How Do Startup Accelerators Make Money?

You might be familiar with the adage: it's not how you start but how you finish. 

The statement rings true in many situations, but the dynamics are a little different for businesses. If anything, the start-up phase is the riskiest of the business life cycle. 

Some 90% of all start-ups fail. Because of this, it's necessary to form strategic business partnerships in the very beginning. Hiring start-up accelerators is one sure-fire way to boost your survival chances and make a start-up successful. An accelerator is similar to a small business start-up advisor and supports businesses in the early stages through mentorship and financing. 

But the narrative surrounding start-up accelerators is tricky at best. Some benevolent accelerators raise money to fund start-ups through links with universities and governments. Most privately funded accelerators are purely in it for the money.

As a new business owner, you can’t help but wonder whether or not there’s a catch when you bring an accelerator on board. If you don’t already know, it’s a good idea to ask, how do start-up accelerators make money? In a nutshell, start-up accelerators make money through sponsorships, grants, events, research and innovation scouting. 

Sponsorships

Sponsorships are one of the reasons accelerators may not be overly concerned with what start-ups use funding for and how they’ll get their money back. Most accelerators rely on sponsorships from established organizations, which include, but are not limited to, not-for-profit incubation centers. In addition, they can also get sponsorship from local governments.

Grants

To support entrepreneurship and job creation in their districts, governments can also offer grants to accelerators. Since government authorities are more focused on promoting local jobs, they seldom demand much from accelerators. Once accelerators fund start-ups in a particular city, it becomes an attractive investment hub for potential investors. As a result, this will have a positive impact on the local economy–a win-win scenario for all parties involved.

Events

More proactive start-up accelerators take the initiative and raise funds independently, by hosting or attending events. Such events target local businesses, established entrepreneurs, and community members. Invitees have to pay a fee to attend an event, which they are more than happy to do, to tap into the networking opportunities provided. In turn, the fees help to cover the accelerator's operational costs until they can cash out from the start-up. 

Research

Information is power. Accelerators know this, which is why they take the time to research and compile reports that large companies find helpful. Information in these reports covers different areas of expertise or the market environment. Many companies are willing to pay large sums for these comprehensive reports to improve their operations or use them to branch out into other markets.

Innovation Scouting

Large companies are continuously on a quest to acquire other businesses or employ talent to stay on top of the next big innovations. Such companies have no problems paying scouts that track relevant companies and skilled human resources to help them in this regard. Start-up accelerators are happy to provide this service for a fee.

Conclusion

Start-up accelerators raise money to invest in start-ups and raise equity. Over and above offering financial assistance, they also provide mentorship to help businesses get off the ground and have several ways to make money from sponsorships to offering services.