Categories
Uncategorized

DEAL FLOW

Sourcing and closing high-quality deal flow is key to long term success with your accelerator program. Today, thanks to an explosion of accelerators around the world, the landscape is more competitive than ever. So in addition to the proper management of your deal flow pipeline, you’ll need to work extra hard to attract the best companies.

For new accelerators launching their inaugural batch, this is going to be especially challenging. Without a track record to show and being an unknown brand, you’ll need to work double-time to fill the first batch. That means doing a lot of outbound outreach to get meetings with companies that match your profile.

As a catch-22, the best companies will think they do not need an accelerator program. That’s because they are already growing and typically overconfident about their prospects for raising additional funding. They will tell you things like, “Oh, we’re way past the accelerator stage” and “we plan to close big funding next month”. Neither of these things is usually true but we can’t fault the founders for their optimism. I have found the best way to convince companies like these is to show them a path where doing your program will allow them to raise more capital and at a higher valuation. But first, let’s learn how we make contact or get them to apply in the first place.

Getting Applications

This is actually one aspect of running an accelerator program that I personally really enjoy, which is probably due to my background as a marketing executive. I simply approach getting applications the same way a marketer would think about lead generation: It’s all about a large and well-qualified top-of-funnel.

Let’s look at a program with a batch size of 10 companies. To run a decent pipeline you could need as many as 1000 applications. The acceptance rates in these cases (as it is with leading programs like Y Combinator) is just 1%. For reference, the acceptance rate at Harvard is around 5%. For early and first batch programs you will probably not match these numbers and in fact have significantly fewer applications, but these are the benchmarks you should be aiming for. If you manage to get a few hundred applications your first time you are doing pretty good.

Getting Started and Application Marketing Channels

There are many channels in which you can find startups. Each program will typically need to market themselves in several different channels.[1]  This is especially true for your first few batches before you start to get some word of mouth marketing from previous attendees.

When it comes to capturing your inbound applications you’ll typically want this to take place on your own website. While there are many services and startup portals that will gather applications for you, I’ve found in the end this is something you want to control 100%. Additionally, some of these accelerator application portals require you to exclusively use them to accept all applications. I would avoid this as it limits your ability to use another platform and ultimately retain control of the valuable data you collect.

While I’m not able to give you an exhaustive breakdown of how to capture and manage your application data here, I’ll give you some friendly marketer advice. The dataset you’re building with your program gets more and more valuable over time. It’s also some of the only unique intellectual property (IP) you build with such programs. So treat your data well and start with a good Contact Relationship Management (CRM) software setup from the get-go. If everything you do with application data is in a big messy Excel sheet, you’re doing it wrong.

The Application

Most accelerators use a similar application format which includes some 20+ questions for the founder(s). These questions can in many cases feel a bit overwhelming. But here’s the kicker, this is by design. If accelerator application forms were too simple then programs would receive a lot of unqualified applications. By requiring so much information it serves to filter out some extent of the ‘wantrepreneurs’(although don’t worry, you’ll still get lots of applications from them!).

The bar for getting into accelerator programs has risen over the years, so if a startup can’t answer basic questions around their business they’re probably not a good candidate. This all being said it’s something to think about as you build your application form. The more information you request, the fewer applications you’ll likely receive. Be careful about putting too much friction in the process. For example, in my programs, I’ve never required the founders to record a video introduction of themselves. My concern is that there are likely some very brilliant founders who are far too shy to record themselves. I’d rather have a larger top-of-funnel and do my own filtering of the applications.

