Growing global ventures by effective seed accelerationThe opportunities and barriers of business accelerationSupervisors:G...
2About the authorBalazs Szabo is head of Business Development at InVendor and the Advisor of the Global ExecutiveTeam at K...
3Table of ContentsAbout the author...........................................................................................
46.4 Seedcamp................................................................................................................
54. E-mail Interview with Mike Reiner, Startup Wise Guys 23. 04. 2013........................................ 785. The que...
6Graphs1. Graph The process of the deaflow ..................................................................................
71 Introduction„Entrepreneurs embody the promise of America: the idea that if you have a good idea and are willingto work ...
8birth of new venture success stories and entrepreneurial growth in those regions that can not beconsidered as traditional...
9Despite the short track record it is obvious that business accelerator programs have positive impact onentrepreneurs, hel...
10„Accelerators are organizations that provide cohorts of selected nascent ventures seed-investment,usually in exchange fo...
111.3 RelevanceAt the time of the slow economic recovery there is growing interest in helping startups launch andsucceed t...
12All Accelerator without YCombinator (N=152)Y CombinatorCompanies accelerated 1937 479Jobs created 4892 1548Number of exi...
13As it can be seen above only 1% of the new investment opportunities ends up with successfulinvestment from the Venture C...
142 MethodologyDuring the research it was a real challenge to find proven and curated academic literature on the topic.The...
153 Theoretical frameworkIn order to have a better understanding of the framework and the ecosystem the goal of this secti...
16The pre-startup phase, the process from the idea to actual startup phase can be divided into five steps:intention, produ...
173.2 The actors of the entrepreneurial ecosystemEntrepreneurs running startups, are existing within the entrepreneurial e...
183.2.1 EntrepreneursAccoding to Merriam-Webster dictionary entrepreneur is the “one who organizes, manages andassumes the...
19Business AngelAngel investors, angel funds and affiliated forms of seed capital provide an early access to investmentopp...
20Mentors are experienced entrepreneurs or investors who contribute time, energy and knowledge tostartups and can be a key...
214 The new economics of startups4.1 How companies grow?Before explaining what the phenomenons are behind the growing numb...
22At the Phase 2 growth continues in an environment of more formal communications, budgets andfocus on separate activities...
235. Graph The investment need and lifecycles in Frimodig, 20124.2 The early stage startup challengesThroughout the stages...
246. Graph Equity gap vs. competence gap (Rasila, 2004; Ala-Mutka 2005) in Frimodig, 20124.3 Changes in the business envir...
25drivers in the proliferation of startups over the last five years and an important factor in the growth ofaccelerator pr...
26developing the first product, trying to acquire new customers or working on finding investors. (Miller,Bound, 2011)Easie...
27The fundraising is critical for the growth of a born global company. Generally the companies that havegained external fu...
28Series A financings. This trend would mean that “many startups will be orphaned and that someinvestors will lose their m...
294.4 The background of the shift between business incubators and businessacceleratorsThe seed accelerator (or business ac...
309. Graph The Role of Business Incubators Based on: Sahay, 2004,According to Sahay the author of the Role of Technology B...
31 Logistic support (office services, utilities, usage of equipments, IT services) Technical assistance (laboratory serv...
32pace. The model was based on large investments in single projects, which suited venture capital andhad previously been s...
3311. Graph Different types of accelerators, Source: Frimodig, 2012
345 Key elements of the business accelerator programsBusiness Accelerators have several distinctive features that set them...
355.1 Easily accessable open application processAccelerator programmes have web-based application processes and they are e...
365.5 Time-limited support, intensive mentoringAccelerator programmes provide support for a set period of time – usually b...
37common. These events give participant teams access to a large and high quality group of investors ina way that would be ...
3814. Graph Key elements of the accelerator program, Source: Van huijgevoort 2012It is also interesting to have a look at ...
396 Introduction of international best practices of seed acceleration6.1 Y CombinatorY Combinator14is the first seed accel...
40failure rate in the startups scene. As a result of the high quality companies the investors are really openminded to be ...
41honest feedback on their businesses. Unless a team can attract five mentors to help them, Techstarsfeel they’re unlikely...
426.3 500 Startups500 Startups is a seed fund and incubator program focusing on early stage startups founded by DaveMclure...
436.4 SeedcampStartup companies that need business acceleration shouldn’t go directly to the Valley in order to growand de...
446.5 Startup SaunaStartup Sauna is a Finnish not for profit accelerator founded in 2010. Startup Sauna is funded by theSt...
458. Table The basic facts of Startup Sauna Source: seed-db.com, startupsauna.org6.6 Startup Wise GuysStartup Wise Guys is...
466.7 StartupBootcampStartupbootcamp is a three-month European startup acceleration program providing seed funding, co-wor...
47teams’ business idea become a successful business, or to prepare your young business for the nextround of funding.21Thre...
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration
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Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration

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Building a sustainable startup ecosystem is a key factor towards eliminating the market risks of seed funding as this is the stage where most companies fail. There are different models of seed acceleration throughout the world in order to minimize the risks of seed investors that is a common bottleneck of growing global ventures. Business accelerator is a new approach of helping and funding startup companies at the seed stage.

Accelerators are organizations that provide cohorts of selected nascent ventures seed-investment, usually in exchange for equity, and limited-duration educational programming, including extensive mentorship and structured educational components. Instead of filtering out only one startup at a time these programs filter out cohorts and mentoring them in batches to make it more efficient and less risky. Business accelerators usually offer seed money and guidance for a small stake, usually between 4 and 10 percent, of the startup company. The main question of the research was: What are the key success factors of a business accelerator? How can we define success in case of the business accelerators? How do entrepreneurs select business accelerator programs? What are the expected outcomes of the accelerator programs by the founders, mentors, investors and by the participating startups? Is that possible to create a successful business accelerator outside of the major investment hubs? The hypothesis of the research was that the success of a business accelerator program is not determined by the geographical location and the local investment environment where it exists. Regarding the methodology in order to get primary inputs beside the secondary research I have conducted interviews with accelerators (Startup Sauna, Startup Wise Guys, Startup Highway) and a serial entrepreneur, blogger. I have also conducted an in depth survey with entrepreneurs including accelerator alumni and prospective applicants.

Published in: Business, Economy & Finance

Growing global ventures by effective seed acceleration – The opportunities and barriers of business acceleration

  1. 1. Growing global ventures by effective seed accelerationThe opportunities and barriers of business accelerationSupervisors:Gyorgy Drotos PhD (Corvinus University of Budapest, Research Centre of Information ResourcesManagement)Peter Kadas MD (serial entrepreneur, founder of Brandvocat, blogger at startupdate.hu).14. 05. 2013
  2. 2. 2About the authorBalazs Szabo is head of Business Development at InVendor and the Advisor of the Global ExecutiveTeam at Kairos Society. Balazs Szabo was attended to the CEMS Masters’ in International Managementprogram which is one of the best management master according the Financial Times’ ranking and healso attended Management and Leadership and Sociology at the Corvinus University of Budapestbeside studying in Université Catholique de Louvain in Belgium. He is an entrepreneur, strategic andinvestment advisor for early stage startup companies. He is the main organizer of inveAst - InvestorsMeet Startups from CEEMEA co-organized by InVendor and Bloomberg in London. He was theorganizer of the first Hungarian Innovation Day, that was held on the 16th October, 2012 in London inorder to connect the Hungarian startups with high growing potentials with London based VentureCapitalists and Seed Investors. The patrons of the event were the British Ambassador to Hungary, theHungarian Ambassador to Great Britain and the Chairman of the Hungarian Private Equity and VentureCapital Association. The event was supported by the British Private Equity and Venture CapitalAssociation and the EBRD.Balazs is also a member of the education committee at Hungarian Venture Capital and Private EquityAssociation. He has been elected four times as a Future Leader, by The Ambrosetti Forum (IT), by theWorld Foresight Forum (NL) by the St. Petersburg International Economic Forum (RU), YouthInternational Economic Forum (RU) and Open Innovations Forum (RU).Balazs is a TEDx speaker and the author of startup/investment articles in business magazines, NEXTMentor, Startup Sauna Pioneers Festival and Startup Tour Ambassador. Balazs is the founder andeditor of www.cee-startups.comYou can find Balazs on LinkedIn.www.balazsszabo.com
  3. 3. 3Table of ContentsAbout the author.................................................................................................................................. 21 Introduction..................................................................................................................................... 71.1 Problem statement.................................................................................................................. 91.2 The scope of the thesis.......................................................................................................... 101.3 Relevance .............................................................................................................................. 112 Methodology................................................................................................................................. 143 Theoretical framework.................................................................................................................. 153.1 Describing the concepts ........................................................................................................ 153.1.1 Entrepreneurship........................................................................................................... 153.1.2 Startup........................................................................................................................... 153.2 The actors of the entrepreneurial ecosystem....................................................................... 173.2.1 Entrepreneurs................................................................................................................ 183.2.2 Investors........................................................................................................................ 183.2.3 Mentors/advisors .......................................................................................................... 194 The new economics of startups .................................................................................................... 214.1 How companies grow?.......................................................................................................... 214.2 The early stage startup challenges........................................................................................ 234.3 Changes in the business environment .................................................................................. 244.4 The background of the shift between business incubators and business accelerators........ 294.5 Business accelerators ............................................................................................................ 325 Key elements of the business accelerator programs .................................................................... 345.1 Easily accessable open application process .......................................................................... 355.2 Intensive competition ........................................................................................................... 355.3 Offered pre-seed/seed investment....................................................................................... 355.4 Focus on teams...................................................................................................................... 355.5 Time-limited support, intensive mentoring .......................................................................... 365.6 Batch of startups and alumni network.................................................................................. 376 Introduction of international best practices of seed acceleration................................................ 396.1 Y Combinator......................................................................................................................... 396.2 Techstars ............................................................................................................................... 406.3 500 Startups .......................................................................................................................... 42
  4. 4. 46.4 Seedcamp.............................................................................................................................. 436.5 Startup Sauna ........................................................................................................................ 446.6 Startup Wise Guys................................................................................................................. 456.7 StartupBootcamp .................................................................................................................. 466.8 Startup Highway.................................................................................................................... 467 Qualitative and quantitative research........................................................................................... 487.1 Interviews.............................................................................................................................. 487.1.1 The importance of accelerators .................................................................................... 487.1.2 The birth of accelerators ............................................................................................... 487.1.3 Creating entrepreneurial ecosystem by using best practices ....................................... 497.1.4 Criteria of selecting teams............................................................................................. 507.1.5 Value proposition for startups ...................................................................................... 507.1.6 Mentors/coaches........................................................................................................... 507.1.7 The core program.......................................................................................................... 517.1.8 The geographic areas covered....................................................................................... 527.1.9 Success and metrics....................................................................................................... 527.1.10 Skills............................................................................................................................... 537.2 Survey.................................................................................................................................... 547.2.1 Demographic limitations ............................................................................................... 547.2.2 The surveyed sectors..................................................................................................... 567.3 Analysis of the survey results................................................................................................ 567.4 Summary of the survey results.............................................................................................. 617.4.1 Accelerators and their location..................................................................................... 617.4.2 The most important decisive factors of selecting accelerator...................................... 617.4.3 The key added values of an accelerator program......................................................... 617.4.4 Other preferences of entrepreneurs regarding the length and program elements..... 618 Conclusion ..................................................................................................................................... 629 The findings of the research.......................................................................................................... 6310 Recommendation for further research ..................................................................................... 65References............................................................................................................................................. 66Appendix................................................................................................................................................ 701. E-mail Interview Questions for StartupHighway – Agnė Adomaitytė 02. 04. 2013 .................. 702. E-mail Interview with Antti Ylimutka Startup Sauna CEO 17. 04. 2013 .................................... 723. Interview with Peter Kadas MD., serial entrepreneur, blogger 13. 04. 2013, Budapest .......... 77
