Speed up or slow down? : a case study on perceived bureaucracy in public-private accelerator program Speed Up! Europe

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SPEED UP OR

SLOW DOWN?

A case study on perceived bureaucracy in public-private

accelerator program Speed Up! Europe

Sjoerd Laarman 10649115 Master thesis M.Sc. Business Administration University of Amsterdam

Entrepreneurship & Innovation Management track Supervisor: Dr. Tsvi Vinig

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Abstract

Encouraged by research on the importance of entrepreneurship for innovation and sustained economic growth, governments aim to implement policies and programs that support entrepreneurs. The incubator model evolved into the accelerator model over the years, which is increasingly used as part of a broad-based approach to enable entrepreneurial eco-systems. This study focuses on a specific accelerator program initiated by the EU called Speed Up! Europe (SUE). Our preliminary research has shown that the involvement of multiple stakeholders in a public-private partnership (PPP) can result in a program that contains several rules and procedures that are perceived as obstructive to the entrepreneurial progress by participants. If so, this could leave participants to be dissatisfied with their experience. Through survey research we set out to find out whether this holds true in the case of SUE. Findings indicate that the SUE-program indeed contains various rules and procedures that are perceived as obstructive by participants. Through statistical analysis, a strong correlation between perceived bureaucracy and satisfaction with the accelerator program was proved to be significant. The high level of perceived bureaucracy in the SUE program contributes to the very low level of satisfaction with the program. Qualitative responses on the survey confirm these outcomes. The results of this study could have implications for policymakers aiming to stimulate and enable entrepreneurial eco-systems in the future.

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List of figures:

Figure 1: Table indicating differences between incubators and accelerators. From: http://www.nbia.org/resource_library/review_archive/0611_01.php.

Figure 2: Model of a ‘public-centred’ user-driven model of Quadruple Helix innovation Source: Arnkil (2010)

Figure 3: Overview of the different phases of the FI-PPP programme. Source: FI-PPP.eu

Figure 4: Simplistic model of a private accelerator organisation

Figure 5: Simplistic model of objectives within Speed Up! Europe organisation Figure 6: Conceptual model

Figure 4: Simplistic model of a private accelerator organisation

Figure 5: Simplistic model of objectives within Speed Up! Europe organisation Figure 6: Conceptual model

Figure 7: Diagram of choices concerning application process Figure 8: Diagram of choices concerning reporting obligations Figure 9: Diagram of choices concerning FIWARE

Figure 10: Diagram of choices concerning overall perceived bureaucracy Figure 11: Table indicating Pearson’s correlation between variables

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1. Introduction

Entrepreneurship is increasingly being recognized as one of the main drivers of innovation and is therefore one of the driving forces behind our knowledge economy. It is no wonder that policymakers are frantically trying to create circumstances for a thriving entrepreneurial ecosystem in order to stimulate it. One of the fastest growing phenomena in the stimulation of entrepreneurship we have seen in the last decade is the seed business accelerator program, or in short: the accelerator. This type of support program can be considered an evolution of the business incubator. It is a program where a combination of finance, mentorship, knowledge and networks are offered to entrepreneurs in order to speed up and streamline the development of their ideas into businesses. The entrepreneurs are in turn asked to work on their business ideas in cooperation with the program and, in most cases, give up part of the equity in their company. In this structure, the incentives and objectives of the accelerator are very much aligned with those of the entrepreneur. If the participating startup is successful and profitable, this means success and profit for the accelerator as well. Private accelerators therefore have a clear business model which is aligned with their participant’s interests.

This thesis however focuses on a different model, namely that of the public-private partnership accelerator, or from here on PPP-accelerator. This new type of accelerator program is based on a partnership between large corporations and government institutions who work together in order to drive innovation and foster entrepreneurial activity. This way, corporations have a chance to provide building blocks and applications that can be developed further by participating entrepreneurs. For government institutions on the other hand, the program is a hands-on policy tool for realising their strategic goals concerning entrepreneurship and innovation. Obviously, this specific accelerator model is much more complex than that of its private counterparts. There are many more stakeholders and therefore many more interests to represent. This, in combination with the involvement of public funds is expected to lead to stringent rules and procedures which could be perceived as bureaucratic and obstructive by participating entrepreneurs. This hypothesis leads to the main research question for the thesis: How do participants in a PPP-accelerator program

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perceive the rules and procedures associated with the involvement of multiple public and private stakeholders?

To be able to answer this question, we will firstly conduct a literature review where the central themes of the research are discussed. We will start by discussing what accelerators are exactly and how they evolved through time. We will then continue by discussing the role of the accelerator in a public policy context before going into the specifics of the PPP-accelerator. This literature review will form the theoretical basis from which we approach and interpret the case study.

In the case study we focus on a specific PPP-accelerator program called Speed Up! Europe. We conduct a survey consisting of both quantitative and qualitative approaches in order to find out if participants indeed perceived the program as bureaucratic and if so, to what extent this was perceived as hindering their progress and lowering their satisfaction with the program. We will present and analyse results, test these against our hypotheses and then discuss them in a broader context.

2. Literature review

This part of the thesis is a review of literature that is relevant to the respective topics that the research touches upon. This review will consist of three parts, which can be seen as three separate essays that increasingly close in on the case study.

1. The accelerator

In this first part, we will discuss what an accelerator is, how it is different from an incubator, and what different ways are proposed for distinguishing between different types of accelerators in recent literature. This will help to understand the Speed Up! Europe program in an accelerator context later on in the case study.

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In this part, we discuss the role of incubators and accelerators as instruments for the promotion of entrepreneurship and innovation in the public domain. This will provide a clearer understanding of why and how government institutions use the accelerator model for fulfilling its policy goals, and what the implications of government involvement are for participants of these programs.

3. The PPP-accelerator

In this final part of the review we close in on the case of Speed Up! Europe. We first introduce and discuss the concept of public-private partnerships (PPP’s) with an emphasis on a specific model, the Quadruple Helix model for innovation. Then we relate the findings to those of the two previous parts in order to uncover how a PPP-accelerator is structured and how its design and structure is influenced by the characteristics of a public-private partnership.

