Supporting factors to build an alumni network for accelerator programs

Table of contents

Table of contents

Executive Summary

1 Introduction
1.1 Theoretical and practical relevance
1.2 Problem definition
1.3 Research design

2 Theoretical framework
2.1 Characteristics of accelerator programs
2.1.1 Business incubator framework
2.1.2 Technological focus of accelerator programs
2.1.3 Characteristics of accelerator programs
2.2 Incubated companies
2.2.1 Characteristics of start-ups
2.2.2 Deficiencies of start-ups
2.2.3 Supporting factors of accelerator programs
2.3 Alumni networks.
2.3.1 Alumni networks within accelerator programs
2.3.2 Alumni networks within university programs.
2.3.3 Supporting factors initiated by university programs
2.4 Hypotheses

3 Research methodology
3.1 Research design
3.2 Data collection strategy
3.3 Limitations

4 Qualitative research
4.1 Qualitative approach
4.2 Data analysis
4.3 Revised hypotheses

5 Quantitative research
5.1 Quantitative approach
5.2 Data analysis
5.2.1 Research population
5.2.2 Frequency analysis
5.2.3 One tailed t-test
5.2.4 Additional questions

6 Discussion.

7 Conclusion
7.1 Limitations
7.2 Directions for future research

References

Executive Summary

Accelerator programs are a new phenomenon within the entrepreneurial ecosystem, helping start-ups to develop and launch new business models. So far most accelerators focus their whole attention on the development of their program, without taking future activities into account. Only a few authors like Miller & Bound (2011) and Christiansen (2009) have researched this nascent field, illustrating the main characteristics and supporting factors during the program. So far, no relevant research has been conducted within the field of alumni networks, especially the main needs of alumni start-ups. With our thesis we want to fill this gap and research the key supporting factors of how to build an alumni network for accelerator programs.

Within our research we conducted a mixed method approach to test our hypotheses. We used qualitative interviews with 10 industry experts and a quantitative survey which was send out to 640 start-ups that graduated from different accelerator programs worldwide. Our findings conclude that alumni start-ups don´t see any value in most of our proposed supporting factors, which were derived from the literature review. Therefore, activities such as a closed online platform, regular email communication, formal events and access to free and valuable resources cannot be seen as key supporting factors for an alumni network. The only aspect that is important for start-ups is the connection to new mentors, advisors and other stakeholders. In this context we found that start-ups need additional support to meet and collaborate with new people after finishing the accelerator program. An explanation for the rejection of the existing theory can be found in the fact, that accelerators are quite a new and developing phenomenon, where little research has been conducted so far. As a reasoning, we found that start-up founders in particular show different characteristics compared to students, having more time constraints and focusing their efforts only on the most important activities.

With our research we generated new insights into the field of accelerator programs, especially elaborating the most essential supporting factors to build an alumni network. These findings serve as a starting point for future research, showing the needs of alumni start-ups and areas of improvement. Our research shows a strong focus on American and Dutch accelerator programs, which is rooted in the personal linkage of the authors within this field. Therefore we suggest testing our findings in other regional areas such as Africa, Asia and Russia in order to find similarities and differences. From a practical perspective we offer guidelines for managing directors of accelerator programs, stating which supporting factors to implement. We propose that our findings can also be transferred to other industries, such as scientific and corporate incubator programs.

1 Introduction

1.1 Theoretical and practical relevance

Start-ups are growing in importance and volume in every big city around the world, changing the way innovation is thought about and practiced. The majority of the most successful start-ups in this field didn´t develop their business model on their own but rather went through an accelerator program. The main purpose of a start-up accelerator is to help early-stage companies foster their business. Accelerators create a flourishing environment for start-ups and help them to overcome the lack of knowledge, capital and other relevant resources (Miller & Bound, 2011). These accelerators generally provide free office space, accommodation, equipment and other business related services (Bøllingtoft, 2012). According to Techcrunch (2012) over the last 10 years accelerators have raised over 1,2 billion Euro in funding for over 2.000 start-ups and created over 4.800 jobs, contributed extensively in tax revenues and helped to improve the commercial real estate market.

