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 …

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.

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  • 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. 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. 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. 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. 54. E-mail Interview with Mike Reiner, Startup Wise Guys 23. 04. 2013........................................ 785. The questionnaire...................................................................................................................... 81
  • 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. 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. 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. 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„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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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 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. 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. 3311. Graph Different types of accelerators, Source: Frimodig, 2012
  • 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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
  • 48. 487 Qualitative and quantitative research7.1 InterviewsDuring the research I have conducted interviews with executives of business accelerators. Regardingthe qualitative research it was focusing on accelerators focusing on Northern Europe, Central-EasternEurope and Baltic countries as these areas are more relevant to the main questions and sub-questionsof the research.The interviewees were Antti Ylimutka, CEO of Startup Sauna (Finland), Mike Reiner from Startup WiseGuys (Estonia) Agnė Adomaitytė from StartupHighway (Lithuania). There are a growing number ofinterviews on the success stories (Y Combinator, TechStars, Seedcamp, Startup Bootcamp etc.)therefore I have decided to have a deeper view on the leaders of accelerators that works differentlymostly because of their geographical position but in some cases uses different „business model”.Startup Sauna was interesting as they are focusing on the whole Nordic region and Russia besideslooking at ventures in CEE. They are operating on a not-for-profit basis that makes them also unique.Startup Wise Guys is one of the most successful business accelerator of the Baltic region. StartupHighwas is also progressing well regarding their traction on building the entrepreneurial ecosystem inVilnius. Peter Kadas, serial entrepreneur startup blogger also gave us interesting insights on whyaccelerators are important and how they are creating value for the economy from the entrepreneurs’point of view.7.1.1 The importance of acceleratorsRegarding the importance of accelerators Peter Kadas told that „Accelerators are important becausethe business education is overly theory-focused and isn’t able to teach entrepreneurs how to build upbusinesses from the very beginning of the pre-seed phase. Business accelerators could be consideredas corrections or amendments of the business school education to cover the practical know-howbuilding up ventures from scratch”The need for establishing an accelerator came after similar motions coming from entrepreneursfollowing the bottom up approach. The founders are volunteer startup-enthusiasts,that have beenrunning accelerator activities for few years in their region in case of StartupHighway, Startup Saunaand Startup Wise Guys as well.7.1.2 The birth of acceleratorsAs Antti Ylimutka, the CEO of Startup Sauna highlighted the birth of Startup Sauna was an initiative ledby a student "Back in 2008 a couple of students, namely Kristo Ovaska, went on a study trip to visit USuniversities (e.g. MIT, Stanford) and what struck them was the amount of students who wanted to buildtheir own company that would become a global success. In Finland the mentality was very strongly tofinish your university degree and go work for a big company (e.g. Nokia, Kone, Stora-Enso, Metso,
  • 49. 49McKinsey...) and be „safe”. So coming back home these couple students started thinking that ok, AaltoUniversity will be formed a year from now and there’s really nothing else than the Design Factory thatbrought the students from 3 distinct schools together. So they put a Facebook event regarding startupsto measure if there was any interest. Well, over 200 people showed up and they only had a case of beerto offer!”Antti Ylimutka also emphasized the importance of having the successful entrepreneurs involved in theecosystem building process„Quite quickly they started organizing different kind of pitching events etc. but the most importantthing was that they started to find these „hidden” serial entrepreneurs who didn’t have aforum/program/etc. to sit down with startups and help them out . The entrepreneurs discussed withthe students and ended up helping with the vision – what needs to be done to kickstart a startupecosystem.”Zdenek Komena from Startup Wise Guys outlined: "We wanted to provide the huge pool of technicaltalent in Eastern Europe with an accelerator that understands the culture and the market, and alsoprovides teams with access to global expertise and networks that they would not otherwise beconnected to. Mike Reiner, Jon Bradford, and Herty Tammo are the founders of Startup Wise Guys.Mike is the head of Startup Wise Guys. An ex-IBMer with a passion for bright ideas and business modelinnovation, Mike previously worked in M&A, managing large transformation programs and innovationprojects. He is also the strategic advisor and lead coach at the Tehnopol Startup Incubator and mentorat different startup networks in Europe.Jon is founder of Springboard, Difference Engine, Ignite100accelerator programs in the UK. Herty is the lead investor of Startup Wise Guys. He is serialentrepreneur and currently owns several companies.”7.1.3 Creating entrepreneurial ecosystem by using best practicesOne of the examples that was used as a base work in case of Startup Sauna’s birth the TIKARI-reportthat discussed the university based acceleration and tech transfers. They concluded that a universitybased accelerator with a non-academic mentality was needed – this was based on the Israeli model.At the same time on the ecosystem level Yozma-program worked as an example for TEKES’ VIGO-program and later for the idea of a bigger fund of funds that would produce private micro-VC funds toboost up the ecosystem.As a result of that Bootcamp was formed in the beginning of 2010 in order to help commercializeresearch based projects from Aalto University with the help of serial entrepreneurs and investors."From the very beginning there started be pull from outside of Finland. One example was that the guyswho went on to co-found Virool and raise the biggest seed round of any Y-combinator alumni as of2013 were in Bootcamp back in 2010 as a team called Videolla with the initial idea that became thebackend of Virool. So in 2011 when Ville Simola joined he said that the only condition is that we’dexpand outside of Finland. That’s what we did and quite soon realized that the vision of covering aneconomic area of 300 million people made a lot of sense in terms of attracting investors and media toattend our events." Antti Ylimutka told us.
  • 50. 50For Startup Highway in Lithuania the impetus was the fact that a number of Lithuanian teams or teamswith Lithuanian team members in other European accelerator have reached more than 10 as AgnėAdomaitytė told from Startup Highway so they have realized the potentials of the entrepreneurs in thecountry.7.1.4 Criteria of selecting teamsThe criteria of selecting the teams are pretty common in all cases. These are the followings for StartupSauna, Startup Highway, Startup Wise Guys,⦁ Strong team who is able to execute startup;⦁ Start-up idea which solves real problem;⦁ Have a globally scalable business idea and model⦁ Have a working prototype⦁ Shared drive and work ethic⦁ International outlookBeside the common criterias Anti Ylimutka added that it is important that „Startup Sauna mustbe able to help (expertise found in our coach pool)”7.1.5 Value proposition for startupsAccording to Peter Kadas, serial entrepreneur „business mentoring, including business developmentand lean development is the most important value of an accelerator, but I also consider access ofvarious industries, the given network and community as really valuable resources provided by theseinitiatives”Most of the business accelerator offer, incubation and office, extended advisory and mentor network,basic funding (except for Startup Sauna), access to follow on funding, heightened visibility, othersmaller perks (IT infrastructure, free legal, etc).7.1.6 Mentors/coachesAll the interviewees outlined the importance of the mentor network. Startup Sauna, Startup Highwayand Startup Wise Guys were really proud of their mentor/coach network (Startup Sauna prefers usingcoaching) As Antti Ylimutka told „The quality of our coaches is known in our alumni pool. And even if itsounds like a joke, it most definitely isn’t. That causes us a bit of a problem since it’s super hard tocommunicate what Sauna is about but luckily we have a pool of alumni who are do a pretty good jobof setting an example for other companies. Sauna is a bit different for each company participating andwe do customize it a bit for some of the teams. Petteri Koponen (Lifeline Ventures, Chairman of theboard at Supercell), Moaffak Ahmed, Jussi Harvela, Micki Honkavaara (Veturi Venture Accelerator),
  • 51. 51Mårten Mickos (MySQL), Pasi Ilola, Ilkka Kivimäki, Timo Ahopelto, Ville Miettinen are our coachesamong the others”Startup Highway has also well known experts as coaches, like Toivo Annus (Skype co-founder), JohnBradford (Founder of Springboard), Alex Farcet (Founder of Startup Bootcamp) are also among thementors of the program held in Vilnius.As Mike Reiner (Startup Wise Guys) outlined: „Our primary value is found in the mentor network thatwe have built in developed markets in the UK and the US. Our mentor base is really strong and webelieve that is one of the strongest arguments why startups should be interested in us. We do not haveonly mentors from Estonia we can boast with mentors from the UK, US, Germany, Netherlands andwith well-known in startup world like: Jon Brandford, Alan Moore, Michael Geer, Richard Newton andmany others.”7.1.7 The core programStartupHighway and Startup Wise Guys have a similar core program by providing an intensive 13 weeksacceleration program consisting of three stages: Shape, Build, Sell ShapeGet your businessplan in place. With the help of mentors, trainings workshops, brain pickingyour initial business plan will be revised by you. Think of the details, keep yourself focused,know your target, and plan your product. BuildDevelopment of your product is the main focus during the program. Communicate withpotential customers, showcase the product, build it fast, and get feedback to know if you areon the right track. SellThe Startup Wise Guys program ends with a Demo Day in Tallinn and in London where eachteam presents their business proposition for angel investors and venture capitalists.Startup Sauna has a shorter program for the admitted companies that is only 6 weeks long and end upwith a Demo Day. They offer pitch coaching, product development and sales support beside regularstatus reports of the progress made by the teams. Startup Sauna also emphasizes the importance ofsocial „bundling” events and they also took their best companies to the Silicon Valley for one week.