The literature was mainly collected through search queries in the digital archive of the University Library (UBA) and Google Scholar. By studying the reference lists of the various articles found, more literature was identified and used for research. This first literature review will focus on the accelerator history, characteristics and its link to innovation. A limitation here is the sparse amount of literature available due to the fact that the accelerator is a fairly new process. A second reason for the limited amount of peer-reviewed literature is the fact that most accelerators are privately held, meaning they have no obligation whatsoever to disclose information about the inner workings of their programs and industry (Dempwolf et al. 2014). Its predecessor, the business incubator, has been much more extensively researched, and its workings in comparison to accelerators will therefore be an important part of this review. The limited amount of literature available on accelerators does however make for a comprehensive overview. The focus will first and foremost be on its relevance toward answering the research questions.

2.1. The accelerator

In the last decade a new institutional phenomenon has emerged in the entrepreneurial ecosystem: the seed accelerator or startup accelerator. Although accelerators are quite new,

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they have already gathered immense interest from both private and public sectors. The number of accelerators has increased tremendously since the launch of Paul Graham’s Y Combinator in 2005. These accelerators are programs that help entrepreneurs bring their ideas or products to the market and support them in turning those ideas and products into successful companies. An important factor contributing to their rise to existence has been the changing of startup economics. A few years after the dot-com bubble had burst, costs for technology became considerably lower, costumer acquisition became more accessible, and possibilities for fast revenue generation were made possible by the rise of the internet. This in turn gave way for high technology companies to quickly bring a new product to market. The lower costs for software and hardware combined with the speed of business development and variety of business models the web offered were decisive factors in the birth of the business accelerator. These factors in itself contain important characteristics of the accelerator, such as time pressure and limited investments (Miller & Bound 2011).

Most authors in accelerator literature agree that accelerators seem to resemble a modern, private-sector version of the business incubator, which has been around for the last 50 years or more (Christiansen 2009, Cohen 2013, Dempwolf 2014, Hochberg & Cohen 2014, Miller & Bound 2011). Indeed, accelerators and incubators are quite alike in the sense that they both support startup firms by providing them with assistance and services. Accelerators generally work exclusively with for-profit startups that have high growth potential (Christiansen 2009, Dempwolf 2014, Cohen & Hochberg 2014). Both accelerators and incubators focus on coaching and developing these young firms toward a form of funding, may that be seed-investment or follow-on seed-investments. Before the comparison can be properly made, a clear definition of the business incubator will need to be derived from the literature.

2.1.1. Defining the business incubator

The concept ‘incubator’ has been a long-time denomination for organisations that provide or create an environment that stimulates the ‘hatching’ process and early development of new firms (Aernoudt 2004, Aerts 2004, Grimaldi & Grandi 2005, Peters et al. 2004, Phan 2005). Peters et al. (2004) define the business incubator as “… a support environment for startup and fledgling companies”. This definition however is too general to serve a purpose in this research. For a more comprehensive definition we turn to the extensive body of literature

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on incubators. We must note that it is very difficult to clearly formulate a definition of the business incubator (henceforth referred to as ‘incubator’) for two reasons. Firstly, both our understanding and the inner workings of the incubator have evolved over the years and have been adapted to new circumstances (Allan & McCluskey 1990). The second reason is that the term incubator has increasingly become an overarching term, which refers to a heterogeneous concept (Bøllingtoft & Ulhoi 2005). Therefore, we will first give a short historical overview of the incubators’ existence.

A short history of the incubator

Although the term was not coined yet, the first business incubator dates back to the 1950’s in New York. A businessman called Charles Mancuso bought a large building that was in dear need of restoration. He divided the space into small offices where small business owners could reside and work. The idea was to have a high number of tenants in the building in order to make a profit on the restoration investment. Although it was later considered a revolutionary idea, the first incubator was actually initiated as a real estate development concept instead of the entrepreneurial benefits the concept is celebrated for today (Huijgevoort 2012).

2.1.2. Frameworks for incubator classification

In incubator literature, we find there are two main frameworks that can be used to assess the development of the different types of incubator over the years. These frameworks provide us with the necessary tools to better understand the phenomenon and enable us to distinguish between the different types. The first framework to be discussed is the ‘business incubator continuum’ by Allen & McCluskey (1990). These researchers were the first to distinguish between incubator types based on different areas of emphasis such as value proposition, business model and institutional goals. Other researchers contributed to this framework by describing later ‘generations’ of incubators and adding them to the framework. The second framework we discuss is ‘a classification of public and private incubators’ by Grimaldi & Grandi (2005), which, as the name predicts, distinguishes between incubator types based on whether they are founded in and focused on the public or private sector.

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Framework 1: ‘Business incubator continuum’

As in the case of the first incubator in New York, the first-generation incubator was based on real-estate investment, and the subsequent provision of this real estate to for-profit firms. From a government policy point of view, the first generation incubator was an instrument for occupying real estate, while helping to create jobs (Aerts et al. 2007, Allen & McCluskey 1990).

The second-generation incubator was identified at the end of the 1980’s and the early 1990’s. During these years, there was an increased demand by incubatees for coaching, counselling and business advice. This increased need can be directly linked to a specific range of firms, namely those in the high-technology sector. These technical entrepreneurs generally lacked the business expertise and the skills involved in marketing and sales. The added elements of the second-generation incubator fulfilled those needs, by providing the necessary support. The second-generation incubator has now become more than simply a physical and practical arrangement (Bruneel et al. 2012, van Huijgevoort 2012). Collaboration between actors has now become a much more important factor in the incubator, in contrary to the earlier incubators.