  5. 5. 54. E-mail Interview with Mike Reiner, Startup Wise Guys 23. 04. 2013........................................ 785. The questionnaire...................................................................................................................... 81
  6. 6. 6Graphs1. Graph The process of the deaflow ................................................................................................... 122. Graph The entrepreneurial ecosystem ............................................................................................. 173. Graph How companies grow? ........................................................................................................... 214. Graph The transition from a startup to a company .......................................................................... 225. Graph The investment need and lifecycles ...................................................................................... 236. Graph Equity gap vs. competence gap ............................................................................................. 247. Graph Seed deals by vintage quarter ............................................................................................... 279. Graph The Role of Business Incubators ............................................................................................ 3010. Graph Continuum of added value services provided by incubators and accelerators .................. 3111. Graph Different types of accelerators............................................................................................. 3312. Graph The intersection of accelerators and incubators ................................................................. 3413. Graph The Accelerator Cycle........................................................................................................... 3714. Graph Key elements of the accelerator program............................................................................ 3815. Graph The vicious circle of the accelerators ................................................................................... 3816. Graph The age distribution of the surveyed entrepreneurs ........................................................... 5417. Graph Nationality of the surveyed entrepreneurs ......................................................................... 5518. Graph Number of entrepreneurs by their sector............................................................................ 5619. Graph The proportion of the surveyed entrepreneurs regarding their current stay...................... 5720. Graph Have you ever participated in a startup accelerator program? .......................................... 5721. Graph Types of funding .................................................................................................................. 5822. Graph The most important decisive points of choosing an accelerator ......................................... 5823. Graph Please evaluate the most important added valua of an accelerator ................................... 5924. Graph Please evaluate the following educational elements of the accelerator program .............. 6025. Graph How to measure accelerators .............................................................................................. 63
  7. 7. 71 Introduction„Entrepreneurs embody the promise of America: the idea that if you have a good idea and are willingto work hard and see it through, you can succeed in this country. And in fulfilling this promise,entrepreneurs also play a critical role in expanding our economy and creating jobs.”President Barack ObamaAfter Barack Obama acknowledged the importance of entrepreneurship through the launch of StartupAmerica, the phenomenon was at the forefront of the discussions. Entrepreneurship and startupsbecame a global theme that impacted every geography, industry, market and demographic throughoutthe world. (Feld, 2012) We are living in the age of entrepreneurship and fast growing venturesaccording to Janos Vecsenyi (Vecsenyi, 2011)Building a sustainable startup ecosystem is a key factor towards eliminating the market risks of seedfunding as this is the stage where most companies fail. There are different models of seed accelerationthroughout the world in order to minimize the risks of seed investors that is a common bottleneck ofgrowing global ventures.In certain countries where the investment culture is more developed market actors do the accelerationphase (USA), in other parts of the world governmental interventions and support is needed to getprivate investors involved in one of the riskiest part of the investment lifecycle (Israel, Finland etc.)Business accelerator is a new approach of helping and funding startup companies at the seed stage.Instead of filtering out only one startup at a time these programs filter out cohorts and mentoringthem in batches to make it more efficient and less risky. The business accelerator model differs fromthe traditional seed-stage investing and business incubators (Cristiansen, 2009)Over the past eight years, a new methods of incubating technology startups have emerged, driven bybusiness angel investors, serial entrepreneurs and venture capitalists: the accelerator program.In the global innovation hubs like the Silicon Valley, New York, Boston, Berlin or London all the neededelements of the entrepreneurial ecosystem are present, including (serial) entrepreneurs, angelinvestors, venture capitalists, incubators, accelerators etc. There other countries that were notidentified as flagship nations of the innovation a few decades ago, but there is significant improvementas the results of the well organized and executed strategies and subsidies coming from the state orwealthy private individuals. Countries as Israel, Chile or even Estonia are on their track to be amongthe innovation hub of their geographical region or even broaden territories.The thesis sheds light on the global best practices of seed funding and business acceleration. The goalof the paper is to identify suitable and adaptable models of seed funding that could contribute to the
  8. 8. 8birth of new venture success stories and entrepreneurial growth in those regions that can not beconsidered as traditional business hubs.I have been involved personally in building an entrepreneurial ecosystem in Hungary and in CentralEastern Europe since 2010. I was the president of Kairos Society, a student run global not for profitorganization in the past two years in Hungary and I was working on the Central Eastern Europeanexpansion where I met really promising early stage companies building an innovative globally scalableproduct of service. Currently I am an investment advisor for startup companies at InVendor Investmentand Innovation Ltd. and I am working with scalable businesses on their international expansion. I wasthe local organizer of the first international seed accelerator program’s Warmup in Budapest (StartupSauna Warmup in 1st October 2012) and I have organized the Startup Sauna Zagreb Warmup event inMarch 2013.I was also the main organizer of the first Hungarian Innovation Day, that was held on the 16th October,2012 in London in order to connect the Hungarian startups with high growing potentials with Londonbased Venture Capitalists and Seed Investors. The event was supported by the British Private Equityand Venture Capital Association and the EBRD. I am also a TEDx speaker and the author ofstartup/investment articles in business magazines.By regularly working with startups I have realized that there is a lack of publication and primaryresearch on the topic not just in the local level but on the global scale as well. I have started to workon my research at the autumn of 2012. In the meantime a few really valuable contribution had beenpublished including Frimodig, Barrehag et al, and Bollingtoft’s research on the topic (Frimodig, 2012,Barrehag et al 2012, Bollingtoft, 2012). Therefore I have decided to focus on the empirical added valueexpecially by measuring the preferences quantitatively.The effective acceleration of businesses at the early stage is a new management challenge that issolved by top tier accelerator programs and their mentorship based educational elements. This way ofeducation is considered as an alternative of an MBA course, mostly for entrepreneurs as the startupstage needs different skills and approaches (searching for the working business model) as thetransition stage of becoming a successful company (executing a business model). I thought thephenomenon of business accelerators is an interesting research topic of my Management andLeadership thesis in order to know their best practices and added values better that helps theirpositioning within the management science. Because of the lack of Hungarian sources and the lownumber of global scientific literature in this topic I have asked for the opportunity to write a referencework in English in order to have a small contribution to the business accelerators literature within thescience of management.The cradle of business acccelerators is in the US, as a result of the growing popularity of Y combinator(located in Mountain View) and Techstars (started in Boulder, Colorado). The number of acceleratorprogrammes has grown fastly in the US over the past few years and apparently the trend is beingreplicated in Europe. From one accelerator programme, Y Combinator in 2005, there are now hundredsjust in the US that are funding hundreds of startups per year. There are also a number of high proflestartup that succeeded from accelerator programmes. (Miller, Bound, 2011)
  9. 9. 9Despite the short track record it is obvious that business accelerator programs have positive impact onentrepreneurs, helping them to develop rapidly, create a powerful network that helps businessdevelopment and follow-on fundings within a short timeframe.In order to get primary information on the actors during this research I have conducted interviews withglobal investors as the founders and executives of Startup Sauna, Startup Wise Guys, Startup Highwayand a serial entrepreneur. I have also asked entrepreneurs on their experiences and expectations onbusiness accelerator programs by conducting a survey.After the analysis of the results provided by the secondary research and the primary sources(interviews, survey) we are getting to the conclusion and try to give recommendations for global andnational actors involved in this ecosystem both in the world and in my home country Hungary.1.1 Problem statementBusiness accelerators and their predecessors have proven to be an economic development tool for thecommunities they serve. (van Huijgevoort, 2012 p. 4) Growing new ventures is considered as anessential way of creating new workplaces and boosting economy. At the beginning of a companylifecycle there are significant obstacles (lack of business experience, lack of capital, validation) and asa result of that the initial phase of starting a venture could be considered the most critical period ofthe venture lifecycle. Accelerator programs are pushing start-ups through their earliest life cycle at anaccelerated pace by helping to learn the basics of business, giving the participants mentoring,networking, peer support, validation of the business idea and also access to follow-on funding.Accelerators provide entrepreneurs with the support and funding they need to bridge the pathbetween ideas and developing working prototypes. (Miller and Bound, 2011)Business accelerators usually offer seed money and guidance for a small stake, usually between 4 and10 percent, of the start up company. These programs combine services offered by business incubatorswith additional resources and benefits to help start-ups quickly secure funding and receive validation.Unlike business incubators, accelerators are more selective, often accepting only maximum 10-15startups per batch. The reduced number of companies offers a more tailored business developmentprocess. (launchause.com, 2012)The growing number of accelerator programs is the result of the changing economics of starting up.Costs associated with early-stage tech startups have dropped signifcantly in the past years, makingpossible to start a business with small initial money (USD 10 000-USD 50 000) compared to previouseras of investment in digital businesses.There is little scientific literature available about seed accelerator programs (eg. Cristiansen, 2009, vanHuijgevoort, 2012, Frimodig, 2012, Barrehag et al, 2012,) despite its significance presence intechnology blogs (eg. Techcrunch) and online business magazines (eg. Forbes). According toCristiansen „While significant literature exists on startups and entrepreneurship, these acceleratorprogrammes are so new that they still consider their own success an open question.”(Cristiansen, 2009p.5)In this thesis we are using the following definiton for business accelerators:
  10. 10. 10„Accelerators are organizations that provide cohorts of selected nascent ventures seed-investment,usually in exchange for equity, and limited-duration educational programming, including extensivementorship and structured educational components. These programs typically culminate in “demodays” where the ventures make pitches to an audience of qualified investors.” (Cohen, 2012 in Forbes2013)Business accelerator programs and their effects are changing the pre-seed phase of venturedevelopment lifecycle that needs more research focus from the seed financing and also from themanagement perspective of the accelerator program.1.2 The scope of the thesisStarting from the fact that there is little academic research on accelerators, there is a wide range ofpossible research angles available for this thesis. In order to create the context this chapter outlines apurpose and aim of the thesis, as well as a research question. Furthermore, the scope of the study isdescribed as well as how sustainability fits into the investigation.This goal of the research is to identify the criteria of success for business accelerator from differentpoint of view. The stakeholders are the startup founders, entrepreneurs programme founders andexternal investors. We are not examining other stakeholders as governmental institutions and otherNGO-s because they are out of scope of the study. The track record of the accelerators is too early toevaluate programs and their effect. On the long run we can evaluate by measuring success factors assurvival rate of the participating ventures and follow-on investment rounds. There are also soft factorsthat can be considered as the perceived added value by the participating entrepreneurs.The main question of the research: What are the key success factors of a business accelerator?Sub-questions of the research are: How can we define success in case of the business accelerators? How do entrepreneurs select business accelerator programs? What are the expected outcomes of the accelerator programs by the founders, mentors,investors and by the participating startups? Is that possible to create a successful business accelerator outside of the major investmenthubs?The hypothesis of the research is that the success of a business accelerator program is not determinedby the geographical location and the local investment environment where it exists.By using this hypothesis the goal is to find out whether Hungary could be an entrepreneurial hub byoffering internationally competitive accelerator program for companies at the seed level. We will havethe final conclusion after answering the main- and sub-research questions.
