comment 1

$10 Billion

Ten years after the seed accelerator model was pioneered, Seed-DB has now identified over $10 billion that has been invested in accelerator graduates.  Over 200 seed accelerator programs around the world have funded nearly 5000 companies, and over 300 companies have already exited for a total of over $3.5billion.  The total valuation of companies that have come through accelerators reaches in the tens of billions of dollars.  If you don’t believe that accelerators are a relevant way for early-stage technology companies to get funding and started… you’re sadly mistaken.

How has this happened?

To quote Ernest Hemingway (via Chris Dixon’s great post): “Two ways. Gradually, then suddenly.”

The first accelerator, Y Combinator, only started ten years ago.  Techstars’ first class was in 2007, DreamIT Ventures in 2008, AngelPad in 2010, and 500startups in 2011.  Most of these only funded handfuls of companies to start.  Those early starts have compounded to create a juggernaut of high-quality startups getting funding.  And as mature growing companies are able to find plentiful later-stage capital in the current environment, large funding rounds are becoming commonplace.  Here’s what’s happened over time:

10yearsacceleratordata

Top accelerators are now brands themselves, and their stamp of acceptance and access to their networks is self-reinforcing.  While $10billion in total funding is an impressive milestone, companies that have gone through accelerators comprise only a small portion of the total venture funded startup scene.  There is a lot of space for their influence to grow.

Top tier programs

76% of all venture capital funding of seed accelerators go to graduates of just five accelerator programs: Y Combinator, Techstars, 500startups, Angelpad, and DreamIT Ventures.  But there are three parts to this: quality, quantity, and longevity.

An accelerator needs to be of a sufficient quality in order to help their companies become investable.  That accelerator needs to fund a relatively high number of startups in order to have a meaningful impact in aggregate.  (Either by funding more per year, or steadily accumulating a portfolio over time.)  The longer a program has been in operation the bigger their companies can grow.

This is not to say that new programs won’t break into this top tier… just that they need more time.

Funding – a Power Law in action

If you search for [venture capital] and [power law], you’ll see that venture capital is an industry known to follow a power law… and power laws encompass the phenomenons of the “long tail” and the Pareto principle (aka 80-20 rule).  This holds true for the world of seed accelerators, too.  The following is a chart of the funding that the 939 companies that have raised the most venture capital after going through an accelerator (so ~20% of all accelerated companies).

Acceleratorfunding normal

This is a pretty extreme power law; Dropbox has raised over $1billion in funding alone, but hundreds of companies have raised between $1million and $10million in funding.  (And thousands have raised seed rounds of <$1million).  Let’s see what happens when we check for a real power-law relationship by plotting both axes on log scales.

Log log acceleratorfunding

The result is a straight(-ish) line, which means venture funding of accelerator companies is a power law relationship.  (The math to prove it is fairly complicated and outside the scope of this post.)

But… do accelerators accelerate?

This is a very difficult question to answer.  Luckily there are some very smart researchers trying to quantify this.  Ben Hallen, Chris Bingham, and Susan Cohen have done some great work in trying to answer this question.  Essentially they’re trying to determine if companies that have gone through accelerators reach key milestones faster than companies that haven’t gone through accelerators.

They haven’t yet published their paper, so I’m not going to steal their thunder.  But their work should put the analytical horsepower to confirm (and disprove) various theories on accelerators.

I want to note that Yael Hochberg is another researcher in this field to watch; she and Susan Cohen lead the Seed Accelerator Rankings project.

Data Disclaimer

All data on company funding comes from Crunchbase.  Some companies don’t enter funding information in Crunchbase, and others don’t even have Crunchbase pages; in those cases the total funding would be even larger.  Additionally, I know a number of accelerators have funded companies that aren’t yet listed on Seed-DB; I continually work with programs to help make sure data is accurate but inevitably the data for many companies will be missing.

Also, I pulled the data above earlier this week in order to write this post; it’s already out of date with the funding rounds raised this week.  (Three Techstars companies announced over >$100million in funding within 48 hours this week, for example.)

Personal Disclaimer

I did my first research into accelerators in the summer of 2009, and created Seed-DB in the summer of 2012.  One year ago I started working for Techstars as a Product Manager.  This post represents my personal views, and not those of Techstars.  All data comes from Seed-DB alone.

[Check out the discussion on Hacker News]