- 1 -
Incubator and accelerator and the opportunities for corporate
USG Professionals
University of Amsterdam
Master Thesis: Rick Kroezen
First supervisor: Dr. W. van der Aa
Second supervisor: Drs. A.C.C. Gruijters
- 2 -
Inhoud
1 Introduction ... - 3 -
1.1 USG Professionals in relation to the thesis ... - 5 -
1.1.2 USG People/Professionals, innovation, incubators and accelerators ... - 6 -
2 Theoretical framework ... - 9 -
2.1 Incubator ... - 10 -
2.1.1 Historical background ... - 10 -
2.1.2 Incubators, inexpensive office space and more ... - 11 -
2.1.3 Determining the incubator ... - 11 -
2.1.4 Characteristics of incubatees ... - 26 -
2.2 Accelerators ... - 27 -
2.2.1 Accelerators, an intense startup program ... - 28 -
2.2.3 Value creating aspects of accelerators ... - 29 -
3 Research design ... - 34 -
4 Results interviews ... - 35 -
4.1 Innovation experts on incubators, accelerators and USG Professionals... - 35 -
4.1.1 Incubators ... - 36 -
4.1.2 Accelerators ... - 36 -
4.1.3 USG Professionals and incubators and accelerators ... - 37 -
4.2 Incubators and accelerators ... - 38 -
4.2.1 Program type ... - 40 - 4.2.2 Focus startups/projects ... - 40 - 4.2.3 Selection ... - 41 - 4.2.4 Partners ... - 43 - 4.2.5 Mentors ... - 45 - 4.2.6 Offered services ... - 45 - 5 Discussion ... - 47 - 6 Conclusions ... - 49 -
6.1 Recommendations for USG Professionals ... - 51 -
7 Limitations ... - 53 -
- 3 -
1 Introduction
In recent years a new approach to spur the growth and success of start-ups has emerged: the accelerator program. In 2005 the first accelerator was founded by Paul Graham and his partners: Y Combinator. In the period thereafter the amount of accelerators took off. Estimations about the total number of accelerators existing today vary from about 300 to over 2000 (Cohen & Hockberg, 2014). Some even say that accelerators have become so popular that one new program is launched every day (Forbes). Practitioners seem to embrace the phenomenon and experiment with different forms of business
models to found the best, most profitable accelerator in the market. In contrast with the large interest of practitioners in accelerators, the academic world lacks behind. A surprisingly small amount of academic articles is published in this field of study to date. This thesis tries to contribute to the field by filling in the research gap about the characteristics and corporate applicability of accelerators that exist. How
accelerators create value for the startups in the program will be examined as well.
In addition to the research to accelerators, this paper investigates incubators as well. Incubators and accelerators share some common characteristics. They both contribute to start-ups growth and success. Some entities carry the term accelerator in their name, while they are actually incubators. Incubators are more established and have a longer history. The first incubator dates back to 1959 (Lewis, 2001). Hence this paper investigates incubators and its characteristics as well. More specifically, the goal is to determine the characteristics, similarities and differences between incubators and accelerators in order to establish what contributes to their effectiveness and value creation. Secondly, their applicability to foster innovation and growth within a corporate such as USG Professionals will be examined.
Apart from the relevance of this study to the study field, it has hence relevance and implications for practice as well. USG Professionals, a professional employment company, showed interest in the subject and asked whether incubators or accelerators could be of interest for its goals. Therefor the main research question of this thesis is:
- Which processes and stakeholders determine the incubator and accelerator and which opportunities do they offer USG Professionals?
In order to answer this research question, examination of the literature about incubators and
accelerators will be performed. Because of the limited amount of academic literature about accelerators, additional sources are needed. These sources are accelerator websites, blogs and news sources. To get
- 4 -
valuable insights from the industry of incubators and accelerators, semi-structured interviews will be carried out with relevant persons in the field of Dutch incubator and accelerator programs and innovation experts. These insights will be compared with the results in the available literature.
Additionally, Chief Officers with the responsibility of innovation at USG Professionals and its parent USG People will be interviewed to determine what the innovation needs, possibilities and constrains are in order to determine which possible opportunities accelerators and incubators can offer them. This could either be as founding partner, partner or supplier of services. The main emphasizes in the research will lie on the following characteristics of incubators and accelerators: Focus startups/projects, Selection process, partners and benefits of partners, mentors and offered services. The reason for this is that is seems that these are of importance for the programs and promising areas for USG Professionals to get involved and benefit from the opportunities that accelerators and incubators might have for them to foster innovation and develop new value propositions/entering new markets to extent the overall company`s performance.
The thesis is structured as follows:
Firstly, the relationship of USG Professionals with the thesis will be discussed. Here the results of the interviews with Vice Presidents of USG People and the experiences of the internship of this author at USG Professionals will be provided. Special emphasizes will lie on the innovation initiatives that are carried out at and the innovation capabilities of USG Professionals. With this in hand we will research which characteristics of accelerators and incubators can opportunities to complement these initiatives and capabilities.