  • 52. 527.1.8 The geographic areas coveredIn case of Startup Sauna around half of the companies are Finnish (simply due to quality) and 50% areforeign. They have had companies from Finland, Sweden, Russia, Estonia, Latvia, Lithuania, Belarus,Poland, Hungary, Italy, US, Canada for example.SWG is focusing the marketing on Eastern Europe and the Baltics, but at the same time they are opento ideas and teams from anywhere in the world. In the first batch, they had companies coming fromCroatia, Netherlands, Ukraine, the UK and Estonia of course, while In the second batch, Startup WiseGuys had teams from Chille, Hungary, Poland, Russia and Estonia.Accordint to Peter Kadas „Startups going where the knowledge and events are and financing is goingwhere startups are. It should be a governmental initiative as it is in Chile or Italy, where non-equityfinance is a seductive offer to draw many startups around such centers However, it requires a largesum of capital, not necessarily working on the traditional profit-oriented basis. It is not manageable forprivate money. „7.1.9 Success and metricsRegarding the success of accelerator Mike Reiner is highlighted: „ Currently there are more than 250startup accelerators worldwide. There are also many more startup projects which can be accepted butwe see the competitive fight among accelerators is slowly increasing. Everything is connected - whenan accelerator wants to attract investors to fund the accelerator, it needs to have something to offer -success stories of alumni teams including teams which got funded, publicity, top class mentors, topexcellence management team who runs the accelerator and promising new teams/projects which aregoing to get accepted for the upcoming batch. All together it makes a clear signal not only for investors,that the accelerator stands out, but also for the potential applying teams, partners, sponsors, mentorsand media.Peter Kadas has outlined that „The Key Performance Indicators of an accelerator are primarily the ratioof the projects financed with a follow-on round divided by the projects accelerated. Naturally, thefollow-on financing must occur in a reasonable time frame from the end date of the acceleration period,which is typically 3-6 months. Another KPI could be the exit volume in USD. Since the typical exit timeis the 6th or 7th year of a startup, this is a longer-term measure. The cumulated exit volume until the7th year of startups shows long-term survival capabilities. Also, the number of exits makes performanceof accelerators comparable if it is defined in net numbers (no. of startups exited til year 7 divided by no.of startups accelerated). Finally, the cumulative number of workplaces created might show how quickan accelerator can turn a startup to be a member of the local economy and how much the hockey stickgrowth rate potential is utilized.”
  • 53. 53In case of for profit accelerators exits and profit could be the KPI but the model is much more complex.As Antti Ylimutka outlined „For us we can choose endless metrics and be happy with them: peopleemployed, revenue generated, funding raised, does the company turn into a viable business, impact onour society (e.g. politicians start considering startups and legislation regarding them), the culture forentrepreneurship (more people want to create/work for startups creating chances for truly neweconomic growth... Or maybe its the footprint that once a team went through Sauna, they grew asfounders and their next startup or whatever project will have a higher chance of success. I guess ourbigger purpose is to see whether we did such a good job that we can kill Startup Sauna in the next 5-10years because the ecosystem produces a big number of good companies that have talent and fundingavailable.”The failure rate will be one of the most important measures in the following years for accelerators.According to the current statistics Startup Sauna has 80 graduates and only 10-20% of them failed. Onthe other hand a Wall Street Journal article highlighted based on Shikhar Ghosh, a senior lecturer’sresearch at Harvard Business School that out three-quarters of venture-backed firms in the U.S. dontreturn investors capital.247.1.10 SkillsEach entrepreneur, when gets accepted to the program, has a different level of managerial,entrepreneurial and other skills. „It is always interesting to see how they develop in hand in hand withtheir projects and other team members. Basically, the critical skills which are usually developed duringthe time spent in the program are: lean startup methodology, customer development thinking, abilityto work under pressure, presentation and rhetoric skills, financial and analytical skills, leadership andhow to be visionary.” told Mike Reiner from Startup Wise Guys.According to Antti Ylimutka „the teams struggle with their business models because they think theknow how their industry works and end up coming up with not working value props to the completelywrong people in target companies”24Source: Wall Street Journalhttp://online.wsj.com/article/SB10000872396390443720204578004980476429190.html Dowloaded: 29. 04.2013
  • 54. 547.2 SurveyThe survey was conducted in order to evaluate and validate the key added values and characteristicsof the accelerator programs from the entrepreneurs’ perspective. The secondary sources andinterviews gave the framwork and the needed theoratical knowledge on accelerators but the keyadded values and their perception was not validated since Cristiansen’s research. (Cristiansen, 2009).The survey was filled in by 94 entrepreneurs. 29 out of them have already participated to businessaccelerator programs.The other 65 entrepreneurs could be considered prospective applicants ofaccelerator programs as running their own startup companies. The questionnaire was spreaded byonline channels including direct emails to entrepreneurs and social media sites (Facebook, LinkedIn,Reddit). The alumni network of Startup Sauna and Startup Chile were addressed directly as a result ofthe kind help of their executives and alumni. The survey was create by using the Google platform. Thefull survey can be found in the attachment (5. appendix)7.2.1 Demographic limitationsDespite asking near 100 relevant entrepreneurs (accelerator alumni or perspective participants) thesurvey has a couple of limitation therefore it is not representative on the age distribution, nationalityand the maturity of the ventures running by the surveyed entrepreneurs. The age distribution is oneof the limitations as the research was based on random sampling instead of systematic, quota base orother sampling methods. The age distribution of the sample could be seen on the 13. Graph16. Graph The age distribution of the surveyed entrepreneurs N=94 Source: own research131146 6 68 8510242 2 2624231 2 120 21 22 23 24 25 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 41 44 45The age distribution of the surveyedentrepreneurs N=94
  • 55. 55There is one more significant geographical bias ith the survey that most of the responses came fromHungary. Beside the 47 respondants from Hungary there are other 22 nations represented with a lownumber of cases. The second most common nationality among the responders is US, the third is Finlandand the fourth is Russia.17. Graph Nationality of the surveyed entrepreneurs N=94 Source: own research2 2 2 1 1 2 1 2 6 1473 1 1 1 1 1 1 2 1 4 2 9Nationality of the surveyedentrepreneurs N=94
  • 56. 567.2.2 The surveyed sectorsThe research has covered entrepreneurs coming from 23 different sectors. More than the half of thesurveyed entrepreneurs are working in IT/ICT related sector (45 cases). The second most commonsector was Education (12 cases), the third one was Biotechnology and Life sciences (5 cases) and thefourth one was social entrepreneurship (5 cases). You can see the distribution of the entreprenerusparticipated in the survey by sectors on the 15. Graph18. Graph Number of entrepreneurs by their sector N=94 Source: own research7.3 Analysis of the survey resultsThe surveyed entrepreneurs came from 23 countries and 80% (75 person) of them are living in theirhome countries while 20% (19 person) are relocated and living in a foreign country at the moment.This figure is important in order to get an insight into the relocation willingness of the surveyedentrerpeneurs that will be an important part of the survey in terms of the business acceleratorslocation.4512 5 3 5 2 2 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1Number of entrepreneurs by their sectorN=94
  • 57. 5719. Graph The proportion of the surveyed entrepreneurs regarding their current stay N=94 Source: own researchRegarding their previous experiences 31% of the surveyed entrepreneurs have already participated instartup accelerator programs. The programs that they mentioned were Gamefounders, Startup Sauna,Startup Chile, Seedcamp, TechStars and Startup Wise Guys. 69% of the entrepreneurs haven’tparticipated any accelerator program yet so they were considered as prospective participants.20. Graph Have you ever participated in a startup accelerator program? N=94 Source: own researchThe questionnaire surveyed the type of funding regarding the current venture of the entrepreneurs.The most common type of funding was bootstrapping (32 cases) and 3F (Family, Friends, andFounders). We have had several combinations of funding also combining bootstrapping, 3F, grants,angel investments and seed investors. Only 7 of the 94 surveyed entrepreneurs were VC funded thatcould bias the results as most of the examined entrepreneurs running early stage companies.19; 20%75; 80%The proportion of the surveyed entrepreneursregarding their current stay N=94Relocated Home country29; 31%65; 69%Have you ever participated in a startupaccelerator program? N=94Yes No
