For several years now, start-up business acceleration programs have been created all over the world, particularly in Africa. These initiatives are designed to support start-up businesses which have shown that they have a viable model and which want to grow their business. What Does the Academic Literature Say?
In this third article on acceleration programs we summarize the academic work on acceleration programs in developing countries to draw lessons for Africa. (Read previous articles here : Acceleration programs: a miracle solution for early-stage companies? (1/2) and the joint-interview of Mohamed Diaby and Ybrahim Traoré, CEO and co-director, respectively, of Citrine (2/2).
What impact on businesses?
First, acceleration programs are generally short, rarely exceeding one year.
These programs are short and very selective.
This contrasts with incubation programs or with the role of Angel investor. Second, acceleration programs are very selective. After a call for applications, only a few candidates join these programs (generally around 20). Third, acceleration programmes offer a wide range of services to the selected companies, such as training, mentoring, networking, and sometimes financing.
Acceleration programs generally have a dual purpose: Helping raise capital, and improving the performance of companies, by enhancing the entrepreneurial capital of entrepreneurs (i.e. the set of skills and resources needed to start and grow a business). The recent development of these acceleration programs raises the question of their effectiveness in achieving these two goals. Because of the recent emergence of these initiatives, there is little academic work that has evaluated their impact. We propose to synthesize this research (generally on non-African countries) to draw lessons for the African continent.
Before presenting the main conclusions, it is worthwhile to consider the major methodological challenge of these evaluations. A simple comparison of the selected companies with other companies (whether candidates or not) does not shed any light on the effect of the program. Indeed, there is a risk of a selection effect. The companies selected are the candidates with the greatest potential, particularly in terms of growth. It is therefore to be expected that these companies will perform better than the other candidates in the future (with or without the program). In order to circumvent this problem, researchers have adopted approaches that compare the selected companies with companies that might have been selected for the program if the number of places had been slightly larger, or if the jury had been less severe with them. It is expected that these firms are very similar to the firms selected before the latter entered the program. It is then possible to compare the evolution of the selected companies with these similar companies.
In general, the supported firms were able to raise more funds.
The academic literature shows generally positive results from accelerator programs for firms in developing countries.
In general, the supported firms were able to raise more funds than similar firms not included in the program. In addition, these selected companies perform better in terms of business volume (sales) or financial performance (profit).[1]
Programs with heterogeneous effects
While the overall impact of accelerator programs is positive, two important questions remain: Which are the primary beneficiaries among the selected companies? Through which channel do these positive impacts flow?
Firstly, which companies are the most relevant to include in these acceleration programs. It is clear that the effectiveness of these programs is heterogeneous. High-potential companies and companies that have difficulty raising capital are the main beneficiaries of these programs. On the other hand, supporting firms with no real growth prospects through accelerator programs has no effect, as illustrated by the evaluation of a program in Colombia (Gonzales-Uribe and Reyes, 2021). Similarly, the effect is small if the supported firms do not face a strong financial constraint (Cusolito et al., 2021). From a practical perspective, this result implies that extending these programs to a large number of firms is unlikely to have the desired effects.
Secondly, it is crucial to know how to provide the most effective program. Before going any further, the risk that these observed positive effects are not due to the program, because of a signal effect, should be removed. Joining a highly selective program sends a quality signal to potential investors and partners of the company. A company which is successful in joining the program can therefore more easily access funds or new clients thanks to this “certification”. In the presence of a pure signal effect, the only contribution of acceleration programs would be to identify the strongest companies, since the services offered (which are costly) make no contribution to the companies. Research has shown that the positive effects observed are not due to a signal effect. In order to demonstrate the absence of a signal effect, researchers compared firms that had entered a program but with different amounts of services offered. If it is only the signal effect which plays a role, then these firms should not differ in terms of performance (identical signal effect). However, it appears that the more services offered, the greater the impact of the program on both business growth and profit. Several evaluations of acceleration programs in different contexts, ranging from Chile (Gonzales-Uribe and Leatherbee, 2018) to the Balkans (Cusolito et al., 2021) show that programs have effects that grow as the number of services offered increases, contradicting the signal effect hypothesis.
Among the range of services offered (mentoring, one-on-one coaching, training, networking), some activities are probably more useful than others. In this respect, the various studies provide rich lessons for the designers of these acceleration programs.
Personalized follow-up and mentoring are the main drivers for improving the performance of companies.
It appears that personalized follow-up and mentoring are the main drivers for improving the performance of companies. These activities provide feedback on the strengths and weaknesses of the firm. Cusolito et al (2021) highlight the fact that companies that spent the most time interacting with their mentors improved their ability to attract investors the most. This effect is even stronger when the selected mentors and experts have a good knowledge of the company’s needs (i.e. they are from a similar sector and from a country near to the company). Furthermore, it is preferable to analyze a company’s weaknesses ex ante in order to choose the right expert. If the company has marketing needs, then it is better to find an expert in this field rather than a person with production management skills.
On the other hand, the empirical results are more ambiguous on the role of networking. In itself, bringing together entrepreneurs operating in similar sectors makes it possible to promote exchanges and information sharing, but on one condition: these firms must not be direct competitors. If companies are competitors, networking has no effect. The main challenge is to find the right balance between bringing together companies that are close in terms of market but non-competing to maximize the positive effects of networking. This can be done by exploiting firms operating in neighboring markets (in terms of geography or goods and services offered).
Finally, the provision of training (such as courses) has little or no effect on firms. Gonzales-Uribe and Leatherbee (2018) show that firms that only received training courses do not perform better than firms not included in the program. This result is in line with a rich literature that has studied the role of training programs (in management and finance) for small- and medium-sized firms in developing countries. This research highlights the lack of significant effects of these programs on profit or sales for one simple reason: entrepreneurs rarely implement the tools taught and the lessons are quickly forgotten. This is an average effect, which does not mean that companies cannot benefit from learning about certain aspects. Some studies show that very specific lessons can be positive for companies if this training fills gaps, and companies implement the learning. It is therefore relevant to develop approaches that:
- identify the real needs of entrepreneurs
- ensure that the training modules taught are applicable in the daily activity of the company
In conclusion, the initial results of acceleration programs are encouraging, although they must be taken with caution. Extending these findings to an African setting must be done with caution because the research has mostly been done in emerging markets outside Africa (Colombia, Chile, Balkans). Only one international study has included African countries longside companies from other continents (Lall et al., 2020), but it does not show a positive effect of the programs on firms in developing countries[2]. Finally, these conclusions are based on a very limited number of studies. There are still many unknowns that need to be addressed in future work, particularly in the African context.
[1] However, an international study of 1,647 companies from 77 programs qualifies this finding (Lall et al., 2020). In this study, accelerator programs seem to promote fundraising only for companies from developed countries. However, this work is based on an international comparison that does not take into account the specificity of each initiative and therefore suffers from methodological bias.
[2] It should be noted that African firms are not analyzed separately in this research and there are few African firms compared to those from other continents.