These days seems like everyone is opening a startup accelerator or incubator, even Coca-Cola has one! To the wider public they may all be similar, but there are surprisingly many differences in the way they operate. At Fundacity we provide selection and portfolio management tools to many accelerators and incubators, seeing first-hand their various operating models and approaches to helping startups grow.
The concept of startup accelerators is still evolving and we want to capture the most important trends by sharing some of our observations and best practices used by incubators and accelerators around the world. We have already written about the importance of finding a niche to attract the best startups and today’s post will be about launching a startup accelerator, through founder stories from a Brazilian post-accelerator (Acelera Partners), a London-based incubator (IncuBus Ventures) and an accelerator from Asia Pacific (Venturetec Accelerator). Each of them has a different profile, founder background and own view about the best way to grow the next big thing.
Let’s see how they started.
It all starts with the problem.
George and Rishi, entrepreneurs from London in their early twenties, had been involved in the London startup scene for some time as founders and organizers of startup events. What they were missing in the ecosystem was an offer designed specifically for young people, like themselves, which focused on young people who were interested in starting up and looking for guidance how to do it. However, most of the accelerators seemed to be for people with prior business experience. They also saw the lack of focus on developing young entrepreneurs who ultimately are the reason behind the success or failure of a startup. Hence, IncuBusLDN’s focus on building better entrepreneurs via a tailored personal development course as part of the incubator. The initial idea was to create a co-working space for young entrepreneurs. To save rent costs, Rishi and George came up with an idea to set it up on a red double-decker London bus, conveniently fitted with wireless Internet, meeting rooms and mobile – in case they needed to relocate. However, they quickly realized that providing just a co-work wasn’t enough to make a difference to young entrepreneurs and that’s how the idea of the ‘entrepreneur incubator’ was born. The problem turned into a mission.
Trey Zagante is on a mission too. He wants to build a bridge between corporate and startup world in Asia Pacific region. Originally from Australia, while completing his MBA, he became very interested in the rise of accelerators, the movement started by Y Combinator in the US. Later he got involved as mentor in AngelCube, a Melbourne based accelerator and part of the TechStars Global Accelerator Network, as well as in Founder Institute, while working for a large tech company operating in Asia Pacific region. During that time he noticed that a typical three-month acceleration program was not very well suited for enterprise startups that often need to deal with very long product development and sales cycles. For that very reason they may have difficulties to demonstrate enough traction to investors during Demo Day, especially that the only traction that really matters for them is revenue.
At the same time, Trey noticed that many corporations in the region were increasingly interested in connecting with startups to boost internal innovation. Not only that, but corporations were becoming more open to sourcing products and solutions from startups. You no longer had to be a big tech corporation to have another huge corporation as a client. Venturetec Accelerator was born from merging these two observations. It focuses on enterprise startups that sell to telecoms, media and finance companies. The participants spend six months in the program, do not need to attend it in person and what they get is funding and revenue focused mentorship from and introductions to the very type of people as their clients.
In Brazil, the problem identified by Franklin Luzes was still different. While working for Microsoft he noticed there was a funding gap for startups that finished acceleration programs, but were not ready yet to receive VC funding. Many quality startups were dying as a result. His investment thesis was to start what he describes as a post-accelerator, which helps startups that are already generating revenues to scale their operations and grow faster.
So, there we go: an incubator, an accelerator and a post-accelerator. Each different, but each started to solve a real problem. This resembles the advice mentors give to founders – find a problem first and then the best way to deal with it.
Get out of the building.
Each of the three profiled ventures started with an innovative business model, so the only way for the founders to validate their ideas was by following Lean Startup principles and talking to people, lots of people.
Rishi and George were already known in the London startup ecosystem, having founded startups, worked in some and organized various startup events for startup entrepreneurs. That was a good start, but not enough. Rishi: “Don’t be afraid of chance encounters. You just don’t know which one may take you in an interesting direction.” That’s exactly how the idea of an incubator developed; from the conversations they had with other young entrepreneurs and… basically anyone who would listen.
Obviously, it’s not only the number of meetings, but also their quality that counts. The best ones often start from introductions to the right people. Trey says that for Venturetec, one of the most important people during the validation stage was Felix Lam, a member of the Hong Kong Business Angel Network and the chairman for The Hong Kong ICT Startup Awards 2014, roles that make him one of the most connected people in the local startup ecosystem.
Even if you don’t have the access to all the right connections from the outset, or can’t find someone as pivotal as super-connector Felix Lam, there are ways to build your own network of contacts.
Acelera Partners wanted to focus from the beginning on attracting more mature startups to their post-acceleration program. However, the founders quickly realized that to be able to select the best ones in that stage, they would need to get to know them much earlier. They decided to participate in Startup Brasil, a government program for early-stage startups, which also turned out to be a great way to enter the ecosystem – make valuable connections, promote their brand and validate the idea. Finally, to finish building the whole supply chain for their fund, they became a shareholder in one of the top accelerators in Brazil – Aceleratech.
To validate an idea, the Lean Startup movement not only advocates taking fresh air by talking with people outside of the building, but actually recommends building something to test reactions of future users and customers. Venturetec’s MVP was the soft launch of their program, while they were still fundraising. In the meantime, Trey was also relentlessly networking with key stakeholders of the future accelerator – particularly media, finance and telco corporations – to validate his key assumption about their interest in startups and willingness to get involved in the accelerator.
It’s clear from the experiences of these accelerator entrepreneurs that there is no such thing as talking to too many people when starting up. It may even be truer for an accelerator than a startup, as the numbers of stakeholders for them is higher. A SaaS or a marketplace startup first needs to validate their idea with prospective users, whereas a new accelerator needs to talk to all stakeholders right from the beginning: funders, startups, other accelerators, government, corporations, etc.
If you want to find out how they raised funds and what they learned from their experiences, please see the second part of this post here. To make sure you don’t miss the next posts about accelerator best practices, please sign up to our blog.