  • 58. 5821. Graph Types of funding N=94 Source: own researchAfter the funding history we have examined the most important decisive points of choosing theaccelerators. In order to identify the right categories of the survey we have used the results of theinterviews and existing literatures (Cristiansen, 2009, Miller, Bound, 2011). The results were surprisingas 73% of the respondents considered Mentors as the most important decisive points of choosing anaccelerator. The second most important added value were the stake that they want in return of theinitial investment and the VC/angel connection of the given accelerator.22. Graph The most important decisive points of choosing an accelerator N=94 Source: own research32171277753220 5 10 15 20 25 30 35BOOTSTRAPPING3FOTHERBOOTSTRAPPING+3FVCBUSINESS ANGELINSTITUTIONAL SEED INVESTORS3F+INSTITUTIONAL SEED INVESTORSBOOSTRAPPING+GRANT3F+BUSINESS ANGELTypes of Funding N=9473%47%47%40%36%36%35%33%0%10%20%30%40%50%60%70%80%MentorsHow much percentagedo they want in returnfor the investmentVC/Angel connectionLocationThe track record of theAlumni startupsAmount of investmentThe founders and theirexperienceThe core acceleratorprogramThe most important decisive points ofchoosing an accelerator N=94
  • 59. 59The location of the accelerator was important for only 40% of the respondents. The less importantpoints were the curriculum of the accelerator program (33%) and the founders and their experience(35%) beside the amount of investment (36%) and the track record of the Alumni startups (36%).Regarding the self evaluation of the added values of the business accelerator programs there are alsointeresting findings. The respondent evaluated the added values of the accelerator by voting on theimportance of the Financial support and initial funding, Product development support, Businessdevelopment support, Brand connections, Mentorship and whether the accelerator is located in abusiness hub or not.The entrepreneurs could rate the above mentioned elements from 0 (less important) to 10 (the mostimportant. The results shows that the most important added value of an accelerator is the Mentorship(8,168 in average out of 10) the second most important added value is the Business developmentsupport (7,789 in avarage out of 10) and the third one is brand connections (7,063 in avarage out of10).The less important added value according to the surveyed entrepreneurs are whether it is located in abusiness hub (6,252 in avarage out of 10) and product development support (6,905 in avarage out of10) that is one of the most important goal of the accelerator programs according to the literature ofthe business accelerators.23. Graph Please evaluate the most important added valua of an accelerator N=94 Source: own research6,9052631586,8631578957,7894736847,0631578958,1684210536,2526315790246810Financial support and initialfundingProduct development supportBusiness Development SupportBrand ConnectionsMentorshipLocated in a business hubPlease evaluate the most important added valueof an acceleratorN=94
  • 60. 60We also surveyed the perception of the professional educational elements of the program. Accordingto the results the most important elements are the business development education (8,376 in avarageout of the maximum 10) and sales and marketing education (8,095 in avarage out of the maximum 10)Strategic elements and fundraising/financial education are in the middle of the ranking (7,957 forstrategy and 7,617 for raising capital/financing). The most surprising result is that the productdevelopment, pitching, business modeling educational elements are perceived as the less importantelements despite these are the skills that are missing in most cases according to the interviewedexperts.Product development finished with 7,483 out of 10, pitching had been rated 7,423 out of 10 and theless important element, the business modelling reached 7,414 out of 10 according to the survey.Nonetheless all the evaluated elements considered as reached 7,4 out of the scale of 10 that meansthat all the above mentioned elements are considered as important parts but their relative importanceperceived differently than it is seen by the experts.24. Graph Please evaluate the following educational elements of the accelerator program N=94 Source: own research7,4148936177,4239130437,4835164847,6170212777,9574468098,0957446818,3763440860 1 2 3 4 5 6 7 8 9 10BUSINESS MODELLINGPITCHINGPRODUCT DEVELOPMENTRAISING CAPITAL, FINANCINGSTRATEGYSALES AND MARKETINGBUSINESS DEVELOPMENTPlease evaluate the following educationalelements of the accelerator program N=94
  • 61. 617.4 Summary of the survey results7.4.1 Accelerators and their location31% of the surveyed entrepreneurs have already participated in accelerator programs and 82% of themhave already took part in any kind of business education program, workshop etc. The respondents areinterested in being part of an accelerator program as they think that they would need furthereducation towards being a successful entrepreneur. Despite that only 33% of them would be ready topay for such programs. The results of the summary shows that the surveyed entrepreneurs are willingto relocate as 20% are currently living in different country than where they are coming from.88% of the respondents told that they would move to another country if it would be needed in orderto find investor or have a better market access.7.4.2 The most important decisive factors of selecting acceleratorThe most important factors of selecting an accelerator are not the location or the amount of fundingprovided but the professional support and mentorship (73% thought mentorship as the mostimportant decisive point) 47% of the respondents considered the angel/VC connection and the equityin return for the investment as key factor of the entrepreneurs decision by selecting businessaccelerator programs.Location is only important for less than the half of the entrepreneurs (40%).7.4.3 The key added values of an accelerator programDespite the previous hypothesis of many business accelerator experts not the provided funding andit’s amount and not the proximity of a business hub is the key for entrepreneurs but working with thebest mentors of their industry and the business development support provided by the accelerators(How to find customers, how to reach the target audience etc.) The brand of the business accelerator(consisting alumni, previous track record, success stories etc.) is the third most important added valueas perceived by the entrepreneurs7.4.4 Other preferences of entrepreneurs regarding the length and program elementsThe optimal length of a business accelerator program is 6 months long according to the entrepreneurs.That is more than the most of the accelerator programs that are between 1-4 months. The importanceis to get an office provided only 5,8 out of 10 that is far less than the perceived importance of othereducational elements of the program. The product development, pitching and business modellingwere the educational elements that have been evaluated the less important by the entrepreneursdespite the experts of the industry highlighted that these are the fields where the companies reallyneed support (Interview with Peter Kadas, Antti Ylimutka and Zdenek Komena also outlined this fact)
  • 62. 628 ConclusionBusiness accelerators are effective tools of „testing” the teams and business ideas with minor fundingsat a very early stage. The founders create accelerators in order to boost the entrepreneurial ecosystemof a certain geographic area and support talents to have the opportunity of running their own ventures.The founders of the business accelerators also having economic expectations as in most cases theyinvest their own or their networks money in the admitted projects. They usually take moderate equity(<10%) for a reasonable seed funding that usually give the opportunity for the 2-3 co-founders to paytheir living costs during the program and focus on the starting up process of their ventures. Most ofthe surveyed and interviewed entrepreneurs and accelerator representatives implied that the networkof mentors, investors and startups surrounding the accelerator is one of the greatest value and canresult in competitive advantage for the accelerator.Throughout the program, startups and mentors connect, which may turn out to be essential for thestartups’ ability to become a profitable company and giving the mentors the opportunity to get toknow the new trends of their industries. An interaction between startups and mentors is the maineducational element provided by the accelerator for the startup. (Frimodig, 2012)Achieving the same development path is also possible without the accelerator programs for startupbut it takes more