Startup accelerators need to behave more like investors

Accelerators are still a relatively new type of startup investor, most of them having little or no record of returning money to their own investors, especially outside of the US. Seed-DB, a database of seed accelerators and their companies that tracks exits of accelerator graduates, lists only around 20 exits from non US-based accelerators. The leader is Seedcamp (UK) with seven exits; Nxtp.Labs (Latin America) and FounderFuel (Canada) are tied second with three exits each (disclosure: Nxtp.Labs is an investor in Fundacity). The non-US total number of exits is lower than Techstars or Y Combinator have each.

US-based accelerators dominate the whole list and there are good reasons for that. First of all, their graduates have the best access to later stage investors and corporate buyers, which are often other well-funded startups, although in that case the exits are often talent acquisitions, called acqui-hires, which usually return peanuts to investors, if anything at all.

There is however another factor in play. It usually takes a lot of time before a successful exit can happen and US accelerators are simply the oldest. Y Combinator was founded in 2005 and Techstars Boulder in 2006. London-based Seedcamp was founded in 2007.

Recent years have seen a huge growth in accelerator numbers outside of the US, as it has become much easier to start up and scale from anywhere in the world. At Fundacity we focus on emerging startup ecosystems (which is basically anywhere outside of the US), speaking with many of these accelerators on a regular basis. So far their focus, understandably, has been on selecting and accelerating startups. It takes time to find a niche, build a brand and develop the ability to attract the best startups. In the meantime however many startups have already graduated from their programs, some more successful than the others. As the portfolio of graduates mature, accelerators’ LPs will be increasingly interested in seeing returns on their investment. The question “How are you making sure my investment portfolio is growing?” is and will be asked more and more often.

One could argue that accelerators are limited in their ability to impact the growth of their portfolio. The first limitation comes from the structure and value of their investment. Almost all have convertible notes that usually give them right to less than 10% of equity. As a result, they have no board seats and often no explicit right to information. Another limitation is related to their modus operandi, which requires accelerator staff to deal with many administrative tasks such as managing office space, coordinating mentors, organizing Demo Days, etc. That leaves less time and resources available for mentoring, which is largely “outsourced” to external mentors anyway.

Indeed, making the right connections is where the accelerators can add the most value to their startups. This is even more true in emerging startup ecosystems, where accelerators often act as local startup hubs, which means they can usually easily get in touch with people who can help their portfolio startups. They do that very well during the acceleration programs, but that support often ends after the Demo Day, even though the needs of these startups remain largely the same. All of them welcome introductions to potential mentors who can help the startup grow operationally and to investors for capital necessary to execute.

It sounds very reasonable and I am sure you think this is something that must be happening. Well… The first step for accelerators to be able to help their portfolio startups grow is to actually know how they are doing. Unfortunately, the communication line after the end of the acceleration program often breaks.

(Not) staying in touch

At Fundacity we regularly speak with accelerators from around the world and ask them about how satisfied they are with knowledge about their portfolio startups. We started asking about it during the customer development process for our portfolio management tool for accelerators. The message was very clear – “we think it’s very important to stay in touch but we don’t really do it well enough.”

Actually, on the scale 1-5, the usual answer we get is 2 or 3 and that usually sounds quite optimistic. No wonder, it’s not easy to keep in touch with startups after they graduate from acceleration program, which is due to the combination of available resources vs. ever increasing number of graduates. Let’s expand a bit on this point:

1. Focus and resources. The key accelerator activities and resources are focused on the following process: selection, acceleration, presenting startups during the Demo Day. Then it starts again. All of these activities are operationally time consuming and require immediate attention due to clear deadlines. As accelerators need to control costs, they usually have no additional resource dedicated to keeping in touch with portfolio startups, so this task is pushed down the list of daily priorities. We sometimes see a junior associate, or even a marketing person, performing this role.