The third-generation incubator was first identified in the early 2000’s. According to Hansen et al. (2000) and Bruneel et al. (2012) the most important aspect of this type of incubator is the emphasis on networking, especially with regards to follow-on investments and venture capital connections. The firms involved have increasingly become firms in the ICT and high-tech sectors (Hackett & Dilts 2004). Another, more prominent difference, is that these third generation – or ‘network’ or ‘New Economy’- incubators are increasingly becoming for-profit and also funded privately. While previous models have been dominated by government initiatives or government funding, this more recent type seems to appear more and more from out of the private sphere. A third important characterisation of this type of incubator is the strong emphasis on business development, although still combined with the elements of collaboration from the previous type (Bruneel et al. 2012, Huijgevoort 2012). In their article, Bøllingtoft & Ulhoi (2005) mention yet another interesting aspect of the ‘network incubator’, namely that one of its strongest assets is the power of technology diffusion. This means that

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the strong network ties between firms and other incubators may lead to diverse applications of new technologies.

In short, we see that the evolution in function and workings of the incubator has shifted through the years. The first incubators were mostly organisations that focused on real estate investment and governments that used it as a policy instrument for job creation and regional economic development (1960-1990). The second-generation of incubators was focused on collaboration between actors in the ecosystem to gain advantages in business development and creation (1990-2000). The third type is very much like the previous one; only now the focus is shifted towards the development of business networks and collaboration between firms (2000-now). This last generation still fits the ‘collaboration’ and ‘business development’ characteristics given by Allen & McCluskey (1990), only stronger and more developed than before. It is interesting to note how accurate their assessment of the incubator evolution in 1990 is, considering that most assertions are still valid today.

Framework 2: ‘a classification of public and private incubators’

The second framework for classification of incubators is the distinction between public and private incubators as proposed by Grimaldi & Grandi in 2005. This distinction is especially relevant for this thesis because we will be studying the business accelerator from a public policy perspective later on.

According to Grimaldi & Grandi (2005), public incubators were the first institutionalised form of incubators. Their main goal was to stimulate economic development by reducing the costs of starting a business through the supply of affordable office space and services. Their revenues consisted of the fees that were paid for housing and services by incubatees. The incubator is at least until 2005, predominantly a public sector phenomenon. Private incubators, although existent during the early days of business incubation, became increasingly popular during the IT revolution in the early 2000’s. Reducing product to market time, networks and strategic positioning became increasingly important, and technology entrepreneurs needed help with these complex processes. The revenues for private incubators mainly come from an equity stake that they receive in exchange for their

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services. These private incubators focus strongly on fast creation of new businesses (Grimaldi & Grandi 2005).

Other research on incubators

Hackett & Dilts (2004b) have incorporated and discussed a great number of definitions and characteristics that are mentioned in incubator literature. Generally speaking, there are four aspects that are mentioned in the majority of articles (Aernoudt 2004, Allen & McCluskey 1990, Bøllingtoft & Ulhoi 2005, Hackett & Dilts 2004, Peters et al. 2004, Phan 2005, Rice 2002). These four aspects of incubators are:

1. Shared office space, rented out under favourable conditions 2. General or specific business support and advice

3. Shared business services in order to reduce overhead costs

4. Provision of business network, inside and outside incubator environment

Although there is still some discussion in the literature, these four aspects will be considered the core characteristics of the incubator. Emphasis on the importance of the various aspects differs within the literature studied. In the early days of research, we see the emphasis on reducing costs with regard to shared office space and business services (Allen & McCluskey 1990), while later on, the emphasis is increasingly on business support and advice (Aernoudt 2004, Peters et al. 2004). The advantage of shared office space, except for low costs, is the possibility of knowledge and experience transfer between participating firms.

According to Phan et al. (2005), one of the problems in finding a clear definition is that incubators can encompass anything from distinct organisations, to entire regions. In this thesis we will focus on the incubator as an organisation that supports firms in the early phases of development or idea-stage. We therefore exclude university science parks as well, because they generally support more mature and developed firms (Aernoudt 2004, Grimaldi & Grandi 2005, Hackett & Dilts 2004b).

Summarizing, we will define the concept of incubator as: a distinct organisation that supports early stage firms by providing shared office space, business support and advice,

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joint services and network help. Important findings on incubators include the potential for knowledge transfer between firms when housed together and the concept of technology diffusion in the ‘network incubator’ model is an interesting point, which is not discussed at length in the literature. Another observation from studying the literature is that until recently, incubators were mainly considered to be a phenomenon mostly seen in the public domain. With the rise of the business accelerator however, this balance may have shifted.

2.1.3. Defining the accelerator

Although accelerators and incubators seem very similar at first, there are significant differences that set them apart. These differences could be important to this research, because understanding the accelerator is vital for answering our main research question.

Miller & Bound (2011), two scholars working for British research organisation National Endowment for Science, Technology and the Arts (NESTA), name five characteristics of accelerators that set them apart from incubators.

1. An open, yet competitive application process

Programs are usually highly selective and with low acceptance rates. They may even actively approach and recruit potential candidates in order to ensure the quality of applications.

2. Provision of pre-seed investment, mostly in exchange for equity

The amount of money varies among accelerators, but is generally based on the cost of living per team for the duration of the program. This could be in the form of an equity investment.

3. A strong focus on (small) teams instead of on individual entrepreneurs

A speedy development is considered to demanding a job for a single founder. Therefore, accelerators prefer small teams of mixed talents that complement each other within the team or batch.

4. The programs offer a limited time of intensive support and events

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professionals who can guide and mentor them throughout the length of the program. It is therefore essential for the program to build and maintain a network of high-quality mentors. Although there is quite a bit of variation in programmed events, such as tax advice, pitching lessons, and business advice, a demo day is a feature that is seen in almost all programs. This event poses an opportunity for the teams to present their final idea or product to investors and get press coverage.

5. Applicants are taken on in cohorts or batches, instead of separate firms

By taking in applicants in cohorts or batches, program management can enjoy the advantages of a type of industrial process where efficiencies can be obtained. In this system, all teams are following the same path, which means they can push each other and help each other in preparation for demo day.

