Defining accelerator programs
This novel approach to new venture funding and development combines strands of angel investing, venture capital (VC), and incubation into a condensed program. It has been replicated not only in the US, but globally. In the ten years since Y Combinator’s founding, the number of business accelerators has grown to over 300 worldwide (Cohen and Hochberg, 2014). As of this writing, Techstars now operates its accelerator program once each year in seven cities in the US, one in London, UK, and one in Berlin, Germany. The founders of Techstars later founded the Global Accelerator Network in 2010 to serve as a platform for standardizing a model of success by connecting accelerator programs with their members, mentors, investors, founders and strategic partners.
Among startup entrepreneurs, the appeal of accelerator programs has become increasingly popular because of its reputation for a fast-paced development process, access to funding, network of experts and alumni, and high-quality guidance over a short period of time – typically three to six months. Although a formal definition of accelerators has not been published in academic literature, a number of independent researchers or organizations (Christiansen, 2014; Cohen and Hochberg, 2014; Miller and Bound, 2011) have consistently used the following features as comprising an accelerator program:
- An application process that is open to all, yet highly competitive
- Provision of pre-seed investment, usually in exchange for equity
- A focus on small teams not individual founders
- Time-limited support comprising programed events and intensive mentoring
- Cohorts or ‘classes’ of startups rather than individual companies
Conceivably, accelerators resemble incubators, which also assist the development of small businesses or startups. Nominally, incubators provide office space in addition to business support and guidance, with the average incubator program lasting approximately 33 months, and potential connections to an investor network. According to an expert interview with the President Emerita of the NBIA (2014), accelerators are clearly different than incubators. This study assumes this difference as a given; the approach to accelerators is neither exclusively an incubator nor venture capital model, but a hybrid with distinctive elements from both (Dinah, 2014).
With this model gaining traction around the world as a new model for funding early stage startups, two fundamental questions need to be asked, namely, what explains the existence of these accelerator programs and how do they work?
First, the gap that Paul Graham identified in 2005 touches upon a systemic issue in practicing entrepreneurship, which is that it is difficult to successfully start a new company and receive help and support in early stages of the startup process. These accelerator programs seem to not only accelerate the startup process, but also help them to overcome the probability of failure to a larger extent.
Second, with the proliferation of accelerator programs across the globe, one wonders, how exactly does the model accelerate the startup process? How does it modify the startup process in such a way that more companies survive and thrive? These are some of the questions that this research seeks to answer.