The evolution of accelerators

The evolution of accelerators

An accelerator is something that increases speed — of vehicles, chemical reactions, or business growth. Wikipedia says “the first company known to use the word ‘accelerator’ was Y Combinator,” founded in 2005, but programs to launch and grow new ideas have been around for much longer.

From innovation labs and corporate garages to skunkworks and startup studios

In 1925, Bell Labs brought talented “thinkers and doers” together to create an “idea factory” that launched a complex national communications network. Almost a century later, innovation labs are popular across industries, from technology and telecommunications to health, retail, and finance. As long as garages have existed, people have been inventing things inside them. In 1938, a specific garage in Palo Alto, California, became the birthplace of Silicon Valley (or at least Hewlett-Packard). Apple’s origin story may be “a bit of a myth,” but has helped glorify the garage and added to corporate America’s vernacular. Lockheed Martin’s Skunk Works project challenged the systems that inhibit innovation to deliver World War II fighter jets — and bestowed new jargon on the business world. Idealab founded its startup studio in 1996 and launched dozens of companies; the incubator formula has been adopted by the tech industry and has spurred “startup factories” and “parallel entrepreneurship.”

Whether it’s called an innovation lab, corporate garage, skunkworks, or startup studio doesn’t matter; in the digital age, every organization wants to be faster and more agile. While many incubator-style models are focused on hatching and nurturing new ideas, accelerators are focused on speeding up an existing idea. Over a short period of time — usually a few months — an accelerator will provide money, mentorship, networking, and learning opportunities to a cohort of startups. (Some also provide office space and other resources.) These programs usually conclude with a demo day for participating startups to pitch their ideas to an audience of investors, press, and other members of the community.

What accelerators look like now

Today, different types of accelerators help organizations achieve different types of goals.

Equity accelerators like Y Combinator and Techstars provide seed investment in exchange for equity in participating startups. They invest small amounts of capital in a large number of early-stage startups in the hope that a few will win big. Some venture capital firms like Sequoia Capital provide accelerator-type support to differentiate their funds in an increasingly competitive space. Recently, VC firm Backstage Capital shifted its focus to a new accelerator. Some accelerators have a niche focus: URBAN-X, an equity accelerator backed by BMW-owned MINI and Urban Us, is specifically for startups producing smart cities technology. Remarkable is an Australian accelerator supporting businesses focused on disability technology; it’s a division of the nonprofit Australian Cerebral Palsy Alliance (not a VC firm) but takes equity in participating startups.

Corporate accelerators like Bayer’s Grants4Apps Accelerator are sponsored by established corporations instead of venture funds. Companies support early-stage startups with mentorship, coworking space, and/or capital to develop relationships and identify future partners. Some corporate accelerators take equity in participating startups; some view accelerators as a way to explore partnerships and acquisitions. Either way, a corporate accelerator is a big bet and a long-term commitment. Corporations can also support existing accelerators as sponsors or mentors to gain access and visibility to startups. Nestlé USA established new partnerships with startups through the TERRA Food & Agriculture Accelerator, which emphasizes pilot programs and takes no equity.

Internal accelerators like the Ignite Accelerator inside the U.S. Department of Health & Human Services help employees bring good ideas to fruition. Sony started its own internal accelerator program in 2014 to encourage employees to innovate; this year, the company announced it plans to extend the program to external entrepreneurs. SAP also combines its internal and external accelerators with SAP.iO, which supports startups using the company’s data, APIs, and technologies.

Zero-equity accelerators like MassChallenge, Fast Forward, JFFLabs, and Robin Hood’s Blue Ridge Labs often emphasize social impact. (Many are nonprofits or supported by nonprofits.) Tool Foundry, a Luminary Labs initiative, is funded by grants from the Gordon and Betty Moore Foundation and Schmidt Futures; the accelerator’s mission is to advance accessible tools for scientific discovery. Start.coop, an accelerator specifically for cooperatively-owned businesses, doesn’t take equity but requires participants to “pay it forward to future co-ops by sharing a small amount of their future revenue.”

Accelerators can also be components of larger programs like Novartis Biome, which issues open innovation challenges and incubates digital health startups. Virtual accelerators have been part of Luminary Labs’ large-scale open innovation challenges since 2011. Connections to mentors, stakeholders, and end users — in addition to learning opportunities — help innovators close the gap between concept and viability.

The right accelerator model depends on what the sponsor wants to achieve and what participating startups need.

What the future holds

Are accelerators the answer to every business problem? Definitely not. Some ideas and businesses don’t need to be accelerated. Not all accelerators are created equal, and even the best programs don’t guarantee success.

Innovation is a short and long game. Many measure short-term success by looking at growth, but in the long run, success is measured by sustainability and profitability. Accelerators — in their current form — haven’t been around long enough to prove long-term results.

Organizations that sponsor and fund accelerators would do well to define the problem to be solved and align accelerators with other initiatives. We often see companies with multiple innovation programs — a venture fund, an accelerator, open innovation challenges — but no common investment thesis. Every team should know why the organization cares about startups and what successful collaboration looks like.

To win internal support for an accelerator and make sure it’s supporting larger goals, take stock of various activities inside the organization. Is there a common investment thesis that addresses the future of your industry and your organization’s place in it?

Historically, venture firms provided startups with money. But success often depends on things money can’t buy: proximity to incumbents and experts, empathy for end users and stakeholders, and learning opportunities that help entrepreneurs put design thinking into practice. Accelerators were founded on the idea that money is good, but money with learning is better. Start small by looking at what your organization is currently funding, then find ways to attach a boot camp or educational module to it.


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Authors

Jessica Hibbard
Managing Editor, Thought Leadership

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