Silicon Valley may have more accelerators, incubators and venture capital than any other region in the United States, but that doesn't mean that cities elsewhere aren't trying to compete. Over the past decade, tech communities across the country have attracted their own innovation districts, investment-tied co-working spaces and mentorship programs. Now, new research shows that metro areas with the most accelerators have begun to see benefits, especially when it comes to funding for participating startups.
In a study that looked at more than 5,000 startups receiving funding from 172 accelerators over 10 years, individual companies raised an average of $3.7 million, according to Ian Hathaway, a nonresident senior fellow at the Brookings Institution.
"During the periods of completing- or recently-completing accelerator programs, the median and average valuation of these companies was $5.5 million and $7.1 million, respectively," Hathaway wrote in a Brookings report. "However, those that went on to raise additional venture capital had a median valuation of $15.6 million and an average of $90 million. In 2015 alone these numbers were $30 million and $196 million, respectively."
Airbnb, Dropbox and Stripe are among the the tech companies that evolved during that wave of investment, which helped lift numerous startups into billion-dollar unicorn valuations in recent years. And though it may be difficult to establish whether or not those companies would have gone on to achieve their valuations without the aid of accelerators such as Y Combinator and TechStars, those organizations absolutely provided the frameworks for early support and funding that helped these companies to get established early on.
And that seems to be the most important finding in Hathaway's work. Various accelerator and incubator models are opening opportunities and facilitating community connections among entrepreneurs and investors that bring capital into metro areas other than San Francisco and San Jose. And the proliferation that Hathaway tracked has been substantial:
Growth in U.S.-based accelerators—as it did for startups, early-stage capital, and venture investment more broadly—really took off after 2008. They grew from 16 programs that year to 27 in 2009 and to 49 in 2010, before eventually reaching 170 programs in 2014 and holding mostly steady. All told, the number of American accelerators increased an average of 50 percent each year between 2008 and 2014.
Of course, accelerators are by no means a panacea for turning metro areas into tech hubs. Cities and tech communities need a long list of ingredients to cultivate mature tech sectors, and factors including university programs, local government policies and even airports can play vital roles. But accelerators, as Hathaway defines them, can contribute in ways that other institutions do not.
"Done well, these programs can be effective at helping some of our most high-potential companies reach goals more quickly and assuredly," Hathaway wrote. "Perhaps more importantly, they have been shown to attract more investors and focus energy on the nascent startup communities that have been spreading throughout the United States, which will no doubt be critical for boosting high-impact entrepreneurship and hard-to-come-by growth in the future."
What's clear is that mentoring, networking and funding can positively impact young startups in powerful ways, and accelerators provide spaces in which all of these things converge. As they do, they can benefit communities and cities as a whole. After all, the funding that Hathaway observed can mean more jobs, competitive early edges against competition and spending on services provided by other local companies, all of which can be great for local economies.
Each city, investor and founder will offer their own contributions to those relationships, but accelerators have certainly proved themselves as platforms where startups can find critical early support.