2. Large number of graduates. Depending on the program, one cohort comprises usually 10 to 20 startups. For a 2-year-old accelerator this can mean even 50+ startups to deal with. Even though there are reporting tools available on the market, there are rarely used. First of all, many accelerators simply do not recognize portfolio management important enough to spend money on, so they end up relying on email communication and Excel to record the information. As collecting and formatting information this way is very time consuming (e.g. there are different formats of updates, need to send reminders to slackers), it usually ends up not being done well and provides limited actionable insights.

No wonder that accelerators also encounter pushback from founders, who do not see the much sense reporting to accelerators about their progress if they receive no value in exchange. All this leads to situations where updates are rare, not consistent and depend too much on founder good will, rather than on habit and mutual benefits. It shouldn’t be a surprise to hear stories how accelerators found out in the media that one of their startups raised additional capital.

There are however many good practices in that space and the accelerators that break this cycle are the ones that will benefit the most. We will describe how it can be done in the next post.

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.

Austrian high-net-worths should invest into startups

Austria, a country associated with high standard of living, skiing, snitzel and somewhat conservative attitudes has over the last few years taken large steps in creating a startup ecosystem of its own. In fact, several of my high school friends are now actively working in startups or with seed investors in Vienna.

Today, I was pleasantly surprised that Bank of Austria head, Willibald Cernko is calling Austrian high net worths to invest into startups. He states that not only can they make a great return and help Austria generate new jobs but also help Europe in its growth.

Wise words Willibald! Keep rocking!

Article (in German): Reiche sollen Start-ups fördern – futurezone.at.

El Junior World Entrepreneurship Forum Santiago

El Junior World Entrepreneurship Forum Santiago: ¡Dos días exitosos que inspiraron a  200 jóvenes a cambiar el mundo!

Santiago, Chile – Los pasados 27 y 28 de septiembre tuvo lugar el Junior Word Entrepreneurship Forum (JWEF), un foro mundial de emprendimiento que se organizó por primera vez en Chile en la Facultad de Economía y Negocio de la Universidad de Chile. El evento reunió a 200 participantes durante dos días de charlas, talleres prácticos, un concurso de pitch universitario y eventos de networking.

Los oradores excepcionales, expertos en emprendimiento y sustentabilidad, compartieron su experiencia y aportaron su visión sobre el tema del evento: “Emprendedores – Navegar el cambio para un crecimiento sustentable”.

Los momentos fuertes del JWEF Santiago incluyeron:

  • El discurso de apertura de Nicolás Shea, fundador de Start-Up Chile y ASECH y CEO de Cumplo. Presentó una charla inspiradora y motivacional sobre la “nueva revolución del emprendimiento” recordando que “liderar el cambio es la tarea más difícil” pero es lo que hace evolucionar el mundo.
  • El discurso de apertura del segundo día por Juan de Dios Carvajal, gerente de emprendimiento CORFO, quien subrayó los desafíos de emprender e innovar para Chile.
  • Los discursos apasionados e inspiradores de Horacio Melo, Director Ejecutivo de StartUp Chile y Julián Ugarte, Director Ejecutivo de SociaLab.
  • Un panel de expertos sobre sustentabilidad, introducido por el keynote del experto John Rosser. Compartieron sus visiones y consejos para integrar la sustentabilidad en sus emprendimientos el Dr. Pedro Vera Castillo, Vanessa Kolodziej, Thomas Kimber y Daniela Jara.
  • Charlas que inspiraron a la audiencia a emprender por José Ignacio Oñate (coach y CEO/Fundador de PRO+SPIRIT), Christian Reyes (fundador de +People), Roberto Ibáñez, (Fundador de Touch) y Francisco Saez (Fundador de Nixter).
  • Un concurso de pitch universitario con representación de la Universidad de Chile, la Universidad Adolfo Ibáñez, la Universidad de Concepción, la Universidad de Antofagasta, la Universidad Católica de Valparaíso y la Universidad San Sebastián. ¡Enhorabuena a los ganadores, tres estudiantes de ingeniería comercial de la Universidad Adolfo Ibáñez, con el proyecto SlidePick!

