There are a growing number of so called business accelerators and incubators popping up all across the UK that offer budding entrepreneurs help and, more importantly, cash. However, is this all a bit too good to be true? Stephanie Allen shares her own experience about this relatively new phenomenon.

Accelerators can be incredibly good for a startup; or incredibly bad. Far too often, not enough questions get asked about the appropriateness and benefits of participation - and, given the variable quality of the offering, it’s become an important issue that I don’t think gets enough attention.

I am privileged to be a mentor to start-ups on a number of accelerator platforms - and I am genuinely enthused by my involvement and proud of our achievements. However, not all accelerator programmes are equal. I have seen and declined many that are a lot less noble, and we need to talk and raise awareness of these more self-serving operators who exist to only really enrich themselves and can ultimately actually harm a participating start-up’s chance of success.

While UK plc. has been very quick to promote the successes of the growing start-up scene in London and speaks of it only in terms of pride, optimism and potential, we need to shine a light on the less scrupulous operators, masquerading as enablers in the market.

There can be no doubt that there is a need for start-up assistance, and that there is a ready market for the money and the mentors it presents. So naturally, in response to the booming tech environment, there has been a proliferation of enterprises moving in, naming themselves accelerators or incubators.

However, only a few are good - and only very few also provide good terms to entrepreneurs. The remainder, frankly, operate as exploitative self-serving vehicles that take much more out of a company than they put in.

I urge company founders exploring the option to look beyond the headline numbers offered and pay attention to the small print. Some may offer up to a six-figure cash injection, which, to a bootstrapping entrepreneur, may sound like a God-send... but, as well as the equity sacrifice you make for it, you may be asked to pay a fee (which can be in the thousands) to access it - of which a considerable element is often a repayable loan.

One well-known operator, for example, offers £100k upfront, for 15 per cent equity. Now that’s a pretty chunky equity slice, but things don’t look really bad until you look at the details.

Of the £100k outlay:

  • £30k must be paid to access the loan. Leaving just £70k in the kitty.
  • Of which £40k is a repayable loan. Leaving £30k in the kitty.

Congratulations, you’ve just ‘won’ a place on an accelerator that costs you 15 per cent equity for a net cash injection of just £30k.

You get my point

Just as important as the cash element of an accelerator’s offering is the mentor network it can provide you with. These are of equal if not greater value to your company.

It’s very easy to get cash for good ideas these days, via the smorgasbord of crowd-funding platforms available. But you should be more discerning.

It’s not just money - it’s strategic money that you should be after. The differentiating feature, and one that can undoubtedly be worth the equity premium, is the network that accelerators can introduce you to; the brands, the industry contacts, the access to information and even the boring things like advising on valid grants and tax reclaims. The potential relationships and business education are worth measurably more than what faceless investor money can secure.

So I would recommend any entrepreneur to strip out the components of the offer, and look at them carefully, answering the following questions before making any decisions:

  • Do I have to sacrifice equity? And if so how much?
  • Is any element a repayable loan? And if so how much?
  • Do I need to pay a fee to access it? And if so how much?
  • Who are the mentors? Are they appropriate for my product?

And look at it not just from an entrepreneur's perspective, but also an investor’s. Would I still want to invest in you after what you have agreed to?

Some definitions

An accelerator is an organisation that offers advice and resources to help small businesses grow.

An incubator is a company that helps new and startup companies to develop by providing services such as management training or office space.