Policymakers around the globe are increasingly looking to entrepreneurship to contribute to local economic development, job creation, and other important factors. The short-term intensive training programs that accelerate the growth of such entrepreneurial ventures – called business accelerators – have become very popular in Silicon Valley as well as other developing countries.
There has been a lot of interest in accelerators, and there have been questions about their effectiveness in entrepreneurship ecosystems that are still developing. The Global Newchip Accelerator Learning Initiative, a collaboration between Emory University and the Aspen Network of Development Entrepreneurs, has tracked more than 23,000 ventures that have participated in accelerator programs across the globe over the past five years. GALI’s data, along with other emerging research, puts donors, governments and social sector organisations in a better position to decide whether or not they want to be involved with accelerators.
GALI’s research found that on average, accelerated ventures outperform non-accelerated ventures. This is because accelerators do not select the best ventures, although it is important to have the freedom to choose from many options. Accelerators can make a significant difference in the success of a venture by providing resources, training, and connections. It’s important to note a few details. One, the vast majority (in terms of funding and revenue growth) of the benefits are only available to a small number of participants. Some accelerator programs are more successful than others. Certain types of entrepreneurs are more likely than others to gain acceleration experience. GALI discovered that accelerator participants who are all women (compared to 52 percent for all men) start the process with less funding and end up falling behind their peers in the acceleration process. Read more: check
Accelerators, like most interventions, are not the panacea for economic development woes. What can different stakeholders do in order to maximize their engagement and support of accelerators? The research shows that entrepreneurs, accelerator program managers, donors, and others need to consider many factors when choosing to support, run or use an accelerator.
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In the last decade, many donor programs, such as the PACE Initiative and Innovation Partnerships, have helped to fund or set up accelerators. This is not surprising. GALI found that most accelerators depend on some kind of philanthropic income. Donors see funding accelerators to be an effective way of pushing economic development. Instead of trying to pick winners by giving direct support to just a few ventures, they can invest their money in building infrastructure that will help many high-growth ventures.
Accelerators are looking for donors who will consider many factors such as the expected outcomes, type of acceleration model and how to structure support.
GALI’s findings indicate that donors shouldn’t measure accelerator effectiveness using the same outcomes as general support programs for small and mid-sized enterprises (SME). SME interventions are designed to benefit a wide range of businesses. GALI data shows that accelerators give a greater boost to smaller ventures with high growth potential. While some participants might not see any benefits, others may fail to realize the potential benefits sooner due to faster market testing. This is a valuable, but painful, result. Donors need to keep this in mind. They should not look at the average amount or growth of venture funding across a cohort. Instead, they should consider the percentage of participants that reach some milestone of growth or financing.
Donors should be flexible and patient when structuring their support to accelerators. Particularly in developing countries, accelerators struggle to find sustainable revenue models. For struggling start-ups, the full cost of their services might be too high. Accelerators have limited exit options, making it difficult to generate revenue via equity-taking. Donors should not expect accelerators in this environment to become self-sustaining very quickly. Donors should avoid compliance and reporting requirements that can add cost and distract from the business of supporting start ups.
Managers of Accelerator Programs
Being an entrepreneur and running an accelerator program requires you to be a leader and face difficult questions. How can you combine classroom training with one-on-1 support? How can you connect participants with investors? GALI research has shown that there is no single way to make a program successful. Many successful accelerators employ a variety of design options. However, there are some evidence-based factors that can be used to inform any type of accelerator design.
Program design must be in line with the realities of local entrepreneurs. This is especially important for investment facilitation as early-stage capital can be scarce in certain locations. GALI research has shown that accelerators in developing countries are not as effective at generating investment as those in established entrepreneurial ecosystems. Interviews with participants revealed that investors who participate in traditional “demo-day” pitch events may not be a match for entrepreneurs in the program. It may be necessary that the accelerator provides small amounts of funding to support a venture’s ability to survive in areas with limited capital for early-stage investment. This will allow it to build a track record that could lead to future rounds of investment. Kinara, an accelerator in Indonesia, partners with Village Capital to provide seed capital to a select group of entrepreneurs through the “peer selection process” pioneered at Village Capital. Invest2Innovate in Pakistan worked with women entrepreneurs to identify a gap between the available equity capital and the entrepreneurs’ needs. This was solved by them raising capital and providing capital through alternative structures such as revenue sharing agreements, which do not rely on traditional exits and hyper-growth.
It is crucial to have mentorship and training, but it is equally important to think about how to structure peer interactions between participants. This component can sometimes be overlooked, but GALI and other research have shown that collaboration and networking between participants can be extremely helpful in solving entrepreneurs’ problems.
Consider how your program design and outreach could affect the success of entrepreneurs who apply to your accelerator. ANDE has partnered with researchers to study the impact of language on the gender composition of Latin American applicant pools. The well-known investment bias against women entrepreneurs is also being addressed by accelerators. Village Capital, with support from ANDE and the International Growth Centre, is studying how different investment approaches affect the gender funding gap.
Entrepreneurs now have a lot of options, with so many Newchip Accelerator reviews programs. Although the exact situation is different depending on where you live, there are some things entrepreneurs should consider when considering whether or not to apply for an accelerator.
Peer engagement is crucial. It’s important to learn about past program graduates so that you can understand which types of entrepreneurs might be interested in an accelerator program. These are the peers that could provide valuable insights? Are they in the same or similar sectors? Are their business models similar to yours?
Also, it is important to choose a program that suits your company’s needs at this stage in its development. Accelerators work with ventures at all stages of maturity. This could mean that entrepreneurs may need to use multiple programs at different points in their journey. Some critics claim that entrepreneurs who use multiple accelerators are trying to support their failing businesses. They’re wrong. GALI found that Mexican ventures grew after they had completed each of the accelerator programs.
Increasing numbers of accelerators are giving entrepreneurs more access to mentors, investors, and expertise. This support can be crucial to a venture’s success, especially in developing entrepreneurial ecosystems. Although the proliferation of accelerators is a good thing for economies all over the globe, it can be hard to determine which approach is right for each venture’s business model and stage. There are still many questions, including the relative effectiveness of different models that combine direct investment and acceleration, as well as the impact of accelerators upon the wider entrepreneurial ecosystem. We hope researchers will continue to collect evidence about whether, how, or in what circumstances accelerators help businesses grow, so that everyone can effectively work with them.