 

Los organizadores Planet Expat, Fundacity y la Facultad de Economía y Negocio de la Universidad de Chile quieren agradecer por su colaboración a Startup Chile, Touch, SociaLab, ASECH e ImaginaChile; y por su generosidad, a los patrocinadores del evento: Amazon Web Services, Coca-Cola, Santiago Streaming, Qonf, UrbanStation y Redbull.

De estos dos días memorables, se destacaron nuevas ideas y recomendaciones reunidas en un libro blanco. Los organizadores del evento Sophie Vurpillot (cofundadora de Planet Expat) y Miklos Grof (fundador de Fundacity) serán los embajadores de Chile durante el World Entrepreneurship Forum y traerán la voz del país hasta Singapur los próximos 31 Octubre-2 Noviembre de 2013.

Ojala esta edición del JWEF Santiago sea la primera de una larga serie de eventos exitosos inspirando a los jóvenes a cambiar el mundo y a impactar positivamente Chile.

jwef

Fundraising and Startups in Chile Part 2

….following on from Part 1… Internationally, Chile’s tech scene is thought to mainly consist of Startup Chile. However, I discovered there is more to Chilecon Valley than meets the eye. Arriving in Chile, I was bewildered at the multitude of incubators, accelerators, co-works and tech events that this relatively small country has to offer. Almost every university now has an incubator or accelerator. Co-works are sprouting across Santiago. There are several tech events every week in Chile. 5 years ago tech Chile virtually did not exist. The high growth rate in the ecosystem can be seen and felt even over the short time I lived in Santiago. The environment has been expanding massively.

The ecosystem is not without its problems though. There is a lack of angel and VC money to followup the incubator seed cash. Thus startups usually use capital to flock to the US and establish and fundraise there. Failure often means they join the so-called Latin American Zombies.

Angel funding in Chile is scarce but not absent. There are two prominent angel groups Southern Angels and Chile Global Angels. Their members are moderately active. Chile Global Angels, with 27 members, has screened 400+ startups, funded 13 startups and allocated $1.8m over 4 years. By Silicon Valley standards this is miniscule. What the ecosystem needs is more entrepreneur turned investors that have successful exists behind them. This requires time but Chile is heading in the right direction and must, as prominent startup guru Brad Feld preaches, take a 20-year view from today.

Venture Capital is its infancy and heavily reliant on Corfo support. There are roughly 4 active VCs. One of the most active VC, Aurus, has made roughly 10 deals and the fund size is 30m. The reasons for this is probably the lack of institutional investment into this asset class. This is hard to change in the short run as capital is controlled by a wealthy subset of Chileans and they are conservative since their wealth derives from traditional assets such as commodities and real estate. On this front one can observe moderate change as the younger generation from these families is drawn by the trendiness of the startup world and even the Old Guard is showing interest.

Probably the greatest allure of Chile is its stable and strong economy that is growing in a steady and organized manner. Corruption levels are amongst the lowest in LatAm and the government and lobbies such as ASECH, are improving the business and legal environment removing the layers of bureaucracy that typically make starting up a painful process in LatAm. Recent victories include free incorporation and ability to incorporate your business in 1 day.

Whilst Chile is no cheap place to live it is significantly cheaper than US or European tech hubs and tech labor costs are significantly lower. Engineering talent can cost as little as $1,500 per month. In San Francisco, it can cost a minimum of $6,000 per month to hire an engineer if you can even find one at all. However, the downside is that Chileans are less likely to know what a startup is and are usually highly risk averse. Thus it will take a lot more effort to recruit a quality team.

So is it all hunky dory? Looking closer at the fundamentals that this young and vibrant ecosystem is built on, one soon discovers that there is a single prominent fertilizer nurturing this rainforest. Corfo – the government body, which is mandated with promoting entrepreneurship and innovation in Chile. Corfo for the time being is the life support that all noteworthy incubators, accelerates, VC and events rely on. At present, absent this, the ecosystem would likely fall to pieces like a deck of cards. The upcoming election in Chile is causing some unease regarding the continuity of the program which was implemented by the current ruling party.