Jed Christiansen (2009) identifies very similar characteristics in his influential dissertation on accelerators, although there are several slight differences. Firstly, he stresses the need for a structured education and networking program much more than Miller & Bound do. The second important difference is that Christiansen stresses the technical background and character of respectively the team and its product. He considers the use or development of new technologies of high importance to the definition of the accelerator. Lastly, and this is an important point in regard to our research, Christiansen stresses that the exchange for equity is the most important difference between accelerators and incubators, because it directly aligns the accelerator’s incentives with their startups. The accelerator will only be financially viable if their startups succeed.

Christiansen (2009) and Miller & Bound (2011) were among the first to identify the characteristics that distinguish between the two phenomena and did so in the early days of accelerator existence. Now that the accelerator business has developed into a more mature industry, we will revisit the differences between accelerators and incubators in more recent publications.

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The National Business Incubation Association (NBIA) published an extensive essay discussing the differences between accelerators and incubators in 2011. The first difference they note is the competitiveness of the application process, which is much more pronounced in the accelerator. This is directly related to the limited amount of available places in the batch or class structure of the accelerator, which is another important structural difference. A third and very strong difference is the duration and intensity of the program. Data from the National Business Incubation Association in the United States indicates that the average time a firm is associated with an incubator program is 33 months, while accelerator programs run from 1-6 months (NBIA 2011), with some specialised programs run for 12 months (Rockstart.com). This is very much in line with the expected objectives of for-profit accelerator companies to create viable companies in the shortest amount of time. We see the accelerator philosophy of time pressuring and fast-testing is reflected in the ideas of Ries (2011) in his Lean Start-up Method, where the importance of speed is emphasized and validation of concepts and costumers is at the core of business development.

The NBIA goes on to state that the difference between incubators and accelerators may not lie in the presence or absence of a specific characteristic, but rather in the nature, intensity or duration of that characteristic. They describe the founders in the programs of its members as ‘crossing various industries, ages and experience levels’, while describing accelerators as being specifically focused on ‘a young, male-dominated group of founders in web-based technologies’. The NBIA also points out that accelerators want to quickly move a firm from one stage to the next, while incubators will generally focus on moving firms toward self-sustainment. It is interesting to point out, that while Christiansen (2009) and the NBIA point out that accelerators are characterized by a focus on software and technology, we currently see more and more accelerators that boast a broader perspective (DreamIt Ventures, Seedcamp, Rockstart) or even a specific focus on social initiatives (Impact Engine, Rockstart eHealth).

Other aspects of the comparison by the NBIA are mentioned in the table below as presented by the NBIA (2011).

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Figure 1: Table indicating differences between incubators and accelerators. From: http://www.nbia.org/resource_library/review_archive/0611_01.php.

Organizational differences

Yet other researchers have stressed the organisational differences between incubators and accelerators as being distinctive features. These aspects are especially important for this research, as we will be studying the accelerator in a public policy context. Adkins (2011) and Hoffman & Radojevich-Kelley (2012) identified several organisational characteristics that are typical for incubators, namely:

They are non-profit organisations, frequently associated with universities They provide low-cost office space for their startups

Their target area is small, and they generally target local startups They do not invest in startups financially

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They are for-profit organisations who receive equity in exchange for pre-seed or seed funding

They do not typically provide office space for their applicants

Their geographical target area is large, and they target regional, national or global startups (Dempwolf 2014).

2.1.4. Accelerator classification

We have seen how some scholars identified several ‘generations’ of incubators, the latest of which is identified as one that focuses on firms in the ICT and high-tech sector and one that was in many cases for-profit. In their publication of 2005, Grimaldi & Grandi even classify different incubators in a ‘private’ and ‘public’ category. To make matters even more blurred, it is a complicating factor that organisations may classify themselves as an incubator or accelerator, while the characteristics of their program are not consistent with this classification. As was mentioned before, this vagueness is of specific interest because of the different areas of application they originate from or are actively used in. Incubators are recognized by policy makers and scholars as established local or regional economic development tools (OECD 1997). Accelerators on the other hand have been popularized in the private sector (Aerts et al. 2007, Dee et al. 2011, Dempwolf 2014, Cohen & Hochberg 2014). The role of accelerators in the broader innovation ecosystem, including public or publically supported organisations is not yet clear. We will dive deeper into this topic in the second part of this literature review.

Apart from differences from a firm, organizational or field of application perspective, there may be geographical differences as well when it comes to determining different types of accelerator. Due to the fact that most of the literature on accelerators focuses on the US, and this study focuses on Europe, differences in definition of accelerators between the US and abroad could become problematic if not clarified.

Geographical differences

Miller & Bound (2011), point out several cultural differences in accelerator practice between the US and other countries and regions.

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Organizational structure of US and non-US accelerators

US: Accelerators are geographically based, meaning that the supported startups are in close geographic proximity to mentors and accelerator management.

Non-US: Accelerators are event-based, meaning that the supported startups are not necessarily in proximity of where accelerator management, headquarters or mentors are located.

Access to potential investors of US and non-US accelerators

US: Access to potential investors is a decisive factor in choosing the location of the accelerator.

Non-US: Access to potential investors is not necessarily a decisive factor in the organization or location of an accelerator event. Distance between startups and investors is generally greater than in the US.

Organizational structure and access to potential investor are two important differences between the US and other regions. According to NESTA, some of the European accelerators have altered the US business model for accelerators due to differences in local funding and networking needs (Miller & Bound 2011, Dempwolf 2014). Examples of these European accelerators are Startupbootcamp, which alternates European cities for each event, and Seedcamp, which aims to improve the investment climate in Europe in order to decrease the gap between the US and Europe when it comes to investing in startups

Differences in incentives and objectives

Dempwolf framework

Going beyond the main differences between accelerators, Dempwolf et al. (2014) have set out to create taxonomy of accelerator types that are in operation today. These six types of organisations all offer accelerator-like support for startups, but their business models are different due to the founding objectives of the organisation. For example, we have seen how

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many public incubators have listed job creation and stimulation of regional entrepreneurship as their objectives, while for most private accelerators their business model in most cases will revolve around making a profit. It seems sensible to consider the objectives as the most important distinguishing factor when attempting to categorize accelerator-type organisations. The fact that these types are set apart based on their business models in combination with their objectives and motives makes taxonomy particularly relevant to this thesis. This structure could be helpful to better understand the context of the Speed Up! Europe initiative later on in the case study. The six types are: (1) incubators, (2) venture development organizations (VDO’s), (3) university accelerators, (4) proof-of-concept centres (POCC’s), (5) corporate accelerators, and (6) innovation accelerators.We will shortly review these types below:

Incubator

The main objective of the incubator is to support firms in becoming financially viable and self-reliant when leaving the program. These firms could in turn create jobs and strengthen regional economies. Critical to the definition of an incubator is the provision of management advice, expert guidance and assistance in obtaining investments. They usually also provide rental space with flexible leases and shared basic services.

