Are seed accelerators status springboards for startups? Or sand traps?

Abstract

Recent research finds participating in seed accelerators can improve startups' access to growth and funding, but effects are highly heterogeneous. Less understood is whether accelerator participation can also help startups obtain higher-status early partners. On one hand, participation may improve startups' quality and signal quality to desirable partners. Yet research suggests reasons any signaling effects might be quite small or even negative, since accelerators might be perceived as a "market for lemons."Using two complementary and proprietary datasets of U.S. startups, we find many seed accelerators are indeed springboards-associated with startups raising from higher-status investors-but that others have very limited and some slight negative effects. We examine contingencies and mechanisms, and conclude with contributions to literatures on accelerators and organizational status. Managerial Summary: Recent research has found that some seed accelerators help startups' grow and raise funds. In this research, we examine whether accelerators also help startups gain higher-status investors, which are desirable for the advice, signals, and networks they offer. Yet there are conflicting reasons why accelerators may help or hurt startups in obtaining higher-status investors. Using two proprietary datasets of U.S. startups, our results suggest many accelerators like Techstars and Y Combinator have notable benefits in helping startups raise from higher-status investors.

The Status of Status Research: A Review of the Types, Functions, Levels, and Audiences

“…These sacrifices are seen as justified because prestigious affiliations are perceived as vital springboards for future status advancement. Hallen, Cohen, and Park (2023) similarly underscore the need for early-stage start-ups to affiliate with accelerators to secure support from high-status investors. Such endorsements serve as a testament to the start-up’s viability, bridging the trust gap between fledgling ventures and elite investors.…”

Judging foreign startups

“…Specifically, our findings reveal that accelerators effectively screen the thousands upon thousands of startup applications they receive. When they can no longer pick winners from losers, they can then refer the startups they accelerated to venture capitalists who can use “spray and pray” approaches to learn about startup quality through sequential experimentation (Ewens et al, 2018; Hallen, Cohen, & Park, 2023; Howell, 2020). However, this linkage also suggests that foreign bias by accelerator judges may lead investors to pass over promising foreign startups since those foreign startups never even make it into the accelerator to begin with.…”

Coming from a Good Pond: The Influence of a New Venture’s Founding Ecosystem on Accelerator Performance

“…Most important, because startups can vary substantially in their underlying quality and their attractiveness to providers of growth-related resources (Stuart, Hoang, and Hybels, 1999), most quantitative accelerator studies have tried to compare nearly admitted startups to recently admitted startups, to control for perceived quality at the time of application (Gonzalez-Uribe and Leatherbee, 2018; Hallen, Cohen, and Bingham, 2020). By comparing untreated firms to firms of perceived similar quality that were treated by different accelerator designs, researchers have found that small differences in accelerators’ organizational design can create dramatic differences in the accelerators’ average level of impact on admitted firms relative to similar firms that did not gain admission (Hallen, Cohen, and Bingham, 2020; Hallen, Cohen, and Park, 2023).…”

“…Accelerator programs foster organizational processes and interaction norms among program participants that increase the flow of information and insights. The design of accelerator programs can vary substantially in terms of the structure of mentorship, the composition of program cohorts, and the degree to which participants interact, especially through shared work space; differences in design choices can substantially alter the program’s impact on startups (Cohen et al, 2019; Hallen, Cohen, and Park, 2023). The most successful accelerator programs exhibit interlocking design choices that increase openness, transparency, and reciprocal sharing of information and resource leads (Hallen, Cohen, and Bingham, 2020; Krishnan et al, 2021).…”

“…In 2015, nearly 27 percent of U.S. accelerators operated in the greater Silicon Valley area, and an additional 23 percent operated in the next five highest U.S. cities in terms of venture capital allocation intensity as measured by number of early-stage deals (Hathaway, 2016). Furthermore, half of the top-performing accelerators in recent years were in Silicon Valley (Hochberg, Cohen, and Fehder, 2017; Hallen, Cohen, and Park, 2023). If accelerators have a positive impact on startups in less-developed regions, why are accelerators so concentrated in already successful entrepreneurial ecosystems?…”