Twice a year, in the heart of Silicon Valley, a startup accelerator called Y Combinator selects an elite group of young entrepreneurs. Months of intense work culminates in Demo Day, when investors and venture capitalists flock to hear their pitches. Any one of them might turn out to be the next DropBox (class of 2007) or Airbnb (class of 2009).
Y Combinator is one of the first Startup Accelerators to be formed in United States in 2005 followed by TechStars another leading startup accelerator. These two, are considered to be premier accelerator programmes globally.
Startup accelerators, have received a great deal of attention but also little scrutiny. Moreover, they are commonly misunderstood or mistakenly lumped in with other institutions supporting early-stage startups, such as incubators, angel investors, and early-stage venture capitalists.
The Brookings Institution recently tackled some of the confusion around startup accelerators by laying out a clearer picture of what they do, and how they differ from other early-stage institutions. Research literature has also been reviewed on the effectiveness of accelerators to achieve their stated aims, some best practices for accelerator programs, and some figures on the size, scope, and impact of these organizations.
Accelerators are playing an increasing role in startup communities around the world. Early evidence demonstrates that there’s significant potential of accelerators to improve startups’ outcomes, and for these benefits to spill over into the broader startup community. However, the measurable impact accelerators have on performance varies widely among programs — not all accelerators are created equally. Quality matters.
Startup accelerators support early-stage, growth-driven companies through education, mentorship, and financing. Startups enter accelerators for a fixed-period of time, and as part of a cohort of companies. The accelerator experience is a process of intense, rapid, and immersive education aimed at accelerating the life cycle of young innovative companies, compressing years’ worth of learning-by-doing into just a few months.
- cohort-based, and
- mentorship-driven, and they culminate in
- a graduation or “demo day.”
None of the other previously mentioned early-stage institutions — incubators, angel investors, or seed-stage venture capitalists — have these collective elements. Accelerators may share with these others the goal of cultivating early-stage startups, but it is clear that they are different, with distinctly different business models and incentive structures.
Yet the confusion is real, including within the startup sector itself. In fact, of the nearly 700 U.S.-based organizations that were identified as an “accelerator” or “accelerator/incubator” or similar — either through self-identification or through leading investor databases — according to a researcher who spent time studying accelerators found that two of every three “accelerators” are not in fact accelerators, based on this criterion.
ACCELERATORS IN THE UNITED STATES
Growth in U.S.-based accelerators really took off after 2008, as it did for startups, early-stage capital, and venture investment more broadly. The number of U.S.-based accelerators increased by an average of 50% each year between 2008 and 2014.
WHY STARTUP ACCELERATORS
Accelerators have clearly taken hold in recent years. But what is it about what accelerators do that makes them so different from other early stage investors and support organizations and so valuable to the startups that are apparently falling over each other to be in their ranks?
I have spent a number of years in the startup eco-system through the BandwithBarn (an incubator), GoMetro (a startup) and Kaya Labs (a startup) and I’m keen to share lessons learnt and observations.
In the next few months in 2016 I will be sharing insights gathered from Startup accelerators and Incubators initially in the African continent. Sarting with LaunchLab at Stellenbosch University.
I’m hoping that this will become a source of information about Startup Accelerators for startups,governments,investors and other interested ones.