Startup Accelerators

CHAPTER 6Should You Give Up Equity to Get into an Accelerator?

A first-time founder team or set of early employees do not have years of experience seeing the ins and outs of board governance, or how subtle deal terms and decisions play out in terms of economics and power. The preferred (VCs, seed funds, accelerators), however, are usually repeat players. They know the game, and how to play it. This means that the set of core advisors that common stockholders hire to leverage their own experience and skill set in “leveling the playing field” is monumentally important.

José Ancer, partner in Startup and Emerging Technology Group, Egan Nelson LLP

Equity as a Prerequisite to Getting into an Accelerator

Accelerators usually make a seed investment of between $10,000 and $250,000 in cohort companies participating in their programs.¹ For this seed investment, they typically take 3 to 10% equity (or ownership stake) in each cohort company. In particular accelerator locations or regions, the seed investment can be as high as $2.5 million for equity of 50% or more. This, of course, would require that startups have this type of valuation. In Chapter 3, we noted that the costs of operating an accelerator can range from $300,000 to several million—depending on the cohort size, quality of the accelerator companies, quality of the accelerator facilitators, quality of the accelerator network, quality of professional services offered, quality of the accelerator space, and more. Accelerators ...