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Why are Some Accelerators More Effective? Bounded Rationality and Venture Development
Abstract
Using a nested multiple-case study of participating ventures, directors, and mentors of eight of the original U.S. accelerators, we explore how accelerators’ program designs influence new ventures’ ability to access, interpret, and process the external information needed to survive and grow. Through our inductive process, we illuminate the bounded-rationality challenges that may plague all ventures and entrepreneurs—not just those in accelerators—and identify the particular organizational designs that accelerators use to help address these challenges, which left unabated can result in suboptimal performance or even venture failure. Our analysis revealed three key design choices made by accelerators—(1) whether to space out or concentrate consultations with mentors and customers, (2) whether to foster privacy or transparency between peer ventures participating in the same program, and (3) whether to tailor or standardize the program for each venture—and suggests a particular set of choices is associated with improved venture development. Collectively, our findings provide evidence that bounded rationality challenges new ventures differently than it does established firms. We find that entrepreneurs appear to systematically satisfice prematurely across many decisions and thus broadly benefit from increasing the amount of external information searched, often by reigniting search for problems that they already view as solved. Our study also contributes to research on organizational sponsors by revealing practices that help or hinder new venture development and to emerging research on the lean start-up methodology by suggesting that startups benefit from engaging in deep consultative learning prior to experimentation.
... There is no consensus on a universal definition describing accelerators [2]. Based on research [1,2,4,5] and [7], the accelerator concept can be defined as a fixed-term, iterative, learning-oriented programme designed to support new business ventures in the early phases of their life cycle by providing mentoring, education, sometimes financial support, networking opportunities and getting access to potential investors and large companies to help them rapidly develop and scale up their business ideas [6,8]. The accelerator programmes run by accelerators are characterised by a fixed lifetime (usually 3 to 6 months) [1,2,4]. ...
... The accelerator programmes run by accelerators are characterised by a fixed lifetime (usually 3 to 6 months) [1,2,4]. Setting short deadlines and strict end dates for programmes creates an environment incentivizing rapid progress [1,6] as it accelerates development cycles of new ventures and forces them to quickly test and verify ideas [2,7,9]. It also enhances market efficiency and maximises programme profit by reducing the amount of support a start-up requires from an accelerator [6]. ...
... Setting short deadlines and strict end dates for programmes creates an environment incentivizing rapid progress [1,6] as it accelerates development cycles of new ventures and forces them to quickly test and verify ideas [2,7,9]. It also enhances market efficiency and maximises programme profit by reducing the amount of support a start-up requires from an accelerator [6]. Commercially available programmes are characterized by intensive educational and mentoring content. ...
One of the options for corporations to gain a competitive advantage in the marketplace is by establishing business cooperation between large companies and start-ups. Start-ups see corporations as recipients of their solutions (products, services). Meanwhile corporations are interested to a large extent in getting access to breakthrough technologies, innovations, new business models present on the market. This paper deals with the assessment of opportunities for business cooperation in the start-up-corporate model at the background of global market turbulence caused by the Covid-19 pandemic. The research focused on the perception of this cooperation from the perspective of start-ups’, which: are at different phases of development (concept phase, development phase, scaling up phase) and are characterised by different lengths of time they operate in the marketplace. This paper aims at presenting the impact of market turbulence on the relationship between start-ups and corporations, and thus to verify the research question regarding the impact of market perturbations caused by the COVID-19 pandemic on mounting corporate interest in cooperation with start-ups. The results were analysed based on a sample of 101 start-ups participating in acceleration programmes with the involvement of large companies, organised by start-up accelerators.
The findings allow to draw several conclusions: representatives of start-ups more often observe a decrease in interest and priority of cooperation between corporations and start-ups in connection with the emergence of a global pandemic. Moreover, they less often feel that corporations are looking for start-ups outside their core areas of interest, while it is start-ups that have to adapt to the changing needs of technology users.
... High-tech start-ups that decide to enter an accelerator or incubator program initially seek to obtain guidance from experts in the industry and through mentorship [2], [45]. Entrepreneurs highlighted that successful programs provide guidance and support from "mentorship and access to the market" (AC1, AC2). ...
... The aim of incubator and accelerator programs is to provide marketing and business support to enhance the capabilities of start-ups to enter the market. The selection of the most appropriate program depends on the type of industry that the start-up operates in, and on the strategic goals set for the future [2], [62]. However, it is worth noting that accelerator programs focus primarily on providing advisory services for only a limited time period, while incubators do not have a defined end date. ...
