3 Emerging Trends in the Accelerator Model
In 2005, Y-Combinator gave birth to the modern day accelerator. Now, we are celebrating the 10th year anniversary of the modern day accelerator model and we estimate that there are 230 accelerators in the world. The phenomenon is not confined to the U.S., either – The Global Accelerator Network currently has 50 accelerators members across the world. There are accelerators that specialize in specific industries (vertical specialization) or different platforms (horizontal) and corporate led accelerators. We live in an accelerated world.
However, in the past few years there has been a lot of discussion around a possible “accelerator bubble,” from authors at Bloomberg to TechCrunch to Inc. Magazine. Lots of this skepticism revolves around the viability of the accelerator model. The worrisome signs commonly cited include: lack of series A funding, too few high growth companies, and high failure rates of companies. Regardless of the worrisome signs, the absolute number of accelerators continues to increase by around 30 per year worldwide. Pure growth in the number of accelerators world-wide isn’t enough to justify the viability of the model, but it is fascinating to see how the model is adapting.
The rest of the post is how the accelerator model is adapting to fit market trends and catering to specific entrepreneurs. I had the chance to attend SXSW Interactive last month, where there were two days of accelerator workshops and panels. I attended two sessions that inspired this post in particular: the Accelerator Rankings and Demystifying the Startup Accelerator Journey.
An accelerator is a fixed-term, cohort-based program, including mentorship and education components, that culminates in a public pitch event or demo-day. Accelerators typically give companies on 20-30K in return for 5-10% equity. Accelerators do this hoping that a few of the funded startups will make large exits, which will allow the accelerator to make a profit.
The accelerator model is changing in these three ways:
1. Evolving Upstream: Established accelerators, such as Y-Combinator and Rock Health, have evolved into seed funds. Originally marketed and operated as a cohort-based accelerator, Y-Combinator now operates as a seed fund investing $120k per company and up to 80 companies a year in a less regimented manner. A similar transition is happening in medical accelerators, where companies typically require more funding and take longer to get products and services to market. According to the Health Care Foundation of California, today’s more experienced accelerators in health tech are migrating upstream to become more seed fund than training program.
2. Expanding Scope of Services: Accelerators are starting to establish side funds to do follow-on funding. They are starting to add complementary services similar to incubators, such as space for companies to stay after the program, business support, and code academies.
3. Growth of Corporate Accelerators: Corporations have seen the value in being more connected to innovation and startups in their industry. From the mobile health industry (Sprint Accelerator) to the education space (Kaplan EdTech Accelerator), corporations have decided to operate their accelerators in three different ways: internally, (Wayra and Microsoft Ventures), outsourced (Barclays, Kaplan, and Disney) or partnered (Citrix and Red Hat). The Techstars accelerator has already partnered with or run accelerator programs for 9 corporations. In the panel on demystifying accelerators, the panelists predicted that we will see a rise in corporations sponsoring more accelerators and looking to do more in-house accelerators.
While the numbers on accelerators paint an unclear future for the original accelerator model, I remain optimistic about the model adapting to serve entrepreneurs and become more sustainable. I agree with Forbes contributor, Edmund Ingham, that what we’ve been seeing with accelerators “is a feature of many early stage industries, [where] we have reached a stage where consolidation and a re-imagining and re-engineering of the concept of what an accelerator is and what it can achieve is necessary.”