Graduation Rates for Accelerated Startups

Relative odds of making it through funding rounds for European accelerator alumni.

I recently wrote about Accelerators as Series A Engines, and got a number of follow-up questions from that post. In particular, a number of people showed interest in whether going through an accelerator increases the odds of ‘making it’.

One possible attempt to address that question is to look at round by round graduation rates for cohorts of accelerated and non-accelerated startups separately. Yoram Wijngaarde and the team at Dealroom came to the rescue providing the data, as this is a topic they have covered in the past, comparing Europe with the US over time.

Europe only as of March 2017. Source: Dealroom.co 

What the bar chart above shows is the percentage of European seed-funded companies that progress through to subsequent rounds of funding (capped at Series D), for both cohorts of accelerated and non-accelerated startups.

A few observations worth making:

  • As a caveat, these percentages are likely to be slightly inflated compared to reality since a non-insignificant number of seed rounds do not get publicly disclosed relative to larger more late stage rounds that are more likely to be announced. However, it is still relevant to look at them on a relative basis;
  • At first glance, it’s apparent that a larger number of accelerated startups make it through to Series A and Series B compared to non-accelerated. Cumulatively, c. 40% more startups manage to raise a Series A round (37% vs 27%) and almost 2x as many go on to raise a Series B round (27% vs 14%);
  • In particular, 71% of accelerated startups that have raised a Series A, go on to raise a Series B (vs. ‘only’ 53% for non-accelerated), which is comparable to, if not higher than, the A-to-B graduation rate of the very top tier US VC portfolio companies:
  • However, post Series B the two cohorts seem to re-calibrate. It’s hard though to attribute statistical significance to the deltas in percentages given the much smaller sample sizes at those stages; the drop-off from B to C for accelerated startups looks particularly pronounced, with 67% of Series B funded companies not proceeding to raise a Series C round;
  • Overall across the two cohorts, 4–7% end up going all the way to Series D and (if you believed in the statistical significance of numbers at this stages) 58% more accelerated startups end up raising a Series D round (7.0% vs 4.4%);
  • What these numbers do not tell us though is what happens to startups that do not progress to the next funding round. In fact there are four possible outcomes for a company after each funding round and the numbers in the chart only represent one of them (the 1st):
  1. Raises a further round of funding;
  2. Does not raise / has not yet raised a further round of funding (i.e. becomes self-sufficient or has yet to go to market)
  3. Fails;
  4. Gets acquired.
  • Without actual data on each of these four possible outcomes at each funding round, one can only speculate on the causes of leakage. So one could, for example, speculate that accelerated startups get to cash-flow profitability faster than non-accelerated ones and therefore do not need to continue raising dilutive capital post Series B; or that accelerated startups become attractive M&A targets much earlier in their life than their counterparts; or quite simply that there isn’t enough data on accelerated startups post Series B because the cohort is just too young and most have not gone to market yet (thanks Jon Bradford for pointing that out!);
  • A more skeptical one could speculate that accelerated startup live off ‘demo-day hype’ and momentum up until Series B and then gravity brings them back down to earth after that, either failing or transforming into “cockroaches” (Matt H. Lerner’s favourite nomenclature for startups that keep chugging along between life and death); or that accelerated startups tend to turn into great acqu-hires, failing to generate the type of exits VCs strive for.

I am hoping to get more data on these potential outcomes, so hold tight for a follow-up post!

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