New Report Shines Light on the U.S. Accelerator Industry

New Report Shines Light on the U.S. Accelerator Industry
Image credit: Shutterstock
Reader Resource

Position yourself for growth in 2017—join us live at the Entrepreneur 360 Conference in Long Beach, Calif. on Nov. 16. Secure Your Seat »

According to The 2015 Global Accelerator Report, accelerator programs are launching every year in all regions throughout the globe. However, it's found its foothold in the U.S. and Canada.

In 2005, Paul Graham launched Y Combinator (YC), setting forth an entirely new business model known as the startup accelerator. YC provided housing for young startups in exchange for a stake in equity. The principle of the idea was that their investments would later generate profit through successful startup exits, and in turn create more capital to re-invest in even more startups.

In 2015, more than $90 million was invested in the U.S. and Canada by 111 accelerators into 2,968 startups. More than one-third, or $35 million, was invested in more than 900 startups in California, particularly in Silicon Valley.

New York invested the second largest amount, totaling $8.7 million in 398 startups, followed by Texas with an investment of $6 million in 197 startups. Hawaii came in fourth place among top investments with $5.6 million funneled into 42 startups. British Columbia rounds out the top five in terms of total investments with $4.6 million invested in 206 startups.

Between 2007 and 2012, the U.S. and Canada experienced a period of substantial growth in the accelerator industry. With a brief exception in 2010 during the wake of the financial crisis, a greater number of accelerator programs launched every year. Even after the industry’s regional peak in 2012, the industry still grows by double digits every year.

Compared to global trends, the region has stayed ahead of the curve. Most other regions around the globe showed a peak growth rate in 2014 or later. In 2015, more than half of the newly launched accelerator programs were focused on specific niche markets, including health, food and neuroscience.

Related: Why the Number of Accelerators Is Accelerating

Approximately two-thirds of accelerators in U.S. are for-profit ventures. The opposite is true for Canada. Unlike for-profit accelerators, non-profit programs generally do not take equity, and they tend to focus on industries with a specific public benefit, such as health and education. Non-profit programs may also focus on providing new opportunities for minority groups, and they may be either privately or publicly funded.

Approximately nine percent of accelerator programs in the U.S. and Canada are completely publicly funded while another 27 percent are funded through public-private partnerships.

Public funding typically comes in the form of government grants and subsidies and are indicative of governments seeing innovation as a key factor for maintaining economic competition and taking action to foster it within their borders.

Private funding usually comes from high net worth individuals, angel groups and other private investors, seeking a return on investment through acquisitions, IPOs or other positive exits.

Related: Every Startup Gains From An Incubator or Accelerator

Traditionally, most accelerator programs are modeled to earn revenue through startup exits. Yet a global trend is occurring where more accelerator programs have implemented or plan to implement alternative revenue strategies, including corporate sponsorships, corporate partnerships, hosting events, charging fees for mentorship and housing and other similar strategies.

In the U.S. and Canada, 65 percent of accelerators report a long-term strategy (more than 12 months) to rely on the exit model. Yet in order to cover expenses within the short-term, 87 percent reported plans to increase their revenue through alternative models: 9 percent through mentorship fees, 17 percent through office space fees, 18 percent through event fees; 55 percent through corporate sponsorships and 32 percent through corporate partnerships.

Corporate partnerships, which include running acceleration programs in tandem or on behalf of corporations, as well as corporate sponsorship, have become a dominant new source of funding.

Roughly 40 percent of accelerators reported that they plan to use corporate sponsorships and partnerships to generate revenue for the long-term. It is likely that the relationship between accelerators and corporations will grow significantly. Globally, there is a growing number of corporations - both large and mid-sized -- that are looking at startups as a source of innovation to help improve operational efficiency.

Related: 5 Times You Should Rethink Joining an Accelerator

Accelerators in the U.S. and Canada also have unique predictions in what startup industry the next big idea will occur.

According to the report, there is a higher interest in investing in startups over the next 12 months that are focused on big data analytics (71 percent), Internet of Things (68 percent), SaaS (67 percent) and mobile apps (63 percent). The least favored startup categories were in cleantech (26 percent) and real estate (24 percent). Accelerators around the globe are focused on similar industries with Internet of Things and big data attracting prominent interest globally.

The U.S. and Canada accelerator industry stands out among the other regions examined in Gust and Fundacity’s Global Accelerator Report 2015 for early growth, global strength and more recent maturation.

As expected, the region’s investment on a global scale is greater than any other region. However, the innovation is not limited to Silicon Valley, Silicon Alley, Route 128 Corridor in Boston or North Carolina’s research triangle.

There is a substantial accelerator presence in Utah, Minnesota, Maryland and Hawaii. Similar to a global trend, the region also displays a shift from the traditional exit-focused model of the first accelerator programs to a more diversified business model.

The region also demonstrates a heavy reliance on corporate sponsorships and partnerships and a strong interest in continuing the practice well into the future. And while the rest of the world quickly catches up, the U.S. will continue to be a key player in shaping the future of the accelerator industry and its role in sparking global technological innovation.