Venture development organizations (VOD’s)

VOD’s are technology-based, economic development intervention tools for regional innovation. They are public or non-profit organisations that contribute to regional economic development, offering services such as assisting high-growth companies with business expertise, facilitating or making direct investments and particularly, accelerating the commercialization of technologies. A successful VOD typically uses the strengths of the region’s innovation system and develops programs and initiatives targeted to overcome the system’s weaknesses. Well structured VDO’s have the ability to work with a wide cross-section of the key assets of their particular regional innovation systems and the flexibility to adapt their portfolios of services to meet the specific needs of individual commercialization opportunities.

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University accelerators are educational non-profit organisations that facilitate the development of student entrepreneurs and innovations at universities. University accelerators usually provide seed grants to support students through the early stages of development. Unlike for-profit accelerators, university accelerators do not take equity stakes in firms. University accelerators provide the same range of services as other accelerators, including mentoring, technical assistance, use of facilities, and networking, usually including a demo day.

Proof-of-concept centres (POCC’s)

Proof-of-concept centres accelerate the commercialization of innovations developed by researchers, and help move these innovations into the marketplace. They provide seed funding for novel, early-stage research that most likely would not be funded by other sources. POCCs facilitate the exchange of ideas between academic innovators and industries via the organisation of the centre. Their main goal is to improve technology transfer, and in order to do so they provide services to improve the dissemination and commercialization of new knowledge from universities in order to spur economic development and job growth

Corporate accelerators

These accelerators provide seed capital, mentoring, technical assistance, networking, and facilities to entrepreneurs, in order to advance the goals of a corporation. Corporate accelerators grow and manage portfolios of complementary startups to accelerate innovation and gain a competitive advantage. Due to the fact that corporate accelerators are driven by different motivations than most accelerators, their business models differs as well. They do however offer the same type of services at the same stage in development as other accelerators do.

Innovation accelerators

Innovation accelerators are stand-alone, for-profit ventures that select cohorts of promising startup companies with high-growth potential. They make seed investments in those companies in exchange for equity. They attempt to accelerate their development in order to ready them for further investment. They eventually aim to make a profit through an exit or IPO. Their business model is therefore clear. They make many small investments aiming to

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create a few successes which amount to a larger return than the total of seed investments (Dempwolf et al. 2014).

Clarysse framework

The last framework on accelerator classification we will discuss is a recent publication from NESTA researchers Clarysse et al., who performed a follow-on investigation in the footsteps of Miller & Bound (2011) into the different archetypes of accelerators. Comparable to Dempwolf et al. (2014), Clarysse et al. create a framework where accelerators are categorised based on strategic objectives of the accelerator organisation. Unlike the specific typology presented by Dempwolf et al. however, Clarysse et al. distinguished between three broad categories of accelerators. In doing so, they identified three archetypes of accelerator, which will be listed and shortly discussed below:

The ‘investor–led accelerator’

This first type of accelerator receives its funding from private sources such as business angels, VC funds or corporate VC. They will look for participating startups that are likely to receive follow-on funding and an exit. They usually provide funding in exchange for equity. They typically select startups that are in a later stage of development due to competitive application, with founders that already have proven track records. We see an increase in the amount of industry-specific orientation within the investor-led accelerator category.

The ‘matchmaker accelerator’

This type of accelerator is typically initiated by corporates with the objectives of creating a platform for collaboration for innovation with startup ventures. These accelerators often lack a profit objective, but rather serve the purpose of networking tool, both for the corporate organisations and the startups involved. For startups, the upside is the access to potential customers in the network of the corporate, while the corporate party can connect its customers with innovative products. They usually only have soft performance measures such as showcase events in the absence of hard KPI’s.

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These accelerators typically have governments and government agencies as their main stakeholder. This government stakeholder is usually interested in stimulating entrepreneurial activity within a certain region or certain technological domain. An example that is mentioned are the accelerators financed and established by the European Commission within the major technological programmes called Knowledge and Innovation Communities (KIC’s). Selection criteria in these programs usually reflect this objective by selecting ventures that fit the vision that is formulated for the specific program. For most ecosystem accelerators, the business model is not very clear. Generally speaking, their operations are developed to fulfil the objectives of the government stakeholder. Still, public sponsors usually require some type of revenue model after an initial period of financing. Although most accelerators invest seed money without asking for equity, some programs ask for small amounts of equity or ask for tuition fees to cover (a part of) the costs.

Hybrid accelerator types

Clarysse et al. finally mention a fourth type of accelerator, which consists of a mix of the aforementioned archetypes. They expect to see more of these types when the amount of accelerators increases, and diversification occurs. This seems to hold true for the Speed Up! Europe program which appears to contain several elements of the aforementioned accelerator types.