Secondly, we establish a comprehensive theoretical framework of which processes and stakeholders are involved with both incubators and accelerators will be build. Literature about the two innovation entities will be examined. The main purpose for the models is that it can be used as guidance for the interviews with incubators` and accelerators` managers and innovation experts to determine how the processes and stakeholders work in practice. And to determine at which processes and stakeholder groups USG Professionals can take part to benefit from them.
Third, the results of the interviews with the innovation experts will be presented, how this relates to the developed theoretical framework. Special attention will be given to the provided benefits that being part of accelerators and incubators can have for the corporate USG Professionals.
- 5 -
Fourth, the results of the interviews with the innovation program`s managers will be presented about which processes and stakeholders groups they do find important. Again special attention will be given to the possibilities for USG Professionals to take part.
Fifth, a discussion and conclusion will be presented.
And finally, the recommendations for USG Professionals and limitations will be given.
1.1 USG Professionals in relation to the thesis
USG Professionals, one of the Starbrands of parent USG People, is interested in the research to accelerators and incubators of this thesis. USG Professionals, is sponsor and partner of Startupbootcamp. Startupbootcamp is a leading accelerator program based in the Netherlands, but has grown to different programs in different cities around the world. It has been awarded as the best startup accelerator of 2014 (the Europas, 2014). Partly because of this sponsorship, the interest of USG Professionals is aroused if targeting on accelerators or incubators can be beneficial and how.
USG Professionals has undergone a large-scale reorganization, which was the result of the centralization of the different operational companies (Opco `s) under one umbrella organization in late 2012/early 2013. The reason for this was to realize synergies and standardization in the organization. Besides that this process brings the necessary adjustments and uncertainty, it also offers opportunities for innovation.
USG Professionals has furthermore set the objective for itself to increase its sales coming from Projects and Services to clients to 40% (currently 4%) of its total sales by the end of 2018. This growth needs to be organic, without cannibalizing sales of the main current business line, namely professional placement. Innovation could be useful to find new business areas and to accomplish this objective. USG Professionals operates in a highly competitive market and sees innovation as need and opportunity to stay ahead of competition.
USG Professionals have said that there are possible opportunities to foster innovation and growth by working with or starting an incubator or accelerator of some kind. Hence has given the assignment to investigate the programs and if they could bring opportunities for USG Professionals. Furthermore opportunities can arise for branding and marketing by these activities. An additional opportunity lies in the fact that with the reorganization much existing USG office space became redundant, which could be used for housing an incubator or accelerator.
- 6 -
1.1.2 USG People/Professionals, innovation, incubators and accelerators
The author of this thesis has done a 10 months internship at USG Professionals for the Director
Innovation and Organization Karen van der Kolk. The internship included working on various innovation and new business development projects, as well as assisting in various innovation related workshops and presentations both internally as externally. This provides valuable first-hand observations about the innovativeness and processes to foster innovation at USG Professionals and to determine which specific needs are present. In addition, two semi-structured interviews are held with USG People`s Corporate Vice President Strategy Michael Ammerlaan and Corporate Vice President Information Services Rene Bos. Both have the responsibility of innovation within USG People and the Starbrands. These interviews complement and validate the observations of the author about the innovativeness, needs and processes in place. Which will be discussed in the next section.
1.2.2.1 Organization and innovation
USG People is a listed corporate on the NYSE Euronext Amsterdam stock exchange. It is organized under four Starbrands: USG Professionals, Start People, Unique and Secretary Plus. USG Professionals focus on professional staffing, Start People on general staffing and Unique and Secretary Plus on specialist staffing. The corporate management generally focuses on issues that concern more than one Starbrand, USG People in general or even different countries. Innovation is one domain where this holds true. Innovation at USG People is very technology-driven. The traditional HR-industry where USG People operates in is well-suited for innovation and the board of directors also sees the urgency to innovate to keep being relevant for customers in the future. However, the previous years the main focus was on restructuring the cost base and improving the efficiency of the processes. At the time of writing, USG People is healthy again and has more financial room to focus on innovating its processes, products and services again. A distinction is made between process innovation and product and service innovation.
Generally the employees of USG are very well capable of innovating on the processes, but for product and service innovation the employees lack the entrepreneurial mindset and skills in general according to the VP`s. For the product and service innovations, the corporate management relies on partnerships with and acquisitions of startups and other innovative parties. The startups need to have a somewhat proven technology with some customers and be relatively mature with revenues of 2 to 3 million Euros. The acquired startups are place on so-called arm’s length to ensure that they don`t get crushed by USG People or the Starbrands and that they keep their entrepreneurial mindset to work on meaningful innovations and growth. At some point parts of their technology, solutions and
- 7 -
company, the strategy of keeping the startups on arm`s length does not work without flaws. The
company claims that they encounter some difficulties to offer their full potential added value to improve USG People`s and Starbrands` value propositions and service offerings. More opening up to and invite (acquired) startups and other companies in the development process for new service and value offerings seems a major opportunity for USG People and it`s Starbrands.
As guidance on which area USG should innovate, they articulated two main reasons for innovate: technological drive and demographic developments. Mega drivers as ageing population and interesting areas as big data and digitalization are identified by scenario planning. Four global driving forces are articulated on which their innovation efforts focus: cloud, analytics, mobile and social. The focus startups should operate in these areas. To know which startups are most suitable and interesting for USG, a TechRadar is developed. In this TechRadar the innovative startups in the relevant industries are placed and followed over time. The startups in the TechRadar ideally addresses one or more of the driving forces, have a clear technology component for a scalable business model, are operating in the HR-industry and have a strong management. The input for the TechRadar is a combination of triggers from the business, corporate management, IT and corporate development.
