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1 1 (October 23, 2024)

handle is hein.crs/goverbt0001 and id is 1 raw text is: Congressional Research Service Informing the IegisI9tive debate since 1914 0 October 23, 2024 The Role of Business Incubators and Accelerators in Entrepreneurship Support Business incubators and accelerators are entrepreneurship support programs designed to help startup businesses develop and grow. Incubators and accelerators are operated by a variety of entities, including for-profit businesses, institutions of higher education, and local governments. Depending on operator and model, they may offer their services for free, or in exchange for a fee or an equity stake. The role of incubators and accelerators in supporting startups has gained attention as certain participating businesses have gone on to achieve multibillion dollar market capitalizations. Some analysts trace the founding of the first business accelerator in the United States to 2005. The number of accelerators has grown since; the U.S. International Trade Administration (ITA) estimated that by 2023 there were at least 150 accelerators in the country. Worldwide, one study found that accelerator-related investment in startups grew from less than $5 billion in 2014 to $50 billion 2018. (Similar data on incubators is not available.) The federal government operates several programs that support business incubators and accelerators. This In Focus identifies the commonly-accepted features of incubators and accelerators, reviews several studies about the impact of incubators and accelerators, summarizes select federal programs supporting incubators and accelerators, and presents possible considerations for Congress. Def n ng ncubators and Accederators There is no universal standard of what is considered a business incubator or accelerator. The federal government likewise does not offer common definitions of the terms. However, practitioners and researchers commonly point to certain qualities as being characteristic of the types of programs considered to be incubators and accelerators. Incubators are designed to support entrepreneurs in the very early stages of business development. Often at this stage, an entrepreneur may have only an idea for a business, and has not yet created a business model or developed the idea into a so-called minimum viable product. Unlike accelerators, startups often participate in an incubator for several years, and the incubator may sometimes provide physical workspace. In addition, incubators may provide additional business services such as legal consultations and networking opportunities. Incubators may sometimes provide some seed capital, although they are generally less likely to do so than accelerators. Accelerators are intended to boost the growth of startups that are further developed than those participating in business incubators. Accelerators are usually cohort-based programs (meaning a number of startups participate at the same time and on the same schedule), run for a fixed term (usually several months), provide intensive mentoring, and often culminate in a demo day, where entrepreneurs present their business to potential investors, the media, and other audiences. Unlike incubators, accelerators often provide a small stipend or seed investment in exchange for some equity in a startup-usually around 5% to 7%. How Effective Are Incubators and Accelerators? Researchers have attempted to study the various impacts of incubators and accelerators on startups. These studies frequently assess certain outcomes of startups that participate in an incubator or accelerator, including survival rates (meaning whether a startup remains in business after a certain period), amount of financing raised, and number of employees hired. Although much of the research finds high- level benefits to startups from participating in incubators and/or accelerators, some findings are mixed-perhaps due to the relative newness of the concept of incubators and accelerators. Fewer studies have focused on the effectiveness of incubator participation as compared to accelerator participation, though research done in a 2015 study found that incubators have a significant positive impact on firm job creation. In reviewing literature from other research conducted on incubators, the same study concluded that while positive, the findings on job creation and revenue growth were generally modest. Other research found that the effect of incubators on startups was nuanced, and depended on their geographic location and surrounding business environment. For example, a 2020 study noted that incubators were more likely to increase firm survival rates if they were located in either dense urban areas with significant industry specialization-where incubated firms could benefit from greater access to knowledge and resources-or in rural areas with highly diversified economies, where there may be less competition. Most research on accelerators has found that the programs have positive benefits on startups, including enhancing startups' capacity to raise capital and increasing startup survival rates. A number of studies have found that startups that participated in and graduated from accelerators were able to raise venture funding more quickly and in higher amounts than startups that did not. Research published in 2024 found that startups that went through an accelerator raised 50% to 170% more from investors than did similar

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