Criticism on accelerators

The accelerator, however celebrated in both media and literature, is not without its critics. Konczal (2012) for example published a critical piece where he questions the success rates as published by some of the accelerators in the industry. He claims that some manipulate statistical data in order to give an overly positive image of accelerator results. While our focus is not directly on the rate of success of accelerators, the measures Konczal uses to contextualize and interpret accelerator results is all the more interesting. Being a policy analyst at the Kaufmann Foundation, Konczal expresses accelerator success in terms of costs per job created. This is a method of assessment that is commonly heard of in the public sector, applied to a phenomenon that is predominantly active in the private sector. This confusion among entrepreneurs and policy-makers alike over the different models for startup support is understandable, and again it points to the importance and urgency of

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clearly defined classification of accelerators. Especially for policy makers and researchers, such as Konczal, a clear and comprehensive understanding of accelerators is vital to the process of developing policies for the promotion and support of accelerators or other types of startup support. We will attempt to gain a better understanding of the accelerator in a public policy context in the next chapter of the literature review, but first we recap on the findings up to now.

2.1.5. Recap

One of the simplest explanation for the many discussions and differences of opinion on what it is that separates accelerators from incubators is that they are actually not that different. Following the current media hype surrounding accelerators, we may be easily tempted to regard it as a brand new phenomenon. After studying the literature and other available information however, we are inclined to consider the accelerator as a new and evolved form of the incubator. We have seen how the concept of incubator has changed drastically over the years, and we must conclude that the accelerator is simply a contemporary variety of the same concept. Some incubators offer accelerator-type services or programs, while some accelerators are being used as policy instruments in the same way that incubators used to be employed. However, we have seen several differences being discussed in the discourse on accelerators. The first of which is an important practical difference related to the fact that shared housing is not generally considered a characteristic in accelerators, although we see that this does not actually hold true for all accelerators. The fact that founders are in the same “class” or “batch” still means that knowledge transfer and experience sharing are an important factor in business development as it is with incubators.

The duration of the program however is an aspect where the strongest general difference becomes apparent between incubators and accelerators. As the name ‘accelerator’ already suggests, speed and time pressure are considered some of its most critical characteristics. This could partly be attributed to increased incubator efficiency through privatisation, and can therefore be considered a logical consequence.

That brings us to another difference that is mentioned often in accelerator literature, which is the fact that the accelerator is mostly considered as a private, for-profit sector

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were later on adapted to serve as non-profit organisations and policy measures. We could be seeing the same development with the accelerator in the near future. We have seen that there are non-profit accelerators already, and we are also seeing the first government initiatives appearing in the US, Latin America and Europe. We will focus on the latter development in the following chapter, because it may prove vital for understanding the case study on Speed Up Europe later on.

Definition

After studying the findings in literature and media, we conclude that many of the ‘differences’ between incubators and accelerators are considered as thus due to the fact that the accelerator phenomenon is relatively new and considered to have a strong impact. We will follow the taxonomy as proposed by Dempwolf et al. (2014), by stating that there are several incubator and accelerator types, which makes it increasingly difficult to give a clear and general definition of an accelerator. Still, we propose the following work definition for the accelerator: A fixed-term, cohort-based incubation program with a competitive selection process that offers new firms the education, network and mentoring they need in order to speed up business development, ending with in a type of demo-day where firms can present themselves to potential investors.

Classification framework for this thesis

This definition is meant as a general guideline for distinguishing between accelerators and other types of startup support organisations. In terms of classification of accelerators in this thesis, we follow the specifications by Dempwolf et al. (2014) and Clarysse et al. (2015) and will distinguish between accelerator organisations based on the strategic objectives and motives of the organisations’ founder as reflected in the business model they employ. Even though we will not be assessing the performance of Speed Up! Europe, we will use this combined framework to study and explain its program structure and design later on. Now that we have a clearer understanding of accelerators and have devised a framework for accelerator classification, we will go on to study the phenomenon in a public policy context.

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2.2 The accelerator in a public policy context

2.2.1. Economic growth, innovation and new ventures

Ever since the 1950’s, economists have realized that innovation is critical to economic growth. To almost all important innovations in the last century progress in technology and business has been central. Economists agree on the fact that there is a direct and clear connection between technological progress and economic prosperity no matter what country or time. Morris Abramowitz (1956) states that there are two main ways of increasing the economic output. The first is simply to increase the amount of inputs into the production process, or secondly, by developing new ways of getting more output out of the same number of inputs. He then calculated the growth of the American economy between 1870 and 1950 in terms of growth versus increased input. He discovered that only 15% of growth over that period could be accounted for in terms of increased inputs, while the other 85% had to be explained by changes in the ways that inputs were used. Thus, economic growth is strongly dependent on innovation. In the emerging global economy, a country’s capacity for innovation therefore has great consequences for its competitiveness. Many major governments have since recognized the importance of this relation between growth and innovation, and have started to invest increasing amounts in research and development.

In the early days of the study of entrepreneurship, researchers, like Joseph Schumpeter, initially believed that large corporations were at an advantage in attaining innovation over smaller firms. Today however, these ideas tend to be quite different. We see industries such as those for medical technologies, semiconductors and software, where the leaders are all relatively young firms whose initial growth was financed by venture capital providers and public equity markets. Even though companies like Google, Microsoft, or Intel still dominate their specific markets, small firms are very important in the market for new idea or technology development, which they can in turn license or acquire. Especially in the past two decades we have seen how new firms have come to play a key role in stimulating innovation (Lerner 2009). When we look at important innovations such as widespread internet technology developments, biotechnologies or smartphones, we see that they were almost all driven by new, smaller firms. These new firms however, did not invent the basic key technologies of these innovations. Basic R&D was financed with the help of public funds

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at universities and research laboratories. In fact, there is not a key technology behind the iPhone that was not funded with public money. The iPhone can thus be considered as an ultimate collaboration between the public and private sector (Mazzucato 2011). Systemic research by Acs & Audretsch (1988) showed that about half of all important innovations of the 20th century was developed by small firms. They did however find that this did not hold true for all industries, but the relation between small firms and innovation was strongest in more immature markets, where market power was not yet concentrated. This is illustrative of the function that small firms have in observing where new technologies meet customer needs and consequently rapidly introducing new products. This observation draws on ideas of an evolutionary systems perspective. In the context of pre-seed and seed stage firms, these ideas about the importance of diversity and variation, and the subsequent selection across this diversity are essential. The basic idea in this thinking is simply that firms experiment with new technologies in the face of technological change. They all introduce their own innovations in the form of products and processes and bring these to the market, which acts as a selection mechanism for judging if the innovation is ‘fit’ or what innovation fails (Avnimelech & Teubal 2006, Lerner 2009). However, one must recognize the positive role of failure as well. The selection across diversity is equally important as the creation of variety. Therefore, it is important to let non-viable technologies die. Eliasson (2003) states that failure to recognize the importance of this could be a mistake that is just as bad as failing to support firms for success.

