Launching a startup accelerator – fundraising and lessons learned

These days seems like everyone is opening a startup accelerator or incubator, even Disney 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, seeing first-hand their various operating models and approaches to helping startups grow.

We are really excited about the evolution of accelerator business models and their modus operandi and share our observations on this blog. Our last post was about launching a startup accelerator, where founders from Brazil, Australia and United Kingdom explained how they decided to start up and how they validated the initial idea. Today we continue their stories, explaining how they raised funds and what lessons they learned from their journey.

Raising initial funds

Accelerators don’t scale.

Rishi and George, the founders of IncuBus Ventures, heard that a lot when pitching their idea to various angel investors. Most of them were not interested in making a large investment, preferring instead to deploy capital into businesses that can scale and provide larger returns, faster. It was very disappointing, but there were still other funding options to consider. Government grants were quickly ruled out, as IncuBus Ventures did not fit the strict requirements of any of the current programs. The next option the founders explored was online crowdfunding, as people investing via such platforms don’t focus that much on financial returns, often simply being interested in backing a project they believe in. That seemed well aligned with IncuBus focus on helping young entrepreneurs start up. They ran the first campaign via IndieGoGo, but it turned out that reward-based crowdfunding was not a good fit for a startup incubator.

What did however work was equity crowdfunding, for which they used a platform called Seedrs. That campaign attracted some of the angel investors who were approached at the beginning, as well as a number of professionals working in the City, London’s financial district. IncuBus Ventures takes a small equity stake in each of the incubated startups, which made becoming its shareholder much more attractive to investors than any t-shirt or free bus ride that could be offered as a reward at IndieGoGo.

Acelera Partners fundraising process was more straightforward, although by no means easy, mainly due to various challenges presented by the daunting Brazilian bureaucracy. The post-accelerator was funded by an investment fund that had been raised initially from Microsoft, Qualcomm, Banco Espirito Santo and local development agency AgeRio. The biggest challenges when creating the fund were related to getting relevant approvals from Brazilian Securities and Exchange Commission, which required hiring a fund manager, fund administrator, an auditor and a technical advisor.

The most obvious source of funding for Venturetec Accelerator were telco, banking and media corporations based in Asia Pacific region, as they would be one of the main benefactors of the accelerator’s program. Another option were the corporations from other sectors, but already interested in startups and trying to get access to the most promising ones by sponsoring hackathons, startup events and competitions. Even if it wasn’t that difficult to arrange meetings with their top executives, securing financial commitments without a prior track record in that space was a different story.

As the corporate decision making machines tend to act slowly, Venturetec founders seek to establish closer relationships and demonstrate their knowledge in the area by providing consulting services to staff of internal corporate innovation labs and accelerators. The new approach to fundraising also includes the plan to raise separate funds with each of the regional financial centers: HK, Singapore and Australia. Similarly to the case of IncuBus Ventures, government money is not yet a viable option, particularly in Australia.

Overall, attracting private funding for startup accelerators is not that easy. Even though corporations are increasingly more ready to open their wallets, it’s often the governments that are stepping up to fill this gap. This trend is the strongest in South America, where Chile (Corfo) and Brazil (Apex and CNPq) lead the way, as well as in Europe, where more EU money for startups is becoming available. In Asia, Singapore seems to be most committed to building financial foundations for a strong local startup ecosystem at seed level.

However, as demonstrated by the example of these three accelerators and the number of others being created around the world, there are many ways to get creative and raise capital outside of public funds.

The journey

Everything takes more time than you think.

Any entrepreneur quickly notices that the world around them moves too slowly compared to their own pace and building anything is a longer process than expected. In these particular cases, at least it’s a fun journey. Goncalo from Acelera Partners couldn’t stop smiling when he was telling us about his experiences to date and it’s not only because as Brazilian he smiles a lot in general. For Goncalo, the particularly rewarding part of building a business focused on the startup community is that it’s full of very open and positive people. At Fundacity we couldn’t agree more. If your job consists of talking every day to people who have big plans, are excited about their job and are often on a mission to change the world – it’s simply contagious.

Rishi from IncuBus Ventures enjoyed this part a lot too and his advice is to talk to as many people as you can and then more. The startup ecosystem thrives on connections and networking, providing perfect conditions for serendipity. Even the most random of contacts may lead to a great insight, epiphany or a new opportunity, so best make sure not to leave any connection unexplored.

Trey, the founder of Venturetec Accelerator, particularly enjoyed the validation stage of his journey. He had a very clear vision for his accelerator and knew that the buy-in from corporations from the very beginning would be the key to success. One of the most satisfying moments on the way to the launch was seeing positive and sometime even enthusiastic reactions when he presented that vision and his plans for Venturetec. The second best part was building a network of mentors.  Many high-profile people in corporations he spoke with were very interested in participating. That meant mentors in the program would have the exact profile as potential buyers of products created by startups in Venturetec’s acceleration programs. Finally, seeing entries from high quality startups to the first program was the moment when it all came together.

Lessons learned

What would they do differently had they started now again? In addition to giving himself a strong booster of patience, Trey says he wouldn’t go to media as early as he did, expecting faster progress on many fronts. He would also devote more time to all these less fun admin things that unfortunately need to be done. Goncalo would communicate more. Actually, the expression he used was “over-communicate” – explain his thinking and plans better, in more detail, to more people. This is in line with Rishi’s advice about giving serendipity a chance.

So, there we go. If you want to launch a startup accelerator:

  1. Find a niche in the market to stand out,
  2. Network and over-communicate to make sure no opportunity and contact is left unexplored,
  3. Be patient, but persistent, as things always take more time.

If you liked this post, have additional questions or would like to feature your story in the future posts, let us know in the comments below of via our Live Chat at Fundacity.com.

We will be continuing the series about best practices from accelerators worldwide. Sign up to the blog to make sure you don’t miss anything new.

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