For innovation from a technical point of view, three distinctive innovations are articulated and focused on: Existing technology/Existing customers, not new to the market, but for keeping USG in the race; New technology/Existing customers, to upgrade the current service offerings to outperform the competitors; and New technology/New customers, to explore new markets and develop completely new value propositions.
The VP`s find partnering with innovative parties such as Startupbootcamp, The Lean Startup Machine and organizing the Dutch Open Hackathon, very important. The main benefit is to gain access to a very relevant innovation network where they can do cherry picking and gain access to entrepreneurial talent, mindset and innovative developments.
1.2.2.2 USG Professionals and innovation
Innovation concerning more Starbrands is organized at the corporate department of USG People. On Starbrand level, there is room for innovation as well. In the first place, the innovation initiatives have to be financed out of the revenues of the particular Starbrand. The directors of the Starbrand are hence free to decide which projects they want to elaborate on. All Starbrands have employees assigned that focus on innovation. This is merely one part of the job description of these employees, none of the
- 8 -
employees are fully dedicated to innovation. If we look at USG Professionals in particular, there is a director of innovation and organization. In this duo-role she focuses on innovation projects/initiatives and on processes and organization developments. Three other employees are in Karen`s team to foster innovation and improve the internal processes.
To foster innovation, internal innovation program Profit is developed, where certain employees work in cross-functional teams on new value propositions to complement the current products and services offerings. Also, various internal workshops and presentations are held to encourage the employees to innovate for and with customers. But also process innovation plays an important role in USG Professionals. During the authors work at USG Professionals a couple of observations about the efficiency of innovation are made. Like in many large corporates, dividing focus between innovation and business as usual seems hard. Especially when the financial results lack somewhat behind, the tendency of refocusing quickly to commercial operations on the expense of innovation is tempting. It seems that there is a constant struggle between the two worlds. The director of innovation and organization is a huge advocate for innovation at USG Professionals and works hard to enlarge and foster a wide network of relevant persons and organizations to work together with. Exploiting the network of her and the rest of the central staff seems promising. Also, some incubators, accelerators and organizations closely related to them have shown interest in co-developing new value propositions with USG Professionals. This development seems very promising and should be acted upon to benefit from the opportunities to the fullest. A couple of more initiatives are carried out and more are on the urge of happening.
Partnerships and network extension and utilization, hence sponsorship with Startupbootcamp HighTechXL and organizing the Dutch Open Hackathon with 6 other Dutch multinationals are examples to foster innovation and building valuable relationships in the task to spur innovation and performance. Slowly but steady there is a cultural shift towards innovation noticeable at USG Professionals. Mainly because of the frontrunners role of Karen, initiatives are started. An example for this is experimenting with different value propositions like developing a platform to link higher educated students to
underdeveloped assignments and IP for both customers and USG Professionals itself. The development of a different payment model for customers, called “strippenkaart”, to get paid for the results instead of the classical paid per hour construction is another example. USG Professionals attempt to let employees from different Operational Companies (Opco`s) collaborate to develop together value propositions to particular customers. And adjusting its expert services to other underserved customers like startups and foreign companies that want to start operations in Europe in general and the Netherlands in particular is
- 9 -
under development as well. These opportunities seem promising opportunities to harvest value and spur innovation within USG Professionals. However, it seems to be beneficial if the rest of the organization`s employees receives the motivational backing of the management to engage in the innovation initiatives as well and experiment with different value propositions.
One might ask nevertheless if the employees and top management see the urgency and have especially the financial means to truly foster innovation in the organization, or as the CIO puts it: “To really get it into our company`s DNA”. Mainly because the vast majority of revenues is still earned (some 98%) in the traditional business model of temporarily placement of (higher educated) candidates at their (mainly) large corporate customers, the urgency and financial opportunities for innovation projects may be seen as less urgent. Also, the employees and directors are mainly evaluated and compensated in terms of hard financial results and most innovation projects has longer pay-back periods, which often result in focusing on traditional business instead of experimenting on new value propositions.
There are however some other positive signs for innovation fostering in USG Professionals. A lot of workshops and presentations are held internally about The Lean Startup Method, Business Model Canvas, Validation Board and other innovative tools. During the 10 months of internship of the author, some small shifts of innovation awareness with the employees and the first signs of perceived urgency and initiatives were started. During that time a couple of startups were acquired by USG People and partnerships with innovative suppliers and other parties were undertaken. Their new technologies and products and services are now starting to be implemented and used to develop new business
propositions to customers. However, to these innovations to be successful, a continues stream of backing and room for experimenting needs to be offered. Interestingly is nevertheless noticing that many customers of USG Professionals state that they find them one of the most innovative companies in the HR-industry and a trusted partner in innovation although the company itself sees much room for improvement. The remainder of the thesis will determine if incubators and accelerators can help USG Professionals with these improvements and opportunities.