  11. 11. 111.3 RelevanceAt the time of the slow economic recovery there is growing interest in helping startups launch andsucceed that has a positive effect on the whole society by creating new jobs. There are an increasingnumber of initiatives seeking to support entrepreneurs as they launch their businesses. (Forbes.com,2012a)1The currently available data on accelerators is lacking, and not sufficient therefore at this stage we areunable to measure the real macroeconomic effects of these initiatives. What can be seen is theimmediate effects on the labour market. 151 registered accelerator programs accelerated 2416companies that has created 6408 jobs so far according to seed-db.com that is an online repository ofseed accelerators based on Cristiansen’s research (Cristiansen, 2009, seed-db.com, 2013)Number of registered programsworldwide151Companies accelerated 2416Number of successful exits 124Sum of exit value $ 1 130 258 600Total funding $ 1 793 109 821Jobs created 64081. Table The macroeconomic effects of business acceleratorsSource: Own edition based on http://www.seed-db.com Date: 03.03.2013.The database has significant limitation as it has been updated by the accelerators manually and someof them not consider their presence here a priority therefore in certain cases the data are missing orout of date. Despite the macroeconomic effects that are visible by seed accelerators it is important tohiglight the fact that because of the lack of data and the short time span we can not evaluate the socialimpact made by the accelerators in this early phase. Y Combinator, the flagship accelerator programoperating since 2005, that is why it has provided more funding alone than the other 152 acceleratorstogether.1http://www.forbes.com/sites/kauffman/2012/08/08/evaluating-the-effects-of-accelerators-not-so-fast/
  12. 12. 12All Accelerator without YCombinator (N=152)Y CombinatorCompanies accelerated 1937 479Jobs created 4892 1548Number of exits 68 57Funding (USD) 801 695 421 USD 1 009 779 400 USD2. Table The macroeconomic effects of accelerators without Y CombinatorSource: Own edition based on http://www.seed-db.com 2 Date: 10.03.2013.Accelerators could be funded by entrepreneurs, wealthy individuals, VCs, business angels orgovernmental institutions. Beside the positive macroeconomic effect by job creation businessaccelerators are providing the pipeline and the dealflow for Venture Capital investors giving them theopportunity of identifying the next success stories. Sourcing is a crucial element of the VC investmentprocess. According to Mahendra Ramsinghani 7% of the investment opportunities are screened, 5%of them are getting to meetings with VCs, 3% will reach the due diligence and only 1% of theopportunities end up with investment. (Ramsinghani, 2011)1. Graph The process of the deaflowSource: Mahendra Rasmsinghani, The Business of Venture Capital, 2011 Figure 6.22You can find a detailed article on the methodological bias by evaluating seed accelerators:http://www.forbes.com/sites/kauffman/2012/08/08/evaluating-the-effects-of-accelerators-not-so-fast/2/
  13. 13. 13As it can be seen above only 1% of the new investment opportunities ends up with successfulinvestment from the Venture Capital perspective (Ramsinghani, 2011). Accelerators could help thenewly established companies to get the needed knowledge, network, mentoring and attitude towardscreating successful businesses giving value to the VCs by offering pre-filtered and validated projectsand valuable dealflow.
  14. 14. 142 MethodologyDuring the research it was a real challenge to find proven and curated academic literature on the topic.The thesis built on the knowledge conveyed by the accelerator research of Cristiansen, VanHuijgevoort, Miller and Bound, Frimodig, Barrehag et al. (Cristiansen, 2009, Van Huijgevoort, Millerand Bound 2011, Frimodig, 2012, Barrehag et al, 2012) I have also used accredited online newspapersas New York Times, Financial Times, Forbes, TechCrunch, Wall Street Journal, Inc etc. as secondarysources.The study combines quantitative (surveying entrepreneurs as prospective accelerator applicants andalumni) and qualitative approach (exploratory interviews). The qualitative approach was neededbecause of the lack of previous studies on the topic. According to Hirsjärvi et al. the aim of qualitativeresearch is to create the description of real situations, including the aspect of the manifold view of thereality. The aim of qualitative research is to explore the topic as comprehensively as possible.Moreover, the objective is rather to find or reveal the new facts than verify existing propositions.(Hirsjärvi et al., 2009, Frimodig, 2012).Because of the limited numbers of scientific literature and research on the topic it was essential tohave primary sources of information about the perception and preferences of entrepreneurs. I haveconducted a survey and asked 94 entrepreneurs including alumni and perspective seed acceleratorparticipants. A variety of international entrepreneurs were surveyed and in order to have first handexperiences I have conducted interviews with the founders of the accelerators, key employees andserial entrepreneurs. This paper is not providing detailed insight into the different sources ofinvestments because these are considered out of the research scope. The research only deals withthose actors (seed investors, business angels, venture capitalists) that are connected with the businessaccelerators either as founders or partners providing follow on investments. I am not evaluating theeffectiveness of involving seed investors and angel investors instead of applying to an accelerator as ithas been considered out of scope.
  15. 15. 153 Theoretical frameworkIn order to have a better understanding of the framework and the ecosystem the goal of this sectionis to shed light on the concepts and the actors around business accelerators. Therefore this sectiondefines entrepreneurship and startup as the basic concepts of the study. Both phenomenon has manydefinitions in use and there is no single definition and the terms are not consistent that are being used.This section also describes how we define an entrepreneur, what are the types of the investors andhow the mentors are involved in the processes of growing successful ventures from scratch.3.1 Describing the concepts3.1.1 EntrepreneurshipSolving a real existing problem is one of the fundamentals of starting a successful company. Identifying„pain points” and offer solutions for them by starting up new ventures is a creative process that iscalled entrepreneurship.Entrepreneurship can be defined as the pursuit of opportunity beyond resources controlled3.According to Steve Blank’s thoughts entrepreneurs could be everywhere. Inside the corporation,within the government or the leader of a non profit initiative could be named as an entrepreneur. Realentrepreneurs should do something in a radically new way and solve problems by doing that. Startupsare led sometimes by managers, engineers or scientists but not real entrepreneurs. (Blank, 2012) BradFeld define entrepreneur as someone who has co-founded a company. He makes a differentiationbetween „high-growth entrepreneurial companies” and „small businesses” He consider bothimportant but entrepreneurial companies have the potential to be or are high growth businesseswhereas small businesses tend to be local, profitable, but slow-growth organization (Feld, 2012)In this research we are using the narrower approach that is supported by Brad Feld. He makes adifference between entrepreneurs and small business owners that are running traditional businesses(Feld, 2012)3.1.2 StartupDefining startup is a big challenge. We often think about two programmers in a garage if we hear thisterm. Starting a new company is getting more and more popular, becoming a trend. As a result of therecent hype around entrepreneurship there are some books, studies, papers on the topic but there isno widely accepted terminology at all. Definitions vary in terms of the maturity of the company,commercial track record, etc. In this paper I am taking a look at the potential ways of defining a startupcompany and finally create an own terminus technicus for that phenomenon.3http://blogs.hbr.org/hbsfaculty/2013/01/what-is-entrepreneurship.html
  16. 16. 16The pre-startup phase, the process from the idea to actual startup phase can be divided into five steps:intention, product/market fit validation, organization creation, business concept alignment andmarket entry. At the beginning of this process, entrepreneurs can be identified as nascententrepreneurs (potential entrepreneurs) and later at the final part starting entrepreneurs, firstlynovice entrepreneurs. (Geldren et al., 2005, Frimodig, 2012) If they are running their businessessuccessfully and get to exit by an acquisition or an IPO they often start their next businesses becoming’serial entrepreneurs’.According to Eric Ries, the father of lean startup concept startup is a melting pot term. „Entrepreneursare everywhere. (…) concept of entrepreneurship includes anyone who works within my definition ofa startup: a human institution designed to create new products and services under conditions ofextreme uncertainty. Entrepreneurship is management. A startup is an institution, not just a product,and so it requires a new kind of management specifically geared to its context of extreme uncertainty.In fact, as I will argue later, I believe “entrepreneur” should be considered a job title in all moderncompanies that depend on innovation for their future growth. (Ries, 2011 p.17)Steve Blank, the professor of Entrepreneurship at Stanford and a serial entrepreneur using thefollowing definition "A startup is an organization formed to search for a repeatable and scalablebusiness model."According to Steve Blank the keyword of the definition is the search as startups have to adapt to theneeds of the customers and challenge the initial assumptions by testing all their hypothesis. Thereforethe goal of the startup is to search and to find the scalable business model that serves the marketneeds and solve the customers’s pain points while enables profitable operation and growth.Dave McClure the Founder of 500 Startups, a leading accelerator has identified the following formulaSTARTUP = Hacker + Hustler + Designer4According to the European Venture Capital Association startup could be defined as „Companies thatare in the process of being set up or may have been in business for a short time, but have not sold theirproduct commercially.” (evca.eu, 2012)Based on the definitions provided above this paper using the term startup as the following:Start-up companies are businesses with high growing potential and global scalability by solving a realcustomer need and continously looking for the most successful business model.4Based on TechCrunch interview with Dave McClure, the Founder of 500 Startups:http://techcrunch.com/2011/04/10/dave-mcclure-on-500-startups-if-sequoia-is-the-yankees-were-the-oakland-as/ Dowloaded: 29.04. 2013.
