Startup Accelerators, Literature Review and Future Work to Be Done

This report consists of a study about the accelerator organizations and the startups that takes part in their programs. Some key concepts will be defined first to understand the project. Concepts such as Startup, incubation model or accelerators.

When going deeper through the main topic, the accelerators, we will first conceptualize the accelerators origins and its evolution, in order to understand how incubation models evolved to accelerators. Afterward, the accelerator concept will be defined and we will see in more details what is the structure of an accelerator by highlighting the five design elements of an accelerator.

Once the accelerator concept is clear we will have a brief view on seed accelerator and corporate accelerators to give some of the little information found in the literature published until now.

Finally we will highlight some limitations found during the work, such as lack of literature due to a relatively new business (accelerators) and finally, I will explain the future tasks to be done during the dissertation.

With this project, the author pretends to introduce the accelerator concept, create a future task to be done in order to fulfill a proper study and highlight the research opportunities. With these ideas highlighted I hope to set a kit of different tasks to create a framework that is missing nowadays in this research field.

In order to understand perfectly the next Project about accelerator’s and startups, it is mandatory to start defining the concept of Startup.

A startup could be defined as a newly established business formed to search for a repeatable and scalable business model. Normally it is a technology-based business which aims to experiment with high growth rates by filling a gap between a business or social need and adapting it to our highly changing environment, digitally based.

Normally, this kind of businesses experiments with high growth rates since they fill a gap from an innovative approach that usually breaks the market. This represents a serious risk for startups since it really difficult to manage this high growth due to capital, human resource, time and other limitations. In fact, it has been highlighted that two of the crucial processes that a startup must manage perfectly are the product emergence and organizational launch(Stayton and Mangematin, 2016), what is tremendously difficult for startups and accelerators are specialized in.

Once understood what a startup is and what’s the relation among startup and accelerators (we will go deeply in this topic on future sections) in the next section we will do a brief review of incubation model origins, which is supposed to be the cornerstone of accelerator’s appearance.

Incubation Model

Once defined the concept of Startup, which is the center of the business here being analyzed, let’s define the concept of incubation model to understand and keep delving into the accelerator “sector”.

When we talk about incubation model regarding, we can define it as the way an incubation institution helps startups, which take part of its incubation program, to boost dramatically their chances to survive and accelerate their normal progression as a business (Wright, 2016).

The incubation model was the prior step to what evolved to the different programs such as Accelerators. Let’s how evolved from the early nineties until now to understand the creation of the first accelerator in 2005, Y Combinator.

In the early nineties, incubators were focused merely on providing offices and financial aid to the high potential ventures (Phan et al., 2005). Afterward, during the nineties, new incubators were established with the aim of offering more aid. They noticed the lack of management experience in startup situations of high potential startups, so they started to offer more intangible services to help founders to manage the growth. Intangible services such as product development, expertise, network of entrepreneurs, consulting and so on (Soetanto and Jack, 2013). In the early 2000’s with the creation of Y combinatory, a new model of startup boosters was created, more focused on mentoring and knowledge-intensive services.

Once seen the concept of Startup and how the incubators evolved until the accelerator’s appearance, it is time to focus on what is an accelerator and delve into how it works,
Accelerators are organizations oriented to promote the venture creation by providing specific incubation services oriented to knowledge-intensive services (Cohen and Hochberg, 2014)

The first accelerator was created in 2005 in the USA, its name is Y Combinator, recognized as the mother of all accelerators since all the accelerators are based on its basis. Firs European accelerator was established in 2009 and nowadays there are approximately 213 accelerators worldwide, according to Seed-DB, supporting around 3.800 startups.
And why this 3.800 look for help to Accelerators? Because it is really difficult and risky to manage rapid growth due to temporal, financial and human resources tensions (Stayton and Mangematin, 2016). In this changing world, time becomes crucial to develop the startup ideas and promote them properly to succeed. In the promotion process, rather than time, financial resources are highly needed, therefore startups need to count with a high amount of cash flow to develop properly their growth strategy. Finally, this growth strategy is highly demanding in human capital to follow properly the strategy path. In my opinion, in this cases, the accelerator’s can play a huge role in certain startups.

Let’s delve more into how Accelerator’s work and what they offer to understand better what they are and how useful can they be.

There are different design elements that determine how an accelerator works. These elements are called “design elements”. There are five design elements that define the accelerator features: Program package, strategic focus, selection process, funding structure, and alumni relations.

The program package refers to the whole bunch of services that accelerator’s open. As seen in the figure above, there is a different type of services that accelerators may offer, some will offer all and others will offer some of them. The more usual services offered are Mentoring services, training programs, counseling services, demo days/investor days (where founders pitch investors to get funding), location services and investment opportunities.

Regarding strategic focus refers to the accelerator target point. It may be industry or sector focus, and geographical focus. When talking about geographical focus it refers to which geographical point it is being targeted, ranging from small regions to continents. When talking about industry or sector focus it refers to how broad/specific the accelerator may be interested in regards the business. There are accelerators fully focused on specific sectors such as biotech startups while others are more focused on retailers in general.
The selection process that accelerators often use to filter the different startups are Team as primary selection criteria, online open calls and use of externals for screening. This topic may configure different types of accelerators too.

