Here’s an unexpected reason to support regulatory and policy changes that make it easier to jump-start ventures: They may actually make it harder for those businesses to get accepted into startup accelerators. That’s a good thing, says Wharton assistant management professor Valentina Assenova, because such policies spur applications to these groups, making their selection processes more competitive and, in turn, increasing the quality of chosen ventures. Assenova digs into the details of this phenomenon in her paper “Institutional Change and Early-Stage Start-Up Selection: Evidence From Applicants to Venture Accelerators.”
The Question
How do institutional reforms affect early-stage startup selection, particularly into venture accelerators?
The Process and Methodology
Assenova looked at startup regulations related to aspects such as:
- Minimum paid-in capital requirements
- Bankruptcy, litigation, and liquidation procedures to reorganize a company upon failure
- The number of processes and government policies needed to start a new company
The professor analyzed data from 13,770 applicants to venture accelerators across 170 countries.
The Outcome
In countries that implemented regulatory reforms, the average number of firms that tapped venture accelerators increased roughly 17 times. Entrepreneurs “saw a lot more value in partnering with these organizations for networking, for developing new knowledge, and for obtaining additional capital from other sources,” says Assenova.
That increased interest drove up competition: In countries that implemented more than one reform, applicants’ probability of being selected by an accelerator decreased by about 10 percent.
The Takeaway
“The more competitive the selection,” says Assenova, “the higher the quality of the cohorts that accelerators are ultimately cherry-picking to fund and develop.”
Published as “Why Lowering Barriers to Business Creation Could Improve Startup Quality” in the Spring/Summer 2021 issue of Wharton Magazine.