2 Theoretical framework
This section of the paper explores what is known about incubators and accelerators in the field of study. The first aim is to determine a general description of both and to identify which processes take place and which stakeholders are seen as important to create value for the startups in the programs. What we will see is that there are quit some general characteristics, but that there are many differences between
- 10 -
incubator and accelerator models and how they are organized as well. With this is the aim to establish a theoretical framework for both that can be used to test with the interviews which of the stakeholders and processes are seen as value creating and important in incubators and accelerators in practice and in which way they are applied.
2.1 Incubator
In recent years, incubators gained interest as a subject in practice as well as research. The terminology incubator and business incubator are used interchangeable in research. In this paper, incubator is used. Starting with the more established incubators seems obvious, because it shares a couple of
characteristics with and seems to have laid the foundations for the more novel accelerators. 2.1.1 Historical background
The first incubator was established in 1959, when an entrepreneurial family divided a huge factory into smaller offices in order to rent it out to a large number of smaller companies. A new revenue model was created and hence the incubator came into being (Lewis, 2001).
The growth of the number of incubators did not take off immediately. In the 1960s and 1970s, the incubator expansion happened slowly and was mainly initiated by the American government who wanted to revitalize the poor urban/mid-western economy. In the 1980s and 1990s, the diffusion of incubators increased rapidly. Three main reasons for this can be recognized: the passage of the Bayh-Dole Act in U.S. Congress decreased the uncertainty for commercialization of publicly funded research, U.S. legal system increasingly recognized the importance of innovation and intellectual property rights protection and opportunities for profit for commercialization of biomedical research flourished (Hackett & Dilts, 2004). Some researchers call this period the first wave of incubator development, where the incubators mainly were used as a local economic development tool (Bøllingtoft & Ulhøi, 2005).
In the period between 1998 and 2000, the number of internet-based companies and incubators exploded and the dotcom-bubble came into being. The hugely over-valued internet-based companies took a fall when the dotcom-bubble finally busted and hence a large number of the accompanying incubators. The incubator industry revived itself and the number of incubators were about to grow again, however in a different form (Gassmann & Becker, 2006; Hackett & Dilts, 2004). The period started in 2000 is called the second wave of incubator development (Bøllingtoft & Ulhøi, 2005). During this period the number of incubators grew and is characterized by the diversification of the industry.
- 11 -
Aerts et al. (2007) identify a development in the incubator industry as well and that there are three generations of incubators. They claim that until the 1990s, incubators of the first generation mainly focused on job creation and real estate appreciation. In the 1990s, the second generation expanded these services with consultancy services, training sessions, network access and venture capital. Started in the late 1990s, the third generation of incubators concentrated on promising startups in the ICT and high-tech sector.
2.1.2 Incubators, inexpensive office space and more
An incubator is basically a physical place where incubatees (or tenants, clients, startups/early stage companies) are given the opportunity to hold office most often by paying a rent against below market prices. With the support of an incubator, incubatees get the help for their development and to achieve their full growth potential (Brandstad, 2010). A typical incubator has 5,800 square meters of space for incubatees, enough for some 18 incubatees. Less space makes profiting from economies of scale harder. Operating at no more than 85 percent occupancy levels proved to be most efficient. There is a
contradiction with this: on the one hand, maintaining high occupancy levels result in generating the needed income in terms of rent, on the other hand this can affect maintaining selective admission criteria resulting in ‘first-come-first-serve’ approach. This could harm the ability to react flexible to changing needs of incubatees (EU, 2002). The incubatees occupancy levels of European incubators seem very high: 48% have 90% or more occupancy, while only 13% are occupied for 70% or less (Aerts et al., 2007). Lewis (2001) find that the average number of incubatees per incubator is 12.0.
Although most incubators share some basic characteristics with each other, there are differences as well. We will examine in the literature which processes take place and which stakeholders the
incubator determines in order to build a model of the incubator environment and to identify good/best practices. The goal of the developed framework is to use it as guidance for the semi-structured
interviews to determine which processes and stakeholders are most important and an opportunity for USG Professionals to step in.
2.1.3 Determining the incubator
The aim of the next section is to determine which characteristics the relevant literature finds that an incubator basically determines. What we will see is that there are different types of incubators, but that they share basic categories of processes and stakeholders. There are a couple of clues which show whether or not an incubator provide quality services and hence facilitate accelerated value creation for the startup incubatees and the incubator self. During the next section, we gradually build the theoretical
- 12 -
framework. Later on in the research this framework will be used to determine which roles USG Professionals could play at incubators and which benefits that would bring.
2.1.3.1 General characteristics
Incubators can generally be seen as a kind of infrastructure to support and nurture the establishment and development of small- and medium-sized enterprises, mostly young and growing firms, in a
sheltered environment. The aim for this support is to leverage entrepreneurial talent by complementing the existing talents and resources in order to expand and maximize the potential of the incubatees. Important is that incubators maintain a spirit of entrepreneurship (Bøllingtoft & Ulhøi, 2005) by letting the entrepreneurs keep significant ownership and ensure that incubatees are free from strategic
bureaucratic and organizational impediments (Hansen et al., 2000). For leveraging entrepreneurial talent and accelerate the development of new companies, incubators seek an effective means to link
technology, capital and know-how. After the incubating period, it is intended that the ventures graduate to become independent, self-sustaining businesses (Grimaldi & Grandi, 2003). To help accomplishing this Incubators create for their incubatees a sense of legitimacy, through enhancing their visibility, credibility, understandability and social acceptance in the eyes of external actors (Bøllingtoft & Ulhøi, 2005;Bergek & Norrman, 2008).