time and efforts to find the mentor network that is provided from the day one by theaccelerators.As it turned out both from the qualitative and quantitative research, the most important incentive forstartups to take part in an accelerator program is the connection to a network of investors andmentors. In order to to fulfill that need accelerators have to find and engage the best mentors andinvestors to the accelerator and make them an active part of the network.Investors are evaluating accelerators based on their selection and filtering process, the number ofapplicant pool and the credibility of their mentors that are supporting the educational process. Earlystage VCs and angel investors as typical follow-on investors of post-accelerator startups.The mostaccelerators using a competitive application process therefore the accelerator functions as a filter forinvestors (Frimodig, 2012) The quality of post-accelerator startups and graduated entrepreneurs isremarkably higher and therefore more interesting to investors. The most successful accelerators arepartnering with investors to provide partial or full funding for the graduated companies (eg. YCombinator, Startup Highway, Startup Sauna) In this way the investors become a natural part of thenetwork and thus a stakeholder to the accelerator.The more experienced and better networkers the co-founders are, the better the chance to engagehigh quality mentors that attracts the valuable and promising startups. After finishing up a high qualitybatch that ends up with good follow-on investment rates the better the chances to engage top-tierinvestors that has a really important branding consideration as well. The better branding theaccelerator has, the more applicant would like to get into the program that results in working with themost talented entrepreneurs.
  • 63. 639 The findings of the researchThe main question of the research was what are the key success factors of a business accelerator? Thesuccess factors of the business accelerator programs could be measured in various way, it depends onwhich stakeholders are we focusing on.From the startup and entrepreneurs point of view there are intangible measures as access to mentors,knowledge, capital, network etc. The tangible measures including the amount and the probability of afollow on investment, successful exit, valuation of the portfolio companies.From the accelerators perspective the tangible measurement could be the value of the accelerator,value of portfolio, number of investments, number of exits, stock market listings. The intangiblemeasures can be the brand value and goodwill beside the knowledge, networks, and competencies.For the investors the quality of the dealflow is the intangible success factor and the number ofsuccessful investments is considered as tangible measure. From the society the number of acceleratedcompanies, the number of created jobs are the tangible measures while promoting entrepreneurshipand creating entrepreneurial ecosystem is the intangible success factor of business accelerators.Frimodig used financial and non financial dimensions and differentiated tangible and intangiblecategories:25. Graph How to measure accelerators Source: Frimodig, 2012
  • 64. 64Despite the positive effects of certain business accelerators that has the needed traction (eg. YCombinator) it is too early to evaluate the success rate of accelerators as they graduates often needmore time to prove their validity or even fail. According to Brad Feld creating an entrepreneurialecosystem takes 15-20 years (Feld, 2012) the success story of Y Combinator has developed within 8years so all the other accelerators needs at least 5-10 years before being evaluated.Regarding the main question of the research we can conclude that the hypothesis is partly valid, thesuccess of a business accelerator program is not determined by the geographical location but there isa strong correlation with the success of the accelerator and the maturity of the local investmentenvironment where it exists.As most of the entrepreneurs participated in this research was Hungarian we can have certainconclusions regarding how can these results being used in Hungary Even after the launch of theJEREMIE program that resulted in remarkable VC activities in this country the early stage phase of thestartups is the most risky development stage with high failure rates. There are some initiativesaddressing this niche by lean startup education (mostly led by the recently established iCatapult) butthere is no program that could be called „accelerator” so far in the Hungarian market. Beside Hungaryis having Europe wide recognized VC activities it would be fruitful to give financial governmentalsupport for such a program and involve business angels and serial entrepreneurs in the framingprocesses and even in the execution as mentors, investors, advisors. In order to be a recognizedregional startup hub Hungary should have an internationally competitive program for pre-seed andseed stage as this is the phase where the knowledge is missing, the market expertise and thewillingness to invest in early stage startups is not suitable therefore this level of the entrepreneurialecosystem needs to be further developed to make the whole startup-VC ecosystem sustainable.
  • 65. 6510 Recommendation for further researchThere are several topic for further research in the business accelerator research the long term effectsof business accelerators, the performance of the accelerated companies (graduates), the investmentopportunities provided for accelerators are also interesting questions of further research.The following research questions would be important to know better the ecosystem aroundaccelerators.1. Is the growth of the business accelerator a sustainable trend? What happens on the long runwith business accelerators? Are they working with a sustainable business model?2. Longitudinal research into the accelerator alumni and their traction. Where are the graduatesnow? Are they succeeded or failed with their startup? If they have failed what happens withthem afterwards?3. Comparing companies participating in accelerators with those that are working ’alone’ or bythe help of business angel support4. Qualitative research with investors providing follow on funding on their experiences with thebusiness accelerator graduates5. What happens with the graduates of an „emerging” business accelerator after finishing theprogram? Are they relocate or stay at the place of the acceleration (even if it is not a typicalinvestment/business hub)?6. What are the offerings of for-profit accelerators to startups? Are they competitive from thefinancial perspective with other seed investments?7. What will be the consequences of the Series A crunch? Is it an evolutionary phenomenon or aresult of the growing number of seed accelerators?
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  • 67. 67 (Commission, 2002). Commission, E. Benchmarking of Business Incubators. Personnel, 2002 (Cornelius, 2003) Cornelius B. Cracks in the Egg: improving performance measures in businessincubator research, A paper for the Small Enterprise Association of Australia and New Zealand16th annual Conference, Ballarat, 28 Sept-1 Oct, 2003. (Cristiansen, 2009) Cristiansen J.D., Copying Y-Combinator A framework for developing seedaccelerator programmes, MBA Dissertation, Judge Business School, & Jesus College, Universityof Cambridge, 2009 (Exponentialtraining.com, 2013) Time of the download: 2013. 02. 03. Downloaded from:http://www.exponentialtraining.com/Downloads/Resources/Example%20Module%20-%20CBS/page_08.htm (evca.eu, 2012) European Venture Capital Association Yearbook 2012, Activity Data onFundraising, Investments and Divestments by Private Equity and Venture Capital Firms inEurope Time of download 2012, 12. 10 Downloaded from:http://www.evca.eu/uploadedfiles/home/press_room/Yearbook_2012_Presentation_all.pdf (Feld, 2013) Feld, B. Startup Communities: Building an Entrepreneurial Ecosystem in Your City,2013 (Forbes.com, 2012a) Stangler D., Evaluating the Effects of Accelerators? Not So Fast, 2012Time of download 2013. 03. 04. Downloaded from:http://www.forbes.com/sites/kauffman/2012/08/08/evaluating-the-effects-of-accelerators-not-so-fast/ (Forbes, 2011a) Olson P., Y Combinator Challenged by growing Seedcamp, Forbes Magazine2011, Time of the download: 2013.04.23 Downloaded from:http://www.forbes.com/sites/parmyolson/2011/09/09/y-combinator-challenged-by-growing-rival-seedcamp/ (Forbes.com, 2012b) Nelson, B. , The Real Definition Of Entrepreneur---And Why It Matters,Time of the download 2012.12.10 Downloaded from:http://www.forbes.com/sites/brettnelson/2012/06/05/the-real-definition-of-entrepreneur-and-why-it-matters/ (Frimodig, 2012) Frimodig L. , Success Factors of Accelerator, Research Report, LAPPEENRANTAUNIVERSITY OF TECHNOLOGY, Faculty of Technology Management, Department of IndustrialManagement 2012 (Geldren et al., 2005) Geldren, M., Thurik, R. & Bosma, N. Success and Risk Factors in the Pre-Startup Phase. Small Business Economics. 24, 2005 (Greiner, 1988) Greiner, E. Evolution and Revolution as Organizations Grow: A company’s pasthas clues for management that are critical to future success. Harvard Business Review. 76, 3,55-67.
