Abstract
Accelerators aim to help nascent companies reach successful outcomes by providing capital, enabling industry connections, and increasing exposure to investors. Critically, however, accelerators also provide informative signals to founders about the probability of success. Founders use this information to decide whether to continue or shut down. To better understand these issues, I provide a model of accelerator participation and performance and then test empirical predictions from the model using a novel data set of approximately 900 accelerator companies across 13 accelerators and 900 matched nonaccelerator companies. I find that, through accelerator feedback effects, accelerator companies close down earlier and more often, raise less money conditional on closing, and appear to be more efficient investments compared with non-accelerator companies. Additional analysis using a separate sample of rejected accelerator applicants further supports these findings. These results suggest that accelerators help resolve uncertainty around company quality sooner, allowing founders to make funding and exit decisions accordingly.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 530-552 |
| Number of pages | 23 |
| Journal | Management Science |
| Volume | 66 |
| Issue number | 2 |
| DOIs | |
| State | Published - 2020 |
| Externally published | Yes |
Bibliographical note
Funding Information:The author is grateful to Luís Cabral, Adam Brandenburger, John Asker, Robert Seamans, April Franco, Bill Kerr, Hong Luo, Scott Stern, as well as the department editor, associate editor, and three anonymous referees. The author also thanks seminar audiences at Columbia Business School, Duke University, Georgetown University, Georgia Institute of Technology, Harvard Business School, New York University, University of British Columbia, University of California at Berkeley, University of California at Los Angeles, University of Minnesota, University of Pennsylvania, University of Utah, as well as participants at the Roundtable for Engineering Entrepreneurship Research and Social Enterprise @ Goizueta Research Colloquium. The author is also appreciative of the entrepreneurs, accelerator partners, accelerator mentors, and investors who were interviewed, and the Crunchbase team for providing database assistance. This research was funded by the Ewing Marion Kauffman Foundation. All errors are the responsibility of the author.
Publisher Copyright:
© 2019 INFORMS.
Keywords
- Accelerators
- Entrepreneurial finance
- Feedback
- Information provision
- Start-ups
- Value of information
