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.

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?
  • At what stage do startups exit the program? What are the criteria?
  • Is the program length predetermined? How long should it be? Is it the same for all startups?
  • 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?
  • Who will provide the follow-up investment? What about acquisitions?

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.
  • 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.