  • 68. 68 (Hamdani, 2006) Hamdani D., Science, Innovation and Electronic Information DivisionConceptualizing and Measuring Business Incubation Science, Innovation and ElectronicInformation Division, 2006 (Harding, 2002) Harding, R. Plugging the knowledge gap: an international comparison of therole for policy in venture capital market. Venture Capital. 4, 1, 59-76. 2002 (Hemingway, Balint, 2004) Hemingway F. G., Balint A., Vállalkozástan a gyakorlatban,Budapest, AULA Kiadó, 2004 (Hisrich, 2010) Hisrich, R. International Entrepreneurship. Starting, Developing, and managinga global venture. Sage Publications, Inc. United States of America, California. 2010 (Knight & Cavusgil, 2004) Knight, G., Cavugil, S. Innovation, organizational capabilities, and theborn global firm. Journal of International Business Studies. 35, 124-141. 2004 (Kubis, 2009) Kubis, R. Policy Options and Instruments for Financing Innovation – A PracticalGuide to Early-Stage Financing. United Nations Economic Commission for Europe. New Yorkand Geneva, 2009 (Laanti et al., 2007.) Laanti, R., Gabrielsson, M., Gabrielsson, P. The globalization strategies ofbusiness-to-business born global firms in the wireless technology industry. IndustrialMarketing Management. 36, 1104-1117. 2007 (Launchhouse.com, 2012) The Rise of the Business Accelerators, Time of the download:2013.04.23 Downloaded from: http://www.launchhouse.com/news/the-rise-of-the-business-accelerators/ (Miller, Bound, 2011) Miller P., Bound K., The Startup Factories: The rise of acceleratorprogrammes to support new technology ventures, Discussion paper, NESTA 2011, Time ofdownload: 2013. 01.23 Downloaded from:http://www.nesta.org.uk/library/documents/StartupFactoriesv18.pdf (Price, 2004) Price, R. The role of service providers in establishing networked regional businessaccelerators in Utah. International Journal of Technology Management. 27, 5, 465-474, 2004 (Privco, 2012) Privco (2012) Private Equity & Venture Capital, Time of the download:2013.03.23 Downloaded from: http://www.privco.com/knowledgebank/private-equity-and-venture-capital (Ramsinghani, 2011) Remsinghani M., The Business of Venture Capital: Insights from LeadingPractitioners on the Art of Raising a Fund, Deal Structuring, Value Creation, and Exit Strategies,John Wiley and sons, 2011 (Rasila, 2004). Rasila, T. Venture-to-Capital – A new Framework for Growth Venturing andProfessional Ownership. Tampere University of Technology. Tampere, 2004 (Ries, 2011) Ries, E, The Lean Startup. Pearson. Penguin Books. England, 2011
  • 69. 69 (Sahay, 2004) Sahay, A. The Role of Technology Business Incubator, Angel Investor and VentureCapital Fund in Industrial Development, 2004 (Schonfeld, 2011) Schonfeld, E., The Top 10 VC Firms, According To InvestorRank, Time of thedownload: 2012.12.04. Downloaded from: www.techcrunch.com/2011/05/25/top-10-vc-firms-investorrank/ (seed-db.com, 2013) Aggregator website of business accelerators created by Jed D.Cristiansen. Website: http://www.seed-db.com/ Data downloaded, 2013. 03. 03. (Sherman & Chappell, 1998), Sherman, H. and Chappell, D. S. 1998. Methodological Challengesin evaluating business incubator outcomes. Economic Development Quarterly, 12 (4): 313-321., 1998 (Turi, Koranyi, 2010) Dr. Turi M., Korányi L. Innovatív induló izraeli kisvállalkozások fejlesztésimodellje ennek adaptálása Magyarországon, Mőhelycsoport: EU Modellek 25 Műhely: Izraeliinnovatív induló vállalkozások. Downloaded from:http://www.kormany.hu/download/f/05/10000/inkubator_Turi.pdf Time of the download2013. 04.29. (van Huijgevoort, 2012) Van Huijgevoort, T. The ‘Business Accelerator’: Just a Different Namefor a Business Incubator? Utrecht School of Economics, research paper, 2012 Time ofdownload: 2012. 12.03 Downloaded from:http://www.dutchincubator.nl/uploads/Documents/49.pdf (Vasilescu, 2008) Vasilescu, L. G. Business incubators in CEE countries – new coordinates fordevelopment, Annals of University of Craiova - Economic Sciences Series, 2008, vol. 2, issue36, pages 674-684, 2008 (Vecsenyi, 2011) Vecsenyi J. Kisvállalkozások indítása és működtetése, 72H.com, Budapest,2011 (Wiggins & Gibson, 2003) Wiggins, J., Gibson, D. V. (2003). Overview of US incubators and thecase of the Austin Technology Incubator. Innovation, 3(1/2), 56-66, 2003 (Wired.com, 2011) Levy S., Y Combinator is Boot Camp for Startups, Wired Magazine, 2011Time of the download: 2013.04.23. Downloaded from:http://www.wired.com/magazine/2011/05/ff_ycombinator/all/1
  • 70. 70Appendix1. E-mail Interview Questions for StartupHighway – Agnė Adomaitytė02. 04. 2013About the accelerator1. How came the idea of starting a business accelerator? What was the main initiator?Together with a team from Open Coffee Club Vilnius weve been gradually gearing up to doing biggerand bigger things. At one point we realized we were throwing mentoring events as big as miniSeedcamps, number of Lithuanian teams or teams with Lithuanian team members in other Europeanaccelerator passed 10, and number of other catalyst told us it was time.2. Could you briefly describe the founding team and their background?The few people that started SH were volunteer startup-enthusiasts, who have been runningaccelerator activities for few years in the region.3. What sort of criteria must a company meet in order to get admitted? Strong team who is able to execute startup; Start-up idea which solves real problem; Scalable business model;4. Do you have governmental subsidy to operate your business accelerator?No, we are privately funded.5. Do you take equity? If yes, how much funding you can provide?We take 7.5% of equity from the startups that join the program for up to €14,000 investment. Fromfunded teams we ask of 3.75%, and there is also a follow on optional convertible of €30 000available.6. Who are the typical investors you are working with for funding the follow-on round?European angels. We landed follow on investments with TMT industries background individuals whoare now starting or are full time investors into new ventures.The program7. How does the accelerator program look like?StartupHighway is an intensive 13 weeks acceleration program consisting of three stages: Shape,Build, Sell; Aside from funding, we give: Free office space throughout the program enabling you to focus; Over 100 high-profile mentors; An extensive network of investors, alumni and partners; Demo days in Vilnius, London and other hot locations.