  17. 17. 173.2 The actors of the entrepreneurial ecosystemEntrepreneurs running startups, are existing within the entrepreneurial ecosystem that containsinvestors, mentors, accelerators, governmental institutions, educational institutions and other actorsof the society. In this paper I put the accelerator in the middle of the ecosystem as you can see below.The graph shows that all the actors are interconnected. The accelerators provides networking accessto entrepreneurs as they are supported by mentors during their program. The mentors get access topromising startups and up-to-date knowledge in their industry. On the other hand they providebranding support for the accelerators by let them use their name for promotions in order to attractthe best startups. Having the most promising companies provide a dealflow for investors that couldresult in capital raise and follow on investment after the core accelerator program.2. Graph The entrepreneurial ecosystem, Own edition based on Barrehag et al, 2012
  18. 18. 183.2.1 EntrepreneursAccoding to Merriam-Webster dictionary entrepreneur is the “one who organizes, manages andassumes the risks of a business or enterprise (Forbes, 2012)5. In this research we are using the termentrepreneur according to Brad Feld’s definition found in the book called Startup Communities:Building an Entrepreneurial Ecosystem in Your City (Feld, 2012) According to the founder of TechStarsentrepreneurs are running globally scalable startups. We consider small business owners out of scopein this paper, therefore we are focusing on entrepreneurs running their business that has real addedvalue and the business can be scalable. According to Hemingway and Balint, the idea of a startup isbased 47% on the previous experience of the entrepreneurs as they are tend to choose a problem tobe solved within they feel themselves comfortable (Hemingway-Bálint, 2004)3.2.2 InvestorsRunning a startup is associated with high risk and often requires more funding than the founders canprovide themselves by boostrapping. Therefore they have to find investors that can provide themcapital in exchange for equity (Arundale, 2007). According to the glossary of the Princeton Universityinvestor is someone who commits capital in order to gain financial returns6. We can make a distinctionsamong the investors based on the maturity of the company where they invest and they can be alsocategorized whether they are establishing legal entities like venture funds or angel funds by becomingformal investors or staying informal and investing their own money in companies. Angel investors,seed funds and venture capitalists are the most associated types of investors with businessaccelerators. In this reseach we are using the following categories:Seed investorSeed investor is providing the money that is used to move on with the idea and start a business – toprovide the first set of premises or to patent a piece of intellectual property or develop a prototype. Itis often the financial contribution of the entrepreneur or his family or friends to getting the enterpriseoff the ground (3F financing). It can also be provided by specialized funds (frequently affiliated to auniversity or a government ‘enterprise’ initiative) or from private individuals or philanthropic trusts. Itwill usually require continuing equity participation in the business, but on vastly diluted terms; if itdoesn’t, because for instance it comes in the form of a government grant, then in consequence theterm ‘capital’ is sometimes misleading. (Bloomfield, 2005)5Source: http://www.forbes.com/sites/brettnelson/2012/06/05/the-real-definition-of-entrepreneur-and-why-it-matters/ Dowloaded: 29.04. 2013.6Source: http://wordnetweb.princeton.edu/perl/webwn?s=investor Dowloaded: 29.04. 2013.
  19. 19. 19Business AngelAngel investors, angel funds and affiliated forms of seed capital provide an early access to investmentopportunities for ventures. An angel investor or a business angel is an affluent individual or a group ofindividuals that provides capital for a business start-up usually in exchange for convertible debt orownership equity. (Forbes.com, 2012b) Angel investor groups are composed of wealthy individuals orhign-net-worth individuals (HNWIs) who pool resources and investment expertise. The number ofactive angels in the United States is reported to be about 125 000, between 10 000 and 15 000 angelsare belong to angel groups (Ramshinghani, 2011). According to Ramshinghani, over 550 angel groupsexist worldwide and nearly 300 of which are based in the United States.Boosting business angel investments is really important especially in Europe where seed acceleratorprograms help to fill in the gap in start-up financing between friends and family and formal venturecapital.Business angel investments can range from USD 5 000 to USD 500 000 or more. At the early stage ofthe business, angels become very real and serious investors and owners with high expectations lookingfor solid results and willing to actively involve themself in setting up the company.Venture CapitalMost business people know something about venture capital or more likely some of the myths aboutventure capital. This invaluable actors are often the currency of business conversation, but much ofthe details what happens during an investment is unknown by most of the people. Since nature abhorsa vacuum, myth rushes in to fill the gap left by the absence of knowledge according to Bloomfield(Bloomfield, 2005)Venture capital is the originated from the United States in the 1960s and 1970s, when individuals putmoney behind bright ideas – that later grew into disruptive businesses like Apple Computers, CiscoSystems, Netscape, – without any certainty of return. It is closer to seed capital than other forms offunding. Venture Capital is the sub-section of private equity. The portfolios of venture capital investorstypically involve risk taking with a potentially expected high return. They are often organized as limitedliability companies with the investors as partners of the corporation (Privco, 2012). VCs invest incompanies in exchange for equity and provides the startup with access to a wider network ofspecialists. (Barrehag et al, 2012) According to Berglund (2011), VCs try to get to know the startups asa part of their due diligence process. The reasoning is that they want to be able to say no to potentiallypoor deals as soon as possible. In addition, the purely technical skill of the teams is evaluated and theirprevious accomplishments are assessed (Privco 2012). Venture money is the supposed plug for theequity gap. (Ramsinghani, 2011) Accelerators can provide validated and pre-screened dealflow for VCsas Venture capital industry has high administrative and management costs and high risks.As a result of these trends VCs are having crucial part of the success of the accelerators by providingfollow-on funding after the accelerator program.3.2.3 Mentors/advisors
  20. 20. 20Mentors are experienced entrepreneurs or investors who contribute time, energy and knowledge tostartups and can be a key part of a startup community. (Feld, 2012) There is a difference betweenmentor and advisor as the advisor has an economic relationship with the company he is advising. Thementor is helping startups without a clear set of outcome goals or economic rewards. Mentors play acrucial role in accelerators by providing guidance and ongoing support for the teams.Well known mentors can bring value to an accelerator besides working with startups by marketing andexposure that can result in attracting the most appropriate startups. As a consequence, by helping torecruit the best startups the mentors will eventually promote the ambition of the accelerator to meetthe investor expectations, namely well prepared startups (Barrehag, 2012 p45)
  21. 21. 214 The new economics of startups4.1 How companies grow?Before explaining what the phenomenons are behind the growing numbers and importance of startupsit is worth to define the phases that organizations go through as they grow. All kinds of organizationsexperience these challenges for a certain extent. Each growth phase is made up of a period of relativelystable growth, followed by a "crisis" when major organizational change is needed if the company is tocarry on growing. (Greiner, 1988)This is not a negative phenomenon rather the needed structural change in order to further developthe company. It is more like a ’turning point’ when the company needs transition. We consider Phase1 and Phase 2 in the scope of the study as they are the typical startup lifecycles.3. Graph How companies grow? Based on Greiner 1988 Source: www.exponentialtraining.comPhase 1 is the stage when entrepreneurs who founded the firm are heavily involved in creatingproducts and opening up markets. There arent many staff, so informal communication works fine,and rewards for long hours are probably through profit share or stock options. However, as capital isinjected production expands and more staff join, theres a need for more formal communication. Thisphase ends with a Leadership Crisis, where professional management is needed. The founders maychange their style and take on this role, but often someone new will be brought in. (Frimodig, 2012)
  22. 22. 22At the Phase 2 growth continues in an environment of more formal communications, budgets andfocus on separate activities like marketing and production. Incentive schemes replace stock as afinancial reward. However, there comes a point when the products and processes become sonumerous that there are not enough hours in the day for one person to manage them all, and he orshe cant possibly know as much about all these products or services as those lower down thehierarchy. (Frimodig, 2012)This phase ends with an Autonomy Crisis: New structures based on delegation are called for.At the seed stage focus is on the business conception and idea development. The startup phaseemphasizes product or prototype development, whereas early growth consists of small-scalecommercialization and focus is on scalability. (Kubiš, 2009, Frimodig, 2012)4. Graph The transition from a startup to a company, Source: Blank, 20137There is also a transformation from the scalable startup that is looking for the right business model toa company that executes the suitable business model at this stage as you can see on the 4. Graph.Seed and startup stages are usually funded by informal investors. “Traditionally, informal seed moneyhas been gathered from 3Fs (founders, family and friends or fools) or 4Fs (founders, family, friends andfoolhardy investors) that have close relationships with founders and they believe that the company canprogress well based on the founders’ experience and capabilities.” (Frimodig, 2012 p42.) Moreover, atthe startup phase investors are still informal and are defined as informal venture capitalists. The maindifference compared to informal seed money is that formal venture capital investors invest in unknowncompanies without close personal involvement. (Frimodig, 2012)Generally, informal venture capitalists are angel investors; micro angels, business angels and superangels. At later growth phases funding is raised from formal investors such as venture capitalcompanies. (Rasila, 2004). Development stages of growth, cash flow and sources of finance arevisualized below (Frimodig, 2012)7Source: http://blogs.wsj.com/accelerators/2013/04/01/steve-blank-should-i-get-an-m-b-a/ Dowloaded:29.04. 2013.
