Using public funds to fuel early-stage enterprise is, unsurprisingly, a contentious issue. Why should the public purse, already straining under the pressure of delivering essential public services, help to fund an e-commerce marketplace for luxury car rentals?
But companies like Carborg — a car rental startup based in Birmingham — who have benefitted from a publicly funded accelerator programme are doing far more than growing their own business, they’re also growing the local business ecosystem.
Where accelerators were once used primarily in the private sector to increase investment opportunity, increasingly they are being used as instruments for public funding bodies whose primary aim, besides promoting innovation within a particular industry, is to bolster local economic growth and regeneration.
But is this an effective use of public funding?
Over the last 18 months at innovation foundation Nesta we have been trying to understand the impact of accelerators on the startups they support but also on the wider ecosystems in which they belong.
Our research shows that attending an accelerator increases startup survival, employee growth and funds raised. This, in turn, is likely to have positive consequences for job creation, regional development, innovation and economic growth. What’s more, we found accelerators not only benefit those startups that took part in the programme, but that investment into both accelerated and non-accelerated startups increased in the surrounding region following the launch of a programme. Our estimates imply that within five years of accelerator formation in a given region an additional £48m is invested in the technology industry.
The secondary impact of accelerators on external entrepreneurial activity occurs through different mechanisms, such as social events open to non-accelerator participants like weekly happy hours or by attracting investors to the region who then also use the opportunity to visit other non-accelerated firms.
In a previous study we found that there are 163 accelerators in the UK. Although more than half of these are located in London, there is a growing trend of accelerators being established outside of the capital, in Birmingham, Bristol and Manchester in particular. However, some regions remain relatively underserved (for example the East, North and South West of England) and therefore may be missing out on the opportunities that an accelerator creates.
Innovation Birmingham’s Entrepreneurs for the Future (e4f) accelerator programme is just one example of an accelerator that has seen local economic growth and regeneration as a central part of its mission. With funding from the European Regional Development Fund (ERDF) Entrepreneurs for the Future reports that, since it was established in 2009, it has successfully aided the creation of over 200 new technology companies, contributing to over £18m raised in funding and over 400 new jobs.
Local Enterprise Partnerships (LEPs), partnerships led by the private sector between businesses and the local public sector authorities, are taking notice too. Several LEPs explicitly mention incubators and accelerators in their strategic economic plans and Worcestershire’s LEP has gone one step further by setting up their own accelerator BetaDen.
The evidence for the positive impact of accelerators on both accelerated startups and the broader ecosystem provides a convincing case for wider public support. However, questions remain about accelerators: do they generate additional growth or just displace economic activity from neighbouring areas; how cost-effective are these programmes compared to other types of intervention (e.g. tax credits, direct grants and network building); and how inclusive is the growth they generate — does everyone benefit from the investment or just those working in high-tech sectors?
Given the potential benefits we encourage local and national government to invest in pilot accelerator programmes, particularly in areas that are currently underserved or where economic growth is lagging behind other parts of the country. If anything investing public money will allow a bigger picture to emerge of how accelerators can bolster regeneration and development in these regions.
Jonathan Bone is a senior researcher at Nesta, an innovation foundation based in the UK covering new technology and startups.