You can be on Entrepreneur’s cover!

Startup Accelerators Aren't Banking on Exits Any More Accelerators are increasingly selling a range of services to generate ongoing revenue, without waiting years for startups to be sold.

By Miklos Grof

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

PeopleImages | Getty Images

Within only a decade, accelerators have become a mainstay of startup ecosystems in regions around the globe. Throughout this period, the accelerator business model has continued to evolve. Still in the Global Accelerator Report 2015, a majority of accelerators globally still indicated that they intended to follow the traditional "cash-for-equity" model, first established in 2005 by Y Combinator, which involves investing a small amount of seed money in a startup in exhange for equity. Investments typically are around $25,000 on averag in exchange for between 5 percent and 10 percent equity.

This model has now been abandoned by a majority of accelerators, as highlighted by the recently published Global Accelerator Report 2016. The report highlighted that only 32.7 percent of accelerators predict that they will generate revenue from exits in the future, a significant shift from 2015.

Related: Accelerator vs. Incubator: Which Is Right for You?

The reason for the pivot in the accelerator business model is, most likely, the small number of exits -- 178 reported in 2016 -- which has proven insufficient in funding their operations. Morevoer, exits usually do not occur earlier than three to five years into a startup's lifecycle, denying accelerators a profit on investment for several years. To make up for the expensive day-to-day upfront costs of operating their programs, accelerators have deployed new models that allow them to generate revenue.

These changes enabled the industry to keep growing year-on-year. According to new findings in the 2016 Global Accelerator report more than $206M (up 8 percent) was invested into 11,305 (up 28 percent) startups across five major regions, including the United States and Canada, Latin America, Europe, the Middle East, and Asia and Oceania. USA continues to be the leading country both in terms of startups accelerators and in dollars invested via accelerators.

Nearly all (90.4 percent) of accelerators globally relied on, and continue to explore, new models of revenue generation. These include charging for mentorship, subletting office space, hosting events and working with corporations. Revenue from corporations has seen the largest increase. More than half (52.1 percent) of accelerators are at least partially funded by a corporation, and 67.2 percent aim to generate future revenue from services sold to corporations.

Related: 4 Things Startup Leaders Need to Know About Accelerators

On the one hand, this is because corporations are discovering that accelerators are an efficient and effective way to engage with startups. On the other hand, accelerators understand that corporations can help them fund operations in the short-to-medium term (exits are often far out). They improve the prospects of their portfolio companies that can potentially sell to, raise funds from, or be acquired by these corporations.

Corporate revenue generated by accelerators came from two main sources in 2016: corporate partnerships, generally in the form of a white-labeled or jointly-run acceleration program created by the accelerator on behalf of the corporation, and corporate sponsorship packages sold by accelerators.

Related: America's Top 7 Startup Accelerators and What Makes Each Unique

It is clear that accelerators have changed their operating model globally in a significant way over the last few years. The accelerator model whilst still aligned with its predecessor's original vision of nurturing disruptive companies - is different in a number of ways. These new accelerators possess a diversified revenue model, often focus on a specific vertical and work closely with corporations. In the coming years and beyond, it will be interesting to see what new pivots the global accelerator industry will undergo in an attempt to achieve sustainability and less reliant on government grants and private funding.

Note: The Global Accelerator Reports are published yearly by Diego Izquierdo, Miklos Grof and Sebastien Brunet.

Miklos Grof

Head of Product and Business Development, Gust

Miklos has extensive experience in start-up formation, business development and venture financing. He co-founded Fundacity and was its CEO until Fundacity joined Gust. Fundacity is one of the largest online communities of startups and accelerators globally. Fundacity powers 100s of acceleration programs serving users in 156 countries with a flexible solution for application creation, management, and cohort selection processes. Miklos is an economist and completed his Masters in Finance at the London School of Economics and previously worked in corporate financial restructuring at PricewaterhouseCoopers in London. He is fluent in English, German, Hungarian, Spanish and Portuguese. Miklos is a speaker and panelist in the field of entrepreneurship and startup fundraising.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Side Hustle

This Dad Started a Side Hustle to Save for His Daughter's College Fund — Then It Earned $1 Million and Caught Apple's Attention

In 2015, Greg Kerr, now owner of Alchemy Merch, was working as musician when he noticed a lucrative opportunity.

Business News

This One Word Is a Giveaway That You Used ChatGPT to Write an Email, According to an Expert

"Delve" has increased its presence in written work since ChatGPT entered the scene.

Business News

Yes, You Can Buy a Foldable Tiny Home on Amazon — And Now It's Selling for Less Than $12,000

The waterproof and flameproof house was listed around $35,000 a few months ago.

Side Hustle

This Insurance Agent Started a Side Hustle Inspired By Nostalgia for His Home State — Now It Earns Nearly $40,000 a Month

After moving to New York City, Danny Trejo started a business to stay in touch with his roots — literally.

Starting a Business

4 Common Mistakes That Will Spell Doom Your Ecommerce Business

It's hard to spot a success story before it happens, yet it's easy to tell if a business will struggle. With that in mind, here are the four most common mistakes people make that you should avoid when starting an ecommerce business.

Business Ideas

63 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.