Startup Accelerators Deliver Results!
This article is the last of a three part look at startup support institutions where part one at DO STARTUP SUPPORT INSTITUTIONS WORK? established that there are 8,300+ independent programs, 4,200+ fee driven programs, and 200-3,200 growth programs where:
- Independent Programs are composed of courses, business competitions, and startup weekends;
- Fee-Driven Programs are composed of incubator and co-working institutions; and
- Growth-Driven Programs are composed of active seed investors and accelerators.
Any earlier article entitled ENTREPRENEUR TRAINING: MINIMAL STARTUP IMPACT illustrated that Independent Programs under deliver. The second article in this series entitled INCUBATORS OVERSELL AND UNDER DELIVER illustrated that Fee-Driven Programs also under deliver. This third article illustrates that, based on expert assessments, unlike the other two types of institutions, Growth Driven Programs deliver results.
WHAT IS A STARTUP ACCELERATOR?
Cohen and Hochberg define a startup accelerator as “a fixed-term, cohort-based program, including mentorship and educational components, that culminates in a public pitch event or demo day.”
WHAT IS THEIR ROLE OF AN ACCELERATOR?
Accelerators provide investors a service through structures and processes that allow investors to make funding decisions, and push “investor-ready” startups further down the pipeline. In so doing, accelerators provide information investors need for diversifying their portfolios of high-potential companies. Graduates from accelerator programs have earned a seal of pre-approval when they present themselves to seed- and early- stage investors.
HOW MANY ACCELERATORS ARE THERE?
A Brookings Institution study reviewed nearly 700 U.S.-based organizations that were categorized as an “accelerator” or “accelerator/incubator,” either through self-identification or through the identification in various databases. Based on the Cohen definition of an accelerator, fewer than one-third of such programs could be said to fit the definition. Growth in U.S.-based accelerators grew from 16 programs in 2008, 27 in 2009, 49 in 2010 to eventually 170 programs in 2014 and holding mostly steady.
DO THEY WORK?
According to the Kauffmann Foundation, from 2005 to 2015, 172 U.S. based accelerators invested in more than 5,000 U.S. based startups with a median investment of $100,000. These startups went on to raise $19.5 billion in funding during the same period. Along these lines, Brad Feld Brad Feld, a co-founder of TechStars, a global accelerator program, suggests in an Ian Hathaway article characteristics of strong and problem accelerators as paraphrased below:
WHAT ARE THE CHARACTERISTICS OF A STRONG ACCELERATOR?
- Understand what an effective mentor is and knows how to effectively engage with them throughout the program’s duration.
- Have a good rhythm for the program — don’t go too fast or too slow
- Create awareness of the stress and conflict points that will inevitably occur during the program
- Strategically channels conflict points into learning opportunities embedded in the program itself
- Build a culture and network around the accelerator that feeds on itself.
WHAT ARE THE CHARACTERISTICS OF A PROBLEM ACCELERATOR?
- Fail to have a clear view of the mentor dynamic—not helping mentors understand how they can be effective in working with companies
- Fail to set expectations at the outset around what the accelerator can do, and what is sensible given a company’s individual situation
- Fail to focus on the people, rather than idea because it is the people that matter most and will be lasting, while the idea will morph a lot
- Fail to understand how to scale their program.
- Fail to have a point of view about what they are trying to accomplish. Simply emulating what other accelerator programs are doing, for example, fails to understand that there is more than one approach
WHAT IS THE LATEST INTERNATIONAL EVIDENCE OF SUCCESS?
GALI working in association with the Global Entrepreneurship Research Network produced a report entitled What’s Working in Startup Acceleration in March 2016. Taken directly from that report is GALI’s assessment of a number of a priori accepted features of successful accelerators as paraphrased below:
- PARTNER QUALITY IMPROVES PROGRAM PERFORMANCE — SUPPORTED: Partner organizations were rated much higher in the high-performing programs. Relative to those that worked on the low-performing programs, these organizations were described as “engaged”; “putting entrepreneurs first”; and “contributing to program content.”
- TIME SPENT ON PROGRAM-RELATED ACTIVITIES LOWERS PROGRAM PERFORMANCE — SUPPORTED: Rather than spending as much time as possible delivering program content, high-performing programs tended to set aside more time for entrepreneurs to work on their own.
- QUALITY OF THE APPLICANT POOL IMPROVES PROGRAM PERFORMANCE — SUPPORTED: The high-performing programs had smaller applicant pools on average. However, their applicants tended to have more intellectual property and more educational, entrepreneurial and senior management experiences.
- MORE ADVANCED VENTURES BENEFIT MORE FROM ACCELERATION — NOT SUPPORTED: Program selectors for the high-performing programs placed more emphasis on the quality or promise of the underlying idea than the venture itself. This led them to select ventures that were younger on average.
- NETWORKING AMONG COHORT MEMBERS IMPROVES PROGRAM PERFORMANCE — LIMITED SUPPORT: Descriptions of cohort dynamics were mainly positive in both high and low-performing programs. While the differences were modest, participants in high-performing programs described the cohorts as being more partnership-oriented and as having more peer-to-peer involvement. Participants in low-performing programs did not describe a lack of peer-to-peer involvement in their cohorts but emphasized individual qualities, such as creativity and innovation.
- EMPHASIS ON FINANCIAL ACUMEN IMPROVES PROGRAM PERFORMANCE — NOT SUPPORTED: The high-performing programs spent less time working on finance, accounting, and formal business plan development and more time on presentation and communication skills, networking, and organization structure and design.
[Bloggers Note: This is again a clear indicator that lean canvas-based entrepreneurship training is largely an academic excercise.]
- MENTOR QUALITY IMPROVES PROGRAM PERFORMANCE — MIXED SUPPORT: High-performing programs connected entrepreneurs with a larger number of mentors. However, this did not translate into more time spent with mentors overall. While all programs tended to use similar individuals as mentors, there is some evidence that program alumni are not very effective mentors and that including potential customers as mentors is a good idea.
CONCLUSION – ACCELERATORS DELIVER RESULTS!
In the words of Ian Hathaway of Brookings Institution: “Considering the growth of accelerators in recent years, …evidence is encouraging. By and large, accelerators seem a positive addition to startup ecosystems across the country and the world.”