Robert P. Mollen, Counsel at Fried, Frank, Harris, Shriver & Jacobson (London) LLP.
As innovation accelerators or incubators have proliferated, sceptics question whether they really deliver value.
I mentor at over 20 accelerators and similar programs, so my view that they can be very useful should be no surprise. But only if you select the right one/s.
As an upcoming report by Nesta will show http://bit.ly/2o8TB76, there are hundreds of accelerator and incubator programs in the UK alone. There are hundreds more in continental Europe. They vary widely in terms of what they offer, ranging from office space (and little more) to effective business mentoring and useful contacts with key customers and investors. Accelerators also vary widely as to their selectivity and selection process, the stage of businesses they accept, and the stage of businesses that will actually benefit from their programs. Some take equity for participation in the program or for further investment; others do not. Some impose cash charges.
I doubt the value of some of these programs, and the costs of choosing the wrong accelerator can be high – in terms of lost time, bad advice, and unnecessary dilution or cash cost. Moreover, the application and admission process itself is time-consuming, and some of the best programs get hundreds of applications for ten or fewer slots.
So, in looking at accelerator programs, entrepreneurs need to consider their objectives very carefully, and then do the same kind of due diligence as they would for other key business decisions, such as the selection of investors http://bit.ly/2nrvCS5.
What do you want to get out of the accelerator?
The starting point is to make sure that you have clearly identified what you are looking to get out of an accelerator at this stage of your company’s business.
For example, it probably doesn’t make sense to focus on an accelerator that is particularly effective in securing investment from venture capital firms if you don’t yet have a minimum viable product. On the one hand, engagement with mentors from VC firms may help you identify what is likely to be an investable proposition. On the other hand, you may not secure some of the benefits of the program if, at the time of graduation from the program, you are not ready for VC’s to want to start to engage with you.
So what kinds of accelerator objectives might make sense? Here are a few.
- Mentoring opportunities and access to skills in areas in which you are weak.
- Opportunities to hone your business proposition to address real customer needs.
- Networking opportunities, with potential customers, investors, potential team members, and potential partners.
- Access to services that are particularly relevant to your stage of development.
- Landing pad and introductions in a country or vertical that is new to your business.
What are the different classes of accelerator?
Accelerators vary widely in the programs that they offer.
Accelerator Groups. Some accelerators are part of larger groups and offer access to a wider network of investors, customers, and mentors that frequently is cross-border. These groups have developed reputations over time, based on the success that they have shown in helping to build successful businesses -- particularly by delivering investment, access to proof of concept (POC) opportunities and customers, and effective mentorship. Some of these benefits may continue even after graduation from the program, if the accelerator provides continuing networking opportunities and other support to alumni companies.
Corporate and Industry Accelerators. Some accelerators are sponsored and operated by major tech players, and others are industry-focused accelerators that may be managed or co-managed for a corporate incumbent or consortium by a third party, such as an accelerator group or other manager. To varying degrees, these accelerators may offer special access to POC opportunities and customers as well as to investors. They also may offer specific access to the resources supplied by the corporation/s, such as mentors and technical services.
Staging. Other accelerators are focused on specific stages of the company’s development, such as development of the initial concept into a business, or scaling up of an existing business that has already shown traction.
Focus. Some accelerators may be focused on specific problems, like cybersecurity, or particular types of businesses, such as B2B SAAS businesses or B2C businesses. Some may be looking to address broad social or governmental concerns.
Cross-Border Expansion. Some accelerators may be particularly helpful in assisting companies to expand on a cross-border basis, helping them address the commercial and administrative issues associated with penetrating a new market.
None of the Above. And some accelerators are, frankly, not really accelerators at all, but rather providers of co-working space, “free” coffee, and little more.
Selection and Curation. The reputation of accelerators, and the selection process that they go through, may contribute to the ability of an early stage company to secure investment, POC’s or customers, or other opportunities, even if those opportunities do not come through the accelerator or its network.
It is important not to underestimate the value of the curating process that the better accelerators perform. A key problem for incumbent corporations is figuring out how best to identify the emerging companies with which to engage. Corporates faced with this problem may take comfort from the fact that the company has been through a program that was highly selective.
How should you perform due diligence on an accelerator?
Once you’ve pinned down your objectives, it is time to determine if the accelerator is a good fit.
General Reputation. A key starting point is to assess the reputation of the accelerator program, from the standpoint of both its general public reputation and the experiences of those who know it well. Speak with companies that have been through the accelerator and get their feedback as to what worked, what didn’t, and what they thought of the experience. Also talk to mentors, investors and others who are familiar with the program and can tell you what they have seen.
Meeting Your Objectives. While some of your questions should be of a general nature, some of them should relate to your specific objectives.
For example, if investor access is a key element, it is critical to understand the extent to which the graduates of the program have secured investment based on the program.
If industry access is critical, what success have the graduates had in obtaining POCs or contracts in that vertical, or reasonable opportunities to pitch for them; more generally, has the program helped to the companies to tailor their products to that vertical?
If cross-border expansion is important, has the accelerator been effective in addressing the special needs of non-local companies?
Selection Process. How selective is the program, and what is the likelihood, given your area of interest and stage of development, that you will be selected? The selection process can be time-consuming, and you will need to reach a judgment as to whether the investment of your time is likely to be useful. Have companies that have not been selected nonetheless gotten value out of the process and, if so, what?
Operator Motivation. Finally, what are the motivations of those operating the accelerator program? There is nothing wrong with their having commercial self-interests, but you need to understand what they are.
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This discussion is not intended to provide legal advice, and no legal or business decision should be based on its contents. If you have any questions or comments, feel free to contact [email protected] or via LinkedIn here.
You will find Bob’s other weekly blogs for emerging and growth companies on US issues, international expansion and early stage financing here: http://bit.ly/2lP5uMP