Four distinctive components of incubators can be recognized and got attention in incubator literature. Incubators provide incubatees with: 1) shared office space under favorable conditions, 2) shared support services to reduce overhead costs, 3) professional business support or advice (coaching) and 4) both internal and external network opportunities (Bergek & Norrman, 2008). In addition to these components, Grimaldi & Grandi (2003) state that incubators provide a variety of support services such as assistance in developing business and marketing plans, building management teams, obtaining capital and access to a range of other more specialized professional services. The shared space is also flexible in nature and offer shared equipment and administrative services. Because of the standardized provision of office space, this does not cause competitive advantage between incubators anymore. The real added value lies in the quality and range of the offered business support services (EU, 2002).
- 13 -
Incubator
Iincubatee Incubatee Incubatee
Categories of offerings from incubator to incubatees
- Shared space under favorable conditions
- Shared support services to reduce overhead
- Professional business support and advice (coaching)
- Internal and external network opportunities
Grimaldi & Grandi (2003) find that there are four different main types of incubators. There are two reasons this model will be used in this paper. Firstly, for the purpose to set the scene of how diverse the incubator industry is and to discover some first clues on which types of incubators USG Professionals could focus best to harvest some of the created value. And secondly, to use as a categorizing tool for the innovation programs that will be visited for an interview. The four main types are:
1) Business Innovation Centres (BICs): public incubator, which offers a set of basic services to incubatees, like provision of space, infrastructure, communication channels, information about external financing opportunity.
2) University Business Incubators (UBIs): initiated by universities, linking technology, capital, and know-how to leverage entrepreneurial talent and speed the commercialization of technology by nurturing new knowledge-based ventures. Two main categories of services are offered: 1) typical incubator services like shared office services, business assistance, access to capital, business networks and affordable rents and 2) university-related services, like faculty consultants, student employees, university image conveyance, library services, labs/workshops and equipment, mainframe programs, related R&D activity, technology transfer programs, employee education and training and social activities.
- 14 -
3) Independence Private Incubators (IPIs): are set up by single individuals or a group of them with their own money and take equity in the incubatees. The aim is to help rising entrepreneurs to create and grow their business. Sometimes they are called accelerators, since they do intervene when business has already been launched and needs specific injections of capital or know-how. 4) Corporate Private Incubators (CPIs): owned and set up by large companies with the aim of
supporting the emergence of new independent business units. These corporate spin-offs are usually the result from research project spill-over. Most CPIs keep equity in the startups their employees create, but accept startups from outside as well. Intervention takes place during the early stages (business concept definition) of the business development cycle.
These differences arise because different incubators offer distinct services that reflect their own customer-base as well as the specific resources available within their (respective) communities.
According to Brandstad (2010) the for-profit incubators serve the interests of independent shareholders or private companies that seek financial or technological benefits for helping entrepreneurs.
Lewis (2001) also found with data of 1998 in the United States that there are different types of incubators:
Figure: types of US-based incubators (Lewis, 2001)
For a corporate it could be very beneficial to start an incubator, especially for technologies and ideas that do not fit rightly with the current corporate core activities and strategies. With a corporate incubator these ideas can be developed further into new businesses or business models. After success the incubatee can either be spin-out or spin-in. A corporate incubator can be started by one or more corporates or even in an industry wide partnership. The most common operation field is for the development of new technology or using existing technology in a new way. The corporate incubator needs personnel, such as marketing experts, intellectual property lawyers, accountants etc. from the parent (Hansen et al., 2000). At first resources flow from the corporate parent to the incubator, most importantly the intangible ones like patents and technology, later on, after a successful incubation
- 15 -
period, the resources are starting to flow back again. This usually takes years, hence a medium- to long-term orientation is needed. The corporate incubator should align its goals and strategy with those of the parent(s) (Gassmann & Becker, 2006). Hansen et al. (2000) acknowledge that corporate incubators can be very profitable, but need to be free from strategic, bureaucratic and organizational obstructions that often prevent established companies to pursue risky opportunities. Furthermore tens of thousands of startups globally seek partnerships with established companies and here for a corporate incubator could mediate between them.
2.1.3.2 Management team
The incubator`s management team can add value to the incubatees. This can take the form of selecting, coaching, but their role can differ from incubator to incubator. Managers of private incubators invest their own money in the incubatees and are thus deeply involved in the management and day-by-day operational aspects. Public incubators` managers act more as intermediaries between incubatees and different external entities that provide the incubatees with resources and competences that the incubator does not have in-house (Grimaldi & Grandi, 2003). From a study to 107 European incubators, we learn that on average 12 fte are working per incubator (Aerts et al., 2007). The background of the managers of profit and non-profit don`t differ that much. The only two differences are that more for-profit mangers have a background in real estate or property management (29.4% against 11.7% with non-profit) and twice that many non-profit staff comes from personnel management or education (45%) (Gassmann & Becker, 2005). Ideally, the management team is complemented by an advisory board that has a sophisticated understanding of the market and the process of new venture formation in order to make better judgments in the selection of incubatees. This board could also offer political support to secure annual operating subsidies (Hackett & Dilts, 2004). A benchmark report (EU, 2002) argues that incubators should have managers who adopt a business-like approach in running the incubator and monitoring the incubatees. Furthermore, the most efficient ratios for staff are 1:3.2 staff/incubatees and 1:5.0 staff/incubatees plus other clients.
