by Chien Sheng Richard Chan, Pankaj C. Patel & Phillip H. Phan
Since Y-Combinator was founded in 2005, the business accelerator phenomenon has become a major tool to support innovation, boost economic development, and improve regional wealth creation. The primary goal of an accelerator is to fast track a nascent idea along a path of rapid development by using a hypothesis testing model for rapid learning.
While the theory of business acceleration is relatively simple, the empirical evidence of their effectiveness is unsettled. Accelerators vary considerably in terms of services, ownership structures, access to funding, investment size, professional expertise, geographic location, and size of resource network. Yet the global popularity of accelerators has led to so-called “best practices.” So what explains the wide range of performance among accelerator-backed ventures? Our empirical study on 1,442 ventures drawn from 117 accelerator programs across 22 countries, shows that 11.13–14.18% of venture funding performance variation can be attributed to accelerator membership, which also accounted for 3, 5.15, and 16.65 percent of employee growth, employee costs, and revenue change variance, respectively. We find that well accelerator-backed ventures perform can be explained by differences among accelerators, the first time that we find direct evidence on a global scale. The high degree of relative variance explained by accelerators suggests that the quality of location-specific investments can have a lot to do with the performance of accelerator-backed ventures. In contrast, country- and industry effects tend to be small and inconsistent.
Certain policy implications arise from these findings. While accelerators may address the risk of market failure for early-stage ventures, managers must allow for member ventures to drive their own success. Many accelerators insist on a given curriculum, but not all venture ideas are created equal, and not all founders are cut from the same cloth. Accelerators must recognize that ventures have unique capabilities and, while important, their relative contribution (generally around 10%) is not the sole determinant of success. This study suggests that accelerators should consider how to make resources more flexible, to fit the needs of member ventures while controlling costs.
Finally, based on the quality of ecosystems in which accelerators are embedded, policymakers can play useful roles in setting the rules of the road. While our data do not specify what these might be, other studies on startups and business growth suggest that the cost and complexity of business registration and compliance regulations, contract laws and intellectual property rights—in other words, the institutional systems that foster and support opportunity recognition and risk-taking—are at least as important as venture management in spelling out the future of any business enterprise.
Link to the full article: https://onlinelibrary.wiley.com/doi/10.1002/sej.1351