  • 71. 718. How many companies are you selecting in a year?Up to 10 per class, up to 2 classes per year.9. What are the preferred sectors and industries for startups admitted to your batch?IT and Mobile10. What is your value proposition for the admitted companies? incubation in our office great advise and network in our mentors basic funding access to follow on funding heightened visibility other smaller perks (IT infrastructure, free legal, etc.)11. Where the participating companies are coming from (country of origin)?Baltics, Italy, Russia12. Which age group are they belong to?18-24, 25-3413. Who are the mentors in the program? Could you please mention a few names? Toivo Annus John Bradford Lauri Antalainen Lopo Champalimaud Alex FarcetTraction14. How many graduate do you have so far?1015. What is the estimated failure rate among them?Not available at this point, too little time has passed since first graduation, everyone is still fighting16. Could you name a few companies coming from your business accelerator that you areproud of?All of them. But loudest sounding names are Sellfy.com, Dragdis and PlaceILive17. How much funding have the alumni received so far approximately?Under 0.5M EUR
  • 72. 722. E-mail Interview with Antti Ylimutka Startup Sauna CEO 17. 04. 2013About the accelerator1. How came the idea of starting a business accelerator? What was the main initiator?- Back in 2008 a couple of students, namely Kristo Ovaska, went on a study trip to visit USuniversities (e.g. MIT, Stanford) and what struck them was the amount of students who wanted tobuild their own company that would become a global success. In Finland the mentality was verystrongly to finish your university degree and go work for a big company (e.g. Nokia, Kone, Stora-Enso, Metso, McKinsey...) and be „safe”. Their task was to write a report on university basedstartup ecosystems. The pivotal moment was a meeting with Dr. Bengt Holmström who statedvery clearly that if the students would end up writing another report about startup he’d make surethat no one would support them.So coming back home these couple students started thinking that ok, Aalto University will beformed a year from now and there’s really nothing else than the Design Factory that brought thestudents from 3 distinct schools together. So they put a Facebook event regarding startups tomeasure if there was any interest. Well, over 200 people showed up and they only had a case ofbeer to offer!Quite quickly they started organizing different kind of pitching events etc. but the most importantthing was that they started to find these „hidden” serial entrepreneurs who didn’t have aforum/program/etc. to sit down with startups and help them out (there was a competition calledVenture Cup in Finland too but quite quickly most of the „experts” ended up being some randomconsultants). The entrepreneurs discussed with the students and ended up helping with the vision– what needs to be done to kickstart a startup ecosystem. One of the examples that was used as abase work was the TIKARI-report that discussed the university based acceleration and techtransfers. One of the results was that a university based accelerator with a non-academic mentalitywas needed – this was based on the Israeli model. At the same time on the ecosystem level Yozma-program worked as an example for TEKES’ VIGO-program and later for the idea of a bigger fund offunds that would produce private micro-VC funds to boost up the ecosystem.Long story short, Bootcamp was formed in the beginning of 2010 in order to help commercializeresearch based projects from Aalto University with the help of serial entrepreneurs and investors.For the first year the program was headed by the student Kristo Ovaska and a serial entrepreneurJuha Ruohonen (one of the authors of TIKARI). It became a very obvious model later that thestudent power would be used to organize stuff and after they’d learn enough (approx. 2 years)
  • 73. 73they’d have a follower who’d take over. The credibility and strategic overseeing was brought bythe head coach.From the very beginning there started be pull from outside of Finland. One example was that theguys who went on to co-found Virool and raise the biggest seed round of any Ycombinator alumnias of 2013 were in Bootcamp back in 2010 as a team called Videolla with the initial idea thatbecame the backend of Virool. So in 2011 when Ville Simola joined he said that the only conditionis that we’d expand outside of Finland. That’s what we did and quite soon realized that the visionof covering an economic area of 300 million people made a lot of sense in terms of attractinginvestors and media to attend our events.2. Could you briefly describe the founding team and their background?There’s a shit load of people ranging from Petteri Koponen (Lifeline Ventures, Chairman of theboard at Supercell), Moaffak Ahmed, Jussi Harvela, Micki Honkavaara (Veturi VentureAccelerator) who were there from the beginning but operationally the key people were/are:2010 – 2011 (Spring ’2010, Fall ’2010)Kristo Ovaska, Captain, http://fi.linkedin.com/in/kristoovaskaJuha Ruohonen, Head Coach, http://fi.linkedin.com/pub/juha-ruohonen/1/441/4a32011 – 2012 (Spring 2011, Fall 2011)Ville Simola, Captain, http://fi.linkedin.com/in/villesimolaJuha Ruohonen, Head Coach, http://fi.linkedin.com/pub/juha-ruohonen/1/441/4a3Antti Ylimutka, Wingman, http://fi.linkedin.com/in/anttiylimutka (Fall 2011- >)2012 – 2013 (Spring 2012, Fall 2012, Spring 2013, Fall 2013)Ville Simola, Captain, http://fi.linkedin.com/in/villesimola (Until Spring 2012)Antti Ylimutka, Captain, http://fi.linkedin.com/in/anttiylimutka (Fall ’12 - Spring 13’)Ilkka Kivimäki, Head Coach, http://fi.linkedin.com/pub/ilkka-kivimäki/0/4a/272 Spring ‘ 12 -Fall ‘13)Juuso Koskinen, Wingman, http://fi.linkedin.com/in/juusokoskinen
  • 74. 743. What sort of criteria must a company meet in order to get admitted?The ones we communicate out:- Have a globally scalable business idea- Have a team that can execute- Have a working prototype- Startup Sauna must be able to help (expertise found in coach pool)Then we do look at the amount of funding raised (pref. max 250k€) and company structure4. Do you have governmental subsidy to operate your business accelerator?Startup Sauna used to be funded by Aalto University completely which included 50% TEKES-money. In the beginning of 2013 we took some operations out from the Uni, founded StartupSauna foundation, raised 1 million € of private capital for it and managed to get 50% TEKESR&D project for it (meaning that we get 50% of R&D costs reimbursed). No EU-money involvedas of today.5. Do you take equity? If yes, how much funding you can provide?Not for now. We give two options to the selected teams.1) 1500€ of reimbursements for travel, accommodation, service/product purchases.2) 1000€ of reimbursements + accommodation for the duration of the program.We have discussed about investing an initial amount of 10000€ against a 3% convertible notein the future AFTER the Sauna program in Helsinki to x-number of teams but these have beenpremiliminary discussions. Our idea is to build a functioning startup ecosystem meaning thatwe want investors to invest in the companies and we keep doing Startup Sauna as long asthere’s people who believe in it and fund it. One of the deals we’ve made for Sauna alumni isthe open term sheet with Inventure.6. Who are the tipical investors you are working with for funding the follow-on round?Finnish Business Angel Network (FiBAN), Inventure, Nexit Ventures, Conor Ventures, privateangels, Lifeline Ventures, Veturi Venture Accelerator, KoppiCatch, TrueVentures etc. There’s abig list of investors who visit our events.The program7. What does the accelerator program look like?Please find some schedules attached from Fall of 2012. Normally we end up doing 4-5 weeksof intensive coaching with program going on from Tuesday to Friday afternoon. Sessions
  • 75. 75include topics from funding to legals, to tech to industry insights, design to market entry. 1on1coaching is essential too.8. How many companies are you selecting in a year?About 15-20 per batch so 30-40.9. What are the preferred sectors and industries for startups admitted to your batch?We don’t really care as long as you can benefit from Sauna and fit in the given criteria.10. What is your value proposition for the admitted companies?We’ll kick your asses around, make you grow as founders, as a team, as a company and takethe easy mistakes out. The quality of our coaches is known in our alumni pool. And even if itsounds like a joke, it most definitely isn’t. That causes us a bit of a problem since it’s super hardto communicate what Sauna is about but luckily we have a pool of alumni who are do a prettygood job of setting an example for other companies. Sauna is a bit different for each companyparticipating and we do customize it a bit for some of the teams.11. Where are the participating companies coming from (country of origin)?Oh oh, normally 50% companies have ended up being Finnish (simply due to quality) and 50%are foreign. We’ve had companies from Finland, Sweden, Russia, Estonia, Latvia, Lithuania,Belarus, Poland, Hungary, Italy, US, Canada for example.12. Which age group are they belong to?Nowadays the average age is about 30. We’ve had people from 20 to +50 years old.13. Who are the mentors in the program? Could you please mention a few names?Check www.startupsauna.com/coaches.Petteri Koponen (Lifeline Ventures, Chairman of the board at Supercell), Moaffak Ahmed, JussiHarvela, Micki Honkavaara (Veturi Venture Accelerator), Mårten Mickos (MySQL), Pasi Ilola,Ilkka Kivimäki, Timo Ahopelto, Ville Miettinen...Traction14. How many graduate do you have so far?80.15. What is the estimated failure rate among them?Probably around 10-20% as of today. Will take a bit more time for some more to die ;-)16. Could you name a few companies coming from your business accelerator that you are proudof?Ovelin (USD 1,4mil from TrueVentures, Futureful (USD 2 million including founder of SkypeJanus Friis), Advacam, Blaast, Videolla (Virool), Asema Electronics, Dentatube, Audiodraft,Infogram, Froont...17. How much funding have the alumni received so far approximately?We’re in the process of updating the number but it is somewhere around 20-25million USD.18. How would you define „success” in case of the accelerator programs? What are the keymeasures of a successful accelerator?
