Is innovation really in a place?

Research Abstract

I believe in the power of innovation to unlock deeply rooted issues and to push us all close to our ideals — mine being a positive-impact economy enhancing sustainability in the most populated parts of the world: cities.

I recently came across this paper, which supports the idea that places are key to make things happen. And that people and solutions need properly-designed physical spaces to gather, meet and innovate.

In their working paper “Is Innovation Really in a Place? Accelerator Program Impacts on Firm Performance” @MIT researchers Sheharyar Bokhari, Andrea Chegut, Dennis Frenchman and Isabel Tausendschoen explore if and how innovation needs to be hosted in a physical place to happen.

Download their full paper here.

The team investigates the impact of accelerator programs, seen as nascent urban entrepreneurial amenities, on start-ups’ fundraising capacity and equity performance.

Research Assumptions

Accelerators

are firm development programs that utilize physical space, mentorship, capital, and community engagement to accelerate the financial feasibility of start-up firms.

Data

The team studied a “sample of US accelerator treated and matched control firm’s over the 2005 to 2015 period yields a study of 16,720 firms”.

They paired “two unique US data sets”.

  1. First the MIT Real Estate Innovation Labs accelerator database, “which includes details on equity provisions, capital investments and detailed programming by the accelerators for firms”.
  2. Second, the CB Insights private company funding data “to follow private equity firm performance over the 2005 to 2015 period”, and more specifically “those firms over time that have had an accelerator experience and those that have not and control for firm funding, investor experience and investment stage characteristics as well as deal event timing conditions and the urban area context”.

Their data analysis “enables us to understand the timing of the accelerator experience as well as characteristics of the accelerators themselves in providing amenities to these start-up firms.”

Results

The team finds three conclusive results. The first two are fairly intuitive :

Accelerated firms raise more funding.

“There is statistically significantly more cumulative funding for accelerated firms, when taking into consideration the endogenous choice and selection of start-up firms into programs and series stage in cumulative funding.”

Pre-funding when coming into an accelerator leads to higher cumulative funding.

“We assess variation across accelerator participation timing and find that firms with pre-funding when coming into an accelerator leads to higher cumulative funding.”

The last proves the importance of places, and within places, the value of place-making through shared spaces and amenities that allow for productive encounters.

The more shared space and amenities in an accelerator, the more funding for accelerated startups.

“We document accelerator amenities like free physical space, program length, program cohort size, investor equity stake and scale of capital injection impacts cumulative funding. This study supports evidence of correlation between start-up firm performance, as measured by increased cumulative funding, and accelerator program amenities.”

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