Tag Archives: Funding

‘Accelerators’: another application – the Movies

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A classic ‘Accelerator’ hopes to open up a new route to funding for independent film-makers. A US film-maker and entrepreneur launches an Accelerator at the Sundance film Festival, selects 8 out of 440 applicants; gives them three months of seed-funding and development, and then enables them to pitch their embryonic film to investors – all for 8% of their equity.

As an indie filmmaker, it can be exceptionally difficult to raise money for your project — to say nothing of finding the proper channels for distribution and the most effective means of marketing what is, for all intents and purposes, your baby. Dogfish Accelerator aims to change all this by connecting filmmakers and their films with investors in a new way, taking the tech startup model and applying it to indie film. In the first week of December (2013) they held their first Demo Day, where filmmakers got to showcase their films to investors: at the Microsoft Technology Center in New York, filmmakers and investors gathered for the inaugural Dogfish Accelerator Demo Day.

James Belfer, founder and managing director of Dogfish Accelerator, has an MBA from New York University, he has produced or invested in several films (Like Crazy, Compliance, Prince Avalanche) and, while working at Techstars (1), a leading startup accelerator, had the idea that the same model could be applied to indie films. Instead of doing things the old way, working within the festival-driven system and holding little leverage over distributors, he looked to the tech world for inspiration.

Dogfish would provide seed money to filmmakers and provide guidance to help them control their own destiny. The project launched at the 2013 Sundance Film Festival, and eventually 440 submissions were pared down to eight finalists. These teams each received $18,000 in seed funding from Dogfish as well as a three month intensive programme – of speakers, masterclasses, occasional experts and regular mentors, with access to web-publishers – to develop a business plan and strategy either for a single film or slate of multiple films; at the conclusion of which they had the opportunity to pitch in front of investors, production companies, sales agents, and distributors. All for 8% of their equity.  (Springboard, a similar programme and in 2011 the first such programme in the UK, cost around £150k to put on.)

According to Belfer, in his introductory speech at demo day: The real issue isn’t that the times are tough, it’s that you can’t be disruptive without knocking down a few walls. Or without trying new investment and business models, testing new marketing and monetization strategies, or utilizing distribution opportunities across multiple platforms. In short, we need to think and act like startups.

The 8 finalist teams represented 13 films, 3 marketing and distribution platforms, 2 Multi Channel Networks, and ancillary streams of revenue including graphic novels, video games, and a fashion line.

Among those presenting was No Film School’s founder Ryan Koo, whose company with co-founder Zack Lieberman presented two projects (Ryan previously wrote about being in Dogfish). One project was MAX & CHARLIE, a family-oriented graphic novel – feature film and video game; the other was 3RD RAIL, an interactive film which uses a new video game engine to make an Agatha Christie-style mystery that encourages multiple viewings – a non-traditional film viewing experience that is utilises cutting-edge technology to tell a multi-tiered narrative. Ryan Koo’s EXIT STRATEGY presented last.

(1) See Springboard, a new UK Accelerator programme http://wp.me/p3beJt-2, modelled on Techstars and on YCombinator. See also Village Capital, a more top-down approach to creating new ventures (http://wp.me/p3beJt-6K).

A number of examples of Accelerators have shown that short, sharp development workshops can be valuable not just for developing new funding sources or new businesses, but also for developing SMEs, as well as for developing new products and new businesses for corporates. (See http://johnwhatmore.com)

 The Centre for Leadership in Creativity                                              December 2013

 

 

 

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Extra funds for London Accelerators

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Professionalising the playgrounds; and thickening up the pot of post-Accelerator funding

For participants in sixteen London Accelerators, funding has been promised to pay for mentors and others supporters; and for co-investing in new businesses exiting these Accelerators. But this omits other possibilities.