  • 76. 76Excellent question and super hard to answer. This is an easy answer for those accelerators thathave a fund behind them - exit and profit (good luck :-D). For us we can choose endless metricsand be happy with them: people employed, revenue generated, funding raised, does thecompany turn into a viable business, impact on our society (e.g. politicians start consideringstartups and legislation regarding them), the culture for entrepreneurship (more people wantto create/work for startups creating chances for truly new economic growth... Or maybe itsthe footprint that once a team went through Sauna, they grew as founders and their nextstartup or whatever project will have a higher chance of success. I guess our bigger purpose issee whether we did such a good job that we can kill Startup Sauna in the next 5-10 yearsbecause the ecosystem produces a big number of good companies that have talent andfunding available.19. What are the most critical skills of entrepreneurs getting admitted to accelerator?Usually it seems to boil down to having at least a bit of an unique idea, a good team (meaningthat you have a good balance of tech and biz), having done your homework on yourmarket/competition, having a clear history for the company (you wouldnt believe how muchyou see these 50% owned by someone totally random etc.) and being coachableentrepreneurs. Of course the pace that youve gotten shit done in is super important especiallyin webapps - theres so many teams that have spent 2 years building something that shouldvebeen done in 3-6 months. In terms of pitching... well its funny that more than often in theStartup Sauna Warmups the companies that deliver a solid pitch end up showing very littlesubstance during 1on1 coaching. And in the Program most of the teams struggle with theirbusiness models because they think the know how their industry works and end up coming upwith shitty value props to the completely wrong people in target companies or end up sellingB2B-software for so little money that it some might find it difficult to take seriously comparedto what an ERP can cost for big company annually.
  • 77. 773. Interview with Peter Kadas MD., serial entrepreneur, blogger 13. 04.2013, Budapest1. Could you please describe your role within the entrepreneurial ecosystem?Im an economist, medical doctor, and serial tech entrepreneur for 17 years. Im currently managing anew Startup called Brandvocat, a crowdsourced marketing system which allows B2C companies toreward advocates of their brands in exchange for sharing content through social media. I give advicefor OECD and I am running a blog for entrepreneurs and investors called startupdate.hu. Im willing tohelp entrepreneurs, as I was helped by many that’s why I mentoring startups and talented youngentrepreneurs.2. What are the most important added values of an accelerator?I think that business mentoring, including business development and lean development is the mostimportant thing, but I also consider access of various industries, the given network and community asreally valuable resources provided by accelerators3. Why do we need accelerators?Accelerators are important because the business education is overly theory-focused and isn’t able toteach entrepreneurs how to build up businesses from the very beginning of teh pre-seed phase.Business accelerators could be considered as corrections or amendments of the business schooleducation to cover the practical know-how building up ventures from scratch4. Which are the accelerators that you know better?I would highlight Plug and Play in the Valley, Startup Wise Guys from Estonia, eFactor and Rocket Spacein San Francisco. They are all market driven accelerators funded by private individuals. Not all thebusiness angels are good mentors and not all the mentors can afford investing in companies.5. Is it possible to create internationally recognized, high quality accelerators outside of thetraditional business hubs?Startups going where the knowledge and events are and financing is going where startups are. It shouldbe a governmental initiative as it is in Chile or Italy, where non-equity finance is a seductive offer todraw many startups around such centers However, it requires a large sum of capital, not necessarilyworking on the traditional profit-oriented basis. It is not manageable for private money.6. How do you see the role of the state in this process?As explained above, long-term governmental programs can help igniting the process of gatheringstartups, but it’s important to emphasize that excluding the earliest stages, startup finance should bethe territory of private money.7. What would you suggest in Central Eastern Europe? How could be Budapest a regionalstartup hub?Spending HUF 20 billion each year during the next 10-12 years period on non-equity financeprograms would help. Startups intend to go global, so the classic idea of building them up, so thatthey probably stay on the long term is dumb. But Central Europe could easily be the territory wherestartups create employment opportunities with their technical divisions left behind and operatedfrom here.
  • 78. 788. How would you define „success” in case of the accelerator programs? What are the keymeasures of a successful accelerator?The KPIs (Key Performance Indicators) of an accelerator are- primarily the ratio of the projects financed with a follow-on round divided by the projects accelerated.Naturally, the follow-on financing must occur in a reasonable time frame from the end date of theacceleration period, which is typically 3-6 months.- another KPI could be the exit volume in USD. Since the typical exit time is the 6th or 7th year of astartup, this is a longer-term measure. The cumulated exit volume until the 7th year of startups showslong-term survival capabilities.- also, the number of exits makes performance of accelerators comparable if it is defined in netnumbers (no. of startups exited til year 7 divided by no. of startups accelerated)-finally, the cumulative number of workplaces created might show how quick an accelerator can turna startup to be a member of the local economy and how much the hockey stick growth rate potentialis utilized.4. E-mail Interview with Mike Reiner, Startup Wise Guys 23. 04. 2013About the accelerator1. How came the idea of starting a business accelerator? What was the main initiator?We wanted to provide the huge pool of technical talent in Eastern Europe with an accelerator thatunderstands the culture and the market, and also provides teams with access to global expertise andnetworks that they would not otherwise be connected to.2. Could you briefly describe the founding team and their background?Mike Reiner, Jon Bradford, and Herty Tammo are the founders of Startup Wise Guys. Mike is the headof Startup Wise Guys. An ex-IBMer with a passion for bright ideas and business model innovation, Mikepreviously worked in M&A, managing large transformation programs and innovation projects. He isalso the strategic advisor and lead coach at the Tehnopol Startup Incubator and mentor at differentstartup networks in Europe. Jon is founder of Springboard, Difference Engine, Ignite100 acceleratorprograms in the UK. Herty is the lead investor of Startup Wise Guys. He is serial entrepreneur andcurrently owns several companies.3. What sort of criteria must a company meet in order to get admitted?While there is no one size fits all formula for identifying solid teams, we do look at a few key criteriaduring the selection process. Balances of skills within teams, Shared drive and work ethic, Businessmodel, International outlook
  • 79. 794. Do you have governmental subsidy to operate your business accelerator?We are privately funded through a combination of angel investment and VC investment. The VC firmis supported by the Estonian government.5. Do you take equity? If yes, how much funding you can provide?Startup Wise Guys gives chosen startups up to €15 000 investment based on the number of founders.We expect teams to have at least 2 founders. In return we take 8% of equity.6. What does the accelerator program look like?The acceleration cycles focus on three key activities :ShapeGet your businessplan in place. With the help of mentors, trainings workshops, brain picking your initialbusiness plan will be revised by you. Think of the details, keep yourself focused, know your target, planyour product.BuildDevelopment of your product is the main focus during the program. Communicate with potentialcustomers, showcase the product, build it fast, and get feedback to know if you are on the right track.SellThe Startup Wise Guys program ends with a Demo Day in Tallinn and in London where each teampresents their business proposition for angel investors and venture capitalists.8. How many companies are you selecting in a year?The program is hosted twice a year and up to 10 new Wise Guys teams are accepted to each cycle ofacceleration.9. What are the preferred sectors and industries for startups admitted to your batch?We are generally sector agnostic, though we have found a focus on B2B centered startups. Focusingon a sector is something that we are considering for future batches.10. What is your value proposition for the admitted companies?Our primary value is found in the mentor network that we have built in developed markets in the UKand the US.11. Where the participating companies are coming from (country of origin)?