  23. 23. 235. Graph The investment need and lifecycles in Frimodig, 20124.2 The early stage startup challengesThroughout the stages of the development the basic needs of the company are also differ. The startupshave a lack of knowledge and there are difficulties in finding the working business model, have accessto the market and raise funding after their launch. (Harding, 2002; Rasila, 2004.) Filling the gapsdemands that information and knowledge flow between startups and investors. Business angels canfill the gap through a supportive approach, including mentoring, providing expertise, and also mentaland financial support. (Harding, 2002, Frimodig, 2012) Business accelerator also can contribute byhelping founders to bridging the gap between starting up and the market reach.Startups have knowledge and an equity gap in the early stage of their existence. At the beginning thefounders usually need help on product and customer development when they are looking for thesuitable and sustainable business model. Obviously the more knowledge and experience they have,the less support is needed. Parallelly with that, the need for capital is arising as the company isdeveloping and reaching the milestones step by step. In this development process the emerging needof seperating different functions as IT, product management, marketing, sales, business development,etc is appearing.
  24. 24. 246. Graph Equity gap vs. competence gap (Rasila, 2004; Ala-Mutka 2005) in Frimodig, 20124.3 Changes in the business environmentAs a result of the globalization and market- oriented business thinking, domestic markets have lostsignificance and businesses going to global markets from day one. Operating in an extremely complexenvironment makes the starting up process even more challenging as a result of different cultures,politics and technological solutions. (Hisrich, 2010, Frimodig, 2012)Globalization is a natural process that could be defined as “universal mechanism that grew out of thenaturally occurring order-exchange process”. Globalization has roots deep in history, but nowadays itspace has been accelerated. (Beer, 2011 in Frimodig, 2012 p13). The global business environment haschanged according to Frimodig (Frimodig, 2012) during the last few decades and therefore has affectedthe internationalization process of companies leading to the emergence of born globals in the 1990s.(Laanti et al., 2007. in Frimodig, 2012)The global aspiration of the startups is demanding management challenge because of the unbalancebetween goals and resources. Usually the relatively young and inexperienced founders’ lack of relevantknowledge, which is needed to gain high- growth in the global market. (Knight and Cavusgil, 2004;Gabrielsson, 2007, in Frimodig, 2012). However, enthusiasm and vision can give limited compensationin filling the knowledge gap (competence gap). The startup should seek appropriate resources andknowledge outside the company to cover the knowledge gap. (Frimodig, 2012)According to P. Miller and K. Bound (Miller, Bound, 2011) the changes in the environment hadsignificant effect both on the startup side and on the investor side as well. Those are decraising startupcosts, better access to customers and more efficient monetisation by using different online channels.According to P. Miller and K. Bound „the falling costs of hardware and software (are) one of the main
  25. 25. 25drivers in the proliferation of startups over the last five years and an important factor in the growth ofaccelerator programs” (Miller, Bound, 2011 P. 21.)The cost of launching a start-up is decreasingAs a result of the technological developments, the new ICT business models and the decreasing servicecosts startups can start their operation with rented resources instead of having significant initial costsby hardwares for example cloud services could be a cost effective solution instead of buying a serverand paying for the maintenance in-house. These alternatives are affordable compared with the solidhardware infrastructure needed before the dot com bubble to start a new company.Dot-com Era Lean startup eraBuy own servers and drive them to thedatacenterUsing services from the cloudBuying software licenses for all the employee Activate Google Apps for your domainAgree and sign an office lease Working from/meeting at a coworking spaceLaunch a billboard campaign Google Adwords or Facebook advertismentsTake years to build software and then release Iterative agile software development withdaily updates3. Table Starting up in the dot-com era versus the lean startup era (Based on Miller, Bound, 2011)The trend turning towards open source softwares also helped a lot by making the startup more „lean”.Licenses for software used to cost a lot, now there are alternative tools in most cases for free or veryreasonable prices.Another favourable trend is the pay as you go business model or monthly subscriptions for onlineservices like online CRM, project management, workflow, cloud ERP and other related softwares andservices.8Small companies should not have to pay significant money on upfront. Certain sofwares areavailable in the cloud for them that would not be affordable otherwise. Startups can start usingservices for free and if they decide to use the premium functions they can pay a monthly fee.Leased offices could be replaced by working in coffee houses or paying daily or hourly fees at co-working spaces that gives extra flexibility for startups especially at the very beginning of their customervalidation and development process. Meeting room rental services are also available at the co-workingoffices.The initial costs of setting up a business has changed dramatically in the last couple of years. The majorcost of early-stage companies are not related to technology nowadays but more like human resourceexpenses. One of the initial problems for founders how to cover their daily expenses while they are8You can find cost effective tools for startups in the following article: http://www.inc.com/tom-searcy/start-up-on-a-budget-14-cheap-tools.html Dowloaded: 29.04. 2013.
  26. 26. 26developing the first product, trying to acquire new customers or working on finding investors. (Miller,Bound, 2011)Easier to find and address new customersNot just the decreasing cost of the starting up process that has changed in the last decade but thecustomer acquisition methods and costs too. There are new online channels of reaching the targetaudience and these channels also give better results based on the better measurability and moreeffective targeting. By using Google Adwords, Facebook or LinkedIn advertisements it is possible to prevalidate products, services on low budget and continuing spending just on the effective channels,campaigns. There is another reason starting up is cheaper as competitive analysis is getting easier andcheaper now by using online channels like LinkedIn, AngelList or Crunchbase on the competititorsfunding, employee count, and sales.9Getting the revenue inflow is easierBeside the growing number of potential customers by the result of the easier starting up, reach andtargeting there are effective ways on getting paid for products and services via direct paymenttransactions through e-commerce channels, app stores or subscription based models. Based on thesefacts online channels that makes a much more cost effective alternative than traditional commercialchannels.Changes in the investment marketThe economics of startup companies changed dramatically and the entry barriers to the technologyintensive markets have decreased significantly during the past decade that can be considered as oneof the main factor behind the growth of the business accelerator programmes.Beside the lower costs of starting up a venture, the venture capital industry is having hard time toadapt and find their place in the ecosystem. VC has retreated from early-stage investments,particularly in Europe, and the way of early-stage investment is changing. In the US a number of multi-stage investment funds have emerged, but in Europe, bar a few newly developed ‘feeder funds,’ likeIndex Seed and Atomico, an investment gap is growing both the US and Europe, business angels havestepped in to fll this gap since 2000. (Miller, Bound, 2011)Yet despite positive signs that the gap in venture performance between the US and Europe isnarrowing, it is likely that the gap will widen again as US investors are set to reap the social mediaboom. “The problem with the European investment market is not that European investors aren’t asgood at growing companies, but that the environmental conditions, and particularly the pipeline ofcompanies is inadequate. This is proved by venture performance data – UK VCs perform better thanaverage when they invest in the US and US VCs perform worse than average when they invest in theUK.” (Miller, Bound, 2011 p23.)9Source: http://davidquail.com/2012/05/11/another-reason-starting-up-is-cheaper-now/ Downloaded: 29. 04.2013
  27. 27. 27The fundraising is critical for the growth of a born global company. Generally the companies that havegained external funding grow faster. On the other hand, investors and venture capitalists searchfounders that are able to create global visions, have international business experience and globalnetworks, and therefore competence, knowledge and experience are all important. (Laanti, et al.,2007) (Frimodig, 2012)Technically, in the early phases of a born global company, the product development has a significantrole. It is crucial to have a clearly focused product portfolio and keep the customer focus. (Barringer etal., 2005, Gabrielsson, 2007, Frimodig, 2012) The right combination of engineers, designers, marketingand sales makes a team an interesting investment targets.As a result of the costs of starting a new venture coming down, venture capitalists increasingly makingsmaller seed investments and seed investments in internet companies are becoming more prevalentwhen it comes to early stage investing.107. Graph Seed deals by vintage quarter Source: www.cbinsights.comOn the other hand, regarding the follow-on investments for seed funded companies there is also aninteresting trend. The next investment level after the seed funding called Series A that remainsrelatively steady in the past few years despite the boom of the seed investments. The gap betweenthe two funding round called the Series A Crunch that is an excessive demand for a limited supply of10Source: http://www.cbinsights.com/blog/trends/seed-investing-report Dowloaded: 29.04. 2013.
  28. 28. 28Series A financings. This trend would mean that “many startups will be orphaned and that someinvestors will lose their money”. (cbinsights.com, 201311)8. Graph Series A Deals by Vintage Quarter Source: www.cbinsights.comThe Series A crunch is one of the biggest challenge that the early stage VCs and business acceleratorsand their portfolio companies are facing with in the next few years.11Source: http://www.cbinsights.com/blog/trends/seed-investing-report Dowloaded: 29.04. 2013.
