The future of business accelerators
Paul Miller, author of a new report on business accelerators, maps out their future for Startups – and explains why it's looking bright
Earlier this month, it was announced that Newcastle will play host to Europe’s first £1m digital start-up accelerator, a venture specifically designed to nurture promising new mobile and multimedia companies with funding and support.
The programme, titled ignite100, will provide a 13-week mentoring programme for 10 elite start-ups. If the teams hit their targets, they could receive as much as £100,000 – supplied by two tech-focused venture capital firms.
By offering such lavish funding, ignite100 has set a new benchmark for business accelerators, across the continent. It has also clearly demonstrated that, less than four years after Europe’s first accelerator, Seedcamp, opened for business, venture capitalists (VCs) are now waking up to the potential of this concept.
For the eagle-eyed VC, a business accelerator provides the perfect breeding ground for a successful investment; investors can hot-house a participating start-up with advice and mentoring, and see first-hand whether a business is capable of cutting it under pressure. Furthermore, accelerator-fuelled start-ups are already starting to make their mark in a big way, indeed one Seedcamp graduate recently completed a £50m exit. So, for investors, the potential is vast.
But will this potential be realised? How will the business accelerator model grow, and which sectors will it embrace? Will its core offering change, and which parts of the UK will it visit?
To find out, we asked Paul Miller, seasoned internet entrepreneur and co-author of an influential recent NESTA report on business accelerators, to give us his views – and provide an insight into what the accelerators are looking for.
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Miller believes that more and more business accelerators will shoot up across Europe in the coming years. The NESTA report points out that Europe is now home to 10 different accelerator programmes; Miller believes this number could increase four-fold.
“It (the profile of business accelerators) is growing so fast in the US. Europe is about two or three years behind that curve, but we can see Europe following. There are about 40 programmes in the US, we think Europe will get to that level in two years’ time.
“We already know of a couple of programmes which open in Europe next year. Start-up Bootcamp, which has been running in Copenhagen and Madrid, is opening up in London and Berlin next year, and there’s another one I can’t name.”
Given that some of the world’s biggest, and coolest, new companies have emerged from the tech and mobile space in recent years, it’s perhaps unsurprising that most accelerators prioritise start-ups in these sectors. With companies such as Zynga fetching huge market valuations, there’s a clear incentive for investors to throw their money at similar companies.
But Miller believes that the focus could widen as the accelerator model becomes more established. “At the moment they’re definitely focused on tech and mobile… but we are starting to see tech ventures in other sectors, such as healthcare, being embraced by the accelerator.”
However, he adds that many accelerators have specific parameters and preferences in mind when choosing between applicants.
“There’s definitely an aim at a particular niche, which is small teams, usually heavily technical with at least one technical co-founder. That does seem to be the model for some of the best high-growth start-ups at the moment, so for these kind of companies it’s a great platform.”
That said, if you’re starting up on your own, it seems you’ll struggle to get a place on an accelerator, no matter which sector you’re in.
As noted in the report, accelerators tend to veer away from one-man bands; teams are far more likely to find favour with judges than individuals. Miller says this trend is likely to persist, because “angel investors often find it very difficult to invest in a single co-founder – it’s so hard to create a business when there’s just one of you.”
Location, location, location
With the launch of ignite100, there are now four major accelerators active in the UK – the others being Seedcamp in London, Springboard in Cambridge and Oxygen, which recently opened for business in Birmingham.
Given that world-renowned cities such as Manchester, Liverpool and Glasgow have yet to get their own accelerator, it seems certain that the concept will spread across the UK over the coming months. But where will the next generation of programmes be located?
Miller believes that local expertise is key. “You need a good community of mentors that you can connect the companies to, this is one of the most important things in setting up an accelerator, and it’s key to deciding where to create one. You have to look at what the local community’s good at.”
While ignite100 is backed by private investors, Miller feels that public bodies could provide of the bulk of the funding for accelerators in the future.
“The accelerator in Birmingham is partly funded using public money, and the Difference Engine (an early accelerator which ran briefly in Middlesbrough and Sunderland) was entirely publicly funded. That’s now been evaluated and it had a very positive impact on businesses and the local economy.
“Local Economic Partnerships could be a key source of money in the future. As the evidence starts to increase that accelerators work, people who have an interest in economic development – whether that’s the LEPs, city councils etc – will become interested.”
Overall, Miller is clearly extremely excited about the prospects for the accelerator sector, and the sweeping changes which will shape it in the months ahead.
“With the accelerator there’s a new viable option for helping you start a new business, which wasn’t there five years ago. The growth of accelerator programmes means more and more start-ups can take this route up.
“It’s interesting how they’ve evolved already. The people who are running the programmes are learning as they go, and the speed of change inside individual accelerators is fascinating.
The change is partly driven by the falling cost of starting a business – the first year of starting a physical business is a lot cheaper than it used to be – and by the growing interest from investors and the tech community.”
If Miller’s predictions come true, the future for business accelerators – and start-ups – appears to be very bright indeed.