2.2.2. Incubation in public policy

Now that we have established the widespread acceptance of both the relation between economic growth and innovation and the key role of new, small firms in innovation, we can understand how policy makers share this perception (Aerts et al. 2007, Lerner 2009, Phan et al. 2005). A second perception that is widely confirmed and accepted is that new technology-based firms play an important part in job creation and boosting the economy (Bøllingtoft 2005, Phan et al. 2005) and acceleration of new industry development (Lerner 2009). Indeed, researchers have shown that innovative, high-growth companies, or “gazelles” are responsible for generating disproportionate amounts of wealth and jobs compared to other firm types (Shane 2009). Early-stage ventures however, seem to be more strictly linked to employment creation (Birley 1987, Lerner 1996, Lerner 2009). However,

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one of the key characteristics of modern innovative companies is their limited amount of employees. Apple had total revenue of €118 billion while employing 76,000 people. General Motors on the other hand had almost the same revenue (€114 billion), but employed 284,000 people for generating it. This indicates that investing in new firms does not seem like the most efficient way for governments to boost employment. However, startups create wealth and encourage job creation in a more indirect way. Startups are increasingly considered to have a much broader impact on society through innovation, technology transfer, third-party services talent acquisition, foreign direct investment, and many other aspects. These areas of impact can be equally important to a country’s level of wealth as employment rates (Salido et al. 2013).

It is therefore understandable that business incubation, for technology firms especially, has been one of the policy instruments of choice for government agencies in their endeavour to support innovative firms in early stages of development. Incubation is used in the public sector as a means to address market failures that make early stage firm development difficult for startups. Especially in the earlier days of incubation, these market failures consisted of the high costs and the risk involved in new technology startups, costs and risks that the private market was not willing to take upon them (Dee et al. 2011, OECD 1997). In the previous chapter, we have seen how these costs have been reduced significantly in the last decade due to several factors. The early stage growth process is complicated by a lack of market visibility, funds, business expertise and connectedness to business and resources networks. Incubators can help startups in overcoming these obstacles and grow, thereby making them a potentially strong instrument in stimulating entrepreneurship and innovation (Aerts et al. 2007, Phan et al. 2005). This led to increased government spending on incubators that support new technology-based ventures (Phan et al. 2005). There is a lot of discussion on the effectiveness of such incubation practices, but the general consensus seems to give incubation the benefit of the doubt, especially in terms of certain specific effects. These established effects are, among others, improved survival rates of firms, stronger co-operative activity among firms and job creation (Aernoudt 2004, Hackett & Dilts 2004, Phan et al. 2005). A benchmarking study by the European Commission in 2002 revealed that survival rates of incubated firms were significantly higher than those of their

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peers in a non-incubated environment, and a significant number was still active after five years.

2.2.3. From incubation to acceleration

As we noticed while studying the rise of accelerator, ‘incubation’ has for the most part been replaced by ‘acceleration’. This is the case for private organisations, but also for initiatives in the public sector. We see the accelerator model increasingly being employed by policy makers. This makes a clear understanding of the effects of entrepreneurial interventions on the growth of a region’s entrepreneurial and innovation capacity more important than ever (Hochberg 2015). While public incubators in the early days strived for economic growth in terms of job creation and firm survival, policy makers did not seem to have a firm understanding of how these effects actually took place. Over the years, a lot of research has been done into this subject. Josh Lerner (2009) in his “Boulevard of broken dreams” has estimated that most of the entrepreneurship support programs have not yielded significant returns. This could be partly explained by the reasoning of Feldman (2001) who claimed that governments make the mistake of focusing their policies on achieving characteristics of successful regions, which are actually consequences of entrepreneurial activity rather than determinants. Another explanation is found in the fact that incubator policies were not embedded in a more general policy context. The fact that so many government institutions have tried and failed is illustrative of how complex the network of variables and interdependencies actually is, and how difficult it must be to construct a sound policy. For a long time, many researchers have agreed on the importance of localization of economic activity for entrepreneurship and innovation, as seen in the archetypical example cases of Silicon Valley, Tel Aviv or Tech City. Several studies have confirmed the importance of clustering and ecosystem formation and describe how they work (Glaeser & Kerr 2009, Delgado et al. 2010). We see that the composition of the entrepreneurial ecosystem in a region has long-term effects on its capacity for innovation (Chatterji et al. 2013). From this perspective, we will look deeper into the effects that incubators and accelerators have or could potentially when wielded as policy measures.

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2.2.4. (Potential) role and effects of the publicly funded accelerator on the entrepreneurialecosystem

For decades, it was common wisdom among policymakers that if there was a need for job creation in a region, the first priority was to coax a large firm into relocating to that particular region (Chatterji et al. 2013). Nowadays, regional policymakers are striving for the opposite, namely to create an entrepreneurial cluster and become the next Silicon Valley (Lerner 2009). Ever since the recognition of the importance of these entrepreneurial clusters, the accelerator model has made several appearances around the world as a policy measure for creating or strengthening these clusters. The ways in which accelerators can potentially contribute to cluster strengthening are numerous.

