Incubators in US and Europe

Speed and scale in capital formation

@ Kauffman Fellow Program

Aziz Gilani, DFJ Mercury

Gianluca Dettori, dpixel

Goals of the accelerators & incubators study

1) Provide the first systematic ranking of seed accellerators for use by entrepreneurs when picking a program.

2) Understand if this model is profitable and how scalable, particularly in ‘unsual’ venture capital geographies such as Italy or Texas

What is a Seed Accelerator?

Key Criteria

Notable Seed Accelerator Graduates

• Airbnb (Y Combinator 2007)

• DailyBurn (TechStars 2008)

• Dropbox (Y Combinator 2007)

• Foodzie (TechStars 2008)

• Heroku (Y Combinator 2008)

• Ignighter (TechStars 2008)

• Next Big Sound (iVentures10 2008 /TechStars 2009)

• Posterous (Y Combinator 2008)

• Reddit (Y Combinator 2005)

• RunMyErrand (fbFund REV 2009)

For ProfitFor Profit

Closed Terms Less Than 1 YearClosed Terms Less Than 1 Year

Paid in EquityPaid in Equity

200 entities

in the initial map

Rewind 6 years back…

• 2005: Paul Graham starts Y Combinator in Silicon Valley / Boston

• 2006: David Cohen starts TechStars in Boulder

• 2007 Reshma Sohoni and Sal Klein launch Seedcamp

• 2011: around 200 Startup accelerators across the US and Europe, mostly in the course of launching now

• 2011: Ycombinators assets value 4,7 BN US$

The average deal

• 3 founders

• 35k to 50k US$ investment

• 6 -10% equity on average however with big variance (2 - 40%)

• 3-6 months program

• The incubator always provides mentorship, hands-on support

• Often provides for co-working space

• Demo days, visibility and access to the venture capital ecosystem

Some metrics

• We narrowed down the map to 30 (US) + 8 (Europe) = 38 incubators active or relevant to the industry

• 533 alumni (US) +85 (Europe) = 618 startups generated

• 50% of startups have been generated by the top 3 incubators: Techstars (all locations), Ycombinator and Seedcamp

• 1 out of 6 had qualified financing events. 72 (US) + 26 (Europe) = 98 rounds or exits

U.S. Results

Rank Program1 TechStars Boulder2 Y Combinator3 Excelerate Labs4 LaunchBox Digital5 TechStars Boston6 KickLabs7 TechStars Seattle8 Tech Wildcatters9 DreamIt Ventures

10 The Brandery11 Capital Factory

12NYC Seedstart

13 Betaspring14 BoomStartup15 AlphaLab

Two different models that work in the US

Observations, US

• The vast majority of Accelerators have neither funding nor liquidity events, bringing their efficacy into question

• TechStars and Y Combinator have created two viable but different models of operating

• There are other viable ways of analyzing the data

• Could have set a different threshold for QFE (lower amounts would have included more angel funding)

• Could have looked at volume of investment/exits (would have favored accelerators that work with more companies)

• Could have focused on returns to LPs (accelerators were very reluctant to share this information)

• There are a lot of “claims” circulating around the industry around success. We focused on verifiable / public data that may have hurt some accelerators due to NDAs around funding events.

Main Takeaways US

• In VC, you must be active in social media to stay relevant to your network

• Accelerator programs are valued by VCs more for the connection to the venture community than for deal flow

– Recognized for their educational value to entrepreneurs

• Y Combinator and TechStars are the “gold standard” of accelerator programs, but have different models

– TechStars and its followers utilize a mentorship-driven, open and replicable model

– Y Combinator has a “guru” model, with a closed/exclusive approach

EU Results

Rank Program1 SeedCamp (UK/Europe)

2 Startupbootcamp / Tetuan Valley (Spain)

3 Startupbootcamp (Denmark)

4 Springboard (Cambridge, UK)*

5 Openfund (Greece)

6 NDCR LaunchPad (Ireland)

7 Propeller Venture (Ireland)

8 Startupbootcamp (Ireland)*

*Currently Not Active

Main Takeaways EU

• Europe is much more complex and diversified with loosely connected ecosystems, that have developed their own darwinian recipes and variations

• Several relevant players in the European ecosystems where not in the map due to strict criteria application (such as LeCamping, Working Capital, Hfarm, The Accellerator Group, Kima, Garage48, Aalto)

• SeedCamp is the European “gold standard” of accelerator programs with a Ycombinator model, while StartupBootcamp is following the Techstars model

Buzz and some controvercy

• Techcocktail and Techcrunch covered the story and published the charts.

• The European Map was presented at NESTA’s Startup Factories event in London

• 50% of seed accelerators/ incubators started in 2010, we’ll need a couple of years to really figure out what works and what does not work in Europe

• A more detailed study would be necessary to really get the picture of what’s happening, particularly outside the US

Key considerations

• We did assess a methodology and provided startups with a fairly significant map in terms of where to apply, when they are searching out of 200 incubators

• Ycombinator, Techstars and Seedcamp are proving they have a viable economic and scalable financial model

• “Startup factories” like this can easily generate 50 up to 200 startups per year

• The good news is that venture capital is flourishing not only in Mountain View, Palo Alto and Boston but also in Boulder Colorado, Austin, Washington DC, Philadelphia, Pittsburg, Seattle, London, Dublin, Copenhagen, Madrid and Athens

Zoom forward 5 years… where is this going?

