What is the difference between Accelerators and Venture Capital Firms

Most Startup accelerators take as their objective getting start-up businesses to the point where they can be funded. Rarely though are VCs the first port of call for early stage funding - Angel investors tend to fund earlier than Venture Capital firms. Angels invest on their own account and so need less of a process to assure the investment than VCs who are usually investing other people’s money. This makes the transaction costs lower for Angel investors which means they can afford to investor lower amounts. VCs will typically invest larger amounts because they have larger funds than Angels, but will only be interested in very early stage businesses if they are likely to grow very rapidly to avoid risking “missing the boat”.

So accelerators prep businesses to be funded by understanding what investors look for and helping their clients to tick all of those boxes. They also facilitate introductions, typically by running a pitch night at which clients present their businesses and investors come along to watch and listen. People who run the good accelerators will have a good list of investors and will know what interests them so they invite relevant people to pitch nights. This performs a valuable service because:

1. Startups can find it difficult to get access to funding individuals and chose who will be most appropriate.
2. Very few start-ups (3–5%) are truly investment ready without a bit of help.

The gains to investors from being associated with decent accelerators can be huge, which is why they often part fund them - to get first refusal.