Accelerators help improve efficiency of startup capital

Over the last decade, accelerators have spread from a Silicon Valley phenomenon to communities across the country. Questions, however, remain on their impact on startups and whether they aid in creating a strong startup ecosystem. In How Do Accelerators Impact High-Technology Ventures?, Sandy Yu from UC-Berkeley found that the accelerator process helps resolve uncertainty around company quality sooner than what is experienced by non-accelerator companies. Uncertainty regarding the startup’s idea is resolved quicker due in part to the feedback effects of the accelerator process.

After looking at the impact of accelerators on funding, acquisitions, and closures, the researcher contends that accelerators created more efficient investment and exit processes than non-accelerator companies due in part to the accelerator feedback effects. Based upon data from 1,800 companies, Yu contends that this resolution allows founders and investors to make more efficient funding and exit decisions. The 1,800 company dataset matched 900 accelerator companies that participated in 13 accelerators with 900 non-accelerator companies.

Through the acceleration process, the company receives a better, quicker measure of the quality of the startup’s idea than similar companies who do not participate in an accelerator program. This quicker measurement of idea quality signals to both founders and investors whether they should move on from the startup — freeing up talent and investment capital to be allocated to higher quality or future ideas. Non-accelerator companies have the potential to tie up capital and talent resources longer because they do not receive similar feedback early in their product development cycle.