Funding structure really differentiates a different kind of accelerators, since depending where the funding comes from it may have different effects on the way the startup it is going to support. Moreover, it may be also selection criteria for startups to apply for one type or other due to founders strategies. Depending on the origin of the funding we may find accelerators funded by Corporate funding, investors funding, public funding, and alternative revenues.

Finally, the last design element that characterizes accelerators are the alumni relations they offer to the startups immersed in their programs. On the one hand, they can offer alumni network after program completion (normally when the accelerator gets equity from the startup), alumni networking during the program, or both.

These different elements define how a startup works and it characterizes them in order to obtain a frame according to its features. What I believe is that understanding the five main design elements and how they can be structured, we will be more prepared to keep going with the analysis purpose which is to understand the accelerator paper in the startup business as a new sector risen.

Startups limitations

Startups, as stated before, fulfill a gap in the market by applying technology to do it. Normally, in this case, these companies experience a huge demand coming to their product/service and in this case, some parameters have more importance.

On the one hand, product emergence and organizational launch are critical to success, and the timeframe used in this will play a significant role (Stayton and Mangematin, 2016). In this case, accelerators play an important role since providing the resources and support to overcome this critical stage of a startup by providing capital, guidance, and mentorship to adopt the correct position and strategy to create a proper environment to grow rapidly.

However, not all the accelerators will have the same impact on a project since there is significant evidence of the quality of an accelerator depending on the experience and its network decrease the risk of failure of the startups under their programs (Wise and Valliere, 2017). It makes according to my personal experience, since the critical fact of the accelerators is the mentorship and guidance to the startup. Therefore, an accelerator managed by a manager with significant experience on the topic will have more chances to support properly the businesses that take part in the accelerator program.

However, not all startups need this kind of business service offered by accelerators, so there exist other methods to get funding that may be more convenient according to the startup moment and expectations that the founders would have. So business angels and so on could be more convenient. This convenience will depend specifically on the main characteristics of the startup (stage, team experience, expectations, etc.).

Taking into account the startups stage, there is a special stage where getting funding is pretty difficult, like the seed stage. In this case, seed accelerators have raised to bet for seed startups. Next section will give us a brief introduction to this kind of accelerators and later on we will have a look at limitations and future steps to keep going with the project.
Seed accelerator Citar: The seed accelerator model: In practice, accelerator programs are a combination of previously distinct services or functions that were each individually costly for an entrepreneur to find and obtain: seed investment, value-added mentorship and advisement, co-working/co-location with other startup companies, capital introductions and exposure, network building, and the opportunity to pitch to

Limitation

In my opinion, it is a really interesting topic not only for the future research opportunities that may arise but because of the work to be done which I found really interesting and that I will be explaining in the next section.

However, I would like to highlight some limitations that I found while looking for literature related to the topic.

Since the first accelerator, Y Combinator, was founded in 2005, there is an obvious lack of literature to set a starting point to begin researching the topic. Fundamentally, this has limited me to create a framework about which starting to conduct a proper project to achieve interesting conclusions. Therefore, this framework must be created, however, it was not possible to fulfill this task due to time limitations, so my final dissertation will take this point into account in order to conduct a proper research. In the next session, I will explain more deeply how I plan to step into this challenge.

Finally, what I believe is a new sector, since an accelerator can be observed as a company because its main purpose it is maximizing its profits by acquiring equity from startups who need their support. In the end, all the accelerators create benefits from their customers, the startups, by betting on the market expectations.

Next steps will be to use ethnography methodology in order to understand a daily routine of an accelerator and their “customers”, the startups enrolled in their programs.
In this case, I will focus on Valencia with the different accelerators of the city, such as Lanzadera, and I will try to make different interviews to key players of both sides in order to understand them believes in what an accelerator provide to startups, how they interact, which impact do they believe they have in their startups and what are the key of success in this business relationship according to key players.

Moreover, I will try to study the revenues average evolution of different startups who take place of these programs and I will compare them with the ones who did not take part in this kind of programs. In this case, my objective will be to analyze the impact on revenues and to see if the growth management has been better than those startups from the same sector that did not take part of such programs.

In addition, observation methods could be interesting in order to analyze the interaction between startups and accelerators at different stages. At this part, using recording glasses from founders point of view would be perfect to understand how accelerators support them and how they implement their support in the startup.

Finally, studying the differences between startups such as the team features (age, experience, complementarity, etc.) or level of development prior program access would give us interesting insights on when it is better to implement accelerator programs to startups.

There are a lot of things to do and I will try to do it while my master dissertation. However, I will let open a Ph.D. opportunity to keep going with the research if the topic is as interesting as it seems.

After analyzing the different literature, we propose a list of future research questions that have to be answered for the development of this study in order to make a clear investigation of this field:

• How accelerator differ between regions?
• Accelerators impact on a regional economy.
• Difference between startups from the same sector accelerated and not.
• Analysis of startup accelerators who failed. Why do they fail?
• Classification of Accelerators according to the structure.
• A deep study on startups accelerated results after several years.
• Entry barriers to accelerators business.
• When does a startup need an accelerator program?
• Accelerators success on selection criteria.