First, there is the obvious function of the accelerator of reducing costs for entrepreneurs through all types of services, capital and advice that would otherwise have been costly and are now offered for free or in exchange for equity. This could lead to an increase of new firms within a region. This way, they provide the ‘variation and diversity’ of actors that are able to disseminate new technologies and test them in different markets, and thus boost innovation capacity (Avnimelech & Teubal 2006). In the context of venture capital stimulated growth, this means an improved deal-flow. They can bridge the gap between entrepreneurs and VC investors and give entrepreneurs leverage through the social capital and added value that surrounds the program (Hochberg 2015). Accelerators could have the power to connect VC investors and entrepreneurs in a community by taking up the role of “dealmaker” as described by Feldman & Zoller (2012). This increased networking and sharing of information is critical to the success of early stage ventures and for their chances of being funded by VC’s (Hochberg et al. 2015). Accelerators also function as selectors and aggregators, by already making a selection out of a population of entrepreneurs and in turn centralizing them in a location where they are easy to find for investors. In the shift from incubators to accelerators, governments seem to have become better able to embed accelerators in a broader policy context. The specific emphasis of some public accelerators on industries such as clean-tech and agricultural technology relates to priorities in the wider policy agenda, such as environment and sustainability. Lastly, technology transfer and dissemination of technologies through open innovation could be increased by the intense cooperation

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between universities, entrepreneurs, corporations and governments in the public accelerator.

This last point is particularly interesting, because we believe one of the main objectives of a public incubator to be aimed at sharing and connecting knowledge within the ecosystem (Clarysse et al. 2015, Dempwolf 2014, Hochberg 2015). Essentially, the business model of the public accelerator is therefore partly based on this objective. Chesbrough (2007) made a typology of business models of companies and how they relate to capacity for open innovation. The description of the sixth type, which is the most open and adaptive model, is reminiscent of the public accelerator model:

“… this business model is an even more open and adaptive model. This model requires a commitment to experimentation with one or more business model variants. This experimentation can take a number of different forms. Some companies utilize corporate venture capital as a means to explore alternative business models in small startup companies. Some utilize spin-offs and joint ventures as means to commercialize technologies outside of their own current business model. Some have created internal incubators to cultivate promising ideas that are not yet ready for high volume commercialization. In Type 6, firms, key suppliers and customers become business partners, entering into relationships in which both technical and business risk may be shared. The business models of suppliers are now integrated into the planning processes of the company. […] One important capability that enables this integration of business models throughout a value chain is the ability of the company to establish its technologies as the basis for a platform of innovation for that value chain. In this way, the company can attract other companies to invest their resources, expanding the value of the platform without consuming extra investment by the platform maker. For example, anyone making software for PCs, accessories for iPods, or games for cell phones is indirectly contributing to the value of each of these platforms” (Chesbrough 2007, p. 3).

Of course, this description of a business model relates to private companies. However, when the ‘company’ is considered as ‘accelerator program’, it could be a very accurate description

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of the operations of a public accelerator and particularly relevant to the program presented in the cases study.

2.2.5. Early results and examples

Since public accelerator programs are still in the development stages, they call for a new perspective and course of action in entrepreneurship and innovation policy. The known results they have yielded for the economic ecosystem are still extremely limited. However, relatively widespread adoption of the accelerator program both in the public and private sector in the US has put Hochberg et al. (2015) in the position of being able to observe and analyse the first results. They focus their research on a specific part of the ecosystem, namely the provision of pre-seed and seed financing for startups. Through empirical research they seek to measure the impact of accelerator formation on VC investment activity in a given region. Their research showed a strong positive relation between the arrival of an accelerator in a region and the amount of seed and early stage VC deals (+104%), and an even stronger increase in total dollar amount of VC deals (+289%) in the region. Another analysis by Fehder & Hochberg (2015) shows that the increase in funding and VC activity are not merely those of accelerator participants, but also involve those of non-accelerated funds in the region.

These two studies combined give reason to believe that, at least in a financial sense, the presence of an accelerator has an effect on funding activity within the economic ecosystem of a region. This is consistent with the idea that accelerator programs may have a catalytic effect in drawing attention of both entrepreneurs and investors to a region. Their research, and other existing research on accelerators, is not able to show that an accelerator program is more effective policy measure than other types of entrepreneurial interventions would be. Clarysse et al. (2015) have already shown that the perception of using the “ecosystem accelerator” as a policy instrument for strengthening the entrepreneurial ecosystem is not limited to the US and Europe. In Latin America especially, we see an increased interest of national governments for this type of policy instrument, the best known and most discussed of which is Startup Chile. Another program that drew our attention is the VIGO program in Finland. Both are early examples of government-sponsored accelerator programs. These

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cases were chosen because they could provide us with valuable insights into the practice of using an accelerator program as a hands-on public policy instrument.

2.2.6. Case study I: Startup Chile

Description

Startup Chile (SUP) is an accelerator program launched by the Chilean government in 2010. The program is run by the Chilean Ministry of Economy and the Chilean Economic Development Agency (CORFO), which is the leading organisation for promoting entrepreneurship and innovation in the country. The program generated a lot of international attention and is seen as a key reason for the fact that Chile’s capital Santiago is consistently showing up high in the rankings of entrepreneurial hotbeds globally. They accelerate not only local firms, but startups from all over the world can participate. Every four months a ranking is composed of the top 100 applicants by internal and external judges. These applicants will start in the coming cohort, receiving all the services, mentoring and coaching that is usually dispensed by an accelerator. On top of this, each team receives $40.000, for which no equity has to be given up. Also, international participants receive a one-year working visa. They also receive a local “buddy” that helps them to get settled into the community, by helping them with opening bank accounts, housing, phones, and other practicalities. They provide free, shared office space. Lastly, they organise national and international pitching events.

The entrepreneurs in turn have to deliver as well, by attending local conferences, school talks and other ways of sharing their knowledge with the local environment. The organisation supports products being patented in Chile and international entrepreneurs starting businesses with Chilean partners. Over a 1,000 ventures have participated in the program to date (Applegate et al. 2012, Carmel & Richman 2013, Gonzalez-Uribe 2014).

Objective

The main objective of SUP is to convert Chile into an entrepreneurial and innovation hub in Latin America. They aim to link the local business culture with high-potential international entrepreneurs. They not only do this just by attracting entrepreneurs, but also by actively improving conditions for supporting actors, such as venture capitalists and angel investors. Program founder Nicolas Shea argued that the objective was to attract talent, that does not