Accelerators Part 2: Success Rates

This Part 2 focuses on the success rates for accelerators. Click here for Part 1 on globalization.

Stanford releases data on traditional search fund investment performance. Since 1984, 66% of searches have resulted in an acquisition, and of those, 73% resulted in gains. The aggregate pre-tax returns are 35.3% internal rate of return (IRR) and 5.2x return on investment (ROI). Search Investment Group’s early research on self-funded searchers suggests that those acquirers are achieving a median IRR of between 25.0% and 29.9%.

Do you know the success rate of accelerators? I have not seen any aggregate data for them. However, there are reasons to believe that accelerators should be at least as successful as a self-funded search and, potentially, even more successful than traditional search.

The collaborative nature of accelerators, combined with the principle that “more heads are better than one,” suggests that accelerators have the potential to achieve high acquisition rates and internal rates of return (IRRs). Searchers within the same entity are likely to feel more comfortable sharing their wisdom with their own team members, which can make everyone smarter about search and operations. Furthermore, accelerators with a shared pool or fund are structured to incentivize collaboration because what benefits one searcher ultimately benefits the entire cohort. For example, Search Fund Accelerator suggests that the traditional search success rate is overstated and that their approach is superior in terms of training and support for the searcher.

The training provided to searchers during the ramp-up process varies across accelerators. Some offer a comprehensive knowledge base accessible to all participants, while others provide bootcamps of varying durations. Some searchers have expressed that their accelerators did not deliver as much knowledge as marketed or that they could have acquired that knowledge on their own. These searchers feel that they gave up a valuable portion of equity in exchange for knowledge they could have obtained independently — if only they had “just had the confidence at the time.”

However, it is possible that these searchers are underestimating the value of gaining knowledge and confidence quickly and efficiently. I created my pre-search program Nuts & Bolts (now called TakeOff EtA Launch Hub) after watching so many novice searchers struggle with the same questions in consistently inefficient and ineffective ways. Over the years, I have heard self-funded searcher after self-funded searcher discuss how they spent three or more months on a deal sourcing strategy only to wish that they had been doing something else.

Accelerator participants may also be smoothing over the initial struggles they faced when ramping up their learning. It is common for tasks to appear easy once a person has acquired the necessary knowledge. For instance, if I still didn’t have a sensory memory of sweating my way through my b-school modeling class, I might now underestimate the value of the Excel skills I learned from Professor Moore.

With the emergence of Acquisition Lab, SMBash, the Self-Funded Searcher Conference, and my pre-search TakeOff courses, prospective searchers have greater resources than ever. The availability of these resources coupled with the appeal of higher ownership shares and increased autonomy could make self-funded search more alluring to candidates who otherwise would have chosen the accelerator route. This may be especially so for candidates of color who are seeking to reduce the risk of institutional bias. In response, I believe we are likely to see accelerators becoming more transparent about their training levels and success rates.

In summary, here are potential ways in which accelerators might evolve:

  1.  Deeper Training: Accelerators may enhance their programs to provide more comprehensive and specialized knowledge to searchers.
  2. Expansion of Recruitment: Accelerators may broaden their efforts to attract a more diverse pool of searchers and foster an inclusive and diverse search community.
  3. Performance Data: As accelerators mature and compete for candidates, we may see the availability of aggregate data on their performance.
  4. Global Expansion: As the search fund model gains traction globally, accelerators may expand their reach beyond North America and perhaps even become global in scope.