Are seed accelerators status springboards for startups? Or sand traps?

Abstract

AbstractResearch SummaryRecent research finds participating in seed accelerators can improve startups' access to growth and funding, but effects are highly heterogeneous. Less understood is whether accelerator participation can also help startups obtain higher‐status early partners. On one hand, participation may improve startups' quality and signal quality to desirable partners. Yet research suggests reasons any signaling effects might be quite small or even negative, since accelerators might be perceived as a “market for lemons.” Using two complementary and proprietary datasets of U.S. startups, we find many seed accelerators are indeed springboards—associated with startups raising from higher‐status investors—but that others have very limited and some slight negative effects. We examine contingencies and mechanisms, and conclude with contributions to literatures on accelerators and organizational status.Managerial SummaryRecent research has found that some seed accelerators help startups' grow and raise funds. In this research, we examine whether accelerators also help startups gain higher‐status investors, which are desirable for the advice, signals, and networks they offer. Yet there are conflicting reasons why accelerators may help or hurt startups in obtaining higher‐status investors. Using two proprietary datasets of U.S. startups, our results suggest many accelerators like Techstars and Y Combinator have notable benefits in helping startups raise from higher‐status investors. Yet we also see substantial differences across accelerators. Interestingly, effects do not appear sensitive to regional entrepreneurial activity. We conclude with implications for entrepreneurs, accelerators, and policy makers.