  29. 29. 294.4 The background of the shift between business incubators and businessacceleratorsThe seed accelerator (or business accelerator) derives many of its characteristics from the businessincubator. Therefore it is recommended to start the description by introducing the concept ofincubation.Incubators, the predecessors of the business accelerators have proven to be an economic developmenttool for the communities they serve since 1959. The general idea behind the incubation concept tocreate an institutionalized environment that assists and enables startup companies and business ideasto grow. (Barrehag et al, 2012) Incubated companies have created numerous jobs, thereby increasingthe tax base, occupying additional commercial real estate space, contributing to local businessinfrastructures and creating even more jobs in other industry sectors (van Huijgevoort, 2012 p4.Wiggins & Gibson, 2003)Business incubators are institutions that support entrepreneurs and the process of starting a venture,helping to increase survival rates for innovative companies and also for small and medium enterprises.The process of developing a startup company within an incubator can be extensive and could takeseveral years. (Barrehag et al, 2012)There is no widely accepted standard definition of business incubation. There are several definitionsavailable in the academic literature and just as many have been adopted by industry associations andpolicymakers in different countries, reflecting local cultures and national policies. According toHamdani, Germany targets innovative start-ups, while France and the Netherlands promote theuniversity-incubator model. (Hamdani, 2006)The American National Business Incubation Association defines a business incubator as “an economicdevelopment tool designed to accelerate the growth and success of entrepreneurial companies throughan array of business support resources and services. (Bollingtoft, 2012) According to Sherman &Chappell (Sherman & Chappell, 1998), these support services include assistance in developing businessand marketing plans, building management teams, and obtaining capital and access to a range of other,more specialized, professional services. They also provide flexible space, shared equipment andadministrative servicesThe main purpose of a business incubator, is to create a favorable business environment for start-upfirms to compensate for the lack of financial, knowledge and networking resources they generally have(Commission, 2002). The start-up firms in an incubator are provided offices for moderate price, sharedequipment, administrative services (legal advisory, accounting etc.) and other business relatedservices. (Bollingtoft, 2012).
  30. 30. 309. Graph The Role of Business Incubators Based on: Sahay, 2004,According to Sahay the author of the Role of Technology Business Incubator, Angel Investor andVenture Capital Fund in Industrial Development ’Business incubators accelerate the successfuldevelopment of entrepreneurial companies through an array of business support resources andservices, developed or orchestrated by incubator management, and offered both in the incubator andthrough its network of contacts. A business incubator’s main goal is to produce successful firms thatwill leave the program financially viable and freestanding. These incubator graduates have thepotential to create jobs, revitalize neighborhoods, commercialize critical technologies and strengthenlocal and national economies.’ (Sahay, 2004 p5.)The US Small Business Administration defines incubators as: physical facilities that provide new firmswith the supportive network necessary to increase their probability of survival during the early yearswhen they are most vulnerable. (Cornelius, 2003)Business incubators are institutions founded to be the catalysts of the entrepreneurial process, byhelping to increase survival rates for innovative startup companies. Entrepreneurs with feasibleprojects are selected and admitted into the incubators, where they are offered specialized resourcesand servicesthat might include such elements as (Sahay, 2004): Providing available spaces (office, production space, laboratories for discounted renting fee) Consulting and Management services (consulting for business planning, financialmanagement, taxes, marketing, advertising, advice on intellectual property, access to funding) Administrative services (juridical assistance, accounting, shared bookkeeping)
  31. 31. 31 Logistic support (office services, utilities, usage of equipments, IT services) Technical assistance (laboratory services, instruments, research services, assistance with earlyengineering & prototype, quality management services, technological services) Business networking (access to different actors, institutions, universities, corporates, chamberof commerces, investors) Training and education (professional business training courses, fine tuning businessmanagement skills (planning, organizing, directing & controlling), coaching, mentorship andpersonnel training services, entrepreneurial training programs)(Based on Sahay, 2004, Van Huijgeevort, 2012, Vasilescu, 2008)Efforts to determine how incubators assisted firm development quickly became an examination ofincubator categories. Based on the extent of value added services there is a continuum from real estateincubators to purely business development focused programs. (Cornelius, 2003, van Huijgevoort, 2012,Bøllingtoft & Ulhøi, 2005; Christiansen, 2009; Commission, 2002; Grimaldi & Grandi, 2005; Hansen,Chesbrough, Nohria, & Sull, 2000.)10. Graph Continuum of added value services provided by incubators and accelerators (Price, 2004 in Frimodig, 2012)In short, there has been a shift from real estate provision and appreciation to for-profit enterprisedevelopment, as the main starting point of business incubators (Aerts et al., 2007 in van Huijgevoort,2012).At the time before the dot-com bubble in 2000, a lot of networked incubators12started with a focuson IT-based startups. These very specialized and received significant funding from investors at a rapid12Networked incubator: A networked incubator is a type of business incubator model which is a suited modelof the Internet economy. The ‘Networked Incubator’ model emphasizes the dynamic working environment,with start-up firms constantly working together,and informal interactions of co-founders and participants (vanHuijgevoort, 2012)
  32. 32. 32pace. The model was based on large investments in single projects, which suited venture capital andhad previously been successful (Miller, Bound 2011).As the dot-com bubble inflated, many promising IT-based were unable to generate revenue andcollapsed (Blank 2005). Within two years starting from 2000 to 2002 NASDAQ lost 80% of its formervalue because of the dot-com bubble. This collapse in valuation meant that many investors lost theircapital in companies that had only succeeded in burning through their money without creating anythingof value. (Barrehag et al, 2012) Critics of the networked incubator investment model coined the term“incinerator” to emphasize the problems of investing large amounts of capital at once withoutdemanding measurable results (Miller, Bound 2011), (Barrehag et al, 2012).As the investment climate began to recover a few years later, the new frameworks and approachesinitiated by entrepreneurs such as Paul Graham started to gain the attention of the investors. Keychanges in the model were shorter incubation cycles, as most IT based products can be developedfaster than physical products. (Miller, Bound 2011)5 years after the peak of the dot-com bubble Paul Graham launched Y Combinator in Silicon Valley.This represented a business idea that had a lot of common characteristics with traditional incubatorbut there were also significant process innovations. Most importantly, the acceleration period isusually no longer than three months that is suitable for ICT related applications. In addition, the costand structure of investments differ in that they are much smaller in each individual startup. (Barrehaget al, 2012). Y Combinator for instance offers twice a year 40 companies 11-20 000 USD investmentsfor 6-7 percentage of its stake.4.5 Business acceleratorsThe traction of business accelerators is much shorter, originating from 2005 (Christiansen, 2009; Miller& Bound, 2011). A very small amount of scientific literature exists on business accelerators, howeverthe growth in the number these programs is significant. According to Bloomberg Businessweek, in2011 around 110 business accelerator programs were operating around the world (Van Huijgevoort,2012) and for 2013 it has grown to 153 (seed-db.com, 2013).According to Susan Cohen who is a researcher at the University of North Carolina at Chapel Hill:Accelerators are organizations that provide cohorts of selected nascent ventures seed-investment,usually in exchange for equity, and limited-duration educational programming, including extensivementorship and structured educational components. These programs typically culminate in “demodays” where the ventures make pitches to an audience of qualified investors. (Forbes.com, 2012)
  33. 33. 3311. Graph Different types of accelerators, Source: Frimodig, 2012
  34. 34. 345 Key elements of the business accelerator programsBusiness Accelerators have several distinctive features that set them apart from existing incubatorsand other programmes to support startups.1312. Graph The intersection of accelerators and incubators Source: www.launchause.comSince the establishment of the first business accelerator program (2005) they were driven almostexclusively by private investors, and concentrated in the web and mobile sector.In the past few years not-for-profit accelerator programs also started to operate (eg. Startup Sauna,Startup Chile, etc.) There is some variation between programmes, but they comprise five mainfeatures. The research uses the approach of Miller and Bound by describing business accelerators.(Miller and Bound, 2011) An application process that is open and highly competitive. Provision of pre-seed investment, usually in exchange for equity. (There are a few not-forprofit programs as well usually supported by the governments) A focus on small teams not individuals. Time-limited support comprising programmed events and intensive mentoring. Startups supported in cohort batches or ‘classes’. (Miller, Bound, 2011 p3.)13Read more about the differences at van Huijgevoort’s thesis: The ‘Business Accelerator’: Just a DifferentName for a Business Incubator? http://www.dutchincubator.nl/uploads/Documents/49.pdf Dowloaded: 29.04.2013.
  35. 35. 355.1 Easily accessable open application processAccelerator programmes have web-based application processes and they are expecting applicationsfrom teams coming from anywhere in the world. The application process is simple, by keeping minimalpaperwork needed. The form often focuses more attention to the founders and the team rather thanthe business idea and concept. If the team managed to get through the pre-selection, they are invitedto an interview that are pretty short (10-20 minutes in most cases). The process of selection from theapplication deadline through to a decision is often very short compared to many routes to funding orbusiness education programmes. (Miller, Bound, 2011)5.2 Intensive competitionProgrammes are highly selective and exclusive, involving serial entrepreneurs, investors, experts tochoose the most talented teams that worth to participate in the accelerator program. Most of theaccelerators are having applicant success ratio of less than one in ten. Accelerator programmes ofteninvest considerable time in speaking and running events internationally to reach out to potentialapplicants to maintain the quality of the applicant pool (eg. Startup Sauna, Seedcamp). For high profileaccelerators, less than 1 per cent of applicants will be successful.Accelerators usually decide on a limit on the number of startups they can support in each cohort basedon the amount of office space they have available or the number of mentors and operational staffneeded to handle larger numbers. One of the most successful one, Techstars has decided to work withten companies per batch whereas Y Combinator has been less constrained. They now fund over 60companies per cohort.5.3 Offered pre-seed/seed investmentThe investment provided by accelerator programmes is different, in most cases it depends on howmuch it costs per co-founder to live during the period of the programme and for a short periodafterwards. Programmes usually provide a minimum of USD 20 000 and a maximum of USD 50 000investment during the first three months. This can be in the form of a non refundable grant, convertiblenote or an equity investment. (Miller, Bound, 2011)5.4 Focus on teamsAccelerator programs are focusing on teams not individuals. They usually prefer teams not larger thanthree or four person. Larger teams needs more initial investment to cover the living expenses andmake the co-founders ready to work on solely on the startup.