2.1.3.3 Finance and revenues of incubator
For the establishment of an incubator different sources of finance are used and also for covering operation costs different sources are used according to the literature.
The establishment of an incubator does not come cheap, the average set-up costs are around 4 million Euros (EU, 2002). Aerts et al. (2007) find that a vast majority of European incubators count for the financing of their establishment on national and regional governments (71%). Universities and other R&D
- 16 -
organizations are the second largest group of financiers at set-up (62%). Where 54% of the incubators receive funding from enterprises, banks and other private institutes for set-up shop. 29% of the European incubators state to be for-profit, however 80% reports to be self-sufficient. Cohen (2013) argues that even 93% of all the incubators are non-profit focusing on economic development. Aerts et al. (2007) find that for their operations, 81% raises funds from incubatees rents and paid services and national and regional governments financially support 63%. One third is sponsored by the European Union or other international organizations. However universities and other R&D organizations play a decisive role in the operational process, only 13% of the incubators claim to have them as sponsors. Only 24% possesses shares of their incubatees and 17% of the incubators claim to have dividends and
royalties from incubatees as a source of income. On average 40% of the operation costs are covered by the incubatees (EU, 2002). The average operational costs of technology incubators, those with at least 50% of technology firms as incubatees, are $320,701 per year. This is 25% higher than the incubator industry average (Lewis, 2001). Grimaldi & Grandi (2003) acknowledge that there are differences in finance among incubators. They find that BICs and UBIs work non-profit and IPIs and CPIs are profit-oriented. The non-profits rely on regional, national or international funding and partly on fees paid by incubatees for the services. Private for-profit incubators rely mainly on the fees for their services and could take equity positions in the incubatees for revenues. There are however dangers in relying on rent income, because of the cyclical departure of incubatees, this is variable. Therefor incubators should have pre-screened incubatees in the pipeline in case an incubatee would leave the incubator (Hackett & Dilts, 2004).
2.1.3.4 Strategy and goals
There are different strategies and goals that an incubator can have. Which it has depends on the type of incubator, the founding partners and incubatees that they serve.
In an older article, the business incubator continuum is presented by Allen & McCluskey (1990). This continuum got renewed attention in more recent literature. The business incubator continuum represents how the incubator adds value and what their objectives are. On the left side of the continuum are the 1) for-profit property development incubators, with the primary objective of real estate
appreciation and sell proprietary services to incubatees and as secondary objective to create opportunity for technology transfer. On de right end of the continuum are the for-profit seed capital incubators with the primary objective to capitalize investment opportunity and secondary product development. Left of the center are the non-profit development corporation incubators, with the primary objectives job
- 17 -
creation and positive statement of entrepreneurial potential and secondary generate sustainable income for the organization, diversify economic base, bolster tax base, complement existing programs and utilize vacant facilities. On the right of the center are the academic Incubators with the primary objectives of faculty-industry collaboration and commercialization of university research and secondary to strengthen service and instructional mission, capitalize investment opportunity and create good will between institution and community.
Several researchers find indeed evidence that confirm the existence of the business incubator continuum. Aerts et al. (2007) find practical evidence in the European incubator industry and comment that the two types on the right of the continuum are more likely to hold shares of the incubatees to cover operating costs by receiving dividends and royalties. However the majority of European incubators belong to the two types on the continuum`s left and focus on real estate appreciation. The continuum is clearly unbalanced to the left, however policy makers prefer the enterprise development (right) side to increase the innovative capability of companies. In their original study of Allen & McCluskey (1990), they saw a similar pattern in the American incubator industry. Also Bøllingtoft & Ulhøi (2005) found evidence for the existence of the two broad incubator strategies, namely 1) real estate development and lease them cheaply, and 2) enterprise development program for new ventures and growth for newly
established firms. The opportunities offered by the different forms of incubators are often connected to their specific goals, e.g. 1) for-profits seed capital incubators seek to capitalize investment opportunities and thus help incubatees with financing issues, 2) science parks linked to universities transform R&D findings into new products and technologies, and 3) for-profit networked incubators explicitly recognize the value of collaboration. The non-profit developed incubators tend to focus on job creation (when publicly sponsored) or on area development (when non-profit sponsored). The researchers conclude that incubators are an effective business development tool that provide excellent return on investment in the regional economy with modest investments. However incubators should have a flexible oversight with dynamic readjustments of the incubation programs as dictated by local needs in order to be vital and effective in a cost-effective manner (Hackett & Dilts, 2004).
