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5 Ways How Startup Accelerators Reduce Risk For Investors

5 Ways How Startup Accelerators Reduce Risk For Investors

Investing in early stage startups is inherently risky, but the returns and rewards are high for investors that pick the winners at an early stage. Investing in startups that have been through an Accelerator program can reduce risk and offer a higher chance of a successful exit in future.

Filtering Process

The Accelerator does a lot of work up front filtering through hundred if not thousands of applications from early stage startups and entrepreneurs.

Depending of the specific focus of the Accelerator, applications from market sectors that are over-crowded or out of favour with investors, poorly resolved business plans and copy-cat ideas are rejected, then the Accelerator team researches the idea, market potential and viability of the team to execute upon the idea before accepting the startup into the Accelerator program.

For example, in a typical batch intake, Jaarvis Accelerator filters out approximately 98% of applications received, only progressing negotiations with the best 2% of ideas and teams.

Even after admittance to the Accelerator program, the startup is constantly directed, monitored and managed to ensure compliance and adherence to quality and focus.

Product / market fit

Accelerators provide a method for founders to test assumptions and find a product market fit, by allowing experimentation with early adopter users in a controlled manner.

By assisting the founders to define and execute market experiments as part of a program, under the guidance of an experienced mentor, the startup can plan and measure the tests to ensure the business model is accepted by customers, creates effective revenue streams, and develops a sustainable and scalable business.

Often during an Accelerator program the startup will pivot to a different business model or market segment. For example, a B2C idea may pivot to also provide a B2B solution if a product / market fit can be achieved. Another pivot could include a change to the revenue model or vertical integration of another service.

By the time the startup graduates from the Accelerator program, investors can be sure that there is a product / market fit and the business model has been tested with customers and is both sustainable and scalable.

Traction

The Accelerator team focuses startup founders and CEOs on achieving real world traction by setting and measuring metrics relevant to their business model. To test product / market fit and ease of growth, KPIs can include customer acquisition, transaction volumes, revenue or other leading indicators of success. Metrics are agreed in advance, usually monthly, then measured regularly, generally in a weekly reporting cycle.

This process allows the startups to build a sustainable business model around real world experience, looking out for problems with assumptions, and allowing for pivots to take advantage of opportunities and proven customer requirements.

Talent and team

Most early stage startups have gaps in their team. An Accelerator program helps the founders to identify and fill gaps, provides coaching on how and when to hire talent, and advice on how to establish processes for hiring and talent management.

It is not surprising that many young startup founders have little or no experience in hiring. Many have never even applied for a job, let alone hired someone. Accelerators assist the founders to define an organisation structure to support growth, ensuring that the focus is not only on technical development, but also includes sales and marketing functions and other roles necessary to build a sustainable company and business.

Some Accelerators are also able to fill key talent gaps with their own resources, by providing short-term resources for technical and business roles until the startup is able to attract and hire (and afford!) their own staff. With the possible exception of the CEO role, Accelerators can provide skills and experience that would normally be out of reach of most startups.

Mentoring and advice

The most valuable thing that Accelerators programs provide to startups, even more important than money at an early stage, is advice and mentoring. Different types of mentors are required at different phases of a startup’s life, from early advice on company formation and legal requirements, through to growth hacking and business development advice at later stages, and finally advice and mentoring on how to obtain funding.

Mentors come in many forms, from serial entrepreneurs, to experienced business leaders, to technical consultants, through to academics and industry specialists. All have a role to play at some time for a startup, and the strength of the mentoring team is a good indication of the Accelerator.

Jaarvis Accelerator is currently accepting applications from innovative early stage technology enabled startups, particularly in the areas of fintech, IoT, big data analytics and agritech. Apply here

Brett Jaspal[This article is written by Jaspal Sarai (COO | CoFounder ) and Brett Stevens (Vice President) of Jaarvis Accelerator.]

Note: The views and opinions expressed are solely those of the author and does not necessarily reflect the views held by Inc42, its creators or employees. Inc42 is not responsible for the accuracy of any of the information supplied by guest bloggers.

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