Learning the Basics of Startup Acceleration. What is Acceleration?
To begin with, in order to make this article more credible, I would like to share with you my experience that allows me to be quite confident when preparing this text and taking the responsibility of saying what is right and what is wrong.
From 18 to 22 I was creating and developing companies that provided services in the field of graphic design and web-development, digital marketing and production, branding and sales promotion. While I was developing my first company, I met my current partner and co-founder of the accelerator MetaBeta Evgeny Ginzburg, who had a broader, but similar experience of providing services in the digital sphere being a founder of his own agency.
Before we met, I had been invited to manage a startup aimed at creating a virtual business incubator, which people still attempt to do nowadays all across the globe, but to no avail. I was invited because I was experienced in developing companies and creating products for clients, rather than because I had experience in launching startups.
That was the first time when I entered the market of startups in Russia. Just to be clear, it was in 2012, when the market was starting to fill with rumors about the creation of a foundation commissioned personally by Vladimir Putin, Startup Point was actively working along with other projects that eventually ceased to exist.
Our startup, designed to create a virtual business incubator, ended in miserable failure and made me understand how the world operates. It also helped me realize the full value of such terms as customer development and lean startup. But mostly importantly, it made me understand that the idea of creating an unlimited number of startups in the format of a factory with the use of crowdsourcing, crowdinvesting and other ‘crowd’ tools does not work and is simply not feasible.
Having acquired the basic understanding of the market and having spent considerable time identifying the problems and needs of its actors, I came back to Evgeny with a suggestion to create an accelerator that could work in accordance with fundamentally different principles compared to the ones that guided my previous project.
Therefore, I can say with confidence that I have been working with Russian startups long enough for a young market, and all the conclusions, which turned into knowledge, are grounded in my own experience and mistakes. In addition, for the last one and a half year I have been investing in learning how different accelerators work across the globe in order to use their best practices in Russia.
To remind you, MetaBeta is a private venture company that works with companies from pre-seed phase to Series A round, investing the expertise of its founders who have been working within the startup for a long period of time. We help to attract investment and expand startups internationally, using our connections and partnerships in Europe, Israel and USA.
For better understanding we often position ourselves as co-founders in the area of marketing, sales promotion, business development, establishment of partnerships and expansion to new markets hand-in-hand with a startup.
Before we move to specifics, I would like to make an important caveat: notwithstanding the above, I do not claim to say the ultimate truth, and things written below reflect nothing but my own opinion, which can change under the influence of new facts and information.
What is acceleration?
Acceleration is a time-bound process of fostered development of startups. As a general rule, the startups are at an early stage of development, because at this stage acceleration can have the highest impact and show the highest speed of development. It is also because speeding up from 0 to 1 is much easier than from 1 to 2.
An accelerator is a venture company (working with high risks) that invests resources in companies at an early stage of their development in exchange for an equity stake in these companies. The resources can include money, expert knowledge, connections or infrastructure, and the shares typically vary between 3 to 15 percent, depending on how the accelerator operates.
Accelerators also earn on management-fees (which enables them to break even, typically without profits), fulfilling the function of risk minimization for the foundations that they belong to. They can also earn money by selling the shares in companies during their capitalization, or, which is the rarest, on dividends paid by the startups.
In Russia, some dishonest market actors frequently abuse the term ‘startup acceleration’, which undermines its value and reduces its authority in the eyes of entrepreneurs by using it for things that do not relate to acceleration.
What is mistakenly considered an acceleration?
Incubation is not the same as acceleration. Incubation should be distinguished from acceleration primarily because it provides infrastructural, not expert support for a startup. For instance, an incubator can provide a workplace, participation in events or legal support. Besides, typically, incubation takes much longer time, allowing primarily professional and personal maturation rather than the project’s growth.
And yes, in my opinion, incubation does not work without acceleration, or better say it works in terms of developing entrepreneurial ecosystem, but does not solve the task of creating successful companies. In order for the work to be successful, an incubator has to cooperate with an accelerator.
In our accelerator, although we work with companies for 6 months or more, which is in terms of length similar to incubation, the focus is primarily on the company’s growth and expertise rather than the provision of infrastructure and services.
Training is not the same as acceleration. There are multiple organizations on the market claiming that among the graduates of their acceleration programmes are some xxx companies, but in reality it is far from the truth. These companies provide educational services such as trainings, courses and programmes that are modelled on similar programmes used in accelerators. This, however, does not make them equal to accelerators, and their accomplishments cannot be placed on the same footing.
I am not at all against education — in fact, quite the opposite. I believe that there is an extreme lack of entrepreneurial education in Russia, so the more education we have, the better, the more accessible it is without loss of quality, the better. We also conduct educational activities, in particular — a big annual training on the Lean Startup methodology. But let us call things what they are — paid education is paid education, while acceleration for an equity share of the company is acceleration. For instance, we were the first ones to launch an online educational programme for entrepreneurs, which was built on the principles of our acceleration programmes, on the platform “Netologia”.
Conduct of startup events is not the same as acceleration. We have quite a lot of events for entrepreneurs, most of which are commissioned by state institutions, state foundations or corporations. Some of them turn out to be very successful, others not so much, but all of them contribute to the development of entrepreneurial climate, even if they were poorly organized and the content was not of immense value. But startup events are not the same as acceleration because they have different goals and motivations behind them.
