time needed to launch a product. In the future, I expect the model will be adapted to fit other industries, but for now, these funds are likely only to be relevant if you are starting a company in one of these sectors.

What are the benefits of doing this sort of program?

  • The network- Over 3 months you will build a network of other start-up founders and mentors that might otherwise take years to build up outside of a seed accelerator.
  • Fundraising assistance- The program will typically culminate in a "demo day" where you will get to pitch your business to a room full of angel investors and venture capitalists. In addition, you can call on the organisers of the program for introductions to other investors.
  • Brand- Having the brand of the seed accelerator behind you will help you in a variety of ways including when it comes to hiring, raising investment, getting written up in the press and, depending on the market, signing up new customers.
  • Money- The investment itself will pay your living costs for a few months, which gives you more time before you have to self-reliant or raise more funding.

What do I need to have achieved before applying?

Generally you will need an idea and at least one technical co-founder in your team. If you don't have a technical co-founder then it may be more difficult to get a product launched with the very small amount of funding you receive.

Ideally you will have a team of 2-3 people and a demo (or mock-ups at the very least) by the time you apply, as this will improve your chance of getting accepted into the program.

Y Combinator, Seedcamp and TechStars

While there are now more than a dozen seed accelerators out there, three have risen to prominence above the others. These are the ones I would recommend checking out first. Below is a summary of the key facts about each programme, along with what I believe to be their key differentiators or selling points.

Y Combinator www.ycombinator.com

Location Silicon Valley

Founded Summer 2005 by Paul Graham, Jessica Livingston, Robert Morris, and Trevor Blackwell

Start-ups funded to date 118

Program length/dates 3 months, Jan-Mar and Jun-Aug each year

Funding amount $11,000 + $3,000 per founder

Equity taken 2-10%

UK-founded portfolio companies Songkick, Webmynd, Auctomatic, Clickpass, Snaptalent, Propable, Heyzap, Scoopler, DailyBooth.

Key differentiators

Arguably the best team and set of mentors out of all the programmes. Founding partner, Paul Graham, is one of the world's leading experts on start-ups and the weekly dinners held usually include a guest speaker from Silicon Valley's "A-list".

For most Internet, software or mobile start-ups, Silicon Valley is the best place in the world to be. However, for non-US citizens, obtaining a visa to continue working in Silicon Valley after the programme can be very difficult so you might not want to get too attached! Even with a successful application, this is an expensive and time-consuming process.

The Y Combinator alumni network or "YC Mafia" contains hundreds of founders who you will be able to call upon. This is a richer and more diverse network than with any of the other programs.

Due to being the pioneer Seed Accelerator and establishing a strong track record, the Y Combinator brand will arguably give you more credibility than any of the other programs.

Seedcamp www.seedcamp.com

Location London

Founded Autumn 2007 by Saul Klein and Reshma Sohoni

Start-ups funded to date 21

Program length/dates 3 months, Sep-Nov each year

Funding amount €50,000

Equity taken 5-10%

UK-founded portfolio companies MyBuilder, HyperNumbers, Basekit, BoxedIce, Patients Know Best.

Key differentiators

While fewer than 10 companies are funded by Seedcamp each year, 20 are selected to participate in "Seedcamp week", which takes place in London during September. Seedcamp week will expose the 20 teams to hundreds of mentors from across Europe, and increasingly from the US as well. No other program can match the quantity of high-quality people to which you'll gain exposure.

More cash than most at €50,000, although this is offset to some extent because living costs in London are higher than almost anywhere else.

For UK founders, there are no visa issues if you want to stay put at the end of the program.

The selection process for Seedcamp has been said to focus more heavily on the business models and prior progress of applicant start-ups, whereas many of the US programs are more concerned with technical talent. Depending on your skill-set and the stage to which your concept has developed this may or may not be helpful for you.

TechStars www.techstars.org

Location Boston, Boulder and Seattle

Founded Summer 2007 by David Cohen, Brad Feld, Jared Polis and David Brown

Start-ups funded to date 37

Program length/dates 3 months, Mar-May in Boston; May-Jul in Boulder; Aug-Nov in Seattle

Funding amount $6,000 per founder, up to $18,000 total

Equity taken 6%

UK-founded portfolio companies Graphic.ly.

Key differentiators

TechStars probably has the second strongest brand of the US-based Seed Accelerators, after Y Combinator. It provides many of the same benefits such as a strong team, high-quality mentors at weekly dinners and mentoring sessions, and a good track record (four of the first 10 companies funded have already been acquired since they were founded in 2007). However, partly because it was started later than Y Combinator and isn't based in Silicon Valley it is still considered by most entrepreneurs to be second best.

There are several other good Seed Accelerator programs that you may wish to consider applying to - here are my choices for 'best of the rest':

  • DreamIt Ventures, based in Philadelphia, Pennsylvania (www.dreamit.com)
  • LaunchBox Digital, based in Washington, D.C. (www.launchboxdigital.com)
  • Shotput Ventures, based in Atlanta, Georgia (www.shotputventures.com)
  • Capital Factory, based in Austin, Texas (www.capitalfactory.com)
  • fbFund, based in Silicon Valley (www.facebook.com/fbFund). Only for ideas using Facebook Connect.

One of the best examples of a start-up that has benefited from a seed accelerator program is Auctomatic.com. The company was started by cousins Kulveer and Harjeet Taggar while studying at Oxford University and became part of Y Combinator's winter 2007 batch. Having started the program working on Boso.com, a marketplace for students to buy and sell things online, they finished the program with a new idea in Auctomatic.com, which provides tools for eBay auctioneers and they teamed up with an Irish software engineer called Patrick Collison. These decisions were heavily influenced by advice they had received from the Y Combinator mentors. Within six months, they received funding from some elite, Silicon Valley-based angel investors and just over a year after starting the program, they were acquired by Vancouver-based company Live Current Media for $5 million. That's some serious acceleration!

So, if you want to give your start-up a boost, I'd strongly recommend applying for some of these programs. In particular, if you are a first-time entrepreneur based somewhere short of angel investors, or you could do with giving your entrepreneurial network a makeover, joining a seed accelerator could well be the best way to kick-start your journey.

The deadline for the summer 2010 Y Combinator and TechStars program is coming up in March and applications for the 2010 London Mini Seedcamp are expected to open in June.

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