  • 80. 80While we focus our marketing efforts on Eastern Europe and the Baltics, we are open to ideas andteams from anywhere in the world. In the first batch, we had companies coming from Croatia,Netherlands, Ukraine, the UK and Estonia of course. In the second batch, we had teams from Chille,Hungary, Poland, Russia and Estonia.12. Which age group are they belong to?Again, we are open to people in any age but from our experience the teams consists from 2 to 6persons who are usually between the ages of 20 – 30.13. Who are the mentors in the program? Could you please mention a few names?Our mentor base is really strong and we believe that is one of the strongest arguments why startupsshould be interested in us. We do not have only mentors from Estonia we can boast with mentors fromthe UK, US, Germany, Netherlands and with well-known in startup world like: Jon Brandford, AlanMoore, Michael Geer, Richard Newton and many others.Traction14. How many graduate do you have so far?We have graduated 15 teams from our first two batches.15. What is the estimated failure rate among them?We anticipate a failure rate of 10-15% in the first two years after the teams exit the accelerator.16. Could you name a few companies coming from your business accelerator that you are proudof?Monolith (http://www.monolithadvertising.com/)VitalFields (http://vitalfields.com/)BrandieGames (http://www.brandiegames.com/)Have all built world class technologies in their respective fields. Monolith and VitalFields both receivedfunding after the first batch. BrandieGames has completed the program in the last few weeks, hasalready acquired paying customers and begun to explore financing options.17. How much funding have the alumni received so far approximately?All together it would be around 500k €.
  • 81. 815. The questionnaireResearch on Startup Education and Seed AccelerationDear Entrepreneur!My name is Balazs Szabo. I am doing my Msc thesis (Title: Growing global ventures byeffective seed acceleration -The most important charachteristics of a successul businessaccelerator model) therefore I would like to ask for your kind help. Thank you for yourcooperation!*Kötelező0. Are you an entrepreneur? *YesNo1. What is your name? (Optional)2. How old are you? *3. What is your nationality? *4. Where do you live? *5. Are you married? *YesNo6. Do you have children? *YesNo7. What is the name of your venture/project? (Optional)
  • 82. 828. In which sector is your venture operating? *IT/ICTBiotechnology/Life sciencesEnergyEducationDesignSocial enterpriseEgyéb:9. Have you been funded? Which type of investment you have?*I am doing bootstrapping. I dont have investorsMy co-founders / friends / familyInstitutional seed investorsBusiness angelVenture Capital fundPrivate Equity fundEgyéb:10. Could you please name your investor? (Optional)11. Have you ever participated in any kind of workshop/educationprogram/ etc. that could help you to move forward your business? *YesNo12. If yes, what was the name of it? (Optional)13. Have you ever applied for a startup accelerator program?*YesNo14. Have you ever participated in a startup accelerator program? *
  • 83. 83YesNo15. If yes, which one?16. What are the most important decisive points of selecting anaccelerator? *The amount of investmentHow much percentage do they want in return for the investmentMentorsThe core accelerator programLocationThe track record of the Alumni startupsThe founders and their experienceVC/Angel connectionEgyéb:17. Please evaluate the above added value of a seed accelerator *1. Financial support and initial funding (If there is pre-seed or seed funding)1 2 3 4 5 6 7 8 9 10Not importantVálasszon egy 1,Not important, és 10,Essential, közötti értéket.Essential*2. Product development support (how to develop your product that fits the market needs)1 2 3 4 5 6 7 8 9 10Not importantVálasszon egy 1,Not important, és 10,Essential, közötti értéket.Essential*3. Business Development Support (How to find customers, how to reach the target audience etc)1 2 3 4 5 6 7 8 9 10
  • 84. 84Not importantVálasszon egy 1,Not important, és 10,Essential, közötti értéket.Essential*4. Brand Connections (alumni, previous track record, success stories etc.)1 2 3 4 5 6 7 8 9 10Not importantVálasszon egy 1,Not important, és 10,Essential, közötti értéket.Essential*5. Mentorship1 2 3 4 5 6 7 8 9 10Not importantVálasszon egy 1,Not important, és 10,Essential, közötti értéket.Essential*6. Location (to be in a business/entrepreneurial hub)1 2 3 4 5 6 7 8 9 10Not importantVálasszon egy 1,Not important, és 10,Essential, közötti értéket.Essential18. How long is an ideal venture accelerator program for you? *19. How important is getting an office provided?1 2 3 4 5 6 7 8 9 10Not important at allVálasszon egy 1,Not important at all, és 10,Very important, közötti értéket.Very important20. Would you re-locate your business in order to have bettermarket/investor access?Yes
  • 85. 85No21. Could you please evaluate the importance of the followingelements during the education program? *1. Business modelling (How to find the right business model for your venture)1 2 3 4 5 6 7 8 9 10Not importantVálasszon egy 1,Not important, és 10,Extremely important, közötti értéket.Extremely important2. Strategy (Defining the goal of your venture, identifying the target audiance, milestones, how to reach the goals)1 2 3 4 5 6 7 8 9 10Not importantVálasszon egy 1,Not important, és 10,Extremely important, közötti értéket.Extremely important3. Product development (How to make a product/service with great market potentials)1 2 3 4 5 6 7 8 9 10Not importantVálasszon egy 1,Not important, és 10,Extremely important, közötti értéket.Extremely important4. Raising capital, financing (How to get funding, how to raise money)1 2 3 4 5 6 7 8 9 10Not importantVálasszon egy 1,Not important, és 10,Extremely important, közötti értéket.Extremely important5. Pitching1 2 3 4 5 6 7 8 9 10Not importantVálasszon egy 1,Not important, és 10,Extremely important, közötti értéket.Extremely important6. Sales and marketing (Building up sales channels, identifying and targeting the right market audiance)1 2 3 4 5 6 7 8 9 10Not importantVálasszon egy 1,Not important, és 10,Extremely important, közötti értéket.Extremely important7. Business development (How to reach new customers, how to grow your business)
  • 86. 861 2 3 4 5 6 7 8 9 10Not importantVálasszon egy 1,Not important, és 10,Extremely important, közötti értéket.Extremely important22. Would you pay for a non-equity based venture acceleratoreducation program? *YesNo23. If yes, how much would you pay for the whole program if it isconvincing for you?Would you like to get updates on the results of the survey? If yes,please give me your email address! Thank you for filling out thesurvey!Küldés