Do Accelerators Improve Startup Success Rates?

Source: Knowledge@Wharton, Seb Murray

Accelerator programs boost startup performance across the board, but maximizing that success depends on program design, Wharton research shows.

The allure of startup accelerators has soared in recent years, propelled by success stories like Airbnb and Coinbase, both alumni of the renowned Y Combinator (YC) accelerator. With 16 YC-backed companies now trading on the public market and scores of more commanding valuations surpassing the billion-dollar mark, the appeal of these programs seems undeniable.

Yet in an era marked by dwindling venture capital funding and the consequent deflation of young tech companies’ values, skepticism about the impact of accelerator programs on startup business success rates has intensified. Questions have long lingered over whether accelerators truly deliver value for the equity they claim from budding ventures. Some accelerated companies become household names, but what of the rest?

A new study by Wharton professors Valentina Assenova and Raphael (Raffi) Amit brings fresh insight into the performance of accelerated startups. The paper shows that participating in accelerators generally leads to positive outcomes in terms of startup business success rates. In examining data from 8,580 fledgling companies that made it past the initial screening stage at 408 accelerators in 176 countries between 2013 and 2019, the professors found that accelerated startups grew more, on average, than their peers.

Positive Outcomes of Accelerators

“Accelerated startups were 3.4% more likely to raise venture capital, and raised $1.8 million more in the first year after graduating from these programs,” Assenova said. “They also planned to raise $2.64 million more capital, on average, over the next year. Accelerated startups also generated more revenue, hired more full-time employees, and paid more in wages to their employees, on average — indicating that they were scaling faster than their peers.”

Assenova and Amit found that startup accelerators have become essential for entrepreneurs around the world. In the U.S., there are about 160 of these hotbeds for young businesses, and globally there are more than 2,000. These programs typically help new companies for a short time, usually with a group of other startups. They give support like money to start, a place to work, and advice from experienced people like mentors and investors.

According to the Wharton study, most of the existing research has focused on popular American accelerators like YC, Techstars, and MassChallenge. The paper, published in the Strategic Management Journal, reveals the benefits extend beyond well-known programs and places like Silicon Valley where startups are already thriving.

“This suggests that accelerators aren’t just beneficial for high-tech startups in well-established tech hubs in the United States, but also for other types of ventures in emerging startup ecosystems found in regions such as Sub-Saharan Africa, Latin America, and the Caribbean,” Assenova said.

How Program Design Influences Startup Business Success Rates

Assenova and Amit also examined how these effects differ based on the design of the accelerator program — factors such as the depth or breadth of knowledge within their cohorts, the types of knowledge-building programs offered by the accelerator, and the characteristics of the founders.

For instance, accelerators that include more training activities, like pitching competitions, advice specific to certain industries, and structured learning sessions, tend to improve startup business success rates after they finish the accelerator.

However, the paper states that the ideal mix of these activities depends on factors such as the stage of the venture, the industry it operates in, and the prior experience of its founders. For example, structured educational content is particularly beneficial for first-time founders and those with less formal education, as it helps compensate for any gaps in their knowledge and experience prior to entering the accelerator.

Additionally, events like pitching sessions were more beneficial for startups in their early stages, especially those in the tech industry, where attracting investment from venture capitalists through such events plays a crucial role in driving future growth. This underlines the importance of funding support for startups.

Tailored Approaches to Maximize Startup Growth

However, while accelerator programs that focus more on expanding the depth of knowledge within their cohorts tend to lead to higher revenue growth for the startups involved, programs that focus on expanding the breadth of knowledge within their cohorts tend to be linked to startups getting more funding.

Assenova said: “These findings highlight that there isn’t a one-size-fits-all approach when it comes to accelerator programs. Participating in accelerators can help ventures grow, but the extent of these benefits varies significantly. Therefore, founders should carefully consider how different program designs align with their goals for growth and expansion.”

She added that the study has important lessons for people who run accelerators as well. If these programs don’t have certain things like funding support for startups, seed funding, structured learning, specific industry advice, and longer durations, they should think about adding some of these design elements. Doing so could make the accelerator more effective at boosting startup business success rates.

https://knowledge.wharton.upenn.edu/article/do-accelerators-improve-startup-success-rates