The most important goals for incubators are contributing to the competiveness of the local economy (78% of the incubators), stimulating the entrepreneurial spirit (76%), technology broking has an important place in the mission statement of 43% and seems an evident starting point of innovation. Hence a growing group of incubators see fostering innovation as one of their most important aims (Aerts et al., 2007). For policy makers incubators are an interesting vehicle, because back in 2002 the 900
- 18 -
European incubators account for the creation of around 40,000 (net) jobs each year with relatively low costs of 4,500 euro of public money per job on average. Far less than other SME stimulation programs (EU, 2002).
2.1.3.5 Support services
Many studies emphasize that incubators generally have a set of services that they offer their incubatees in order to add value to them.
Some studies state that incubator provide a couple of basic key resources and opportunities: affordable rents, services and equipment that would otherwise be unavailable or unaffordable. Among these are two categories: 1) office and communications services (e.g. copying and answering the phone) and 2) facilities and equipment services (e.g. reception area, conference rooms and computers). These shared services are somewhat used on a continues basis and are easy to imitate (Bøllingtoft & Ulhøi, 2005). Office space is offered by 84% of the incubators (Hansen et al., 2000). These services should be offered from top-tier service providers at preferred rates and terms for the incubatees to achieve economies of scale (Hansen et al., 2000; Bøllingtoft & Ulhøi, 2005). Having a comprehensive menu of support services, even when they are under-utilized, may be significant, because it can induce self-reflexive considerations for the incubatees to what is required for their new venture to develop (Hackett & Dilts, 2004). Grimaldi & Grandi (2003) find however that there are differences in services that different kind of incubators offer. BICs tend to provide tangible services (e.g. spaces, offices), IPIs and CPIs are more oriented towards the provision of intangible ones (e.g. transfer of competencies and knowledge-based services), and UBIs generally combine both tangible and intangible services.
- 19 - Ecosystem
Incubator
Incubatees Support services
- Shared, otherwise unavailable or unaffordable for incubatees - Office and communications services
- Facilities and equipment services - Has to be a comprehensive menu, even when under-utilized Shared
space
2.1.3.6 Business support
Offering a wide variety of business services like business and financial planning are key resources and opportunities of incubators (Bøllingtoft & Ulhøi, 2005). Bergek & Norrman (2008) also emphasize on the importance of providing business support in addition to more general administrative services. The researchers argue that the business support services include many types and also the way to offer them differ from incubator to incubator. They include entrepreneurial training, such as coaching and education related to business planning leadership, marketing and sales. Hansen et al. (2000) claim that almost all incubators offer coaching to the incubatees (97%). Another category holds business development advice and services concerning general business matters as accounting, advertising and financial assistance. Gassmann & Becker (2005) find that 88.2% of for-profit 76.7% of non-profit incubator managers claim assisting in the formation of a company to be very important. Aerts et al. (2007) have some similar findings: on average 86% percent of the European incubators offer business planning and forming a business. Financial assistance can be done either by the incubator investing in the incubatees directly or by arranging contact to external investors (Bøllingtoft & Ulhøi, 2005). They should however consider the degree to which they should/can assist, because most incubators do not maintain their own investment fund but serve as a broker between incubatees and sources of finance (Hackett & Dilts, 2004). Although through assisting incubatees with finance capital can be an added value, Bøllingtoft & Ulhøi (2005) state that this is not crucial for entrepreneurial actors to build viable businesses. In a research to 22 large American and European technology-intensive corporations` corporate incubators, 76.6% of the for-profit managers claim that raising funding from banks, venture capital corporations or grants is the most
- 20 -
important service they offer the incubatees against 90% of their non-profit counterparts (Gassmann & Becker, 2005). Hansen et al. (2000) find that in general 86% of the incubators offer some kind of funding to the incubatees and Aerts et al. (2007) state that 79% of the European incubators engage in assistance in raising funding. Brandstad (2010) adds technological support as business support service. Hansen et al. (2000) find that the vast majority of incubators offer a set of basic services: information technology (93%), public relations (90%), recruiting (90%), legal (87%), accounting (88%) and pooled buying programs (64%).
Bergek & Norrman (2008) continue that the types of services determine the success of incubatees, but also how they are supplied is significant. Differences appear with regard to 1) time intensity (which percentage of working hours is devoted to monitoring and assisting incubatees), 2) comprehensiveness (degree of assistance includes strategic and operational assistance and
administrative-related services) and 3) degree of quality. Different types of counseling and if it is initiated by the entrepreneur or the incubator`s managers can be taken into account as well: 1) reactive and episodic counseling (entrepreneur initiated), 2) proactive and episodic counseling (incubator initiated) and 3) continual and proactive counseling (incubator initiated). These three dimensions comes down (according to the authors) to the view of the incubator`s role in the incubator process. Do the managers see themselves as managers of the incubation process or as facilitators of a process managed by the incubatees themselves. One scale end: strong intervention and other end: laissez-faire.