Most accelerator programs try to support and develop successful start-ups within a time period of 3-6 month until Demo Da’, where the start-ups present their business model in front of investors (Christiansen, 2009). Afterwards the main goal lies in the acquisition of investment capital and development of business growth. After each program all accelerators start a new application round, starting the whole procedure all over again. In this context only a few accelerators like Techstars^[1], Ycombinator^[2] and Rockstart Accelerator^[3] provide an infrastructure supporting their start-ups beyond the end of their program. The following paper focuses on the period after the accelerator program, researching the key supporting factors in building an alumni network. With the outcome of this research accelerators get insight into which supporting factors are essential in order to help their start-ups after the program.

1.2 Problem definition

Due to the nascent nature of the field only a few authors have undertaken research within the field of start-up accelerators. So far there exist only a handful definitions of accelerators, describing their main supporting infrastructure (Miller & Bound, 2011; Christiansen, 2009). In this context no research has been constructed to evaluate the needs of alumni start-ups and any supporting factors which could be provided after the accelerator program. For the purposes of this study alumni networks from university programs will serve as a starting point, offering key insights to accelerator programs. Previous research in this field (Hall, 2010; Chi et al., 2012) shows that the establishment of alumni networks in high-class universities helps to connect new and former students, making them more successful in the long-term. Already within this field different activities have been established and proven to be of key importance. Therefore, we can see a current research gap in the field of alumni networks for accelerator programs, which forms the basis of the original contribution to the literature that this thesis makes. To solve the problem our paper will explore the following research question:

“What are the key supporting factors to build an alumni network for accelerator programs?”

The paper aims to clarify the most essential supporting factors in building an alumni network within accelerator programs. From a conceptual perspective, a new theory will be constructed resulting from different perspectives. With the results of this paper we want to deepen the knowledge about start-up accelerators and create a new perspective about alumni networks. Our paper serves as a starting point for further research in this field, which can either help expand or improve our constructed theory.

From a practical perspective the results of this study can serve as a guideline to show managing directors of accelerators the most essential needs of their alumni and on which supporting factors to focus their efforts. By implementing our recommendations, accelerators can expand their value contribution and help their alumni start-ups to become more successful in the end. Furthermore, our findings can serve as a starting point for companies within similar industries.

1.3 Research design

In order to answer the research question, we first conduct a comprehensive literature review, consisting of different papers, books and different economic reports. First, a short definition and characteristics of start-up accelerator programs are explained. Second, start-ups will be specified more precisely within the technology sector, describing their main strengths and weaknesses. Third the main success factors of alumni networks within university programs will be evaluated and transferred to the field of accelerators.

As an outcome of the literature review, a series of hypotheses will be constructed, describing the main supporting factors for alumni programs. In the following sections an interview guideline will be developed in order to prove the hypotheses and determine missing information. In this context a qualitative interview is conducted with the management team and alumni start-ups of accelerator programs, in addition to other industry experts. Through the data of the interviewees the main supporting factors for alumni networks are identified, based on the previous input.

To validate the constructed hypotheses a quantitative research approach will be deployed based on the previous research outcomes. For the further progress of the thesis we send an online survey to a variety of alumni start-ups from different accelerator programs all over the world in order to prove our hypotheses. For meaningful results over 640 alumni start-ups were identified and contacted to fill in a questionnaire. Afterwards the data is analysed for the purpose of testing the hypotheses, using a t-test helps us to explain our findings. The following figure 1 summarizes the procedure and framework of our research.

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Figure 1: Research design

After the analysis, interpretations of the findings will be made referring to the current state of theory. Our paper ends with a general conclusion, showing some minor limitations as well as directions of future research both in theory and practice.

2 Theoretical framework

In the following section, an overview of accelerator programs will be provided together with their main characteristics and classification within the field of incubators. This practice is very relevant, as the word accelerator is increasing in importance and gets used for different circumstances (Bøllingtoft & Ulhøi, 2005).

