The first article in this five-part series defines corporate accelerators in context of other startup engagement programs. We also provide a brief history of the rise and growth of corporate accelerators.
The current trend in corporate innovation is startup engagement. As such, terminology has become confusing. Accelerators are described as incubators, and the institution that inspired this phenomenon (Y Combinator) calls itself a “new model for funding early stage startups.”
Recently, researchers have tried to mitigate this confusion by clearly defining different startup support models. Two of the researchers on the forefront of accelerator research, Susan G. Cohen and Yael V. Hochberg, define a seed accelerator as follows:
“A fixed-term, cohort-based program, including mentorship and educational components, that culminates in a public pitch event or demo-day.” — Susan Cohen, Yael Hochberg, 2014
Accelerators, then, are typically of limited duration – a period of immersive education. They help startups define and build products by identifying promising customer segments and by securing resources such as seed capital, employees, and work space.
A huge consideration for innovators and entrepreneurs is that accelerators open doors and networking opportunities. Program participants gain access to peers and mentors who include successful entrepreneurs, program graduates, venture capitalists, angel investors, and corporate executives.
Distinguishing the Corporate Accelerator
The corporate accelerator closely mirrors independent seed accelerators but there are important distinctions: the objectives of corporate accelerator programs are driven by corporate objectives and these programs are largely owned and run by organizations not traditionally in the business of working with startups.
There are also other differences between corporate and seed accelerator programs, processes, and outcomes.
As illustrated above, different tools are used to achieve specific goals. Accelerators are exploratory. The best results are seen after both networks and visibility have a chance to grow. If you need faster results, consider other innovation tools like M&A. If you need help choosing and implementing the right innovation tool for your company, Contact West.
A Short History of Modern Startup Accelerators
“Y Combinator is just accelerating a process that would have happened anyway.”
— Paul Graham, 2005
The accelerator concept didn’t emerge in a vacuum; rather, it is a concept that grew out of a need for an improved process behind VC investments.
In March of 2005, Paul Graham and Jessica Livingston came to the conclusion that current trends in VC investment were lacking. They suggested that VCs should make frequent, smaller investments, as opposed to fewer, larger investments. With the help of Robert Morris and Trevor Blackwell, the team, under the name “Y Combinator,” started the Summer Founder’s Program to test out this theory.
The Summer Founder’s Program pulled from a mix of traditional seed funding and business-incubator traits. The program gave bright college students a chance to create something amazing with their friends, while at the same time, allowed Y Combinator to uncover an important new strategy for venture capitalists: making multiple, small, and synchronous investments across a cohort of startups. That first Summer Founder’s Program provided a spark that disrupted the investment world. It essentially created a system that gave venture capital the ability to scale.
Y Combinator created a system that:
- Targeted a large number of startups, thereby distributing risk and increasing chances of breakout success;
- Accelerated exits either through acquisition or cohort dropout; and
- Improved over time as graduated cohorts came on as both mentors and investors in the system.
This new system did not go unnoticed. The early success of Y Combinator inspired other investors and, within several years, similar programs started to emerge. Early efforts included the following:
- 2005: Y Combinator first cohort
- 2007: Techstars first cohort
- 2007: SeedCamp first cohort
- 2008: Dreamit ventures first cohort
- 2008: AlphaLab first cohort
- 2009: Founder Institute first Cohort
Figure 3: Total US accelerators by year
The Rise of Corporate Accelerators
Five years after the emergence of Y Combinator, corporations began to experiment with the accelerator model. Among the first corporate accelerators: Citrix (USA), ImmobilienScout (Germany), Microsoft (USA), and Telefónica (Spain).
This phenomenon emerged at a time when firms were holding on to record amounts of cash and were looking for low-risk growth opportunities in wake of the Great Recession. Corporate accelerators allow companies to investigate startups that are aligned with their strategy while leveraging their current workforce and providing minimal amounts of capital. These factors, combined with the increasing interest in innovation among CEOs, created a fertile ground in which corporate accelerators thrived.
Advantages to Using Corporate Accelerators
Corporate accelerators exist at the sweet spot between a number of variables: risk level, capital investment, access to the external ecosystem, and engagement level. This positioning offers a wide variety of incentives for corporations.
- Access to talent: Startups can provide a source of high-quality talent for the hosting corporation. Through an accelerator program, a corporation is able to observe startup teams and upon completion of the cycle potentially bring team members on board, either through an acquisition or by targeting specific team members.
- Proximity to emerging technology and trends: Startups occur naturally at the cutting edge of technology. By immersing themselves in the startup ecosystem, corporations gain insights into new technologies and business models (among other things) that can be applied to other business segments.
- Open-source R&D: Corporate accelerators provide a venue for multiple industry-specific experiments. Corporations can observe how new ideas succeed or fail without having to deal with the costs or logistical hurdles associated with traditional R&D.
- Financial returns: If the corporation chooses to take equity stake in participating startups, the corporation may experience financial gains if the startup grows rapidly or is acquired. (Deloitte)
- Innovative culture: When a corporation is engaged with the startup ecosystem, the entrepreneurial mindset rubs off on the company’s culture. Internal employees have the opportunity to become mentors, attend seminars, and interact with the startups. These new ideas help spur innovation throughout the company.
- New partnerships: The creation of a corporate accelerator sends a signal that a corporation is committed to engaging the external innovation system. Other corporations within the industry often seek guidance or partnerships with corporate acceleration leaders. (Forbes – Microsoft)
Corporate Accelerator Models
Not all corporate accelerators are the same. According to Yael Hochberg in “Innovation Policy and The Economy,” there are five main variations of the corporate accelerator.
- Corporate Involvement in Existing Accelerators: Corporations and their executives can join existing accelerators as mentors or investors.
- Outsourcing Accelerator Creation: A corporation can contract with an independent group to run the accelerator on its behalf.
- Joint Accelerator Partnerships: Corporations can partner with other corporations to create joint accelerators (usually focused around an industry).
- In-House Accelerator with an External Focus: Corporations can create their own internally powered accelerator with outside applicants.
- In-House Accelerator with an Internal Focus: Corporations can create a completely internal program that accelerates internal teams.
Each of these models can succeed in an appropriate environment, but the selection of one model over another is dependent on the company’s needs and available resources. For instance, an in-house accelerator will be expensive than a joint accelerator partnership. We investigate this issue deeper in the final section of this guide on accelerator management.
Figure 5: Model considerations by dimension
While corporate accelerators may seem like all the rage these days, they’re not always appropriate for every company – and they’re not the only option. Accelerators are just one part of the innovator’s toolbox for interacting with the startup ecosystem. Explore other possible innovation tools here.
West can help you build corporate accelerators. We’ve done the research and have experience building these tools at fast-growing companies.
Up next in corporate accelerators, Accelerator Design – Duration, Location, Focus, and Learning
West Stringfellow spent over 20 years launching products and leading innovation at corporate giants and startups, holding management roles at Target, PayPal, VISA, Rosetta Stone, GraysOnline and Amazon.
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