May 25, 2022
What does Accelerator mean?
The term is often used in connection with start-ups. Companies are trying to help start-ups to achieve faster and better economic development in accelerator programmes. This is done by providing intensive advice to the teams, providing workspace, opening a network and other support. In addition to the coaching services, accelerator also offers a usually small start-up investment - smaller five-figure amounts can be considered as usual. The programmes are usually temporary and similar to those of incubators. In contrast to these, the support is usually provided in a much shorter time. The start-ups spend time in so-called bootcamps and usually conclude the programme with a demoday, in which the teams' ideas are presented in a pitch and critically examined by jurors.
Accelerator vs. incubators - what is the difference?
Incubators - the term comes from the medical technology sector - usually refers to in-house programmes in which external founders or start-ups are supported by an existing company (corporates). The idea of an incubator is to give start-ups the opportunity to develop their idea until they can stand on their own two feet. In Germany incubators are often run by larger corporations. The purpose of these companies is to identify good ideas and, if necessary, to help steer further work on them. This often goes hand in hand with a higher investment, but also a higher share in the value of the company. The interest of the corporates in developing an added value for their own customers things. In contrast accelerator programmes, are not operated directly by a corporate. The participating start-ups are usually already more advanced than those participating in an incubator. The investment is lower, but in return most accelerators allow for fewer company shares and co-determination rights.
What can an accelerator do?
The support that start-ups receive can be of a diverse nature, ranging from the provision of a workstation to introduction to key networks. Typically, companies receive coaching in the preparation of their pitch - so-called pitch training. They receive legal support as well as assistance in the financial preparation of the business plan, marketing training and various other consulting services. The focus is usually on support in sharpening the idea, especially in the development of monetization strategies. In addition, work is done on corporate identity, sales strategy and marketing. Finally, at one or more events, the startups are given the opportunity to present themselves to investors and to a professional audience.
In some cases, the young companies also receive a smaller amount as start-up aid.
Especially in industry-specific accelerator programmes, contacts to potential investors, business angels or joint ventures might offer a good market entry.
What consideration is required from the start-up?
In return for its services, the Accelerator often receives shares in the company (usually it is a limited liability company (GmbH or UG). This is partly structured by so-called convertible loans with the option of later conversion into shares. Although the start-up often receives a fairly decent valuation, the non-cash contributions received are also credited.
The core advantage of the acceleration programmes lies in knowledge transfer and networking. Programs that suit the company's particular industry can bring significant market advantages.
Typically, the company operating the accelerator receives a share of the companies' shares for its services. This is common in any case when there is also a financial investment, which is usually in the lower five-figure range. Due to the high demand for good accelerator programmes, start-ups often have little room for negotiations on the exact terms of the investment agreement. When weighing up whether the deal is worthwhile or not, start-ups should look in particular at the networks and their benefits for the product. Caution should be exercised in the event of too much influence being exerted by the shares sold and the strategic direction that an accelerator sets out.
To what should you pay attention to?
The participation agreements of incubators and accelerator programmes sometimes differ considerably. It should be carefully examined whether the respective programme is suitable for the start-up and how the conditions affect the further course of the company. Here, it is worth taking a detailed look at the term sheet and the conditions based on it. Particularly in the case of incubators, a detailed examination of the corporate should take place to check whether a founder can imagine committing himself to this company for a long term.
What contracts are concluded?
Accelerator and incubator conclude a participation agreement (also known as an investment agreement) or a convertible loan agreement with the start-up company, in which the usual regulations are provided for. In addition, the parties sometimes conclude a service contract, whwerby the costs are agreed as an additional payment into the company's capital reserves. This significantly increases the value of the company - which is used to calculate the share - without a corresponding cash investment being made.
In addition, the parties agree on a new shareholder agreement and, if necessary, rules of procedure for the management as well as new contracts of employment for the managing directors.
KUHLEN is mentoring for various accelerator programmes in Berlin. Should you have any further questions regarding contractual arrangements, please do not hesitate to call or write to us.