Andy Warhol once famously said, ‘They always say time changes things, but you actually have to change them yourself’. Indeed, 2016 was about change (in more ways that we wanted perhaps) Warhol’s quote is now more relevant to the tech startup industry than ever before. It stands for the healthily saturated and intrinsically changing the way we live. Within tech industry’s journey, ‘incubators’ and ‘accelerators’ have been a critical catalyst for over 50 years. It has provided seed funding, working space, mentorships and PR to feed innovation when it was needed most. Some call this the new way of working a tech ecosystem: a community of interacting organisms and their physical environment. As such, it is organic in nature and we are currently witnessing a change, an evolution in the accelerator market.
Value where value is due
The foundations of business incubation stems from a warehouse in Batavia, New York in 1959 and the fundamentals remain the same. The Batavia Industrial Centre was a simple gathering of multiple businesses in a temporary workspace where they provided guidance and financial support. However, the real gamechanger came in the form of Seed Accelerators; namely Y Combinator. I can only speculate that this is an homage to the same term in computer science, where in the most simplest terms, it is used to direct value to the correct places. If this is indeed the case, the notion resonates through what they do. It was a first of its kind making more frequent but smaller synchronous investments, and funding hackers as opposed to those in suits. For the past decade, the industry has expanded at breakneck speed and has become the backbone of startup ecosystems globally. In the 2015 Global Accelerator Report (carried out by Gust) the U.S. and Canada leads the industry with a total of 111 accelerators investing $90.3M in 2,968 startups. Europe trails closely with a total of 113 accelerators investing $41.0M in 2,574 startups.
Accelerators have traditionally adopted strategies that echo those of VCs and angel investors by relying on the success of startup exits to recoup their financial investments and generate profits. However, this model is proving to be an increasingly fatigued one where there are no room for negotiations regarding equity stake and questions arise as to whether the valuation of startups are accurate. Surely, a fixed investment amount for 5-6% equity cannot carry true value for every startup that comes through its doors. In recent times, there seems to be a shift in its business models that are being implemented. Based on the popular Lean Startup methodology, accelerators bank on the proven build-measure-learn process: identify a problem, develop a minimum viable product and fine-tune the product to be fit for purpose and more scalable. Apply the methodology to the accelerator itself the result is the birth of second generation accelerators. Whilst still nurturing innovative companies they now possess a diversified revenue model, often focussed on a specific industry, and a deeper integration into the ecosystem with closer ties with governments and corporations.
According to the Global Accelerator Report, some of the alternative revenue strategies include hosting events, charging fees for mentorship or housing, and creating corporate partnerships and sponsorships. In total, 91% of accelerators around the globe are reliant on these alternative revenue generation models in the short term (within 12 months) while 75% plan to continue depending on them for the long term (12 months or longer).
Perhaps the best example of second generation accelerators are those supporting FinTech companies. London, as the largest financial exporter in the world and coupled with a wealthy pool of tech talent, has played host to a number of predominant FinTech scale-ups in 2015 and 2016. Unsurprisingly, the FinTech industry has gained diverse support from the government and corporates and saw the launching of numerous accelerators under their umbrella. Corporate partnerships, which include running acceleration programs in tandem or on behalf of corporations, as well as corporate sponsorship, have become a dominant new source of funding. Seventy eight percent of accelerators in Europe reported they intend to rely on corporate partnerships or sponsorships in the short-term, significantly more than any region around the globe. The reliance on corporations in the accelerator business model has taken off in the last two years and is being globally adopted almost to an equal degree.
One of the most recent is one set up in June by Bank of England. It aims to run short ‘Proof of Concept’ (POC) projects to help harness innovations and enhance the understanding of new technology for the central bank. Other models include the Fintech Innovation Lab and Barclays Accelerator, both running in partnerships with Accenture and TechStars respectively. Having mentioned Techstars, I think it’s important to examine how they may have created a benchmark for the corporate partnership model, particularly given that this would be their decennial anniversary. Through the popularised ‘powered by Techstars’, they have launched series of accelerators in a variety of industries with corporate partners representing major international brands such as Microsoft, Nike, Disney, Sprint, and Metro. Often collaborating on a short term contract, Techstars would provide the investment, curriculum and mentorship for the startups, whilst the workspace and equipment is provided and paid for by the corporate partner. It would prove to be a harmonic combination where the startups would be given the support and guidance and the corporates had innovation within their reach not to mention the PR gained from the whole process. Some, such as Microsoft and Disney, have gone on to continue with their accelerator without Techstars and others have found one cohort to be sufficiently satisfactory. Whether or not the corporates have fully utilised the innovation at hand remains to be seen. The latest to be launched is Amazon’s Alexa Accelerator who are seeking voice interaction startups to work on their hotly anticipated and well reviewed Echo.
In walks XnTree
Perhaps the most influential and the biggest hub for FinTech in Europe is Level39 where the most exciting technology startups, scale-ups and innovation labs work in partnerships with its incumbent neighbours. Level39 is also the home of XnTree and we have successfully launched as a market entry accelerator for FinTech, cybersecurity, SmartCity and IoT companies. Our major differentiating point is that we work in partnership with governmental organisations around the world. For those organisations, their focus is on the growth of new innovation through four e’s: exposure, education, exploration and experience.
And where better to do it than in London’s tech ecosystem. We provide business consulting and bespoke activities for those sponsored by their governments hoping to climb onto the FinTech Bridge. Our programmes are designed for different levels of scale whether they are students, startups, seeders or scale-ups. We help to create valuable connections, explore new markets, create opportunities for investment, create more exposure and to extend their sales to London.
If our programme is something that you are looking for, please do not hesitate to get in touch.