The “what if” scenario and some open questions

There are probably 200 relevant incubator around the globe active right now, generating at least a rate 500 startups per year

• How far/fast can it go? How much can it scale?

• Can it be extended to other innovation sectors besides Internet and software?

• How many stars per year? How much external capital raised? How many entreprenerus created?How many jobs will be generated?

• How capital efficient is this?

The future, next objectives

• Use data as background research for accelerator case studies and better investigate successful models

• Put together a Working Committee for the 2011 Edition of the Study

• Extend the map to Asia, Latin America and Africa

• Adapt criteria and ranking algorithm to account for the different ecosystem peculiarities and models adaptation

• Launch the Incubator International Awards (October 2012, Italy)

• Proposed new extended map criteria

For Profit/No Profit entitiesFor Profit/No Profit entities

Closed Terms Less Than 1 YearClosed Terms Less Than 1 Year

Stipend value /Charge fees /Seed investorStipend value /Charge fees /Seed investor

Annexes

Project Approach

Methodology

Qualitative Analysis  Evaluation Factor WeightMentorship Quality 12.5%Participant Quality 12.5%Demo Day Quality 25%VC Awareness 50%

   Overall Ranking  Evaluation Factor WeightStipend Value 5%Equity Stake Taken By Program 10%Size of Alumni Network 10%Qualified Financing Events ($350,000 within 1 year of program completion) 25%Exits 25%Qualitative Evaluation 25%

Measurement criteria

• Qualified Financing Events – 25%

• Virtually all Accelerators end their programs with a “Demo Day” for VC funds

• “Investor and Demo Day is the culmination of three months of hard work by our companies” David Cohen

• Criteria: What % of companies raise $350K within 12 months?

• Founder Liquidity Events – 25%

• Did the founders ever cash out?

• “Our definition of success is that the founders get rich” Paul Graham

• Criteria: What % of companies exit for at least $1M?

Many Accelerators had neither QFEs nor Exits

Measurement Criteria

• VC Pereption – 25%

• How do VCs perceive startups from an accelerator?

• Panel: 10 VCs who have invested in accelerator companies

• 4 Criteria

– VC Awareness

– Mentor Quality:

– Past Company Quality

– Demo Day Quality

• “Our goal is to get founders from zero to VC fundable” Bootup Labs

TechStars has high brand value with VCs, possibly due to LP structure focused on VC

inclusion

Rank Accelerator

1TechStars Boulder

2TechStars NYC

3TechStars Boston

4TechStars Seattle

5Y Combinator

6Excelerate Labs

Measurement Criteria (US)

• Accelerator Characteristics – 25%

• Stipend Value: $0 - $50K

• Equity Taken: Surprising Variance, 5-40%

• Alumni Network Size: 0-209

Some Accelerators deviated very far from the norm in terms of Stipend, Equity, and Alums

Accelerator Rankings (US, Spring 2011)

Rank Overall Program1 TechStars Boulder2 Y Combinator3 Excelerate Labs4 LaunchBox Digital5 TechStars Boston6 KickLabs7 TechStars Seattle8 Tech Wildcatters9 DreamIt Ventures

10The Brandery11Capital Factory12NYC SeedStart13Betaspring14BoomStartup15AlphaLab

Rank QFE  1 Excelerate Labs 70%2 KickLabs 50%3 Tech Wildcatters 40%4 TechStars Boulder 37%5 LaunchBox Digital 23%6 The Brandery 17%7 Y Combinator 15%8 TechStars Boston 15%9 DreamIt Ventures 11%

10Capital Factory 10%

Rank Exits  1 TechStars Boulder 15%2 LaunchBox Digital 14%3 Y Combinator 13%

Rank VC Perception1 TechStars Boulder2 TechStars NYC3 TechStars Boston4 TechStars Seattle5 Y Combinator6 Excelerate Labs7 NYC SeedStart8 LaunchBox Digital9 DreamIt Ventures

10Capital Factory

Rank Alumni Companies1 Y Combinator 209 2 TechStars Boulder 41 3 DreamIt Ventures 35 5 LaunchBox Digital 22 6 AlphaLab 21 7 TechStars Boston 20 8 Betaspring 15 9 KickLabs 12

10LaunchHouse 12

Acknowledgements

Prof Yael Hochberg and Kelly Quann KSM ‘11 from the Kellogg School of Management helped with data collection and provided guidance on the analysis.

Frank Gruber published the first summary of our analysis which was subsequently published by various other media outlets.

Marco Ciccolini, for having worked out the data collection and number crunching of the European dataset.

NESTA for having pulled together the European seed ecosystem at ‘Startup Factories’ in London and Mike Butcher of Techcrunch for covering the story @TechCrunch