The Basics 
Basic Contact InfoEmail, Phone and so on
Company NameCompany name, and sometimes it helps to get the legal entity name as well for background research
WebsiteIf a company does not have a website, this is a good sign they are too early for this stage.
Company DomicileFind out where the company is incorporated to ensure it’s a match for investment mandate or focus.
Date of Company FoundingMost accelerators work with companies that are 1-3 years old. Although there are always some ‘late bloomers’.
Founder Name(s)Get the founder(s) names. It’s not important to know every team member but you should get an idea of how many founders are involved. Most programs look for 2 or more.
Founders LinkedInFor your due diligence, it’s nice to have direct links to LinkedIn for each founder. Browse these to look for the previous experience of the core team members.
The Pitch[2]  
Company elevator pitchTry to get them to give you a very quick pitch of what the startup does. When possible limit this field to less than 100 words. It’s actually a big challenge for startups to do this well!
What problem are you solving?Often for startups the problem they’re targeting is more important than the solution itself. Is the market big enough? Are they solving a real pain point?
How does your product work?Get some understanding of the solution itself and see if the founder can clearly articulate the value it provides.
Latest Investor DeckGetting a copy of the latest investor deck can quickly tell you the stage and level of sophistication of the team. Any team without one is probably at too early a stage for most programs.
Traction and Funding[3]  
What’s the current traction of your main KPI?Often this is revenue, but it can be other metrics as well. Look for how the founder articulates this number, is it a clear and meaningful way to measure traction?
Have you raised previous funding for this business?Yes/No answer to help you filter the stage of each company. Companies who have not raised funding are not always a bad match, but they may be too early for some programs.
How much funding have you raised?To understand previous capital into the company. Most companies that are an ideal match have raised some capital from angels.This can be a good external validator of the team and business model.
What was the valuation of the last investment round?To better understand what the market has previously valued the company at. Although the range in valuation can be extreme, ranging from $500K all the way to $5M+.

You can add further fields to your application form if your program requires more information to help guide the decision-making process. Other things to ask include:

  • How many team members are full time? To help to gauge the team’s commitment to the business. A company where most founders are not full time is a signal they may not be ready for acceleration.
  • What do you hope to get out of the program? To better understand the team’s motivations and ensure your program’s curriculum is a match.
  • How did you hear about the program? To see if they were referred by alumni or found it through another channel. This also helps to inform which marketing channels are working with regard to attracting applications.

Applications Marketing Channels

As you begin to accept applications, start to build up the acquisition channels you can use for each program. While most of the highest quality deal flow comes from your own network there are a few channels that can also support your top-of-funnel. Let’s take a look at a few of them:

Angellist (angel.co)

The de facto startup directory (at least when it comes to American startups) is a good place to list your program and scout for companies. They also offer an application tool that in some cases can bring in interesting leads.

F5S (f5s.com)

Another massive startup directory that is used globally. While most of the deal flow is very early stage here, there’s a lot to choose from. They also run an accelerator application tool, although to get much marketing support from them you need to make it the default and exclusive way to apply to your program.

Facebook Groups (facebook.com)

One of the most powerful channels for getting exposure to your program is Facebook groups. Specifically, early-stage startup groups focused on a certain region or type of technology. Simply search away and you’re bound to find several that match your profile. Post in these groups that you’re taking applications in the least spammy way possible.

Other accelerators

Because of the sheer number of programs running these days, there are likely to be programs similar to yours. Or perhaps even slightly earlier-stage, making your program a good next step. Look at their websites and alumni companies and do direct outreach to startups of interest. It’s also a good idea to build relationships with other accelerator managers. That way you can share deal flow when companies in your respective pipelines are better matches for each other’s programs.

Remarketing/Retargeting (adroll.com)

For any program, it’s a good idea to run retargeting advertising to all visitors who visit your site. In many cases, startups will take some convincing to fill in your application form. Or they’ll just plain forget. Using these ads is an easy way to bring them back to complete the application. There are many ways to do retargeting but I personally recommend the service AdRoll.

So for early programs, you’ll be doing a majority of outbound outreach to find your companies.

Over time and after completing successful batches you’ll find that your inbound starts to gradually improve. In this business, word of mouth is everything. So don’t underestimate how important it is to have a happy founder graduating  your programs.

SURVIVAL PRO TIP   Founders are notorious procrastinators. They will often wait until the last minute, just as applications are closing, before submitting theirs. Don’t be nervous if your applications are off to a slow start and save most of the promotion for your final week. It can help to include language like “Apply Today! We review applications as we receive them.” on your application form.  

I get your point, but this sentence is all over the place.

This is good, and I would reccomend dropping a note above in the intro that the pitch is an important part of the application.

Same here, an Intro to the importance of this in the application gets you a long way.