First, the bad news: studies estimate that between 60 and 90% of startups fail. Against this seemingly dismal backdrop, what can you do to help your startup succeed? How can you give yourself a leg up on the competition? How can you learn from the startups that have gone before you — both the failures and the successes?
Here’s the good news: the business world doesn’t want your startup to fail. To thrive, the world’s economies count on a continual influx of new businesses. So it’s only natural that an entire industry has blossomed around supporting startups’ success: the accelerator industry.
Y Combinator pioneered the accelerator model in 2005, and accelerator programs have proliferated in the years since. According to Gust’s Global Accelerator Report 2016, there are now nearly 600 accelerator programs worldwide, including almost 200 in the US and Canada alone. Accelerator programs focus on providing startup founders with mentoring, education, and support focused on funding and running a successful startup, as well as invaluable opportunities to make connections with potential investors, partners, service providers, fellow entrepreneurs, and future customers. The overarching goal of any accelerator program is to help startup founders grow their ideas from business concepts to funded, operational startups.
Gaining acceptance into an accelerator program can be competitive, but that, too, is part of the value prop. If an accelerator program has deemed you a good bet, you’ve earned an important badge of credibility in the eyes of potential investors.
To help you determine whether an accelerator program is the right choice to help you propel your startup forward, Distillery sat down for a Q&A with Heidi Hubbeling, the COO of Stubbs Alderton & Markiles, LLP’s PrecceleratorⓇ program. As a leading Southern California business law firm, Stubbs Alderton is proud of its strong record of serving businesses during all stages of their evolution, from startup through growth to liquidity. To help early-stage LA-area startups accelerate their growth paths, the firm founded Preccelerator in 2012.
What criteria do you use in selecting startups for Preccelerator?
As Hubbeling summarizes, they look for companies that:
- Are scalable, addressing a market that is growing
- Have done their homework, showing they understand their addressable market — e.g., how to monetize it and how they can create strategic partnerships
- Have a clear monetization plan
- Are venture fundable, providing significant returns for their investors
- Have coachable leaders with the “grit” to succeed
Hubbeling is clear that “coachability” is paramount in the decision to admit startup founders to the program. After all, if a startup’s leader isn’t open to advice and guidance, how much can he or she be helped?
What connections can I expect to make?
The ability to network with other businesses and leaders is one of the most important ways accelerator programs legitimately a-c-c-e-l-e-r-a-t-e a startup’s growth trajectory. Participants meet mentors, fellow entrepreneurs, advisors from the program’s sponsor, and potential strategic partners (e.g., for development, marketing, financial services). In addition, startups may garner introductions to potential investors.
Why are these connections so important for startup acceleration? As anyone with any business experience will tell you, relationships are everything when it comes to succeeding in business. “Relationship building is a value-first resource for these young companies,” explains Hubbeling.
To help startups build the relationships they need to succeed, the Preccelerator program brings together a prestigious group of more than 60 mentors to help educate and develop the startups in each program cohort. Preccelerator’s mentor group includes C-level executives in areas such as marketing, technology, operations, user experience, software development, fundraising, and other topics, as well as pitch coaches and past Preccelerator program participants who can speak from a “been there, done that” perspective. Hubbeling adds that, from both a mentoring and perks package perspective, “If they need something we don’t have, we reach out to make connections and negotiate deals.”
Of course, the pinnacle introduction for any startup is a warm introduction to a potential investor. Fortunately, startup accelerator programs have active, ongoing relationships with investors looking for good investments. While accelerator programs generally don’t guarantee such introductions, startups that internalize a program’s coaching — and do the work required to polish their product, their plan, and their pitch — have a good chance of getting one or more investor introductions. Which brings us to our next question…
How do you decide if and when a startup is ready to be introduced to investors?
“First, they have a viable product to show the investors. Something tangible, more than just an idea. It may be software, hardware, or a minimum viable product (MVP),” says Hubbeling. In addition, “They’re ready to launch and will soon start to acquire users. They’ve sat down with us to perfect their pitch deck and their presentation. They know their metrics, including their market, their competition, and how they’ll monetize.” They may have a financial model, as well as projections about their operating and overhead expenses.
Hubbeling relates that the majority of program participants are ready to begin meeting with investors before the end of the program’s six-month term. In preparation for meeting with potential investors, they ask program participants to put together a target list of investors in their vertical that meet their funding criteria. Then, the Preccelerator team looks through their investor network to see where warm introductions can be made.
What can startups expect to learn during an accelerator program?
While every startup accelerator program offers a varying range of educational opportunities, a typical curriculum focuses on helping entrepreneurs achieve a stronger understanding of both business basics (e.g., operations, sales, marketing, finance) and fundraising how-to. For example, the Preccelerator program offers a staggering 75 to 100 in-house educational workshops and activities per year.
