The effects of investor types on investees’ performance: Focusing on the seed accelerator

Abstract

Entrepreneurial firms in their early stages cannot finance their own capital sufficiently; hence, external investment is crucial for their survival. Angels, venture capital, and governmental support have played key roles in entrepreneurial financing. Accelerators, a new type of early-stage investor, have been rapidly growing in recent years, and have attracted strong attention. They provide financial support to entrepreneurial firms in their early stages along with mentorship, education, and networking services. However, the advantages of accelerators over existing funding avenues have yet to be proven. Therefore, this study analyzes the behavior and performance of accelerators, angels, and venture capital. We used 30,523 investment data regarding accelerators, angels, and venture capital from the CrunchBase database. By conducting multiple regression and survival analyses, we found that the performance of accelerators differs from that of venture capital, but is similar to that of angels. While accelerators’ investees perform well post funding, venture capitals’ investees perform well in terms of survivability. This study empirically verifies accelerator-related qualitative research. Additionally, we believe our results will contribute to future accelerator-related research and policy.

Keywords:

• Entrepreneurial firm
• accelerator
• angel
• venture capital
• crunchbase DB
• survival analysis

PUBLIC INTEREST STATEMENT

Nascent entrepreneurial firms often face difficulties with funding due to high level of uncertainties and information asymmetries. Angels and early stage venture capitals are traditional investors for those firms, while public grant or guarantee also play important parts in financing entrepreneurial firms.

The accelerator, a relative new type of investors, are thought to be different from angel investor or early stage venture capital because it emphasizes non-financial support such as mentorship, education, and networking, enabling companies to grow faster. The study tries to empirically test whether it is different from other type of investors. The results of this study illustrates that the accelerator is different from the venture capital but not very different from the angel investor. The study implies that the activities of accelerators may be in the process of development and may find raison d’etre in the near future.

Notes

1. CruchBase DB is a database that provides information related to startups and 100 NASDAQ companies, managed by TechCrunch; it mainly provides information regarding institutional and individual investors, investment news, and other events of the firms (http://data.crunchbase.com).

Additional information

Funding

The authors received no direct funding for this research.

Notes on contributors

Yunsoo Choi

Yunsoo Choi is a senior researcher at the Entrepreneurship Research Team of Korea Entrepreneurship Foundation (KOEF). He holds a PhD in management from Kookmin University. His main research interests are entrepreneurship and entrepreneurial ecosystems.

Dohyeon Kim

Dohyeon Kim is a professor at the College of Business Administration, Kookmin University and Dean of the Graduate School of Global Entrepreneurship in the same university. He holds a PhD in engineering from Seoul National University and another PhD in management from the University of Warwick. He has been interested in corporate entrepreneurship and entrepreneurial finance.

The two authors are members of the Global Entrepreneurship Monitor (GEM) team in Korea