Accelerators use ‘mentors’ for a variety of roles – from acting as supervisors, as contributors of their specialist knowledge or expertise, as advisers – about strategy, business model, proposals and plans, and as door-openers – especially to potential partners, customers and funders. And the art, and it is very much an art, lies in enabling them to make their contribution at the right moment – when the participants recognise the need and/or when the ‘mentor’ does so. There are also those who lecture, teach or coach, or just tell their own War Stories. Seedcamp boasts a thousand mentors; Springboard a hundred and fifty; and Bethnal Green Ventures some sixty.

So far, those who manage Accelerators have called on their friends and contacts, on those who support the world of entrepreneurship, and increasingly on their alumni to act as their ‘mentors’; and the latter have all responded to these calls. In Silicon Valley the network of such people is enormous and very responsive: everyone seems to know everyone and word is passed round quickly and effectively; but here in London, they are fewer and in less close contact with one another. EU funds have now been promised (via the GLA, Enterprise Capital and London Business Angels) to sixteen London Accelerators to pay for these people.

By comparison the folk of Silicon Valley are pleased and happy to pass the word around simply because they are interested in innovative businesses – a community for whom the fascination of working with and talking to and about start-ups is sufficient.

These funds will no doubt generate a host of ‘consultants’ big and small, who will offer their services because there is money to be made out of this burgeoning scene. But they will not be the first choice of aspiring entrepreneurs because the best supporters will be those who are not in it for the money; and the entrepreneurs will recognise this. Second rate Accelerators will attract second rate ‘mentors’; and it must be doubtful if this will promote the start-up scene to its best advantage.

Less controversially, the EU is also the source of funds promised for co-investing under arrangements with those who are putting money into new businesses that are exiting Accelerators (many of them angels and quite small funds – the most successful of which will have worked with the Accelerator over a period in getting to know their targets). This is designed to increase the size of such funding packages, which will lengthen the runway for these businesses and give them a better chance to establish themselves. Yet at this point, many are left without the support that they have enjoyed and with which they would very much like to be able to continue.

It is disappointing that funds have not found there way to spreading the Accelerator concept into new fields such as for high growth SMEs, for commercialising Intellectual Property, and for supporting innovation in local industries and in public services.

Financing start-ups: some current hiccoughs

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* How do you structure funding for projects with very uncertain prospects?

* Early-stage investors not taking a long enough perspective?

* How do you manage the processes of funding more effectively?

* Grants as an alternative; but they have their strings.

* Footnote: What is the logic of some recent very fancy prices for IT start-ups (Instagram, Summly)

 

Some of those who run Accelerators have turned to the ‘convertible note – structured as a loan’ – in addition to a slug of equity (5-15%), as the best way of maintaining their interest in long odds bets; but this is leaving less room for new investors.  A number of recent ‘graduates’ from Accelerators have been appearing at Angels’ Investor Days looking for follow-on funding. Some have brought with them surprisingly high outside equity investments (up to 15%) and other commitments to third parties. The value of a business will inevitably be affected by its balance sheet; but aspiring entrepreneurs also need to be able to see their early financial commitments in terms of longer-term funding needs.

A number of Accelerator managers are concerned about helping the participants in their programmes to find follow-on funding without any interruption in their progress. The concerns here are two-fold: how do you enable Angels to have access to likely investees early enough in the development process to enable them to make a thorough evaluation of the project and the entrepreneurs; and how do you enable this process and the processes of investment (due diligence etc) to be done and dusted (ideally) by the culmination of a specific programme (eg an Accelerator)?

Angels have also expressed concern at over-valuations. At the final of recent New Business competition at Oxford’s Said Business School, I watched Philip Green, one of the judges, offer the winner £250k for a 50% stake in his business. The latter responded by saying that for that sum he might be willing to sell 2 – 3% – a gap in understanding that might have been filled if the background and the context had been better understood – by both parties. (See also Footnote below.)

Others have looked to grants (eg from the Technology Strategy Board) for early-stage funding, but sometimes find the processes of application, the conditions and the constraints such that they do not have the freedom to get on with the job or to go wherever the project dictates.

