Accelerators Part 1: Globalization

After writing my recent post on the Surge in Self-Funded Search, I started thinking about how accelerators and incubators in the ecosystem might evolve. This Part 1 focuses on their growth and globalization.  

I have considered accelerators as carving a compelling middle ground between traditional and self-funded search for aspirants to explore. For instance, traditional search investors seem to be reluctant to delve beyond the elite MBA programs. Thus, an accelerator could step in and look at candidates with broader career and life experience and thus build a more diverse cohort of prospective searchers. That diversity could lead to stronger portfolio gains, if properly developed and harnessed.

A significant drawback of the self-funded search model is, as the name implies, funding the two-year search process by one’s self. Two years’ worth of living expenses can be a substantial barrier for someone who otherwise would be inclined toward the self-funded model.

While an accelerator might require a searcher to raise some capital from their own networks, the accelerator does provide a more straightforward route through its network for the bulk of the funding for the two-year search process. Additionally, accelerators can offer searchers camaraderie, training, access to shared deal flow, and potentially shared infrastructure, which would not be available to a self-funded searcher. Thus, the accelerator approach might not be a perfect option for everyone, but it might be just right for some talented aspiring searchers.

For the purposes of this discussion, I use the term “accelerator” to encompass both accelerators and incubators, as these entities are not clearly delineated in the EtA context.

Typically, accelerators have an “entrepreneur-in-residence” or “operator-in-residence” framework, where aspiring searchers apply and undergo an interview process. There is wide variability in the process of being selected by an accelerator. I’ve heard from searchers that the entire process can be anywhere from 4 to 40 steps. Well, perhaps, not as high as 40. But whatever the searcher mentioned was mind-boggling to me. Some have a rolling admissions process, while others have an application period. It may take anywhere from weeks to months for an applicant to complete the selection process.

Besides the funding to cover living expenses and search costs, those accepted into accelerators (accelerants?) may also share a small equity percentage in a common pool for the accelerator’s investments. This common pool can reduce the financial risk to the individual searcher, if they happen to acquire an underperforming business. Moreover, being associated with an established entity gives a business seller some assurance that the searcher is a credible buyer who can close the deal relatively quickly.

Search Fund Accelerator pioneered the search fund focused accelerator in 2015, marking it as a relatively new approach in the ecosystem — about as tenured as the self-funded model. Indeed, the bulk of the active search fund-focused accelerators that spring to my mind were created within the past 4 or 5 years. Consequently, this approach likely has a long way to go in their evolution.

The first accelerators focused on aspiring searchers in North America, primarily the USA. As search has grown globally, accelerators have been slower to develop across the globe. But now, there a smattering of accelerators covering other locales like Japan Search Fund Accelerator, Novastone Capital Advisors (Europe/USA), Seqos (DACH-focused), SME Ventures (Australia) and True North Search (Northern Europe). 

As more searchers successfully exit their companies, I expect the number of accelerators to continue to grow in the USA and to also expand globally. Someday, we might even see an accelerator with a global mandate like the traditional search investors Ambit Partners and Newton Equity Capital.