Accelerators have proven to be helpful in spurring the potential of startup businesses. Their services and programs may include providing seed capital, mentorship programs, workspace, among others, but all aim at speeding up the performance of startups.
One of the most successful of these types is the Y Combinator, one of the pioneers of the model which has since propelled several startups such as Airbnb and Dropbox.
It may also be the most famous accelerator and incubator situated in Silicon Valley.
In a report by Knowledge@Wharton, Wharton management professor Ethan Mollick says that the cutting of costs, which business players make during their early stages, are huge hurdles in the growth of the startup ecosystem.
Recently, some reports show the accelerator’s struggle in capturing back the revenue they have poured into startups.
Accelerators struggle
Citing a Gust survey of 579 accelerator programs, tech In Asia said nearly two-thirds or 63 percent of the accelerators surveyed adopted the traditional cash-for-equity model.
The basic scheme requires the shelling out of a small amount of seed money around $25,000 on average. This is in exchange for equity that is usually between five percent and ten percent.
In 2016, the share of accelerators that depend on equity investments to recapture their returns nearly halved due to the measly number of exits—14 were reported by 11 accelerators. Tech in Asia added that a meager seven percent of accelerators in Asia reported revenue from exits as their main source of profit in the same year.
As such, accelerators have been scouting for new approaches to generate profit. An emerging model that could revolutionize both the accelerator and incubator industries is the Public Accelerator-Incubator (PAI) model, introduced by Digital Arts Media Network, Inc. (OTCMKTS: DATI).
The PAI model as a solution
The first thing to know about the PAI model is it does not compete with accelerators or incubators.
Instead, the PAI scheme enhances the typical accelerator and incubator model, to better cater to disenfranchised investors. It provides startup companies the opportunity to raise capital by getting a small share of their equity of about one percent to six percent, in exchange for access to Digital Arts’ Angels+ platform, its flagship service.
Under this program, angel investors would put money into a specific startup, but in addition to the equity they receive from that startup, they will also get public equity from DATI. In this way, these investors can have access to liquidity within 24 months, which is a massive improvement from the usual 10-year timeframe for liquidation.
As such, the PAI model creates a network that helps angel investors support lucrative startups while helping the latter find sustainable ways to get capital.
Various industries have tried their hands on the PAI. One of which is music royalty sharing app Vezt Inc. This allowed the music industry startup to get the necessary financing to boost their businesses, and it is devoid of multiple intermediaries.
At present, globally there are thousands of accelerator and incubator programs that are racing to get on top of the game. But evolving along with the preference and needs of consumers is a key principle in maintaining a healthy business portfolio. The PAI model is a viable system that startups and investors should consider.