Growth in Global Accelerator Industry Prompts Characterization, Evaluation

July 14, 2016
By: Jonathan Dworin

Around the world, accelerator programs continue to multiply, prompting the need for continued research on what they are, how they operate, and how they can be evaluated. The Global Accelerator Report 2015, recently released by Gust and Fundacity, highlights the global development of the accelerator industry and includes details on how accelerators are funded and insights into the industry’s future. The report, which examines accelerator programs in five regions, includes several ways to characterize the global industry, including profit structure, monetization sources, corporate partnerships, and exits. A separate analysis, as featured in CB Insights, suggests the importance of follow-on funding as a measure to evaluate accelerator programs.

To craft the Global Accelerator Report 2015, authors from Gust and Fundacity surveyed 836 organizations around the world. Of these, the authors found that 387 initiatives qualified as accelerator programs using the definitions established by British economists Paul Miller and Kirsten Bound in 2011, which consider accelerators as having five features:

  • 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 and not individual founders;
  • Time-limited support comprising programmed events and intensive mentoring; and,
  • Cohorts or classes of startups rather than individual companies.

Among regions, the report notes that the U.S. and Canada have a combined 111 accelerators – two fewer than Europe’s total. Despite similar numbers in total accelerators, the $90.3 million invested by American and Canadian accelerators across 2,968 startups more than doubles the $41 million invested across 2,574 startups by Europe’s accelerators. While growth in the U.S. and Canada accelerator industry peaked in 2012, it continues to grow by double digits every year. Additionally, the accelerator industry is rapidly expanding to unexpected regions such as Latin America, fueled by a mix of private and public capital, according to the report.

Global Accelerator Report 2015 identifies several different metrics to characterize the global accelerator industry. Highlights include:

  • Profit Structure: Globally, accelerator programs tend to be comprised of anywhere between 25 percent to 35 percent as not-for-profit, except for in the Middle East where just over half of accelerators are not-for-profit;
  • Monetization Sources: Across the world, about 91 percent of accelerators are reliant on revenue generation models besides company exits, including events, mentorship fees, corporate partnerships, and other strategies;
  • Corporate Partnerships: Approximately two-thirds of all accelerators rely on corporate sponsorships as a dominant funding source, led by Europe, where 78 percent of accelerators rely on corporate partnerships as a near-term funding strategy; and,
  • Exits: With a combined 193 mergers, acquisitions, and/or initial public offerings, U.S. and Canadian accelerators reported nearly half of the world’s accelerator-funded startup exits.

In a separate analysis, Samir Kaji, a senior managing director at First Republic Bank, examines a specific metric for evaluating accelerator programs: follow-on funding. Writing in CB Insights, Kaji reviews 10 of the most active accelerator programs in the United States to assess the share of graduates that go on to raise at least $750,000 within a year of leaving the program.

First, Kaji determines which companies raised an aggregate of at least $750,000 post-accelerator, not including those companies that raised at least that amount prior to entering the program. Kaji finds that, on average, 35 percent of graduates of the 10 accelerator programs studied successfully raised that amount, with median total funding of approximately $3 million.

Of the 10 accelerator programs analyzed by Kaji, the share of graduates receiving follow-on funding ranged from 13 percent (MassChallenge) to 48 percent (TechStars). The median funding total for those graduates that successfully raised follow-on funding ranged from $2 million (DreamIt Ventures) to $6.7 million (Alchemist Accelerator).

Because substantial capital is often required for companies to scale, Kaji notes that institutional venture backing is particularly important to accelerator graduates. Using the same 10 accelerator programs, Kaji identifies the follow-on funding of graduates where at least one venture capital firm participated.

When filtering for institutional capital, Kaji finds greater variation among the accelerator programs. While some accelerator programs (Alchemist Accelerator, Y Combinator, and TechStars) had more than 30 percent of their graduates raise more than $750,000 with at least one institutional investor, others (MassChallenge and DreamIt Ventures) had less than 5 percent of their graduates receive such an amount. On average, 25 percent of graduates of the 10 accelerator programs reported follow-on funding of $750,000 with at least one institutional investor, with average median total funding of $3.3 million.

Overall, Kaji’s analysis sheds light on follow-on funding as an important metric in assessing accelerator success. While follow-on funding is not the only way to measure the quality of an accelerator, Kaji suggests that for companies seeking to apply to a program it should be a factor of consideration. Kaji concludes his article by cautioning that his study only tracks publicly disclosed funding rounds, suggesting that the accelerators he considered may have "internal metrics that demonstrate portfolio follow-on rates that are 10 to 15 actual percentage points higher."

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