Are we accelerating equity investment into impact-oriented ventures?. (July 2020)

• Record Type: Journal Article
• Authors: Lall, Saurabh A.; Chen, Li-Wei; Roberts, Peter W.
• Is Part Of: World development. Volume 131(2020)
• Publication Date: 2020-07
• Subjects: Entrepreneurship -- Economic development -- Accelerators -- Equity investment -- Emerging markets -- Women entrepreneurs; Economic history -- 1990- -- Periodicals; Economic assistance -- Developing countries -- Periodicals; 330.9
• DOI: 10.1016/j.worlddev.2020.104952
• Languages: English
• ISSNs: 0305-750X

Abstract

Highlights: Impact-oriented accelerators represent a new type of entrepreneurial support program that is spreading around the world. Using data from 77 accelerators, we find accelerated ventures raise more outside equity investment than rejected ventures. This positive equity bump is not due to programs picking obviously-promising ventures during their selection processes. The positive equity bump is tied to the number of accelerated months in the follow-up year. Virtually all the equity gains flow to ventures in high-income countries, and those started by all-male founding teams. Abstract: Impact-oriented accelerators, a relatively new type of entrepreneur support program, are proliferating as practitioners, philanthropic funders, and investors work to unlock the full potential of entrepreneurship-led economic development. These accelerators aspire to support entrepreneurs, in large part by driving investment into promising ventures that work in marginalized sectors and regions around the world. Given the opportunity costs of the human, organizational, and financial resources required to run accelerators, it is important to determine whether they are having this intended impact. To assess the effect of acceleration on outside equity investment, we analyze application and follow-up data from a matched sample of 1647 entrepreneurs who applied to 77 impact-oriented accelerators. Our main finding is promising. In the first follow-up year, accelerator program participants attract significantly more outside equity than their rejected counterparts. Further analysis suggests that this positive equity bump is not due to cherry picking obviously promising ventures during selection processes. Moreover, the effect is tied to the number of accelerated months in the follow-up year. Despite these promising observations, we find that the equity investment effect does not extend to ventures working in emerging markets, or to those with women on their founding teams. Thus, the benefits of accelerators for entrepreneurship-led development are not yet reaching the places and people that have the hardest time attracting capital on their own. We conclude the paper by outlining the challenges associated with extending the positive effects of acceleration into entrepreneurial domains that are most challenging from an economic development perspective.