At Startup Port we do NOT focus on tips, tricks, hype and hacks. Instead, we focus on the things that build a strong foundation for accelerated growth and mitigating operational and financial risks. That is why we worked for few months on gathering this important study on the impact of Incubators and Accelerators on the future of startups. We are not the judge or the jury, we are just laying out some data and facts and point out the reality.
Business incubators, a popular entrepreneurship policy intended to help new businesses avoid the risks of failure and generate economic growth, serve thousands of communities across the United States and the world.
In theory business incubators are supposed to help new ventures by providing subsidized office space, shared administrative services, access to capital and financing, networking opportunities, and assistance with legal, technology transfer, and export procedures.
Despite the widespread existence of business incubators, little systematic knowledge and tangible data exists detailing whether incubators help new ventures improve their business performance.
There are two questions that need to be answered:
1) Do incubated firms outperform their unincubated peers?
2) Does the economic performance of incubated firms vary according to design characteristics of incubators and attributes of the entrepreneur?
The Kauffman Foundation has performed studies on a sample of approximately 950 business incubators, 19,000 incubated businesses, and a matched control group of unincubated businesses to try to answer these two questions. Measures of new venture performance include survival, employment growth, and sales growth. Overall, this study concludes that business incubation lowers the expected lifespan of incubated businesses while increasing their employment and sales growth rates.
The research hasn’t proven that businesses are more successful if they come out of an incubator:
The Kauffman Foundation study found that despite the hype around incubators about the help they give startups, they may not be doing any better at launching successful businesses than entrepreneurs outside of incubators. (Yas Motoyama, director of research and policy at Kauffman and his research assistant, Emily Fetsch)
Incubators promise a lot of resources to startups, like office space, printers, paper, events, networking, assistance connecting startup founders to funders, help with presentations and many other services, says Fetsch. “But the average incubator actually has less than two full-time staff and 25 businesses. That’s a lot of service to provide for two people. So are they really providing all the services they say? It seems unlikely,” she says.
Although incubated businesses have slightly higher employment, growth and sales, they also have slightly lower survival rates after they graduate. Overall, say the researchers, the difference in performance between incubated and unincubated businesses is marginal. One research paper Fetsch examined found no significant difference between incubated and non-incubated businesses. She cautions that one paper isn’t enough to determine whether or not incubators work, but she’s also concerned that so many entrepreneurs, policymakers and incubator providers believe incubators are a boon for startups. “There’s no evidence of that yet,” says Fetsch.
Although the terms incubator and accelerator get thrown around a lot, the main difference between these two entities has historically been that incubators are a shared work space with many other startups and no particular ending date to their stay. It was found that in average startups were staying in incubators for up to 18 to 24 months without any traction (revenue generation or investment.) Accelerators are more programmatic, involving a cohort of startups that participate for about 3 to 9 months sessions and then graduate to be on their own.
The Data Disparity Problem is Huge:
The problem around data in startup ecosystems is far deeper. How can diligent research be undertaken, if it is not even possible to gather accurate data on how many “accelerators” or “incubators” there are? NESTA’s paper on “Startup Support Programs” by researchers from the University of Cambridge and the Rupin Academic Centre in Israel, went as far as to say that the lack of longitudinal data, “made analysis of the successes of startups over time impossible to undertake”.
As of July 23, 2017 there were 5,730 Incubators according to angel.co (the count was 3,338 a year ago!) But these clearly include a significant percentage of accelerators such as YCombinator, which is by definition an accelerator due to its fixed time batches, and only 807 Accelerators (the count was 309 a year ago!)
An almost bigger problem than a general lack of data transparency, is the fact that big winners are skewed by only a handful of very successful companies. For example Y-Combinator’s majority of projected value is carried by Airbnb, Stripe and Dropbox alone. Despite this skew, myriad copy cats around the globe believe they can emulate successes through replicating these US models (Mostly the Silicon Valley stuff) in their local ecosystem.
Unfortunately many have been proven wrong, through the significant difference in follow-on fundings for alumni from top tier programs (see chart) and in the continuous closing of programs around the world; here are a few examples from Berlin: Pro7’s Epic Companies, Lars Hinrich’s HackFWD or Holtzbrinck’s eLab.
With the lack of data, the market mirroring a “winner takes it all” investment landscape and many programs having shut down: why is the accelerator and incubator model still being copied blindly across the globe?
Incubators according to angel.co as of 07/23/2017 = 5,730
Accelerators according to angel.co as of 07/23/2017 = 807
188 programs world-wide
6778 companies accelerated
926 exits for $ 5,678,273,600
$ 27,842,807,255 funding totals
90% Of Incubators And Accelerators Will Fail
The Problems with Incubators, and How to Solve Them
Are Incubators Beneficial to Emerging Businesses?
Different startup Programs
Incubators are Bullshit:
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