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How Tech Startup Accelerators Work

Pros and Cons of Tech Accelerators

Winning a spot at a tech accelerator must feel like winning the lottery. To a pair of 20-something entrepreneurs, what could be more exciting than a $120,000 blank check and a chance to mingle with Silicon Valley icons?

The pros of being invited to participate in an accelerator program seem obvious: a generous injection of seed capital, an instant network of collaborators and mentors, and the promise of direct access to deep-pocketed VCs with an eye for winning ideas. But could there also be a downside to accelerators?

Some critics worry that the number of accelerators worldwide is growing too quickly, from a handful in the late 2000s to more than 200 in 2013 and doubling every year [source: Koetsier]. With the opening of each new accelerator come more promises of seed capital, three months of speed-developing and a coming-out party to eager investors. But is there really enough money out there to fund the thousands upon thousands of startups pumping out of the global accelerator scene?

Insiders say no. Unless you get the blessing of a really big-name accelerator like Y Combinator or Techstars, there's a very good chance your big idea will get lost in the noise of a hundred overhyped "Demo Days" [source: Griffith].

And what about the success rates of companies that get do get their initial launch from an accelerator? Are companies that grow up in the protective bubble of an accelerator more likely to thrive in the open market?

Even Y Combinator, which boasted a $30 billion portfolio of companies in 2014, deserves a closer look. Of that $30 billion, a full two-thirds — $20 billion — was held by only two companies, Airbnb and Dropbox [sources: Clampet, Ha]. Outside of those two companies, only 20 of Y Combinator's 716 seed-funded startups were worth $100 million or more in 2014 [source: Altman].

Doing the math, that means only 2.8 percent of Y Combinators picks turned out to be breakout hits. Critics argue that a company can be just as successful without going through an accelerator (and giving up 6 or 7 percent equity), but it requires the kind of old-fashioned hustle, hard work and self-promotion that separates the zeros from the Zuckerbergs [source: Griffith].