Startup accelerators have become a critical component of the entrepreneurial ecosystem, providing funding, mentorship, and networking opportunities. However, the impact of these programs on startups' success varies widely. The study by Hallen, Cohen, and Park (2022) explores whether accelerators help startups secure high-status investors or if some programs fail to provide meaningful benefits.
The researchers analyzed two datasets of U.S. startups and found that while some accelerators act as “status springboards”, others may not significantly impact startups' ability to raise funds or gain credibility. The study sheds light on how different accelerators influence startups and whether their participation truly enhances their social standing among investors.
The study asks whether accelerators act as springboards to success or if they fail to deliver real value. This post represents a series of articles related to a research and dissertation called “Are corporate accelerators springboards for startups: a performance analysis of the Microsoft’s and Google’s accelerated startups“.
How Do Startup Accelerators Influence Investor Perception?
The research suggests that accelerators impact startups in two key ways:
- Learning Effect – Some accelerators provide mentorship, industry expertise, and investor connections that improve startup quality.
- Signaling Effect – Well-regarded accelerators signal to investors that a startup is high quality, increasing its chances of securing high-status funding.
The significance of these effects depends on the accelerator’s reputation and track record. Startups graduating from top-performing accelerators tend to attract high-status investors, while those from less reputable programs may not experience the same boost.
Context and Terminology
Who Are Policymakers?
Policymakers are individuals or groups responsible for creating, implementing, and regulating laws, policies, and programs that affect society. They include government officials, legislators, regulatory agencies, and even private sector leaders who influence policy decisions.
Example of Policymakers in Action
Imagine the government wants to boost startup growth in a small city. Policymakers, such as the local mayor and economic development council, create a startup accelerator program that provides funding, mentorship, and office space for new businesses. They also offer tax incentives to investors who fund startups. Their decisions shape the environment for entrepreneurship by providing resources that help new businesses succeed.
What is a Market for Lemons?
The term market for lemons comes from economist George Akerlof’s famous 1970 paper. It describes a situation where buyers cannot distinguish between high-quality and low-quality products (or services), leading to market failure. When buyers suspect that most products are of low quality (lemons), they become reluctant to pay a high price, which discourages sellers of high-quality products from participating.
Example of a Market for Lemons
Think of a used car market. Some cars are “lemons” (bad quality) and others are “peaches” (good quality), but buyers cannot easily tell the difference. If buyers assume that most cars might have hidden defects, they lower their willingness to pay, fearing they might get a lemon. As a result, sellers of good cars (peaches) exit the market because they are not getting a fair price. Over time, the market is dominated by low-quality cars, creating a market for lemons.
In the accelerator context, if an accelerator repeatedly graduates low-quality startups, investors may start avoiding its graduates altogether. Even if a few great startups emerge, they struggle to attract good investors because the accelerator has a market for lemons reputation.
What Is the Matthew Effect?
The Matthew Effect is a concept from sociology that describes how success tends to accumulate for those who are already successful, while those who start with fewer advantages struggle to catch up. It is often summarized as “the rich get richer, and the poor get poorer.”
In startup ecosystems, the Matthew Effect suggests that companies or founders who already have high status, resources, or connections tend to receive even more opportunities, while those without such advantages struggle to gain traction.
How Does the Matthew Effect Work in Startup Accelerators?
In the context of startup accelerators, the Matthew Effect would suggest that:
- Startups that enter high-status accelerators (like Y Combinator or Techstars) are more likely to attract investors, simply because of their association with an elite program.
- Startups that raise early funding from well-known investors tend to attract more funding in the future, as other investors follow the lead of these respected firms.
- Startups that gain media attention and brand recognition are more likely to continue receiving publicity, further increasing their chances of success.
This effect creates a cumulative advantage where startups that start strong keep growing, while those without early wins find it harder to break into the market.
Example of the Matthew Effect in Startups
| Scenario A: A Startup in a Top Accelerator | Scenario B: A Startup Without Accelerator Support |
|---|---|
| Gets accepted into Y Combinator. | Works independently, without an accelerator. |
| Receives early investment from Sequoia Capital. | Struggles to attract initial funding. |
| Gains media coverage on TechCrunch and Forbes. | Has difficulty getting press coverage. |
| More investors notice the startup and compete to invest. | Needs to actively reach out to investors. |
| Raises additional funding rounds with ease. | Faces challenges in securing growth capital. |
According to Matthew Effect, the outcome could likely end like in Scenario A, the startup benefits from the Matthew Effect (success attracts more success).On the other hand, Scenario B faces more barriers (making it harder to grow at the same pace).
Key Findings from the Study
The study analyzed two complementary datasets:
- Sample I – A focused dataset of 235 startups that were either accepted or nearly accepted into four accelerator programs.
- Sample II – A broader dataset of 3,702 startups across multiple accelerator programs to assess generalizability.
