Evaluating the Effects of Accelerators? Not So Fast

If anything good can be said about this agonizingly slow economic recovery, it is that there is growing interest in helping startups launch and succeed, because we know that new firms create new jobs. There are an increasing number of initiatives seeking to support entrepreneurs as they launch their businesses. I am focusing in this post on the outcomes of so-called startup accelerator programs. Are they helping new firms succeed and, therefore, having a healthy impact on the economy?

First, let's define some terms. Many people conflate business incubators with accelerators. We need to make a distinction between the two. A business incubator in the purest sense refers to an office park or building complex that charges businesses, typically new businesses that cannot afford their own offices, some rent in exchange for space within the incubator and some administrative services and infrastructural support. Over time, the term business incubator has accrued some negative connotations for not actually helping to start businesses.

The accelerator term was born to brand groups that, in addition to providing office space (though not all do), have the express focus of "accelerating" a startup from birth to viable company. Susan Cohen is a researcher at the University of North Carolina at Chapel Hill who offers this clarification: Accelerators are organizations that provide cohorts of selected nascent ventures seed-investment, usually in exchange for equity, and limited-duration educational programming, including extensive mentorship and structured educational components. These programs typically culminate in "demo days" where the ventures make pitches to an audience of qualified investors.

What do we know about the effects of accelerators on the startups they take in? I am going to use this story from Grasshopper.com about accelerators and their supposed success as an example. The purpose of this post is to show that the currently available data on accelerators are lacking, and we should not base conclusions on preliminary efforts. As much as we want to support entrepreneurs and accelerators, we should not claim the economic benefits of accelerators with exaggerated numbers, either.