We constantly organize our own events that are close in content and programme to the goal of improving the skills and competence of entrepreneurs, testing their ideas and projects, including in cooperation with Google, MedMe and other companies, but these events cannot be considered full-fledged acceleration.
Characteristics of national acceleration
A central feature of national acceleration that worries me the most is the virtual absence of private accelerators developed under private foundations. At the same time, the market is skewed disproportionately towards state acceleration programmes, which creates a state monopoly. I am not saying that state involvement in the development of a young venture market is bad — far from it. For instance, the experience of Israel which I admire, where the government provides major assistance in the development of technological entrepreneurship, demonstrates that this strategy is viable. What I am saying is that just like many state corporations and import substitution initiatives, state intervention in the development of venture market should not monopolize its work, start subverting and controlling it. This can only be done through partnerships between private initiatives and large state programmes and foundations, where the latter have to support the former instead of competing with them, often using non-market competitive advantages in the strive to attract clients on the open market.
Who needs acceleration?
Acceleration, in my opinion, is necessary for those entrepreneurs and teams who experience a lack of their own competence, related to the absence of a certain team member or their own specific skills. Secondly, it is necessary for those who do not have enough connections and levers to bring the project to a new level, including an international one. Thirdly, acceleration will be useful for those who strive to increase the investment value of their company thanks to accelerator’s brand and the efforts of its team members. Finally, it will benefit those who feel the need to adopt a methodologically correct approach to the development of their project.
I would also recommend joining an accelerator to those people who, for some reason, cannot find the strength to launch their own startup and keep postponing it. Getting into a startup accelerator will leave those people no choice but to start working. Nevertheless, I myself am skeptical about such entrepreneurs and try to work only with those who actually have high motivation and realize the value that we can bring to their company.
When considering an accelerator as a source of investment, it should be acknowledged that these investments are usually quite unprofitable — small in size and for a big share. TechStars and YCombinator provide the most favorable conditions, giving from $100000 to $140000 for 7 percent of the company.
Sometimes the need for acceleration is first realized by the business angel who has invested in the startup, and only following the involvement of the accelerator it becomes clear for the team of founders that acceleration is needed. From our practice, three companies were brought to us by business angels, which resulted in the creation of a separate product for them.
Acceleration is unnecessary for those people who do not feel the need to achieve and develop various things outlined above, and also for those who are experienced enough to develop their company independently. For instance, not all entrepreneurs in Israel seek to join the accelerator, so attracting good companies becomes a challenging task even for well-known accelerators.
What should a team expect when joining an accelerator?
First and foremost, team members should be ready to be challenged and work under high pressure. Just like a coach challenges his athletes in an effort to prepare them for competitions or help them achieve their own goals and targets.
In addition, when working with our accelerator, teams should be ready to move to another country, participate in other acceleration programmes and be physically present at international markets.
Teams should not expect to receive a magic pill or even a magic push. Accelerator is a very effective instrument in the hands of a skillful entrepreneur, and the more effectively it is used with the highest commercial benefit, the greater will be the outcome and results from partnership with the accelerator. It should not be expected that the accelerator will do all the work for you. It will help, give leverage, provide connections, knowledge, understanding and new ideas, but all these things will eventually have to be mastered and used by the entrepreneur.
In order to distinguish between good and bad accelerators, one should take the following steps (at least that is what I do when choosing international partners for our portfolio companies):
- Compare the needs of your startup with the value proposition of the accelerator. For some people the accelerator will be beneficial, while for others not so much. It all depends on the needs and expectations that can or cannot be fulfilled by the accelerator;
- Communicate with the graduates and portfolio companies of the accelerator to learn what the actual situation is. When I invite a new company to cooperate with us, the first thing I do is add its members to a private group of our teams, where they can communicate with the founders of other startups. I also provide them with a trial period of methodological support, during which we can see how comfortable it will be to work together in the future;
- Read reviews about the accelerator in open resources and check the validity of statements made by its founders, since it is not uncommon to come across fraud;
- Learn about the experience of the founding team and the composition of mentors, who will be actually working with you (as opposed to nominally) within the accelerator.
Top-5 misconceptions about accelerators:
- Accelerators are for losers who cannot create a startup themselves. In fact, it is quite the contrary; no one will be able to help losers, especially an accelerator. However, for good and prospective teams an accelerator will serve as a lever or a springboard for development.
- Accelerators can be used to ‘wait out the storm’ and then decide what to do next. I often see people who come to accelerators to learn, hang out and get some money, without looking for a job. This is all detrimental, even though it seems like a good option at first.
- Getting into a startup accelerator is a guarantee of future success. This is not at all true. While the accelerator (even the most popular and fancy one) raises your chances to succeed, it is by no means a guarantee of a successful outcome.
- Accelerators are primarily about the money that they provide. As I mentioned before, the conditions on which accelerators invest money in startups are usually unfavorable for them. The main value of accelerators is therefore not in their money, but in opportunities that they provide the startups with during acceleration. The money received and the interest you pay on them is more like your payment for the programme of acceleration. That is one of the reasons why we do not create a venture foundation and do not invest money in startups, giving instead things that we consider more valuable and searching for money on more attractive market terms.
- Feel free to leave your comments and suggestions here.