The knowledge spillover theory of entrepreneurship (KSTE) explores the effects that new knowledge and proximity have on the exploitation of entrepreneurial opportunities and the resultant creation of start-ups. This paper aims to identify the types of knowledge spillovers that affect entrepreneurs in the early stages of start-up development. A conceptual model is proposed, using a multi-case study approach involving high-tech start-ups that have attended accelerator and incubator programs in Greater London, United Kingdom. The research involved 32 semistructured interviews with chief executive officers and cofounders of start-up companies. Our findings suggest that entrepreneurs are influenced by various forms of knowledge spillover which assist in determining the strategic decision of the company, in terms of formation, including partnerships or alliances, allocation of Research and Development budgets, and engagement in product innovation. Further observations confirm that high-tech start-ups focus on a fast pace of constant product innovation to cover identified gaps in the market. One significant finding is that start-ups use various technological platforms to access knowledge spillovers which challenge the ideas of geographical proximity present in existing KSTE understanding.
... Product innovation is often initially supported by direct investment from investors, business angels or venture capitalists. Start-ups gather resources by establishing alliances and collaborations through former networks or pitching events (von Zedtwitz, 2003;Cohen et al., 2017). The development of a product focuses on innovation that enables market entry through constant interaction between a team and customers (Nieto and Quevedo, 2005;Wang and Wang, 2012). ...
Entrepreneurial ecosystems have been explored widely in entrepreneurship, management and social sciences literature. The Knowledge Spillover Theory of Entrepreneurship (KSTE) aims to uncover the effects of information on start-ups co-located in diverse locations, such as urban areas, science and technology parks, incubators, and accelerator programs. Extant research has focused on how entrepreneurs launch start-ups and develop patents over a 5–10 years timespan from a regional perspective. However, studies into the development processes of start-ups and the creation of entrepreneurial ecosystems in physical and virtual environments in high-tech start-ups, are limited. As a result, this paper aims to identify the development processes undertaken by high-tech entrepreneurs at the individual level and evaluate the absorption and implementation of knowledge in physical and virtual clusters within entrepreneurial ecosystems. A multiple case study of 32 start-ups that have attended incubator and accelerator programs in London, United Kingdom, is presented. Semi-structured interviews were conducted with Chief Executive Officers (CEOs) and Founders of start-ups to propose the Model of Knowledge Spillovers and Entrepreneurial Ecosystems. The themes identified during interviews highlight the mechanisms employed by start-ups to capture tacit and explicit knowledge spillovers. Theoretically, the findings of this study contribute to the KSTE by questioning the flexibility of entrepreneurs to access knowledge without the limitation of geographical proximity to sources of knowledge. Practically, our findings provide entrepreneurs with proven mechanisms required to capture tacit knowledge spillovers within entrepreneurial ecosystems and use virtual platforms to obtain explicit knowledge spillovers towards product innovation.
Business accelerators play a key role in the initial critical stages of assessment of commercial viability, offering mentorship provision of funding and protection of intellectual property (IP) for product development and refinement. However, little is known about the decision-making criteria and detailed analysis of the underlying criteria and interdependencies between the key factors used by accelerator organizations to fund start-ups. This article focuses on the decision-making criteria utilized by a leading £21M accelerator program, largely funded by the European Regional Development Fund for initial stage funding and IP protection for product and innovation commercialization. We incorporate a multimethodological interpretive-based approach based on Day's “Real-Win-Worth” framework to develop the interrelationships and ranking between the factors. The results highlight the significance and weighting attached to the factors associated with the technical competency of the proposer and evidence of demand existing for the product. We propose a new framework that models the key factor interrelationships offering additional insight to accelerator-based decision making.
Despite the emergence of startup accelerators as venture development organizations (VDOs) to high-growth firms, research has yet to identify where these accelerators fit into the venture development ecosystem. By clarifying and reviewing three different subsystems in the entrepreneurial ecosystem, our paper proposes that as an extension of the current incubation mechanism, accelerators contribute to the entrepreneurial ecosystem by transforming entrepreneurs and their ventures at early stages. Drawing upon the Pipeline model (Lichtenstein, G. A., and T. S. Lyons. 2006. “Managing the community's pipeline of entrepreneurs and enterprises: A new way of thinking about business assets.” Economic Development Quarterly 20 (4): 377–386.), we first plot where the accelerator model fits in the broader entrepreneurship ecosystem, and then demonstrate how different types of accelerators help participating entrepreneurs and their ventures progress along the venture development pipeline. Our theoretical approach contributes to both the entrepreneurship ecosystem and the accelerator literature and provides a practical map for both policymakers and early-stage entrepreneurs to manage and utilize their entrepreneurship ecosystem more effectively.
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