10 billion for your startup: Review from Seed-DB

According to statistics from Seed-DB , over 10 years since the launch of the first business accelerator model, over 10 billion dollars have been invested in startups. Over 200 acceleration programs worldwide have funded more than 5,000 companies.

By selling their shares in more than 300 companies, the accelerators collectively earned more than $ 3.5 billion for them. The total estimated value of accelerated companies has reached tens of billions of dollars. And if you think that business accelerators are not the best way to get financing for the creation and development of technology companies ... then you are deeply mistaken.
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A bit of history

The world's first accelerator, Y Combinator, was created just 10 years ago. It was followed by Techstars in 2007, DreamIT Ventures in 2008, AngelPad in 2010, and 500startups in 2011. Most of them started with financing from less than a dozen companies.

The first accelerators launched a powerful mechanism to attract investment in promising start-ups. And since, in modern conditions, mature developing companies can receive financing in abundance, rounds of financing for ever larger sums are becoming commonplace at this stage [see chart above].

At the moment, the leading accelerators themselves are brands, and the fact that the company got into the accelerator and gained access to its networks of contacts already gives it importance. Despite the fact that the total amount of funding of 10 billion is quite impressive, companies that have undergone acceleration make up only a small part of the total number of funded startups. So accelerators have something to strive for.

Acceleration Leading

76% of the total venture capital of business accelerators is invested in companies of just five acceleration programs: Ycombinator, Techstars, 500startups, Angelpad and DreamIT Ventures. The key to this success are three components: quality, quantity and viability [of start-up graduates].

To help its companies attract investment, the accelerator must provide services of good quality. Accelerator must finance a relatively large number of startups in order to have a significant impact [on the industry] as a whole. (This happens either by increasing the annual funding volumes, or by gradually forming a portfolio of the most outstanding projects). The longer the program runs, the greater is the chance for participating companies to succeed.

This does not mean that new programs have no chance to get into the ranks of the leaders ... they just need more time.

Funding is a power law in action

If you search for the terms [venture capital] and [power law], you will see that venture capital as an industry is known to obey the power law ... and power laws cover such phenomena as the "long tail" and Pareto principle also as a 20/80 principle). This also applies to business accelerators.

The diagram below presents funding data for 939 companies that attracted the largest amount of venture capital after going through the acceleration program (this is about 20% of all companies that have been accelerated).



This is the extreme manifestation of a power law. More than $ 1 billion was invested in Dropbox alone, but in hundreds of other companies they invested only $ 1 to $ 10 million. (And thousands more companies received initial investments of less than $ 1 million). Let's see what happens when we check the real power dependency by rebuilding the graph on a logarithmic scale.



As a result, we get a line close to a straight line, which shows that venture financing of companies participating in acceleration programs is nothing but a power dependence. Mathematically it is quite difficult to prove, and this is not the purpose of my post.

Disclaimer: data

All information on financing companies is taken from the online database Crunchbase. However, there is no information on the financing of some companies, while others do not have a page on Crunchbase; on this basis, the total amount of funding should be even greater.

In addition, a number of accelerators known to me financed companies that are not yet included in the Seed-DB database; I constantly work with programs to ensure the accuracy and reliability of the data, but in any case, the information on many companies will remain unaccounted for.

In addition, the data that I used when writing this article is irrelevant due to the fact that this week a new round of funding was closed. For example, three Techstars companies announced financing in excess of $ 100 million in the first 48 hours of this week.

Note: Just the other day, 10 companies from Europe raised a total of $ 310 million in funding. Most of them are projects from the UK and Germany, and their support by venture funds is evidence that in Europe even the traditionally “poor for big deals” mid-summer is an active enough time for start-ups and venture funds.