Business accelerators are springing up around the country, providing seed money, advice, and the space to refine an idea.
Accelerators aim to help entrepreneurs quickly develop their concepts into marketable products. A 12-week time limit for participation in an accelerator program is fairly typical. That’s a departure from business incubators, which usually keep companies around for a longer period.
Accelerators now cover a broad swath of the U.S., including the major East Coast and West Coast technology centers. Examples include TechStars, which operates in Boston, Boulder, New York, Seattle, and San Antonio; Excelerate Labs, based in Chicago; and Kicklabs in San Francisco.
Mobile app developers are among the many individuals and companies participating in accelerators. Deborah Tillett, president and executive director of Baltimore’s Emerging Technology Center, which houses AccelerateBaltimore, says the rapid development cycle of a mobile app works well with the accelerator’s three-month timeframe.
“You can get your viable product done very fast and head to the Apple store” or other outlet,” she says.
The first class of four companies graduated from AccelerateBaltimore, one of the many business accelerators across the country, in July. Two of the companies developed mobile apps: Kithly, an app for organizing social activities, andNewsUp, an app that discovers users’ interests and rewards points for reading suggested news items.
Andrew Schuster, chief executive officer of NewsUp.me, says his company initially was with the Emerging Technology Center incubator and then applied to AccelerateBaltimore. Once accepted, the company was given capital and access to mentors.
AccelerateBaltimore companies receive $25,000 in seed funding. As for mentors, NewsUp worked with Chris Brandenburg, co-founder and chief technology officer of Millennial Media, a mobile advertising platform company, and Michael Teitelbaum, managing partner at Right Source Marketing, a marketing consulting firm.
“The experience they had was just the best thing we could ask for,” Schuster says.
How It Works
Accelerators offer a mix of money and mentorship. In return, an accelerator may receive a small equity stake in the company, usually 10 percent or less. There may also be a requirement to keep the company in the accelerator’s geographic region for a period of time. AccelerateBaltimore, for example, initially included a 5-year residency requirement. However, the program no longer has a residency requirement.
Accelerator applicants need to have an idea they can quickly execute. Tillett says a company won’t be a fit for the accelerator if it can’t bring its idea to fruition in a couple of months and put the accelerator’s capital to good use.
“It is important that they can do what they say they are going to do in a short period of time and the money makes a difference,” she says.
A company that has a working prototype is a plus, as it will have a head start once an accelerator’s clock starts ticking. “We like companies that have prototypes — maybe not the final product but it works and they are able to test it and they are now looking to polish their business models and start getting customers and users,” says Matt Menietti, director of operations at Capital Innovators, a St. Louis accelerator.
Capital Innovators recently launched its third class. The 12-week sessions have each had five to six participants. Companies each receive $50,000 in funding, mentoring, office space, and free hosting. They also have an opportunity to pitch investors when the program culminates in Demo Day.
The accelerator, in return for the funding and supporting a company, receives a five to 10 percent equity stake. There is no residency requirement.
Menietta says Capital Innovators takes a holistic approach taking companies through the program. Participants may avail themselves of marketing, accounting, and legal services. Marketing partners working with the accelerator help participants with their branding, website, messaging and differentiation, he adds. An accounting firm works with companies to set up accounting systems.
Capital Innovators’ companies include mobile app developers including IDC Projects, which makes location-based social games.
First-time entrepreneurs need to have realistic expectations as they approach an accelerator. Accelerators provide funding and mentoring support, but a business launch remains an arduous task. Tillett says the task involves “many pieces and part” including patent issues, licensing agreements, and, of course, the quest for additional financing.
“On any given day one of those can fall off the wagon and you have to put it back on,” she says. “The leveling of expectations is important.”
Accelerator companies should also take a hard look at marketing. In the early days of mobile apps, any product could gain customer attention. But with the market maturing and thousands of apps hitting app stores, a business needs to determine whether there are customers who want the product and develop a plan for reaching them.
“Adoption and traction is huge,” Tillett says.
The accelerators, meanwhile, look for applicants that they believe will get the most out of their programs. Capital Innovators aims to pick companies that “really understand the value of the program,” according to Menietti. “It’s not just seed funding. It’s networking…and connecting with other companies.”
Schuster also cites networking with peers as one of an accelerator’s main advantages. “Working with the other companies — there were four companies in this program — and being able to collaborate and talk to the other entrepreneurs and share information was a huge benefit,” he says.
In early October, AccelerateBaltimore kicked off an outreach process that will eventually fill the six slots in its upcoming class. Tillett says the accelerator plans to reach out to colleges and universities, and get the word out internationally as well. “We are going to be very aggressive this time,” she says.
Photo: Corbis Images
John Moore has written about business and technology for more than 20 years. His articles have appeared in Baseline, CIO Insight, Federal Computer Week, Government Health IT and Tech Target. Areas of focus include cloud computing, health information technology, systems integration and virtualization. He is a frequent contributor to Digital Innovation Gazette.