What are they and what do they aim to do?
Accelerators and incubators are business support programmes that provide packages of support to young firms to help them grow. Widely used in the tech sector, they are now increasingly applied in other industries. We distinguish accelerators from incubators based on the definition provided by the Harvard Business Review (summarised in Table 1 of the Annex). This toolkit is concerned with accelerators. A companion toolkit considers incubators.
Incubators typically use non-competitive entry and comparatively ‘light-touch’ support, typically targeting start-ups aged 1-5 years. Typically, incubators are either non-profit or run as managed workspaces where firms have rolling contracts and pay rent, usually staying for between one and five years. Accelerators use competitive entry and a range of intensive support, typically targeting start-ups aged 3-6 months for a period of up to a year, although often for much less time. Accelerators may be non-profit, although they are more often operated by venture capital firms who take equity stakes in participating companies. The application process for accelerators is typically competitive and only a few firms are accepted into each cohort. For instance, YCombinator, a top US accelerator, has two application seasons per year and accepts just two or three per cent of the several thousand firms that typically apply each year. After being accepted, firms participate in the accelerator for three to six months. During their time in the accelerator, firms are typically provided with an on-site work place. Additionally, founders receive business skills training in the form of seminars, as well intensive mentorship from members of established firms (in contrast to the light touch support provided in incubators).
How effective are they?
We found ten evaluations that met our evidence standards. This sections summarises the findings from these studies. The Annex provides more detail.
The available evidence suggests that accelerators may increase participating firm employment. Three studies find that accelerators have a positive effect on employment. Two further studies also report positive effects, but they consider support from both accelerators and incubators and are unable to distinguish between the two kinds of support. One of these two studies also looks at firm sales, finding a positive effect. Again the study is unable to distinguish between accelerators and incubators.
Five studies consider the impact of accelerators on firm survival: findings are positive in one study, mixed in one study (positive for women and minorities), zero in one study and negative in the other two studies. Taken at face value, this suggests that accelerators may sometimes be bad for firm survival. An alternative – and more plausible – explanation is that accelerators help participants to quickly gauge the quality of their ideas (e.g. via investor / peer feedback on demo days) and encourage those with weak propositions to quit early, rather than continuing until they fail ‘naturally’.
Five studies consider the impact of accelerators on firms receiving subsequent external funding (e.g. from angel investors or venture capital firms). Four find positive effects, while one finds no effect. One study which considers the impact of two prominent private sector accelerators, finds that length of time spent in an accelerator is negatively associated with the chances of receiving funding.
It is harder to draw firm conclusions on how different accelerator characteristics contribute to these findings. For example, we find no clear differences in employment, survival or funding outcomes when comparing public and private sector-run programmes. However, for funding, one US study finds that for private sector-run programmes, quality matters – “top” accelerators had positive effects while all others did not.
We find clearer differences across types of incubator and accelerator support: these may impact on firm survival. One study which compares the effectiveness of different types of incubator and accelerator support on firm survival, finds that more specialised programmes (focusing on a single sector) are more conducive to firm survival than generalist programmes. Networking events are associated with lower likelihood of survival, while putting on training has no effect on survival. These effects vary across locations.
Two further studies also look at the impact of accelerator location on firm outcomes. One finds that locating in regions with dense entrepreneurial networks (i.e. have more early stage investors and meetups) and high property values is conducive to employment and funding. Another similarly finds that accelerated firms are more likely to obtain funding from local investors. Ultimately, accelerators benefit from locating in areas with a dense entrepreneurial ecosystem.
Are accelerators cost effective?
Only three of the ten studies provide any cost effectiveness information. Information from these studies allows us to come up with some indication of cost effectiveness. Rough estimates suggest just the grant elements of the programmes (ignoring the cost of space, mentoring, etc.) could cost around £65,000 to ensure an assisted firm is still surviving after three years, and around £30,000 per additional employee. These effects do not take into account other costs of the programmes nor potential displacement effects where assisted firms might displace activity of unassisted firms.
Things to consider
- If accelerators ‘kill’ participating firms, is that a bad thing? In many cases programmes help firms survive, but we also found some evidence the other way. It’s plausible that this is down to programme managers helping founders identify weak ideas and kill them, allowing entrepreneurs to develop new ideas.
- What type of support should accelerators provide? In addition to funding, accelerators often provide firms with intensive mentorship, networking, and co-working space. There is limited evidence on which of these have the largest effect on firm outcomes, so providers should experiment to see what configuration of these works best for them.
- Should accelerators have a minimum or maximum tenancy? We found no strong evidence either way.
- Should accelerators be left to the private sector? We found no strong evidence either way. Policymakers should consider whether there is any substantive market failure in accelerator provision in their area.
- Should accelerators require equity for funding? We didn’t find any studies that make a direct comparison between accelerators that require equity and those that don’t. Providers could usefully test the specific impact of taking equity stakes in participants.
- What is the value-added of accelerators vs. angel / VC investment? We found clear evidence that firms who participate in accelerators are more likely to pick up external funding from angels and/or VC firms at a later date.
- Where should accelerators be located? Accelerators seem to be most effective in regions with rich entrepreneurial ecosystems, and in richer regions.
- What is the value added of accelerator vs. incubator business models? We didn’t find any studies that directly compare the two approaches