  36. 36. 365.5 Time-limited support, intensive mentoringAccelerator programmes provide support for a set period of time – usually between three and sixmonths. According to Miller and Bound this is linked to the decreasing length of time it takes to launcha web startup, but it’s also about creating a high pressure environment that will drive rapid progress.(Miller and Bound, 2011)While a number of programmes do offer ongoing support for graduated companies there is always amore intense interaction with the programme for the giving time frame of acceleration. Regularmeetings and discussions with mentors, experienced founders, investors and other relevantprofessionals is a significant added value of the business accelerator programs.Business accelerators should have enough incentives or opportunities that make them attractive forstartups as the competition is growing. In other words, any new accelerator programme must bedistinctive and compelling to entrepreneurs (Cristiansen, 2009).There are introductions where mentors present their ideas and experience and then spend time withteams on a one-to-one basis. According to Miller and Bound the aim of this kind of mentoring is two-fold1. to challenge the teams and give them honest feedback on where they’re going right andwrong2. to give them a chance to create longer-term relationships with mentors who could take onthe role of an advisory board over time. It’s not uncommon for angel investors who act asmentors to become investors in the companies they work with. (Miller, Bound, 2011)It is essential for an accelerator programme to develop an extensive network of prestigious mentors,serial entrepreneurs and investors with wide range of expertise around the batches.In the accelerator programs startups have the opportunity to be educated on business topics and onproduct-specific topics that are applicable in their industry. Accelerators that operate in regionswithout a strong history of entrepreneurship will need to create a more comprehensive educationalprogramme, while accelerators that focus on more experienced entrepreneurs can likely be successfulwith a more tailored educational programme. (Cristiansen, 2009)According to personal interviews with entrepreneurs access to respected high professional mentors isone of the most important element of the competitiveness among the programs. Attracting highquality mentors requires filtering and admitting only high quality startups. (Miller and Bound, 2011)Accelerator programmes usually offer regular professional and get together events between theparticipating companies/mentors and external partners. The accelerator programs finish with thedemo day where the teams having the opportunity to present their progress in front of business angeland Venture Capital investors.The demo days are at the end of the programs and they are designed for angel and venture capitalinvestors to come and see what has been developed during the accelerator program. It can also givecompanies a chance to launch their product or service to the outside world – media coverage is
  37. 37. 37common. These events give participant teams access to a large and high quality group of investors ina way that would be very difficult to achieve without the accelerator programme. (Miller and Bound,2011)13. Graph The Accelerator Cycle, Source: Barrehag, 20125.6 Batch of startups and alumni networkAccelerator programmes differ from business angel or seed fund investment since batches ofcompanies are getting investment at the same time. Startup founders are the ’raw materials’ in theaccelerator process putting them through the same process and mass producing them by resourceefficient way that can be achieved by helping companies all at the same time.One core advantage of cohort working is the peer support that startup teams provide each other. Thiscan take the form of technical co-founders helping each other out with problem solving through toearly feedback on pitches that avoids embarrassing mistakes ahead of more vital presentations toinvestors or clients. By encouraging the startups to support one another, some of the burden is alsotaken off the accelerator management team, allowing them to focus on bringing in outside expertise.Co-working is a key part of the accelerator programme although not all the accelerators provide deskspace. Y Combinator organize meetings once or twice a week. In spite of not having office face-to-facemeetings and events between peers and mentors are essential. (Miller, Bound, 2011)For accelerators the intangible value of the alumni network will becomes a distinctive in the future.The more startup they fund, the faster the alumni network grows and they can be mentors, investorsand advisors for future cohort companies. Being a mentor/investor after becoming a successfulentrepreneur by the help of a business accelerator could be the pillar of the sustainable developmentof these programs.
  38. 38. 3814. Graph Key elements of the accelerator program, Source: Van huijgevoort 2012It is also interesting to have a look at on the business accelerator cycle. If they can attract high profileentrepreneurs and mentors that results in successful startups. Successful startups are the mostimportant outputs of the accelerator process and the base of the valuable dealflow. If the follow oninvestments are relatively frequent that helps to build a brand around the accelerator that results inbetter batches in the future.15. Graph The vicious circle of the accelerators, Source: Frimodig, 2012
  39. 39. 396 Introduction of international best practices of seed acceleration6.1 Y CombinatorY Combinator14is the first seed accelerator program in the world by established in 2005. Y Combinatoris a hybrid venture capital fund and business school that invests in, advises around 40 early stagebusinesses twice a year. (Wired, 2011) The HQ is situated in the center of Silicon Valley, in MountainView. Twice a year the company hosts a three-month boot camp. Each team that is accepted receivesseed funding 11 000 USD for the group plus 3 000 USD more for each member of the founding team.In exchange Y Combinator gets a small stake in the startup, usually 6 or 7 percent. Only 1% of thestartups are admitted that were applied to the program. There are approximately 2000 applicants foreach Interview Days. (Wired, 2011)Y Combinator supplements the money with advisory and coaching services, introductions to later stageinvestors, technical help, and have an extended community. Over the 13 weeks the members of the YCombinator getting valuable feedbacks from industry experts, innovators and investors. Their modelhas produced many promising startups, couple of significant acquisitions and many seed acceleratorswith similar business models all around the world. The founders of Dropbox, Reddit, Loopt and Scribdwere all discovered by Y Combinator. As a result of the ongoing successes of the Y Combinatorcompanies, tech blogs always covers the launches of the new ventures coming from Y Combinator(Wired, 2011)According to Paul Graham - the founder of Y Combinator - founding a company is the most efficientway to create wealth for investors, for founders, for society at large despite the difficulties. As PaulGraham15told Inc. Magazine ‘There’s a classic pattern that has happened over and over againthroughout the history in which something is made one at a time, very expensively and unreliably byhand, and then someone comes along and figures out how to make large numbers of them cheaply andreliably. (…) We are pulling this kind of transformation with venture funding. We’re mass-producingthe start-up’ (Chafkin, 2009)Y Combinator offers free incorporation services from its in-house lawyer. Investors from SequoiaCapital, one of the most respected VC company according to Techcrunch (Schonfield, 2011) giving one-on-one coaching. Free office space at AOL’s Palo Alto headquarter is also given to one of the YCstartups. A partner of YC Rackspace also supplies each company with web hosting worth 20 000 USD.Y Combinator companies are officially launched after the first press release at one of the significantmedium of the technology scene (eg. TechCrunch, Inc, etc.). Over the past six years, about a quarterof Y Combinator companies have folded and many more are barely existing. That is a relatively small14Y combinator is a mathematical function that makes other functions, just as Y combinator is a company thatmakes other companies (Chafkin, 2009)15Paul Graham is the Founder of Y Combinator. He holds a Ph.D. in computer science and has several years offormal training as a visual artist. Before starting Y Combinator he founded Viaweb, a dot-com softwarecompany that helped retailers sell online. Viaweb was acquired by Yahoo in 1998 for 49 million USD.
  40. 40. 40failure rate in the startups scene. As a result of the high quality companies the investors are really openminded to be the part of the Demo Day. In 2005 15 investors showed up to the first Demo Day; in 2011more than 365 attended to the 2 days long Demo Day.Speakers and coaches of YC are include Salesforce.com CEO Marc Benioff, Facebook founder MarkZuckerberg and eBay CEO John Donahoe.Founded 2005Location Mountain View, CaliforniaFounders Trevor Blackwell, Paul Graham, JessicaLivingstone and Robert MorrisCompanies per class 46Total startup alumni to date 513 companiesNotable Alumni AirBnb, Reddit, Dropbox, Scribd, Heroku4. Table The basic facts of Y Combinator Source: NESTA and seed-db.com, Ycombinator.com6.2 TechstarsTechStars is a mentorship-driven seed stage investment program. TechStars runs a three month longprogram in Boston (MA), Boulder (CO), Cloud (San Antonio, TX), New York City (NY) and Seattle (WA)once a year since 2007 and in London from 2013. (Techstars.com, 2012). The programme lasts 12weeks, for which the companies have to move to the Techstars office space and completely focus ontheir projects. (Miller, Bounds, 200x)TechStars uses a franchise model. TechStars is also spredading their global network by creating GlobalAccelerator Network in partnership with Startup America. As a result of that they outsource theirmodel and help launch other accelerators. The seed stage investment program is pretty selective. Theychoose the 10 best companies from hundreds of applicants. Those companies get 18 000 USD in seedfunding. Moreover, companies accepted into the program are offered a 100 000 USD convertible debtnote by well known investors. Total of 114 companies has gone through the program and in 2012 Q198 were still active. (Forbes, 2012c) About 80% of TechStars companies go on to raise venture capitalor a significant angel funding round. Companies managed to raise an avarage 1.1 million USD. Around40% of startups come from the neighbouring cities of each program. (Forbes, 2012c) Mentoring is oneof the most important added value of the Techstars approach and the first month of the programmeconsists almost entirely of meeting experienced tech entrepreneurs and investors and receiving often
  41. 41. 41honest feedback on their businesses. Unless a team can attract five mentors to help them, Techstarsfeel they’re unlikely to succeed. (Miller, Bound, 2011)As David Cohen, the founder of TechStars said „The venture community has started to see high qualityaccelerators as a filtering mechanish, It’s become a new college for entrepreneurs because we’re soelective on front end” (Forbes, 2012c). TechStars uses the mentorship driven model (10 to 1 mentorto startup ration) in order to assure that each company could get enough feedbacks and attention fromvarious professionals. The management of TechStars is emphasizing the transparency of theiractivities. They have published a list of every companies that have gone through TechStars with fundinginformation, number of employees, failure rates, etc. The differentiative strategy could be found bykeeping the incubator batches small and giving more attention to the participants. They hold oneprogram each year. As the founder declared: „For us we focus on quality over quantity. We want allcompanies we fund to be successful. We have kept our class sizes small” (Forbes, 2012c) One moredifferentiator is that the founer David Cohen also invests his own money in startups.Founded 2007Location Boston, Boulder, New York, Seattle, LondonFounders Brad Feld, David CohenCompanies per class 10 per locationTotal startup alumni to date 189 companiesNotable Alumni CrowdTwist, Occipital, Orbotix, SendGrid5. Table The basic facts of TechStars Source: NESTA and seed-db.com, techstars.com