Another issue is the lack of smart money. Whilst Corfo cash is fantastic it is not yet accompanied by professional mentoring. Incubators and accelerators manage the funds on behalf of Corfo. However some say that they do little but select and allocate third party capital. This is falsely creating influential ‘investors personalities’ in the community that lack a significant investor or entrepreneurial track record. The lack of sufficient skin in the game is not sustainable and Corfo is aiming to change that over the next few years.

Chile is doing a great job at attracting fresh talent into the country and laying the foundations for what could be a flourishing and sustainable global tech hub. My advice: one should consider Chile as a place to start-up.

The JWEF for the first time in Chile!

Since February I have been helping organize the Junior World Entrepreneurship in Chile. This will be the first year this event is also represented here and I am really excited about that. I am amazed to see how quickly and steadily Chile is growing as a tech hub in the region. More and more international tech events are being hosted here such as Startup Weekend, Angel Hack and Lean Startup workshops and now the JWEF. CHi CHi Le! 😀

Below is the press release of the JWEF that I would like to share with you guys. Hope to see many of you there.

JWEF

El Junior World Entrepreneurship Forum: ¡el Foro Mundial de Emprendimiento Juvenil llega a Chile por primera vez!

Santiago, Chile – Por primera vez, Chile acogerá el Junior World Entrepreneurship Forum, un encuentro de envergadura mundial que conecta a emprendedores y estudiantes con el objetivo de consolidar el posicionamiento del país como un atractivo polo de emprendimiento a nivel internacional.

Este evento es la versión junior del World Entrepreneurship Forum, un foro global y exclusivo que favorece el emprendimiento y reune a todos los actores claves del ecosistema emprendedor. Desde su creación en 2008, el World Entrepreneurship Forum representó más de 75 países creando así una comunidad poderosa a nivel internacional. Con más de 150 artículos de prensa en 35 países en 2012 – Forbes, The Times of India, etc. – el World Entrepreneurship Forum ganó un reconocimiento y una famainternacional definiéndolo como un evento excepcional e único.

Ya representado por 18 paises del mundo con más de 10.000 estudiantes, el Junior World Entrepreneurship Forum permiterá aumentar la presencia de los emprendedores chilenos a nivel mundial, y promover y fomentar el emprendimiento juvenil en Chile. También permitirá a Chile traer su visión e ideas nuevas durante la 6ta edición del World Entrepeneurship Forum que tendrá lugar en Singapur los 31de octubre/02 de noviembre.

Gracias a un esfuerzo conjunto de dos Start-Ups internacionales – Planet Expat y Fundacity – y con el apoyo de Start-Up Chile y ASECH, este evento tendrá lugar en la Universidad de Chile en Santiago los próximos 27 & 28 de septiembre. A traves de una serie de actividades – talleres, charlas y concurso de pitch entre varias universidades – estudiantes y jovenes emprendedores tendrán la oportunidad unica de intercambiar, compartir conocimientos y generar ideas nuevas alrededor de un tema común: Navegar el cambio para un crecimiento sustentable.

Dentro de los 20 oradores que van a marcar presencia en el evento: Nicolas Shea (fundador de Start-Up Chile & CEO de Cumplo), Juan de Dios de Carvajal (Gerente de Emprendimiento de Corfo), Dr. Pedro Vera Castillo (Director Programa EMPRENDO, Universidad de Concepción y Presidente de EmprendeSUR), Horacio Melo (Director Ejecutivo de Start-Up Chile).

įCuandó?: Los 27 y 28 de septiembre de 2013
įDónde?: En la Universidad de Chile, Santiago
įQué?: El Junior World Entrepreneurship Forum
edition/
Contacto para la prensa: Sophie Vurpillot, sophie@planetexpat.org