What’s happening at all these events? For the first three months of each new Preccelerator program, the new cohort of startup founders attends required weekly workshops hosted by guest speakers or Preccelerator program mentors. The workshops focus on a diverse range of topics: during a given week, they may learn about usability testing, marketing software, how to do a financial model, how to do a balance sheet, or how to put together a pitch deck.
Each month includes two other required events. The first is the monthly Accountability and Resource Meeting, where the cohort meets with Preccelerator leaders and four or five program alumni to discuss their needs and successes, where they are in development, and any resources they’d like to share with the wider group. The second is Pizza and Pitch Day, which helps make sure program participants are getting plenty of practice pitching their businesses’ value props. To help prepare them for a range of situations, each month features a different pitch time limit (e.g., 8 minutes, 5 minutes, 30 seconds). The goal is to teach program participants how to be fluid on their feet in tough situations. The pizza — as well as the monthly gift cards awarded to those voted “Most Improved,” “People’s Choice,” and other categories — helps keep the process fun, encouraging, and collegial. Explains Hubbeling, “The monthly sessions build collaboration and a sense of community. They become genuinely invested in each other’s success.”
Accelerator programs may also include a focus on legal questions and guidance. For example, as part of Preccelerator, Stubbs Alderton attorneys provide non-billable, non-substantive legal guidance and advice (i.e., it doesn’t require a contract or extensive legal research).
What kind of legal advice do startups typically need?
Startups tend to need a range of legal advice, including (but not limited to):
- How to incorporate their company
- How to structure:
- Co-founder contracts
- Equity and alternative compensation
- Strategic contractor agreements
- How to create term sheets for fundraising (term sheets lay out the terms of the agreement that investors and founders need to discuss; they’re ultimately used to create a legally binding contract)
- Securing intellectual property rights (trademarks, copyrights, patents)
What’s the biggest legal mistake you’ve seen startups make?
Hubbeling relates that — too often — they see startup founders that have given away too much equity for services early in their existence. “They might give away 10% equity for this or that, 20% to someone who gave them a lot of money — and suddenly they become a minority shareholder in their own company.” In those situations, Stubbs Alderton attorneys will likely be called upon to provide legal advice on potential ways to restructure the company.
What financial perks can startups expect from accelerator programs?
Accelerator programs generally provide perks in the form of significantly discounted services and other benefits. For example, Preccelerator’s perks package — valued at more than $250k — includes benefits such as a $5k credit plus engineering and customer service for a year-and-a-half term from Amazon Web Services; a $20k package (with $80k add-on option) with Google Cloud; an $80k package on discounted ads and marketing via Facebook Start; HubSpot for their entire platform; and free membership for one year in the Los Angeles Venture Association. Preccelerator also maintains partnerships with organizations focused on serving startups’ operational needs (e.g., payment processing, accounting, early growth financial). Hubbeling is clear, however, that the perks package is ultimately only a small piece of a much bigger pie: “The biggest benefit — more than the money and the perks — is the access to the community of strategic partners and the network of accelerators. Our program and others can take these companies to the next level and make those introductions.”
Can you share a story of a specific startup for which participation in an accelerator program made a significant difference?
Hubbeling shares the story of a company in Preccelerator’s current cohort, nēdl. nēdl uses a proprietary speech recognition platform to help listeners search more than 100,000 live news, sports, talk, and music broadcast streams for things they’re interested in. Preccelerator made several strategic introductions for the startup’s co-founder and CEO, Ayinde Alakoye. Preccelerator program mentors — including Distillery founder and CEO Andrey Kudievskiy — provided guidance and mentorship that helped Alakoye polish his pitch and perfect his deck. Preccelerator arranged introductions to investors, and funding has been starting to roll in. In addition, nēdl is now partnering with Distillery to develop the product for the Amazon Echo platform.
Ultimately, nēdl represents a new way to leverage artificial intelligence to help live streams expand their audiences. On the heels of raising their first round of funding, they also won the attention of the PILOT organization, which awarded nēdl $20,000 and 3rd place in their Innovation Challenge contest.
What’s the single most important piece of advice you can give to the leaders of a startup?
“A startup founder needs to have a good balance between belief in their idea and coachability. Because they’re going to receive a million pieces of advice from a million different directions. They need to be able to have the passion to stick with it while being introspective enough to know when they need to pivot, change their own role, add people to the team, or whatever it is,” says Hubbeling. To succeed, “They need to keep an open mind and not have tunnel vision.”
If you have any additional questions for Heidi Hubbeling about whether an accelerator program may be right for you, you can email her at email@example.com.
Interested in learning about how Distillery helps its clients to accelerate software development success? Let us know!