2.1 Characteristics of accelerator programs

2.1.1 Business incubator framework

The framework of incubators is already an old phenomenon and different definitions have been provided by various authors (Bøllingtoft, 2012; Grimaldi & Grandi, 2005; Hansen et al., 2000; Noltes, 2010). The differentiation between these definitions is rooted in the development of various classifications that have emerged over the years (Grimaldi & Grandi, 2005). We use the definition of the European Business and Innovation Network (2010: 2), which describes the goal and function of an incubator the best: “Incubators are organizations which promote innovation and entrepreneurship. They help enterprises to innovate; they drive the creation of start-ups (support to innovation, incubation and internationalisation) and they promote economic development through job and enterprise creation and development".

Looking at the progress of incubators Bøllingtoft (2012) gives a good development route over the last decades. The first generation of incubators mainly focused on providing sole office space and shared facilities. The second generation starting in the 1990s advanced towards providing advisory services and access to a wide network including venture capital. Within the third generation starting in the late 1990s incubators were mainly supporting companies in the internet sector. At the current stage incubators continue supporting early stage companies, mainly in the internet and technology sector.

In their research Noltes et al. (2013) support the view of Bøllingtoft & Ulhøi (2005) and create a framework to differentiate various types of incubators. These differences come into existence due to different objectives, admission criteria, knowledge intensity and facilities, which make the general distinction (Centre for Strategy and Evaluation Services, 2002). In detail incubators can be divided into Business Innovation Centres, University Business Incubators, Green Business Incubators, Corporate Business Incubators and Independent Business Incubators (Noltes, 2010). Statistically Noltes (2010) found no significant evidence that different types of incubators lead to a difference in the success rate. The purpose of Independent Business Incubators lies in the reduction of overhead costs by offering a set of space, infrastructure and service facilities. University Business Incubators have the goal to contribute to local economies by fostering research in patentable inventions and trying to transfer these technologies through spin-off ventures. Corporate Business Incubators use intellectual assets and try to grow shareholder value by providing additional value. Independent Business Incubators set new ventures off the ground and take a portion of equity in return as a fee.

The last segmentation of Independent Business Incubators are initiated by individuals with the goal to help start-ups creating and growing their business. Although these kind of incubators are strongly profit driven, it doesn´t eliminate the motivation to create non-commercial benefits. Due to a lot of freedom Independent Business Incubators can develop different kinds of and more efficient incubation models. By definition accelerators belong to the category of Independent Business Incubators, which are initiated by individual persons for the goal of making a profit. Accelerators have a specific goal, which lies in capitalizing investment opportunities (Christiansen, 2009). In most cases accelerators are managed and sponsored privately. The main goal consists of increasing the initial investment besides contributing value for society. Grimaldi & Grandi (2005) elaborate in further detail that most founders of accelerators invest their own money, with the goal of helping entrepreneurs in order to create and grow their business. Accelerator programs don´t interfere with the idea and concept generation stage of the founders but only in the case when the venture has already been launched and needs specific advice or capital. The majority of all accelerator programs have a specific focus on the industry they operate in, which will be explained in the next chapter.

2.1.2 Technological focus of accelerator programs

Miller & Bound (2011) state that accelerators are mainly focused towards technologically oriented start-ups. Although accelerators have received a lot of attention from investors, little traction has been given from the research perspective. Accelerators started their existence within the United States with YCombinator as the first model, having a broad focus on internet and any kind of technology start-ups. Following this, the concept first got copied by Techstars in the year 2006 and by many other accelerators during the following years. Since then accelerators have been growing rapidly and nowadays dozens of accelerators help technologically oriented start-ups to launch their business. Starting in the United States and spreading all over the world, the majority of all accelerators have a broad focus on any scalable business model within the technology sector.

