At Nesta, we have developed a rich work stream delving into types of startup support, including accelerators and incubators.
In a new report published in collaboration with the Department of Business, Energy and Industrial Strategy, London School of Economics, The Open University and Beauhurst, we explore the impact of incubators and accelerators on startups as well on the broader business ecosystem within which they belong.
- Most startups consider the contribution of the incubator or accelerator they attended have been significant or even vital to their success. Those who attended an incubator are slightly more likely (73 per cent) to report it as significant or vital to their success (73 per cent) than those that attended an accelerator (64 per cent).
- Startups’ participation in accelerators is positively correlated with higher survival rates, increased growth in employee numbers and higher amounts of funds raised. Incubators and accelerators are often selective, only taking on the best startups which apply; this makes it difficult to determine their additionality. To disentangle this selection bias from the real impact accelerators have, using data from one notable corporate accelerator we compare outcomes of startups that, on application, scored just above and just below the threshold for being interviewed to compete for a spot on the programme. We find that attending this accelerator is positively associated with three outcomes measures: survival, employee growth, and funds raised.
- Most types of support offered by incubators and accelerators are positively associated with at least one of the outcome measured we looked at e.g. growth, investment and innovation but there was no one type of support which could be linked with multiple outcome measures. We tested the effect of receiving different types of support on several measures related to growth, investment and innovation. Interventions we tested which showed strongest evidence of a positive impact included: access to investors, access to peers, help forming teams, direct funding, media exposure, mentorship and help measuring social impact.
- Support from incubators and accelerators appear to work directly, to improve outcomes, or indirectly, by changing startups’ behaviour. While some kinds of support, for example, access to peers and coaching/personal development, appear to have a direct impact, others affect their approach to raising finance, strategic planning, developing and recruiting staff, and partnering with external organisations, which indirectly leads to more positive outcomes.
- Accelerators have positive spillover effects on the wider business ecosystem. We analysed how the launch of an accelerator affects the amount of investment going to startups in that region that have not been accelerated. There was a significant increase in the number and value of investments by VCs to startups in the region that have not been accelerated, which could be associated with the launch of the accelerator.
What are incubators and accelerators and why are they important?
Accelerators and incubators support startups through the early and fragile stages of growth. They offer a combination of services including direct funding, training, mentorship and access to work space. The key difference between the two models, as we see it, is that accelerators typically provide these services in a limited time period through a cohort-based programme (usually three to twelve months), whereas incubators typically operate more flexibly, taking on new startups on an as-and-when basis with no time limit (the average stay is around two years).
In both cases, this support can – in theory – help firms avoid the mistakes of others, access funding quicker, grow faster and increase their chances of survival. This, in turn, has consequences for job creation, regional development, innovation and economic growth.
Why do we need to understand the impact of incubators and accelerators?
In an earlier Nesta study, we showed that the number of programmes has grown rapidly over the last few years, with a total of 205 incubators and 163 accelerators currently located in the UK. However, until now relatively little was known about their impact on the startups they support and the wider business ecosystem. These questions are important to policymakers, especially as this growth is supported largely by public funding – we estimate that between £20–30 million of public funding (UK and EU) is currently being spent on accelerators and incubators in the UK each year. Furthermore, understanding what types of support have the biggest positive impact on startups is of particular interest to accelerator managers, to help improve the cost-effectiveness of their programmes.
Previous studies that have attempted to answer these questions have been far from conclusive. Many have not focused on UK programmes, so leave unanswered questions about how findings can be transposed to the UK context. Accelerators and incubators are also highly selective, selecting only the highest quality business to take part, which makes assessing their impact a challenge - selected startups are expected to be more successful than those not accepted, regardless of the value added by the programme. It is likely that the programme’s impact will be overestimated if compared to startups that have not been accelerated. To date, only a few studies have satisfactorily controlled this ‘selection bias’.
Based on insights from our research we present a number of policy recommendations
For public funders:
- Invest in pilot programmes and further research to understand good practice, displacement effects and the longevity of the impact incubators and accelerators.
- Continue to investigate other types of intervention (for example, tax credits, direct grants and network building) alongside incubators and accelerators.
- Make data sharing obligatory for incubators and accelerators receiving public funding.
For incubators and accelerators:
- Assess your own impact or share data with researchers to do it for you and use data-driven insights to optimise your programme design.
For Local Enterprise Partnerships (LEPs):
- Understand how incubators and accelerators can be part of your local industrial strategy and connect with other LEPs in order to share experiences and best practice when working with incubators and accelerators.
Read the full report or if you have any questions, email [email protected].