This past week we got some details of Y Combinator’s largest exit to date, the $1 billion sale of video game network Twitch to Amazon. Twitch is like YouTube for watching other people play video games and has a 50 million strong daily audience. The deal gives Amazon major heft in hardcore gamer market, which is made up of highly desirable users younger than 40 years of age. The deal also revived discussions about the relative value of startup accelerator programs.
For those who are not familiar, accelerators are organized launchpads for startups. They take a significant chunk of company equity - between 2% and 5% - in exchange for a micro-seed round of $250,000 or less. In exchange the seed company gains access to a network of advisors and a structured “boot camp” instructional environment designed to spur growth. The accelerator experience generally culminates with a “demo day” when the startups all present their products and, ideally, venture capitalists take out their wallets.
Everyone knows that being a member of a Y Combinator class is a good investment for a startup. Y Combinator has backed AirBnB, DropBox and numerous other companies that have been purchased for decent sums or are highly valued. But a broader question is, what is the relative value of these accelerators? And how much do they help startups gain venture capital and ultimately exit? Some researchers have attempted to answer this question. I also wanted to take a stab at it. I looked for good sources of aggregate information on accelerator statistics and found Seed-DB, a project by TechStars Vision director Jed Christianson.
Jed aggregates data from CrunchBase, AngelList and adds some of his own estimates on exit valuations of startups that get bought. I pushed the data into Silk and added the latest information about the Twitch acquisition. Here’s what I learned.
Y Combinator does the best job of any accelerator at helping its graduates raise follow-on capital. The pie chart above shows to what degree. YC graduates have grabbed 61.3% of total funding to accelerator graduates. That’s astounding, even factoring in the outliers such as AirBnB and DropBox that have raised hundreds of millions in capital. The various TechStars accelerators were second, collectively raising about 11% of total funding. Then there is everyone else, far behind. (You can explore the data in deeper detail in this visualization here).
The average YC company raised $5.1 million. A significant number of accelerators - upwards of 50 - have not raised a single dime of follow-on capital for seed companies, This may be an anomaly or a gap in the reporting. A better number would be how many accelerators of the 220 had average amounts raised per company of over $1 million? The answer? Less than 25. So accelerators down the Long Tail seem to have a minimal impact on graduates ability to raise follow-on funds.
While there are now numerous accelerator programs in Europe, Latin America and Asia, the vast majority of successful accelerator programs remain in North America. Of the 50 most successful accelerators in terms of average funds raised per graduate, only four are not in the U.S. or Canada. This does not mean they will not ultimately be successful. Many of these accelerators have been operating for only a few years. That said, the inability of their graduates to raise capital quickly does not bode well; some solid research has shown that the likelihood of startups raising an A-Round after the Seed Round rapidly decays over time.
This research is just a starting point. I will be using Seed-DB and other sources to do more research on the topic. I hope you enjoyed it and welcome your feedback via email (email@example.com) or on Twitter.