.In recent years, the widely-publicized boom in venture capital and startups has been accompanied by the appearance of new players within the startup ecosystem. One of them, startups, called startup accelerators, has attracted a lot of attention but has received little attention. They are also frequently confuse or misplace with other organizations that support early-stage startups like accelerators, angel investors, or early-stage venture capitalists.
In a recent study released in the Brookings Institution, I tackle the confusion surrounding accelerators for startups by providing the basics of what they do and the ways different from institutions in the early stages. I also offer a summary of research papers on the efficacy of accelerators to attain their stated goals, some of the best practices in accelerators, and some figures regarding the scope, size, and impact of these institutions within their respective regions in the United States.
Accelerators play a more significant part in the United States and beyond startups. Evidence from early on shows the huge potential of accelerators in improving the outcomes of startups and allowing these benefits to extend to the broader startup community. However, accelerations’ effect on performance is significantly different between different accelerators. Not every accelerator is created equal. It is the quality that counts.
What are accelerators for startups?
Startup accelerators help early-stage, growing companies by providing mentoring, education, and funding. Startups join accelerators for a set period and in a collective of businesses. Accelerators are intensive, fast, intense, and absorbing training designed to speed up the development of young and innovative startups by compressing years of learning-by-doing to only the space of a few months.
Susan Cohen of the University of Richmond and Yael Hochberg of Rice University highlight accelerators’ four main factors. They are fixed-term mentorship-driven and based on cohorts and conclude with graduation ceremonies and a “demo day.” None of the other early-stage institutions, including incubators, angel investors, and seed-stage venture capitalists, are equipped with these four components. Accelerators might share with others their goal of creating young-stage companies, but it’s evident that they’re different, having special incentives and business models.
However, the confusion is actual even within the startup industry itself. In fact, of the nearly 700 U.S.-based organizations identified as an “accelerator” or “accelerator/incubator” or similar — either through self-identification or through leading investor databases — I could confirm these four criteria in fewer than one-third of them. This means that two out of three “accelerators” are not, in fact, accelerators according to this criteria.
Accelerators in the United States
Silicon Valley-based Silicon Valley-based Y Combinator created its first accelerator for seed investors in 2005 in Boston. It was closely followed by TechStars, launched the following calendar year in Boulder, Colorado. Both programs have grown through the years and have been regarded as the two top accelerator programs worldwide.
The growth in U.S.-based accelerators began to take off following 2008, just as was the case for early-stage capital, startups, and venture investment. In fact, the number of U.S.-based accelerators grew by 50% per year between 2008 and 2014.
I was able to find I was able to identify 172 U.S.-based accelerators operating in the time between 2005 and 2015. Collectively, they have invested in over 5 000 U.S. startups. Throughout this time, they have raised $19.5 billion in funding, a figure that is likely to rise because accelerator programs are continuing to roll out businesses and new graduates move towards maturation.
Accelerator graduates who then raised additional venture capital investments have a median value of $15.6 million over the course of this time and an average valuation of $90 million. Many well-known businesses belong to this category that including “unicorns” AirBnB, Dropbox, and Stripe, among others.
Why Startup Accelerators
Accelerators have certainly gained traction in the last few years. What exactly are the accelerators that make them different from other investors and support groups and are so important to the startups struggling to join their group?
I have recently asked that query at Brad Feld, a co-founder of TechStars. He compared the experience of an accelerator to full-immersion learning, in which a time of intense, concentrated focus allows founders of companies to overgrow. Learning through doing is crucial in growing companies, and the purpose of accelerators, according to Feld and others, is to speed up the process. This way, founders can compress years’ worth of education into a span of just a few months.
Feld’s explanation is logical, in my opinion. However, what proof exists? The relative newness of accelerators is a reason. Why very there isn’t much research that has been conduct about the effects they have on participating companies as well as the larger startup community. Four research papers are notable for their contribution to our knowledge. The following is what they’ve found:
- Compared to a set of companies that did not participate in accelerator programs, companies that graduated from the top programs experienced an increase in achieving key milestones, for example, time to raise venture capital, exiting through acquisition, and gaining acceptance. But these positive outcomes diminish when you look at the more extensive range of accelerators. Many programs don’t appear to help startups develop faster or, in some instances, might even hinder their progress.
- A comparison of top accelerators’ graduates to similar startups that receive angel capital from the top angel investment firms discover that the accelerator alums are more likely to get the next tranche of funding and were also more likely to be purchase or fail.
- Other research shows how accelerators support venture development, offering that it’s primarily about learning during the experience of the accelerator, without a risk of causing confusion like credential-based signaling to prospective investors or selection biases, or prior founder experience in top firms. This means that the benefits of accelerators are real and could be derive from the intense learning environment.
- Accelerators can positively affect the regional entrepreneurial ecosystems, especially in the economic environment. Areas, where an accelerator has been establish are more prone to capital-raising activity. This appears only restrict to startups with accelerate growth and extends to companies that are not accelerate. which is primarily due to a rise in the number of investors.
To sum up, accelerators can positively impact the success of startups they collaborate alongside and other early-stage investors. However, this isn’t general across all accelerators and has thus far been limite to top-performing programs. The early evidence suggests that accelerators could play a role in attracting seed and early-stage funding to a local community, bringing positive spillover effects to the region’s economic system.
With the rise of accelerators in recent times, the evidence is positive. Overall, accelerators are beneficial to the startup ecosystems throughout the globe and across the United States. Some might not make much of a difference, but many are, and the top accelerators are likely to significantly enhance the chances of success for startups that can graduate from them.