A study by the U.S. Small Business Administration’s Office of Advocacy is making the case that the closer a new entrepreneurial venture is to its startup accelerator, the better it is for the business and the area at large.
Written by Sheryl Winston Smith, How Accelerators Promote Regional Entrepreneurship “focuses on how accelerator programs affect regional economic outcomes” in comparison to traditional angel investors.
Startup accelerators are programs that work to promote growth for small businesses and entrepreneurs. They generally include seed investment, mentorship, and classes that culminate in a final public pitch event or demo day in front of potential industry connections.
The startup accelerator concept is highly popular in the tech hardware, artificial intelligence and biotech industries.
The study’s sample size was 736 startups, with outcomes for each tracked through the end of 2016. It used a number of models to determine the likelihood of a startup becoming acquired and meeting certain milestones. It also used data from LinkedIn, Crunchbase and CB Insights, along with research of various press reports.
Smith said she also looked at data from startups funded through “angel groups.” Those startups were then evaluated based on several economic outcomes, including “follow-on venture capital funding, startup acquisition and job growth.”
The study’s findings and what they mean for startups
After collating data on startups that participated in accelerators and those that received funding from an outside benefactor, Smith came up with several key findings:
- The distance tends to affect how much financial backing a startup will get from an accelerator. Conversely, distance has zero impact when an angel investor backs a startup.
- A startup located in the same region as its accelerator is 24 percent more likely to get additional venture capital funding than if it wasn’t local.
- Startups that are local to their accelerator programs are also 9 percent more likely to be acquired than a similar startup with backing from an angel group.
- Startups with backing from an accelerator program or angel group are both more likely to hire more employees when they’re in the same region as their benefactors. Those in local accelerator programs hire an average of 8.5 more employees. Startups with local angel group backing hire an average of 9.5 more employees.
However, the study also found that, despite the advantages for startups of working with a local accelerator, accelerators are more likely to invest in startups from further distances than angel group investments. The study found that the average distance for its accelerator sample was 738.5 miles, while angel groups generally invested in startups that were 478.3 miles away on average.
To read the full study, visit the Office of Advocacy’s website.