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Accelerators or Incubators – or combinations?

Flexible and adaptive development, challenge and support are what is required for hi-growth young businesses.

 IT is revolutionizing or disrupting many sectors of the economy and providing opportunities for endless innovations. And as it does so, first-mover advantage has been an important asset, and speed of development has become an increasingly vital element. While Incubators provide valuable spaces and an umbrella for SMEs, Accelerators (12-week managed programmes of intensive development for a small number of early-stage businesses, all working beside one another, and with fulsome support) aim to provide injections of development.

 Incubators provide flexible accommodation and basic services for SMEs, while Accelerators aim to provide 18 months of development for dynamic young businesses in the 3 months or so of their programmes; and they differ in two main respects: pressure and support.

While Incubators have no time limits on their occupants, Accelerators calibrate their progress and provide at the end of the period an opportunity to present their case to investors – for further funding. And while Incubators are reactive – they may have access to a range of advisers, available on request, Accelerators are proactive – they work with their young businesses to help them identify the advice or support they need, and then find it for them.

The reality is that different things are important at different moments and for different stages of growth. Most valuable is to have access (and not just the one-shot injection that the Business Growth Service provides to its adherents) to people with a depth of experience in the long-term growth of young businesses – a changing quorum of experts in a non-executive role. The big new co-working spaces like the 3,000-seater new WeWork building in Moorgate London (or for that matter the new Crick Institute at Kings Cross, and even the Harwell Campus), would benefit from having a number of such experts on tap, and ready to take up that role.

They can also mediate access to specialist mentors and advisers, and they are also in a position to bring together from time to time those businesses with similar growth issues and in similar sectors – to learn from each other’s progress and experience (like the Belgian Plato programme, http://wp.me/p3beJt-H) and like Wayra Lab – the Telefonica Accelerator http://wp.me/p3beJt-s). And they can run sessions of intensive assessment (like those run by the Sussex Innovation Centre) and short periods of intensive development (like Hackathons http://wp.me/p3beJt-aU).

The other crucial difference between Accelerators and Incubators is that you pay for the former in equity, and for the latter in rent.

For an analysis of the several roles that supporters play, see “Managing Creative Groups – how leaders develop creative potential in their teams”, Chapter 9, How leaders provide support. John Whatmore, Kogan Page, 1999.

 John Whatmore

December 2015

5 Ace Mentors: No 5 Finance

Aside

A Mentor for finance – and his experiences

Thinking early on about future funding needs; identifying and understanding investors; and keeping track of the finances.

 

“I worked with a cohort of startups in social enterprise, most of whose ideas had stemmed from their own experiences. They had been funded so far with small grants from relevant charities. I found myself repeatedly asking how they might hope to fund their enterprise at the culmination of their 12-week Accelerator programme. That would get them to focus on how the enterprise might be developed so that it would later meet the criteria of what would often be another grant-making organisation.

 

Although ‘Demo Day’ – when startups pitch their business to funders and to the startup community – marks the culmination of these Accelerator programmes, investors take time to evaluate the businesses in which they might invest and I stress that identifying potential investors and making their acquaintance early on is important. (Wayra Lab, Telefonica’s Accelerator requires that one of the three mentors that it attaches at the outset to its new businesses be an investor.)

 

I stress that Investors look for an experienced, successful founder, a compelling mission and a big opportunity, and that they will seldom invest on the basis of no more than a business plan: early-stage customers, a working product and an idea of how you get a product-market fit in this round of funding are almost essential requirements. And having good partners (and mentors) is increasingly seen as of added value.

 

A friend of mine with experience of several startups and a hi-tech background had won a grant of £100k from Innovate UK to develop a prototype for a well recognised market, and now sought funds for its manufacture. He used the website Kickstarter that enabled him to identify and make contact with potential users, get feed-back about his prototype and offer them the product at a future date – in return for payment now (from which he raised almost another £100k.) He anticipated that he could then sell a small share in his company to investors that would enable him to extend his product range and add to the value of his company. [Access to mentors, coaches and advisers is now available to grant winners free of charge via the Business Growth Service.]

 

I can introduce startups to Angel networks (which can also be reached through the UK Business Angels Association), to the Angel Co-funding Scheme, and to the Business Growth Fund which also categorises funders by industry, stage etc. (Trade sales/investments/options are frequently overlooked.) I emphasise the kind of returns that Angels seek and I stress that they are attracted if there is a clear path to the next round of funding, and are wary of businesses that may take a significant time to reach the next funding round’s benchmarks. I stress that negotiations will always take time; and I am able to help identify gaps in their pitches.

 

I have so far discouraged anyone from using crowdfunding websites (though they are evolving fast), because they are difficult to evaluate, and some require that you reach your target to win funding. There are too many dangers in determining your pitch; you will not necessarily get the help of an investor who has ‘been there before’; and you are likely to have to be dealing with a number of small shareholders.

 

And I take some responsibility for ensuring that a team is constantly aware of revenues, margins, costs, expenditures, cash flows, free funds etc.”