As shown by Karimaa (2012) the effectiveness and importance of accelerators has been underestimated and the created value for start-ups has got only limited attention from a political and educational perspective. Accelerators mainly gained importance in the technological sector, due to a decrease in cost and time for product development. In addition to that open-source software emerged in the markets, allowing start-ups to use other relevant services at low costs and receive fast feedback. Other software trends such as cloud computing and project management tools lower monthly expenditures and give new technology start-ups the chance to test their products before making large investments. Of equal importance is the process of targeting specific customers, which helps the start-ups to evaluate their business model more rapidly.

Nowadays accelerators tend to gain a more specialised focus, concentrating their efforts on specific industry fields such as gaming, healthcare and communication technologies. Disregarding the focus of the accelerator, most programs contain the same characteristics.

2.1.3 Characteristics of accelerator programs

Miller & Bound (2011) have undertaken intense research concerning the main characteristics of accelerator programs. Overall, accelerators show a highly competitive application process, taking only the best teams and ideas into their program. Accelerators invest the time to speak with and understand each of their potential applicants, resulting in a high involvement with the particular start-up team. Every participating start-up is provided with pre-seed investment in exchange for equity. The investment of an accelerator is variable and covers the costs essential for the start-up founders for living. In most cases accelerators provide up to 50.000 Euro during the incubation period. During the program a strong focus is laid on the advice and coaching of the small teams, consisting of maximum four founders with a technical background. In addition accelerators provide mentoring and events for a limited time period, ranging usually between three and six months. This short time period creates pressure for the start-ups and forces them to make fast progress. Accelerators always take a batch of start-ups at the same time, creating a sense of togetherness which is similar to students graduating in business schools. One of the most essential aspects of the program can be seen in the intensive mentoring elements, consisting of business, legal and product advice from experts, advisers and investors within the industry.

In addition to the mentioned factors Christiansen (2009) researched that some accelerators offer free or subsidized office space for the start-up firms during the program. Furthermore, a Demo Day can be included at the end of the program, allowing start-up firms to show their progress to investors. With this activity accelerators help founders to promote their product rapidly and create wide networks in order to become better entrepreneurs. As a prerequisite, accelerators try to attract and involve the most renowned investors for Demo Day. In this context venture capitalists and angel investors also get involved during the program, with the goal of generating a better portfolio of potential firms to invest in. The following table 1 summarises the main characteristics of accelerator program.

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Table 1: Main characteristics of accelerator programs

Thus far we can see that accelerators are a quite new phenomenon originating in the United States, taking mainly nascent and technologically oriented start-ups into their program. Within the next chapter these incubated firms will be elaborated in more detail, showing their advantages, disadvantages and overall characteristics.

2.2 Incubated companies

2.2.1 Characteristics of start-ups

Start-ups have quite different characteristics compared to large businesses, being smaller in size but also more flexible and innovative. According to the traditional view of Welsh & White (1981) small companies distinguish themselves most from large businesses due to a smaller scale. The small scale creates a unique situation, leading to quite pronounced resource poverty. Therefore, small companies suffer from a lack of personal, human and financial resources. Welsh & White (1981:1) make a proper distinction by stating that “a small business is not a little big business”. In general there does not exist a common definition about start-ups, so we will focus our attention towards small and technology driven firms. Referring to the European Innovation Monitoring System (1996), we use the following definition to describe start-ups: “A new technology based firm is a business that is in business for less than five years that aims for the development of technological innovations and is able to translate these innovations into a commercialized product”.

McCarthy et al. (1987) support our definition and argue that most start-ups employ many technical engineers and are involved with some kind of sophisticated technology. Therefore, start-ups are mainly responsible for new product introductions within the high technology sector. Regarding their characteristics most start-ups have some aspects in common. Normally they deploy a high level of R&D expenditure and a high degree of technical personal within the company, with the goal to create new products and enter new markets. In order to become successful, start-ups have to use their advantage of smallness, being more flexible and innovative than large businesses. In this context Masurel et al. (2003) argued that the innovation process is mainly created within this field. These findings support the Schumpeterian view of entrepreneurship as an essential driver for innovative behaviour. Innovation activities seem to be more critical for small than for large firms, which can be explained by an increased bureaucracy (European Commission, 2005).

