Startup accelerators such as Y Combinator or Google for Startups earn their reputations through the founders they groom and the success of their firms. Unlike incubators which provide early-stage handholding, accelerators mentor startup founders to refine their ideas, increase access to funding, and scale for growth.
But while accelerators boost startup performance overall, they do not necessarily level the playing field for founders. For every successful founder such as Y Combinator alums Drew Houston of Dropbox (winter 2007 batch) and Brian Chesky of Airbnb along with his two cofounders (winter 2009 batch), there are multiple others who log modest growth.
Intrigued by that unevenness in outcomes, Wharton management professor Valentina A. Assenova and Melody H. Chang, a professor of management and organization at the University of Southern California, Los Angeles, analyzed the returns at firms whose founders went to accelerators. The study sample had 6,723 startups in 280 accelerator programs across 147 countries between 2016 and 2019.
The study’s findings were published recently by the Strategic Management Journal, in an article titled “Founders’ Pre-Entry Knowledge and the Heterogeneous Returns to Accelerator Participation.”
Assenova and Chang identified three markers of post-accelerator startup performance: revenue, employment, and equity funding. They found that a key factor that defined the outcomes was the human capital the founders had, or their “pre-entry knowledge” levels, gained through their cumulative education, industry experience, and entrepreneurial exposure. The program design of the accelerators was the second big factor.
The study’s findings underlined the fact that joining an accelerator does not guarantee success. “There’s a misconception that all you need to do is just join any of these leading programs and you’re immediately going to reap rewards from them,” said Assenova. “These programs are not a substitute for getting an engineering degree or an MBA, or having industry connections and prior work experience.”
“There’s a misconception that all you need to do is just join any of these leading programs and you’re immediately going to reap rewards from them.”— Valentina A. Assenova
Assenova’s earlier studies on accelerators focused on the benefits for participating firms and their overall impact on startup activity. “In the current study, we’re turning inwards and looking at the founding team itself and their human capital,” she said. “The fundamental question that we’re trying to answer in this study is: Who are these programs most beneficial for and what types of programs benefit whom?”
Pre-Entry Knowledge and Program Design
The study looked at outcomes for participating founders one year after they joined an accelerator. The one-year time frame makes sense because “looking at a shorter window enables us to more proximately attribute it to their participation in the programs,” Assenova said.
After one year at an accelerator, founders with extensive pre-entry knowledge and experience grew revenue at their firms, on average, by 188%, which was four times larger than the revenue growth at firms with low human capital. Founders with high human capital did even better in employment growth, with a 12-fold increase in average headcount compared to that at firms with low human capital.
The authors considered two mechanisms driving those returns: “knowledge compensation,” where accelerators fill gaps in basic knowledge and competencies, and “knowledge complementarity,” which increases knowledge absorption and deployment. A key implication of this theory is that accelerators will increase the likelihood that already promising and capable teams succeed, and will amplify performance differences among startups, the paper noted.
In equity funding, high human capital founders saw an 86% increase, while those at the other end of the spectrum did not experience substantial increases in their fundraising prospects. Accelerators have a limited role in equity funding opportunities and “they are outlier-driven,” Assenova said, “and so we are a little bit more cautious about overinterpreting those effects.”
Accelerators are thus “powerful multipliers of human capital differences among startup founders,” Assenova and Chang noted. Accelerators can “push up the ceiling” of future performance for founders and their teams who have the relevant pre-entry knowledge, without necessarily “pulling up the floor” for others.
The paper noted that founders develop their pre-entry knowledge through mainly formal education, prior work experience, and prior founding experience, citing existing research. Through those channels, they gain analytical skills in problem-solving and in evaluating opportunities to refine business models.
Prior work experience ensures familiarity with key functional areas such as finance, operations, and marketing, and enhances their interpersonal and negotiation skills. Founders with prior entrepreneurial experience know the pathways to validating unproven ideas, adapting to market feedback, and making decisions in uncertain and fast-changing environments.
“For a lot of these founders that ultimately succeed, their successful idea was not the first idea they came up with.”— Valentina A. Assenova
Significantly, the role of founding teams’ pre-entry knowledge in the returns to accelerator participation is contingent on program structure and specialization, the paper pointed out. While novice founders could extract meaningful benefits from accelerators with programs that provide “structured and generalist” learning environments, for founders with pre-entry knowledge, programs that are flexible, and provide unstructured and specialized learning opportunities deliver greater value.
Structured programs could help founding teams with limited pre-entry knowledge “to swiftly assimilate cutting-edge knowledge and tools” in areas like product development, go-to-market strategies, or organizational design, and integrate them into their ventures, the paper stated. Some programs also offer specializations in technologies such as artificial intelligence or biotechnology.
Wide-Ranging Benefits From Accelerators
Accelerators also provide intangible benefits to founders, such as helping them brainstorm and refine their business ideas, develop an ecosystem of relationships, and share experiences within their cohorts. “For a lot of these founders that ultimately succeed, their successful idea was not the first idea they came up with,” Assenova said.
The study also showed how truly exceptional founding teams distinguish themselves from the rest of the crop in accelerators. “One of the cool things is that we’re able to see the shift in the right tail of the distribution for some of those exceptional teams,” Assenova said. “That’s where we really see some of that divergence in outcomes between your average participant and the exceptional startup that becomes a Dropbox, or becomes an Airbnb, and one of those stories of hyper successful companies coming out of accelerators.”
The paper offers several takeaways for entrepreneurs, accelerator managers, and policymakers. Entrepreneurs with pre-entry knowledge should select accelerators that complement their existing knowledge base, while novice founders should focus on the program design that offers structured learning. Drawing from that, accelerators would deliver greater value if they offered multiple mentorship tracks instead of uniform program structures. Policymakers could help entrepreneurs with interventions such as pre-acceleration training.