  42. 42. 426.3 500 Startups500 Startups is a seed fund and incubator program focusing on early stage startups founded by DaveMclure. 500 Startups is located in Mountain View, CA. They invest primarily in consumer & SMBinternet startups, and related web infrastructure services. (crunchbase.com, 2013)Selected areas of interest include financial services & e-commerce, search/social/mobile platforms,personal & business productivity, education & language, family & healthcare and web infrastructure.The program offers between USD25 000 and USD100 000 funding in exchange for 5% equity (withsome exceptions), and lasts for three to six months. (Businessinsider.com, 2012) In addition to funding,the 500 Startups Accelerator program also offers access to 120 mentors, sponsorships frominfrastructure providers like Microsoft, Rackspace, and Amazon Web Services, and office space at 500Startups headquarters in Mountain View. 500 Startups also organizing events like SmashSummit,UnSexy, and GeeksOnaPlane. 500 Startups investment team and mentor network has operationalexperience at companies including PayPal, Google, YouTube, Yahoo, AOL, Zynga, LinkedIn, Twitter,Apple & Facebook.As of April 2012, 500 Startups had invested in 257 companies, including myGengo, Artsicle, Visual.ly, Ela Carte, and Udemy.Founded 2010Location Mountain ViewFounders Dave McClureCompanies per class 30Total startup alumni to date 126Notable Alumni myGengo, Artsicle, Visual.ly, E la Carte, andUdemy6. Table The basic facts of 500 Startups Source: seed-db.com, 500.co
  43. 43. 436.4 SeedcampStartup companies that need business acceleration shouldn’t go directly to the Valley in order to growand develop into a meaningful venture. Seedcamp is Europe’s most well-known accelerator fundfocuses on European startups with high growing potentials. (Forbes, 2011 seedcamp) Founded by SaulKlein (former Skype VP) and Reshma Sohoni (previously worked for a private equity firm 3i) Seedcampis a combination of investment firm and entrepreneur boot camp. (Techcrunch, 2012) (Forbes, 2011)The participants receive 50 000 EUR (70 000 USD) and the opportunity of joining Seedcamp’s weeklongtraining camp in London. There they will be able to get access to volunteer mentors –productdevelopment specialists, lawyers, accountants, financial experts, investors and other entrepreneurs-.Seedcamp also offers one-day meet-ups throughout the year and also organizes one week long trip tothe US for boot camp graduates. Seedcamp is organizing one day workshops in different cities in orderto find the best entrepreneurs at different parts of Europe (Italy, Israel, Latvia, France, Estonia, Hungaryetc.).The best companies are choosen to participate at the Bootcamp. Seedcamp offers 50 000 EUR inexchange for about 9% equity. (Forbes, 2011 seedcamp). Seedcamp has around 40 investors roughlyhalf of them angel investor, and half of the VCs. As a result of this structure seemingly the ecosystemowns (the investment parties at least) Seedcamp not just a few business angel, one VC and the ownerlike in case of YC. Its goal is creating a better startup „ecosystem” for Europe, in the region of diverselanguages, cultures, economies that make difficult growing fast and getting global within a short run.Seedcamp is also working on creating bridges to the Valley by partnering with American seed fund,500 Startups, founded by Dave McClure. Seedcamp also have negotiations on building otherpartnerships in New York, Boston and Berlin.Founded 2007Location LondonFounders Saul Klein, Reshma SohoniCompanies per class 15-20Total startup alumni to date 88Notable Alumni Mobclix, Zemanta7. Table The basic facts of 500 Startups Source: seed-db.com, 500.co
  44. 44. 446.5 Startup SaunaStartup Sauna is a Finnish not for profit accelerator founded in 2010. Startup Sauna is funded by theStartup Sauna Foundation that is backed by SITRA, Teknologiateollisuus, Aalto University and privatecompanies. Startup Sauna connects the pre validated startups from Northern Europe, Russia withexperienced serial entrepreneurs, investors and media from around the world. In practice, StartupSauna consists of three different operations: An internship program for university graduates to intern at high-growth companies in Helsinki andSilicon Valley. More than 60 interns have been employed through the program to date An accelerator program for early-stage startups from Northern Europe and Russia, where thestartups get coached by experienced serial entrepreneurs and investors in an intense one-monthprogram in Helsinki. More than 90 companies have graduated from the program since 2010 The Slush conference, which brings together the early-stage startup ecosystem in the region tomeet top-tier venture capitalists and media from around the world. In 2012, Slush gathered morethan 3.500 attendees, 550 companies and 250 investors and journalists for two days in HelsinkiStartup Sauna seeks the most promising early-stage startups learn, grow and help them becomesuccessful ventures with the help of their extensive network of coaches since 2010. Startup Sauna isphysically located in its own co-working space found on Aalto Universitys campus in Espoo, Finland.16Startup Sauna is funded by Aalto University, Tekes (The Finnish Funding agency for technology andinnovation), Teknologiateollisuus and Sitra.17Startup Sauna is using a mixed ownership structure asthe Finnish accelerators and incubators usually tend to do. (Turi, Koranyi, 2010)Founded 2010Location HelsinkiFounders Kristo Ovaska, Captain, Juha RuohonenCompanies per class 15-20Total startup alumni to date 80Notable Alumni Ovelin (USD 1,4mil from TrueVentures, Futureful(USD 2 million including founder of Skype JanusFriis), Advacam, Blaast, Videolla (Virool), AsemaElectronics, Dentatube, Audiodraft, Infogram,Froont, Mcule.com, SooMeta, MailMill16Source: www.startupsauna.org Dowloaded: 29. 04. 201317Source: angel.co/startupsauna Dowloaded: 29. 04. 2013
  45. 45. 458. Table The basic facts of Startup Sauna Source: seed-db.com, startupsauna.org6.6 Startup Wise GuysStartup Wise Guys is an international 3 months intensive and mentorship driven accelerator programfor early stage technology startups. The program is hosted twice a year and up to 10 new teams areaccepted to each cycle of the acceleration that means investment in 20 startups a year. The programis tailored for startups who want to take their prototypes to new level and work hard for business plan,product development and get mentorship, guidance. Startup Wise Guys network consists 70+international mentors and patch of international teams. Startup Wise Guys is based in Tallinn, Estonia.The program ends with Demo Days in Estonia and in London. Startup Wise Guys gives chosen startupsup to €15 000 investment based on the number of founders. In return Startup Wise Guys take 8% ofequity. (startupwiseguys.com, 2013)18SWG has an agreement with SmartCap for 1M EUR investment for alumni and the team is currentlyworking on a follow up US program for selected teams.(angel.co, 2013)19Mentors are divided into 3 categories - local, corporate and international mentors. Each team is havingtheir personal mentors, and given access to others as well. The startup companies are supported by13 angel investors who actively participate in the selection process to get experience in co-work andconfirmation to continue their individual investments.Founded 2012Location Estonia, TallinnFounders Jon Bradfor, Herty Tammo, Mike ReinerCompanies per class 8Total startup alumni to date 15Notable Alumni Brandiegames, Monolith VitalFields, Brickflow9. Table The basic facts of Startup Wise Guys Source: seed-db.com, Startupwiseguys.com18Source: www.startupwiseguys.com Dowloaded: 29. 04. 201319Source: https://angel.co/startupwiseguys Dowloaded: 29. 04. 2013
  46. 46. 466.7 StartupBootcampStartupbootcamp is a three-month European startup acceleration program providing seed funding, co-working space with other startups and a significant mentorship program - which focuses on gettingyour startup the right exposure, the ability to scale across European to global markets and fundingfrom potential investors. Startupbootcamp accelerates ten early stage tech startups per program with€15k in micro funding, free office space, 100+ serial entrepreneurs, mentors and exposure to hundredsof investors on Demo Day. In return Startup Bootcam receives 8% equity from the startuppers.Founded 2010Location Copenhagen, Madrid, Dublin, London, Berlin,HaifaFounders Alex Farcet, Luis Riviera, Eoghan JenningsCompanies per class 10 teams/cityTotal startup alumni to date 60Notable Alumni Archify, balconytv.com, Viewsy, TheEyeTribe,Poikos, Skynet Labs10. Table The basic facts of StartupBootcamp Source: seed-db.com, startupbootcamp.org206.8 Startup HighwayStartupHighway is a European start-up accelerator, aspiring to be the best of its kind in the wider CEEregion. It is designed for those with the best business startup ideas to provide them with the tools,network and knowledge necessary to get in shape for angel or venture capital funding. The supportcomes as pre-seed funding, office space and a network of experienced mentors to help the admitted20Source: seed-db.com and startupbootcamp.org Dowloaded: 29. 04. 2013
  47. 47. 47teams’ business idea become a successful business, or to prepare your young business for the nextround of funding.21Three months of intense work, combined with the regular mentoring sessions together with the weeklyguest visits seems to be a great recipe for all the companies participating in this program. In addition,each startup receives up to €14,000 in seed funding, free office space and other essential services(accounting, legal, hosting, etc.) in return StartupHighway asks for 7,5% of the startups equity.According to the terms of this new partnership with Practica Capital, each of the teams composingStartupHighway’s spring class in 2013 will be eligible for a EUR 30 000 convertible note.22Startup Highway was founded by the local startup community builder – Rokas Tamosiunas. Byexploiting his wide network of connections, Rokas was able to attract only the most promising startupsin the region. Hundreds of applications were received; nine startups have started the first program.The accelerator program is finishing with the Demo Day. The accelerator is having a number of high-profile mentors, including Jon Bradford (co-founder of Springboard), Lauri Antalainen (co-founder ofGameFounders), Lopo Champalimaud (CEO and co-founder of Wahana), and Toivo Annus (co-founderof Skype). StartupHighway is having 19 months of existence, it has accelerated 10 startups over twoclasses. Within 12 months after graduation three out of four startups from the first batch raised followon funding.23Founded 2011Location Vilnius, LithuaniaFounders Rokas Tamosiunas, Indré MilukaitéCompanies per class 5Total startup alumni to date 10Notable Alumni Sellfy, Relead, Lamas Valley, Utilimon11. Table The basic facts of Startup Highway Source: seed-db.com, startuphighway.com21Source: http://www.startuphighway.com/en/team Dowloaded: 29. 04. 201322Source: http://goaleurope.com/2013/04/15/lithuanian-startup-accelerator-startup-highway-announced-partnership-with-practica-capital/ Dowloaded: 29. 04. 201323Source: http://techcrunch.com/2013/01/29/accelerators/ Dowloaded: 29. 04. 2013

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