Europe is two to three years behind the US in using accelerators to provide pre-seed investment to nearly 200 start-ups in exchange for equity each year.
From one US-based accelerator programme, Y Combinator in 2005 with eight companies in its first cohort, there are now dozens in the US that last year funded nearly 200 start-ups, according to the UK-based quasi-public organization National Endowment for Science, Technology and the Arts (Nesta).
Nesta said the accelerator programme model comprised five main features to set it apart from other approaches to investment or business incubation:
- An application process that is open to all, yet highly competitive.
- Provision of pre-seed investment, usually in exchange for equity.
- A focus on small teams not individual founders.
- Time-limited support comprising programmed events and intensive mentoring.
- Cohorts or ‘classes’ of startups rather than individual companies.
Paul Miller, chief executive of School of Everything and co-author of Nesta’s report, The Startup Factories, said Europe was two to three years behind the US.
However, research by the Kauffman Fellows Program (following up from the separate Kauffman Foundation’s 2007 report) and presented at the same time as the Nesta report by Gianluca Dettori, a partner at venture capital advisory firm dPixel, said there were up to 40 start-up incubators in Europe, with half launching last year.
Seedcamp, a UK-based accelerator, was the top European programme*, Dettori said. In the US, a similar survey** by Kauffman Fellow Aziz Gilani, who works at venture capital firm DFJ Mercury, found TechStars Boulder , followed by Y Combinator , as the top two programme.
The research avoided corporation-sponsored accelerators and incubators tracked by Global Corporate Venturing, such as
- the Citrix Startup Accelerator Program;
- BlackBerry Partners Fund, a corporate venturing vehicle backed by phone maker Research In Motion, which teamed up with venture capital firm iNovia Capital and the Business Development Bank of Canada to start a Vancouver-based accelerator program called GrowLab;
- Sandbox Industries, a US-based venture capital firm that manages the medical group BlueCross BlueShield Association’s corporate venture fund, which started an incubator for healthcare companies, Healthbox a year after its Excelerate programme;
- GE’s ecomagination programme;
- IBM’s Smartcamp;
- Cable company Comcast’s partnership with DreamIt Ventures to set up the Minority Entrepreneur Accelerator Program;
- Accelerator, a corporate venturing-backed biotechnology investment and development company sponsored in part by Amgen Ventures;
- Veolia Environnement’s Innovation Accelerator programme;
- YetiZen’s IncubatorYZ;
- One from media publisher IGN;
- SingTel support of incubator Blk71;
- Bakrie Telecom’s incubator fund, BTEL 2.0;
- Merck Serono’s incubator in Israel, operated by its research facility InterLab;
- Sorin’s support of MD Start;
- Lifestyle Incubator at Netherlands-based electronics company Philips
- Israel’s Misgav Venture Accelerator; and
- AngelPad, accelerator programme, a start-up incubator set up by a group of ex-Google executives with its support, as well as Google-backed Firespotter Labs.
Kirsten Bound, lead policy adviser for innovation, investment and growth at Nesta, and the other co-author of the report, said: "I did think about including some of the corporate ones, but even Smartcamp seemed a little too far from the model when I tried to dig in (mainly in terms of the investment/equity issue). There are so many great initiatives out there it was quite hard to figure out where to draw the line!"
Although incubators were sometimes stigmatised as providing "life support" to companies, the accelerator programmes were notable for the high quality of both mentors and start-up teams they work with and the value they add to companies, Nesta said. Angel investors and venture capital investors have supported accelerator programmes because they create a pipeline of investable companies, scouting for and filtering talent and connecting them with a concentrated stream of mentors and strategic resources.
The report also said early evidence suggested accelerators had a positive impact on founders, helping them learn rapidly, create powerful networks and become better entrepreneurs. The rise of accelerator programmes is closely associated with the changing economics of starting up, it added. Costs associated with early-stage tech startups have dropped significantly in the last decade, creating an opportunity to invest with £10,000 to £50,000.
However, the potential criticisms of accelerators are they only build relatively small companies and exploit founders through the amount of equity they take; they divert talent from other high-growth start-ups; good companies still fail after accelerator programmes and they attract companies that are already struggling; and they are helping to create a bubble.
*The top eight European accelerators:
1. Seedcamp (pan-European)
2. Startupbootcamp Spain / Tetuan Valley
3. Startupbootcamp Denmark
4. Springboard (UK)
5. Openfund (Greece / South Eastern Europe)
6. NDCR Launchpad (Ireland)
7. Propeller Venture Accelerator Fund (Ireland)
8. Startupbootcamp Ireland
** The top eight US accelerators
1. TechStars Boulder
2. Y Combinator
3. Excelerate Labs
4. LaunchBox Digital
5. TechStars Boston
6. Kicklabs
7. Techstars Seattle
8. Tech Wildcutter
Source: Kauffman Fellows