 

Footnote

A recent article in the Herald Tribune (9.4.13) wrote of five ways of valuing a start-up. If it is pre-revenue [and in IT], then how many eyeballs has it attracted; or what is the price or value of its developers [and they are in short supply here as they are in Silicon valley]. If it is up and running, suggests a Professor at Harvard Business School, how much time and effort would it take to build the product from scratch and attract those new users; or what is the potential cash flow.  And fifthly, ‘what number do we need to put on the table to convince the management and investors to part with their dream?’ The writer adds that all these calculations fall apart when a start-up receives an exorbitant amount of media coverage and exposure on social networks; and suitors can become irrational – producing prices that might just have come out of a hat!

 

 

 

The RCA’s incubator wrestles with its own development

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The Royal College of Art’s Incubator wrestles with its own development

InnovationRCA, the RCA’s incubator, has ploughed a leading furrow among higher education establishments; and is contending with the issues that are raised by an incubator programme that runs in parallel to its academic programme, (which is a post-graduate programme), and that is also a part of the educational process.

The RCA’s incubator now takes in four or five new business teams each year – its sixth cohort (it started with just two per annum in 2008); and it is a two-year programme. While many start-ups involve little more than taking a recently created way of doing something and simply applying it to a new field, often with a tweak or two, the kinds of businesses that are brought to this incubator entail substantial design or engineering/IT development (the essence of the RCA) as well of course as market and business model testing. (There are other groups whose products seem to lend themselves more readily to licencing; and these are also housed alongside, but under a different regime.)

Evaluation of early-stage development processes is notoriously difficult, partly because they are all so different from one another, and partly because, as one expert observed, you cannot do so until years after (but how many?!) The statistics are that about 40% of the teams in the incubator have received ongoing funding; and just under half have developed products and are trading.

There is a bootcamp in the summer and networking events to help candidates to understand their own personal aims and objectives and to match up with appropriate team members; and the deal is that those selected for the incubator receive loans of £30-£70k, partly convertible into equity, plus compulsory support. The RCA has established a fund in order to support these businesses (it was originally supported by a substantial grant from Nesta), but needs to be able to recycle the proceeds of sales of or repayments from its businesses in order to sustain the incubator.

The incubator is housed in the recently completed Dyson Building in Battersea which can house around fifteen businesses, with flexible accommodation and meeting spaces, and excellent kitchen/eating space.

The learning programme seems to be very sophisticated, and comprehensive; and each team is assigned a pair of coaches, whom the participants meet every two weeks. Every six weeks they have a review with a larger group of mentors; and they are required to pitch their business every three months to another group of mentors. The RCA has a group of eight ‘coaches’ (mentors), plus half as many more ‘occasionals’; and would like to have a larger and more diverse range of mentors available

Teams sometimes find that one or more of their members are less wholeheartedly committed to their project than others, that other

career interests attract them more than entrepreneurialism, or that their interests in the future of the business do not co-incide with those of  potential investors. And any of these circumstances impede the progress of the business and necessitate the reforming of the team and their re-energising and redirection – often a difficult management task.

Demo Day takes place once a year with around half-a-dozen investors, mainly angels, and InnovationRCA would like to have more such potential investors; but the two-year term of the incubator and the potentially divergent interests of the participants make investing in their businesses more uncertain than some other start-ups. Moreover, the RCA needs to hold its investments under some kind of fund that would handle all the legal and contractual arrangements – which are not within its normal capabilities.

There is evidently a number of issues associated with incubators that run in parallel with academic programmes, not least when they are part of the educational process; and as a leading incubator in higher education, InnovationRCA is wrestling with these.

For descriptions of other aspects of DesignLondon’s work – especially the development of its pedagogical programme, see: http://goo.gl/Yr12c

 

Copyright 2013

John Whatmore                                                                   February, 2013

The Centre for Leadership in Creativity

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