The Pre-Money Valuation Bump from an Accelerator Program

Startup accelerators like Y Combinator, TechStars, and Flashpoint provide great, intense programs designed to significantly increase the likelihood of success. When they first came out people seriously questioned the value provided relative to the company pre-money valuation of $15,000 for 6% of the business. Well, that point has been discredited based on the many successful exits from the top tier accelerators but there’s another related point that needs to be talked about more: the pre-money valuation bump by going through an accelerator program.

Say you want to raise a $1M Series A angel round, without doing an accelerator program you might get a pre-money valuation of $1.5M – $2M unless you have an amazing background or prior entrepreneurial success. Well, with Y Combinator and TechStars, startups post accelerator have recently been raising Series A rounds at pre-money valuations of $4M – $7M with some north of $10M. Assuming you’re on the low end of that pre-money spectrum and raise a round at a pre-money valuation of $4M, that’s a huge jump from the $2M pre-money you might have raised without going through one of the programs. By going through the program you get national exposure as well as more social proof for things like AngelList, which makes angel investing much more open and transparent.

So, selling 20% of your company for $1M at a pre-money valuation of $4M vs selling 33% of your company for $1M at a pre-money valuation of $2M makes up for more than the 6% dilution from the original $15,000. Top tier accelerator programs are easily worth it based on that simple math. The real challenge is to even get accepted into one of the programs.

What else? What are your thoughts on the pre-money valuation bump from an accelerator program?