The findings reveal that:
| Finding | Implication |
|---|---|
| Many accelerators help startups attract higher-status investors | Accelerators can be springboards for gaining credibility. |
| Some accelerators have minimal or no impact | Not all accelerators provide meaningful benefits. |
| No strong evidence of a Matthew Effect | Success is not necessarily a rich-get-richer dynamic. |
| Geographic location does not determine success | Effective accelerators exist outside major startup hubs. |
These findings suggest that choosing the right accelerator matters significantly.
Theoretical Insights: Why Do Some Accelerators Work Better Than Others?
The study builds on organisational status theory and signaling theory to explain how accelerators influence startups' credibility.
Signaling Theory
Investors rely on signals to determine whether a startup is worth funding. High-status accelerators act as credibility markers, increasing investor confidence. To learn more about the Signaling Theory, click here.
Organisational Status Theory
Startups with higher-status partners are more likely to attract further investment. Accelerators can help startups break into elite investor networks, but not all programs succeed in doing so. By examining these frameworks, the researchers demonstrate that status-building effects vary significantly across accelerators.
When Do Accelerators Help? A Closer Look at Effective Programs
The research highlights several factors that determine an accelerator’s impact on startup status:
Successful Accelerators Exhibit:
- Selective Admissions Process – Only accept high-potential startups.
- Strong Investor & Mentor Networks – Connect startups with high-status individuals.
- Proven Track Record – Past graduates successfully raise significant investment.
Less Effective Accelerators:
- Low Selectivity – Accept too many startups without strong vetting.
- Weak Network – Lack connections to high-status investors.
- Minimal Post-Program Support – No long-term engagement with startups.
The study finds that 21 of the top 25 accelerators show a positive impact, though the strength of their effects varies.
The Role of Policymakers in Supporting Accelerators
Policymakers play a critical role in ensuring that accelerators provide real value to startups. The study suggests that government agencies and funding bodies should:
| Policy Action | Expected Impact |
|---|---|
| Fund high-performing accelerators | Helps startups access better mentorship and investment. |
| Enforce quality standards | Prevents ineffective programs from damaging startup credibility. |
| Support regional accelerator programs | Encourages startup growth outside major tech hubs. |
By regulating and supporting accelerators, policymakers can help optimize their impact on startup success.
Conclusion: Are Accelerators Worth It?
The study by Hallen et al. (2022) provides a detailed analysis of how startup accelerators influence a company's ability to secure investment and build credibility. While accelerators are often seen as essential stepping stones for early-stage companies, the research shows that their impact varies significantly. Some accelerators act as powerful launchpads that connect startups with high-status investors, while others provide little to no advantage. The effectiveness of an accelerator largely depends on its selectivity, the strength of its investor and mentor network, and the track record of its alumni. Programs that lack these characteristics do not necessarily improve a startup’s chances of securing top-tier funding.
One of the key insights from the study is the role of signaling. A startup that joins a well-regarded accelerator benefits from the perception that it has already been vetted and deemed high quality by industry experts. This makes investors more likely to consider it for funding. However, joining an accelerator that lacks a strong reputation does not provide the same advantage. This means that entrepreneurs must be selective about which programs they apply to, as not all accelerators carry the same weight in the investment community.
The study also challenges the assumption that the startup ecosystem operates under the Matthew Effect, where early winners continue to accumulate advantages while others struggle to catch up. The researchers found no strong evidence to suggest that simply being part of an accelerator guarantees long-term success. Instead, factors such as post-accelerator execution, market demand, and the ability to build investor relationships remain critical. Startups must actively work to leverage their accelerator experience rather than rely on it as a definitive path to growth.
Another significant finding is that geography does not determine the success of an accelerator. While many high-profile programs are based in established startup hubs, the research suggests that effective accelerators also exist outside of major tech centers. This means that entrepreneurs do not necessarily need to relocate to benefit from a strong accelerator program. Instead of focusing on location, startups should evaluate an accelerator’s reputation, industry connections, and past success in helping companies secure funding.
Overall, the study emphasizes that while startup accelerators can be valuable, their effectiveness is not guaranteed. Entrepreneurs should conduct thorough research before committing to a program, ensuring that it aligns with their long-term goals and offers meaningful advantages. Investors, too, must critically assess a startup’s accelerator background rather than assume that participation alone is a strong indicator of success. For policymakers, the research underscores the need to support high-quality programs while implementing standards to ensure that accelerators provide tangible benefits to the startups they serve. In the end, choosing the right accelerator can be a turning point for a startup, but the benefits are highly dependent on the quality of the program itself.
Key Takeaways
- Entrepreneurs should research accelerators carefully before applying.
- Investors should evaluate an accelerator’s reputation before considering startup funding.
- Policymakers should support high-quality programs that provide real benefits.
For startups, choosing the right accelerator can open doors to top-tier investors. However, participation in a low-impact program may not significantly improve funding opportunities.
References
- Hallen, B. L., Cohen, S. L., & Park, S. H. (2022). Are seed accelerators status springboards for startups? Or sand traps?Strategic Management Journal, 44(1), 1-37. https://doi.org/10.1002/smj.3484
