Brookings Report – Startup Accelerator Programs in the United States
Richard Florida writing for CityLab.com asks, “How Do Startup Accelerators Help Cities?” and since accelerators are growing rapidly across the U.S., “But does that mean governments should get involved?”
Cities have long sought to bolster their innovative and entrepreneurial capacities. In an effort to spur startup activity, many U.S. urban areas have developed tech centers and innovation districts, lured venture capital funds, and launched incubator programs and facilities.
The latest trend in the tech startup economy is the creation of so-called “accelerators,” which act like a Shark Tank school for startups, providing access to mentors and peers along with space and venture funding. Perhaps the best-known accelerator is Y Combinator—established by Paul Graham in 2005 and based in the Silicon Valley—which has launched some 940 companies including Airbnb, Dropbox, and Reddit. Yet another popular example is Techstars—founded in 2006 in Boulder, Colorado—which now sponsors 21 accelerators across the world.
What are startup accelerators?
Startup accelerators support early-stage, growth-driven companies through education, mentorship, and financing in a fixed-period, cohort-based setting. While they are often grouped with other early stage support and investing organizations, such as incubators, angel investors, seed-stage venture capitalists, and even co-working spaces, these are all distinct things.
Susan Cohen, a professor of entrepreneurship at the University of Richmond and a leading scholar on startup accelerators, provides a comprehensive definition of the concept:
Broadly speaking, [accelerators] help ventures define and build their initial products, identify promising customer segments, and secure resources, including capital and employees. More specifically, accelerator programs are programs of limited-duration—lasting about three months—that help cohorts of startups with the new venture process. They usually provide a small amount of seed capital, plus working space. They also offer a plethora of networking opportunities, with both peer ventures and mentors, who might be successful entrepreneurs, program graduates, venture capitalists, angel investors, or even corporate executives. Finally, most programs end with a grand event, a “demo day” where ventures pitch to a large audience of qualified investors (Cohen, 2013).
A new report by Ian Hathaway from the Brookings Institution Metropolitan Policy Program takes a close look at the spread of startup accelerators across U.S. cities and metros. Hathaway distinguishes accelerators from incubators and co-working programs, defining them as “cohort-based,” “mentor-driven,” “fixed term,” meaning they end with a graduation day when the startups go out on their own (see the chart above). Based on this definition, the study identifies 172 accelerators across the U.S. using data from the high-tech venture capital databases Pitchbook, Seed-DB, Global Accelerator Network, and Accelerate.
Best practices for startup accelerators
Given the potential—but not the guarantee—of significant benefits from accelerators on local startup ecosystems and wider economic growth, it bears considering what works: What traits and conditions make accelerators effective?
Recently, Brad Feld sat down to discuss the accelerator concept, and importantly, accelerator best practices.
Feld provides a number of useful perspectives, given his experience with accelerators, and so it’s worth noting a few of Feld’s “dos” and “don’ts” for accelerator design and operation:
– Understand what an effective mentor is and knowing how to effectively engage with them throughout the program’s duration
– Have a good rhythm for the program that is absorbable by founders—don’t go too fast or too slow
– Create awareness of the stress and conflict points among and between the various participants (companies, founders, mentors) that will inevitably occur throughout the program, and strategically channeling those into learning opportunities embedded in the program itself
– Build a culture and network around the accelerator that feeds on itself and perpetuates a lifetime process of learning
– At the same time, problems arise when accelerators:
– 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 (at TechStars the mantra is people, people, people, idea—the idea is the price of admission, the key thing is the people), 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 (how fast do you want to grow? What is your strategy? To expand geographically? To expand the number of programs?)
– 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
– Useful for accelerator creators and managers, these watchwords should also be considered by state and local policymakers, university officials, and economic development leaders who are increasingly investing in or otherwise engaging in the establishment of new accelerators in U.S. cities.
In sum, the accelerator phenomenon is beginning to come into focus. Amid substantial buzz, the systematic information available about the impact of startup accelerators is as yet thin and fragmentary. Much research needs to be done to better understand the effectiveness of these programs and the broader impact they have on startup communities—particularly as national and regional authorities look to them as tools for economic growth.
With that said, however, early evidence points to the potential for substantial benefits. Done well, these programs can be effective at helping some of our most high-potential companies reach goals more quickly and assuredly. Perhaps more importantly, they have been shown to attract more investors and focus energy on the nascent startup communities that have been spreading throughout the United States, which will no doubt be critical for boosting high-impact entrepreneurship and hard-to-come-by growth in the future.
References and Recommended Reading
Cohen, Susan (2013), “What Do Accelerators Do? Insights from Incubators and Angels,” Innovations, 8:3/4, pp. 19-25.
Cohen, Susan and Yael V. Hochberg (2014), “Accelerating Startups: The Seed Accelerator Phenomenon,” working paper.
Deering, Luke, Matt Cartagena, and Chris Dowdeswell (2014), Accelerate: Founder Insights Into Accelerator Programs, FG Press.
Fehder, Daniel C. and Yael V. Hochberg (2014), “Accelerators and the Regional Supply of Venture Capital Investment,” working paper.
Feld, Brad (2012), Startup Communities: Building an Entrepreneurial Ecosystem in Your City, Wiley.
Hallen, Benjamin L., Christopher Bingham, and Susan Cohen (2014), “Do Accelerators Accelerate? A Study of Venture Accelerators as a Path to Success,” Academy of Management Annual Meeting Proceedings.
Yael V. Hochberg (2015), “Accelerating Entrepreneurs and Ecosystems: The Seed Accelerator Model,” in Innovation Policy and the Economy, Volume 16, Josh Lerner and Scott Stern editors, National Bureau of Economic Research.
Stross, Randall (2013), The Launch Pad: Inside Y Combinator, Portfolio.
Winston-Smith, Sheryl and Thomas J. Hannigan (2015), “Swinging for the fences: How do top accelerators impact the trajectories of new ventures?”working paper.
SOURCE: Brookings.edu, Ian Hathaway, CityLab.com, Richard Florida