Watson et al. (1988) argue that besides higher flexibility and innovativeness, start-ups are especially vulnerable in their creation and start-up face. Bøllingtoft & Ulhøi (2005) support this view and state that only a few small companies survive their first years, although they are responsible for the largest job creation segment in the economy. The European Commission (2005) researched that the survival rate of incubated companies increases significantly compared to their counterparts within this segment and 80-90% still exist after five years.

2.2.2 Deficiencies of start-ups

As we have seen before, start-ups have specific characteristics which result in different difficulties. Bøllingtoft & Ulhøi (2005) argue that start-ups often fail due to the lack if experience, managerial skills and access to capital. Especially during the first years, the life of a start-up can be tough and surrounded by many problems. According to Franco & Haase (2010), failure factors can be divided into external and internal factors. Concerning external factors the main problems can be described as limited access to financial means, which has a negative influence on the future progress. In most cases the financial expenditures during the start-up phase exceed the original calculation. Even though many start-up founders get government support with financial means, the biggest part to start a business lies in personal savings and loans from family members. Regarding internal factors, many start-ups lack co-operation and networking abilities. Often times information sharing and co-operation results in conflicts between the founders. Overall this kind of inadequate social capital leads to several problems with the development of the company.

As another disadvantage Storey (1994) found out that in the early stage phase many start-ups lack an efficient sales and marketing strategy. From a personal perspective, many founders lack persistence after strategic and environmental setbacks to which the founders don´t have the proper skills to respond. In addition Noltes et al. (2013) argue that in many cases problems can be caused by the lack of economies of scale, which is an advantage for bigger companies leading to the generation of more value per employee. This fact is supported by the latest statistics from Eurostat (2009) stating that while large companies have enough resources and even whole departments to develop new products, keep up with the technological growth trends and attract skilled employees, many start-ups struggle in this development. Start-ups have difficulties attracting resources such as financial means, employees, skills and know-how. Large companies can even afford to lobby decision-makers in the industry and fit the laws according to their own needs, while start-ups cannot devote their resources into such areas.

Taking all these factors into account, the latest statistics from the Organisation for Economic Cooperation and Development (2000) suggest that it is necessary to create a special supporting environment for start-ups, regarding their specific weaknesses. This statement gains in significance since start-ups increase more and more in importance due to the rise of new technologies and the effects of globalisation. From a supporting perspective it is essential to provide start-ups with access to networks, information infrastructures and financing. Embedded in a local system, start-ups can often be more flexible and respond faster to customer needs than large corporations. According to Karimaa (2012) one way of overcoming these problems can be seen in the model of incubation, which help start-ups to handle uncertainty and obstacles during the early stage phase. Accelerators can help start-ups through the development of their starting process and therefore improve their future success rate significantly.

2.2.3 Supporting factors of accelerator programs

Bøllingtoft & Ulhøi (2005) argue that accelerators play a critical role in the survival of start-ups and increase their chances during the first years. In this sense accelerators provide the necessary infrastructure to support the establishment and development of start-ups. Accelerators especially exploit synergies, by combining different resources to create positive effects for the incubatee. Accelerators try to help start-ups overcome the factors for market failure such as information, assistance and financing. Furthermore, they try to support the skills and abilities of entrepreneurs and complement their talent in order to expand their potential. These are normal barriers that start-ups have to overcome.

Wang et. al (2008) supports this view by mentioning that the success of an accelerator is determined by the effectiveness of the provided services, helping to promote the educational program and developing new ventures from inside. The field of infrastructure contains office services, meeting rooms, cafeteria, security and also other services including physical infrastructure. Shared facilities and a flexible office space are critical factors to reduce transactional costs for start-ups. Educational services contain training and counselling to help start-ups increase their knowledge and field of expertise. From a practical perspective most accelerators offer seminars, courses or workshops to strengthen the entrepreneurial competencies of the start-up founders.

[...]

^[1] www.techstars.com

^[2] www.ycombinator.com

^[3] www.rockstart.com/accelerator