If you have just founded your startup, the option to apply to an accelerator has probably crossed your mind. I can confirm first hand that being part of one of these programs can have a real impact over the outcome of your venture.
In a very short period of time I’ve had the chance to participate in two of the most important Startup Accelerators in the Americas: DreamIt Ventures is a US-based program, deemed by Forbes as the top #3 most important in the country; I was part of the Summer 2012 New York City class. More recently, my new startup Slidebean (a super-easy tool for making presentations) was accepted to Startup Chile (SUP), probably the most well-known Latin American accelerator, featuring a network of over 1,000 alumni.
The concept of an accelerator is quite similar worldwide, a 3-to-6 month intensive program to help your startup reach the next level, which is usually associated with raising some seed capital. The programs include a good amount of perks from their sponsors, as well as some cash to help cover your living costs and to allow the core teams to focus 100% on their companies.
These features apply to both DreamIt and SUP, but there’s an good set of differences that potential applicants need to understand before making a choice.
Why are you here?
This is perhaps the core differentiator for both experiences. Most US-based accelerators are privately funded, and provide their -very valuable- resources and network in exchange for a small part of the companies. This ranges from 6% to 10% common shares and is usually a small price to pay for all the benefits you will receive, especially for early stage startups.
Thus, it’s very clear that the programs want to build successful companies to receive a return on their investment after a successful exit. Also, most of the managers actually understand that some (and often most) of the startups in each class will fail to raise seed capital and probably die within a few months of graduating. This is fine. As long as some of the startups make it, their investment is paid back.
The core objective of Startup Chile is quite different, since this is a non-profit organisation created by the Chilean Government. Although it is important for them to ensure their alumni succeed, Startup Chile was built to grow the entrepreneurship environment in the country by bringing startups from all over the world and integrating them into the local scene, therefore SUP will not take any equity in return for their grant. Instead, you will need to pay that back with a currency called RVA Points, which is earned by coming up with activities to grow and inspire the local ecosystem. This long-term investment by a forward thinking government has already transformed Chile in one of the most important startup hubs in the region.
This comes at a price for the alumni; since they are receiving taxpayers money, the teams are required to go through an long bureaucratic nightmare to receive the grant, which includes (but not limited to) walking around Santiago in government offices, providing invoices, bank account statements, proofs of payment and even ATM slips. But then again, who else is going to give you a $40,000 equity free?
Hundreds of applications are received for each class. In case of privately-funded accelerators, the most important variable to you need to stand out from the other applicants is validation; they (obviously) need to ensure that your startup makes sense and you need to provide some actual proof of traction, otherwise being accepted is quite unlikely. By the time the DreamIt programs begin, most startups in the house already have a product to show and discuss with the investors and mentors that they bring to the office.
As for Startup Chile, the core team is actually the most important differentiator, which makes absolute sense considering they are trying to attract talent to the country. This also opens the door to non-profit startups that are rarely seen in private accelerators for obvious reasons. However SUP allows startups that are in too-early stages, sometimes with no proof of concept and not even an alpha version of their product, as they plan to use their time in Santiago to build their first MVP. This was perhaps the most important lesson I learned in DreamIt: the time you spend in an accelerator is too short and too valuable to be used only in product development.
The number of startups per class also makes a huge difference for each one of the programs. Most US accelerators invite groups of 20 startups or less, creating a small community and allowing everyone plenty of interaction with all the other teams. It’s close to impossible to find two similar products in the same office, as they would compete with potential investors and that makes no sense for anybody.
On Startup Chile the latest round is bringing around 100 startups from all over the world and you can also find up to 3 or 4 different companies with a similar focus. This causes an inevitable race for attention throughout the program, since mentor office hours are limited and only the top 15 startups of each generation get to pitch in Demo Day.
I like to think of both Manhattan and Santiago as under construction versions of Silicon Valley. In both cases you have a great startup ecosystem, talent and networks that every startup hub requires. Although New York is in many ways the capital of the world, California continues to be startup paradise.
The East Coast features a great network of VC’s and Angel Investors. It differs from the Valley in the fact that investors will probably want to see a working and tested business model (meaning revenue) before showing interest, and not just users and engagement. Nevertheless, there’s a huge network of entrepreneurs, a bunch of great co-working spaces and an amazing audience to match almost every conceivable market niche.
While Chile is one of the most developed countries in Latin America, many Startup Chile alumni have not been able to make their business models sustainable in the region, and ended up deciding to move back to the United States. There’s a smaller number of angel investors and only a few venture firms willing to provide seed capital. Raising money is a nightmare for any CEO, but it’s usually a necessary evil and being in South America does not help your chances.
One advantage, though, is that Startup Chile is the tip of the spear for entrepreneurship in Santiago, and a reference for every other entrepreneur in the country. Founders that are part of the program have the chance to interact with the local community directly and often become role models for local entrepreneurs, which can be quite valuable if taken advantage of.
What comes after?
A startup’s life line is usually connected to their bank account statements. In case of DreamIt, the shared office space is available 24×7, but it only exists during the course of the program; it’s closed down 2 weeks after Demo Day. This notion of being homeless after the 3-month period ends really becomes a strong motivation for the teams, who often work late nights and weekends to get the most out of their valuable and very limited time in the accelerator.
As for Startup Chile the acceleration (incubation?) process lasts for 6 months, but you can use the co-working space as long as you want; it’s only open during office hours, though. Once again, their goal is for startups to actually stay in Santiago and you can actually find teams that have been using the free space for over 2 years. This, however, becomes a double edged sword especially for the inexperienced teams, since the office feels more like a university than a startup space, and this sense of tranquility is a luxury no startup can afford.
If I had to issue a recommendation, I’d encourage startups to use government programs such as Startup Chile as a platform to reach out to privately funded accelerators. Getting accepted is relatively easier, SUP will give you free money, a big network and a great space to work; it’s truly a great place to start and perfect to validate your product and business model before you go to the major leagues.
Regardless of the latitude, sharing, suffering and learning next to other entrepreneurs is the first lesson you can learn in startup life, and the sense of community (and dare I say family) is certainly present on every program and every alumni I have come across. An accelerator will make the difference for your company, and is a chance that your startup ought to take. Go for it!