The startup accelerator model isn’t working in Southeast Asia… let’s fix it.
It seems like every week a new accelerator program is opening, yet if you ask around just as many seem to be closing their doors. Just last week it was announced that the muru-D Singapore accelerator was shutting down, a result of corporate parent telco Telstra having a “change in strategy”. Having helped to run the muru-D program as Entrepreneur in Residence and Program Manager for the past two years I have a lot of insight into what happened. muru-D Singapore was the best corporate accelerator program I’ve ever seen, but failed due to complete reliance on its corporate sponsor.
There are two main models of accelerator in the regional ecosystem: Self-financing programs like JFDI (also closed) in Singapore, and similar programs like Ycombinator and 500 startups in the US and then corporate programs like muru-D and many others. Each has their strengths and weaknesses.
Self-supporting programs have historically had a cash-flow challenge: Can their portfolios produce enough exits quickly enough to reinvest into the program? Even if they have exits the proceeds might be in stock which you can’t pay your staff, startups or landlord with. Thus, after a few years with not enough exits the independent programs tend to get anxious, may change their terms to be less founder-friendly, move to a smaller space farther from attractive areas, etc. While this may preserve enough OPEX to keep the program going a bit longer it creates a negative feedback loop whereby lower quality startups apply to and are admitted to the program, thus lowering the chance for exits, and so on. At some point it collapses in upon itself and the doors close.
On the other hand, self-supporting programs don’t need to worry about corporate alignment and can remain vertical agnostic. They can create more innovative cohort groups composed of diverse founders and startups. They also enjoy an advantage in not constantly worrying about how well their corporate sponsor is doing and whether the perceived value to the parent is high enough to keep the OPEX flowing. In a sense they are more like a startup themselves which offers advantages like nimbleness, independence and program innovation. Startups generally have a better experience in these programs.
Corporate accelerator programs tend to have very different problems. Rather than a slow drain of cash leading to death, corporate-backed programs run the risk of the parent having a bad financial quarter or two with the executives at HQ (which may be far far away) likely to hone in on “non-core” expenses to cut. Accelerator programs are ripe for trimming in a stressful financial environment. With Telstra’s stock price down by 2/3 and the company shedding 30% if its staff could we really be surprised when they announced they were shutting down our Singapore accelerator program, even while we were exceeding all of our accelerator-based KPIs?
In many ways muru-D was the best startup accelerator program in Southeast Asia. We were given the freedom to select the best startups regardless of business model (with no Telstra alignment required), had wide latitude to create our own program content, and even had the most founder-friendly investment terms of any accelerator program that I’ve seen in the region. I give Telstra a lot of credit for building up the program and giving it the freedom to thrive. What Telstra did with muru-D reminds me of this quote attributed to Steve Jobs:
“It doesn’t make sense to hire smart people and then tell them what to do; we hire smart people so they can tell us what to do”
Well, they executed on that. At the end of the day I believe that we provided a valuable service to Telstra and I feel lucky to have been a part of the muru-D Singapore program. Our alumni startups will tell you the same. I’ve heard time and time again from our founders that “it was better than I ever expected”.
While Telstra and muru-D had what I consider to be the “right” formula for a corporate accelerator, most other corporate programs that I encounter have ingrained problems that poison the proposition. Usually, they are too aligned with the corporate parent. This is often seen as necessary to sell the program internally and secure OPEX, but it becomes the death-nell after a few years. Startups in the program may have to deal with exclusivity clauses, interference from corporate staff and events preventing them from working on their business, and often much less value than advertised. The investment terms are often not attractive to the best startup founders, creating a negative feedback loop similar to that mentioned in the independent program example above. In many cases there is also very little real access for startups to the corporate sponsor.
So what should a startup accelerator be? What is its proper role and how can it do its part while also maintaining financial viability?
I believe a startup accelerator should:
- Focus first on quality in; the best startups get in, period. No vertical/sector focus.
- Value-add to the startups is prioritized above everything else.
- Startups have enough time to run their businesses; in my experience that means 85%+ of their week is uncluttered by “events”.
- Terms need to be variable and fair. SAFE notes are the best fit. I prefer uncapped notes with a qualifying round.
- The program calendar needs to be flexible; the program manager(s) need to react to the needs of the cohort.
- Cohort culture is important: “Pay it forward”, “Be useful”; “We are all in this together”; and “Lone wolves need not apply”…
- Integration into the regional and global ecosystem with investors, potential customers and other founders regularly mixing with the program founders.
- Staff credibility: It’s crucial for the top founders to feel like they are getting value for their time. Hire the best staff and let them do their work.
- Understand and have control over the program’s long-term financial viability. Have a “real” revenue model.
Considering all of this and contemplating our career moves after muru-D, Amra Naidoo (who ran Operations and Marketing for muru-D) and I realized that there is a “third way” to operate a startup accelerator, and together we decided that we’re going to run with it…
Introducing Accelerating Asia, which we’re defining as Accelerator++. Built around a startup accelerator similar to the muru-D program, Accelerating Asia will also be independent and operate like a startup. However, leveraging off of our muru-D Singapore experience, Accelerating Asia will also connect to corporate partners, directly driving revenues to the business while fostering engagement between startups, corporates and other organizations. The idea is simple: build Asia’s top accelerator program for startup founders and receive return on investment down the road through exits, but also monetize our team, network and access to the startup ecosystem today to ensure the program is funded for success.
I’m extremely excited to begin this journey. We believe that we can make a big positive impact on the regional and maybe even global startup ecosystem. And frankly, I’m just really really excited (and a bit scared) to be a founder again.
At Accelerating Asia we believe that founders are one of humanity’s great catalysts for positive change. Our mission is to find the best founders and ensure they have the greatest opportunity to reach their vision and change the world for the better. At the same time we believe that corporates can deploy startup thinking to solve their own internal problems much more effectively, and that we can facilitate that.
If you’re a startup founder you can register for interest in our next cohort here.
If you’re a corporate or other organization interested in partnering for startup/innovation engagement you can start here.
Together, we can get shit done and make the world a better place at the same time.