Ecosystem Incubator Incubatees Business support - Can be entrepreneur-initiated or incubator-initiated
- Business and financial planning - Entrepreneurial training - Business development advice - General business services as accounting, advertising and financial assistance - Technological support Shared space
- 21 -
2.1.3.7 Selection/screening process
Screening and selecting the right incubatees is an important component of the incubation process. According to Aerts et al. (2007) variability in the screening process can result in too strong or too weak incubatees in the incubator. This can result in the failure of the incubatees or even the entire incubator. They state that the screening process can be divided in three phases. In first phase the potential
incubatees are evaluated on six criteria: 1) sales potential, 2) political and social constraints, 3) growth potential, 4) competitor analysis, 5) risk distribution and 6) industry restructure. In the second phase, the fit between the incubatee and the incubator is again evaluated on six criteria: 1) capital availability, 2) manufacturing competence, 3) marketing and distribution, 4) technical support, 5) component and materials availability and 6) management. The third phase is evaluating the combination of the previous two phases to determine the probability of commercial success and thus the potential added value the incubatee has to offer the incubatee. Another study that Aerts et al. (2007) prescribe (of Lumpkin and Ireland, 1988), prescribe a survey amongst US incubator managers that reveals that there are three groups of screening criteria: 1) experience of the management team (management, marketing, technical and financial skills, experience and growth rate projection of the management team), 2) financial strength (profitability, liquidity, price earnings, debt and asset utilization, personal investment of the management team and current size of the firm and 3) market and personal factors (written business plan, references from others, persistence, marketability of product/service, creativity, uniqueness of product/service and age of the management team). Entrepreneur quality, resource-based capability and competitive strategy seem also critical determinants of a startup`s viability and achievement. For an incubator to be successful in the incubatee selection, an advisory board is very helpful for both economic and political reasons. Aerts et al. (2007) conclude however that there is not a screening scheme that can guarantee 100% success and it seems that in general European incubators do not screen on a wide and diversified set of criteria. When they would do so, the success of them would improve.
Bergek & Norrman (2008) state that there are basically two overall selection approaches that an incubator could use: 1) focusing on the idea, where the incubator managers need access to deep
knowledge in the relevant technical fields to judge the viability of the idea in terms of product, market and profit potential and 2) focusing on the entrepreneur, where the managers need to judge the personality and knowledge of more general business development requirements in relation to
experience, skills, characteristics and driving forces of entrepreneurs. Next to the selection approaches, there are basically two strategies how the managers can apply them: 1) picking-the-winners, the managers identify only a few potentially successful ventures ex ante, to the extreme, incubators
- 22 -
resemble private venture capital firms. And 2) survival-of-the-fittest, where incubator managers apply less rigid selection criteria and take a larger number of ventures and rely on the market to apply the selection criteria to separate the winners from the losers. Four combinations can be made: 1) survival-of-the-fittest and idea: portfolio of large number of idea owners (or upcoming entrepreneurs) with
immature ideas related to a broad spectrum of fields; 2) survival-of-the-fittest and entrepreneur: diversified portfolio of entrepreneurs/teams with strong driving forces representing a broad set of ventures; 3) picking-the-winners and idea: highly niched portfolio of thoroughly screened ideas within a quite narrow technological area (often sprung from the research of highly ranked universities); and 4) picking-the-winners and entrepreneur: portfolio of a few handpicked and carefully evaluated
entrepreneurs (commonly with ideas coupled to the research areas of a nearby university).
Hence incubators and its managers have a wide variety of screening and selection criteria at their disposal and also different approaches and strategies for applying them to get the right incubatees. It seems very beneficial and perhaps even viable to choose the best combination for their particular circumstances. Ecosystem Incubator Incubatees Applicant Applicant Applicant Selection of Incubatees
- By incubator`s managers and advisory committee
- Based on incubatee`s criteria; incubatee-incubator fit criteria and mixture of all criteria.
- Two approaches: idea-focused and entrepreneur-focused
- Two strategies: Survival-of-the-fittest and picking-the-winners
Shared space Support services Business support
2.1.3.8 Networks and mediating
Many studies argue that having a strong network consisting of internal and external relevant parties brings much added value from the incubator to the incubatees. Aerts et al. (2007) find that most
- 23 -
incubators offer a network of business relationships and Bøllingtoft & Ulhøi (2005) argue that the better incubators offer access to companies/organized networks. The incubators acts as a mediator between the incubatees and their environment. But also the incubator benefits from a large network.
Some researchers state that networking is an essential success factor for startups (Aerts et al., 2007) and even the most important factor/service in a successful incubator program (Bøllingtoft & Ulhøi, 2005). There seems a difference between for-profit and non-profit corporate incubators. 64.7% of the for-profit managers and 86.7% of the non-profit managers claim networking opportunities a very important service to the incubatees (Gassmann & Becker, 2005). The better and likely more successful incubators maintain an organized network and are called the networked incubator, although only 26% of the incubators seem to engage in very organized networking (Hansen et al., 2000). It depends on the definition of networking used. Aerts et al. (2007) find that 88% of the European incubators of some sort of networking opportunities. Mechanisms to the individuals and amongst each other and mechanisms related to the construction of the incubator, and with it, the social environment seems the two main categories that facilitate or hinder networking (Bøllingtoft & Ulhøi, 2005). Incubators that have these mechanisms in place are sometimes institutionalized which is very beneficial and can scale their
networks to a large number of different managers and corporates (Hansen et al., 2000). The incubator`s network lowers the transaction cost for incubatees through reducing resource and information costs (Aerts et al., 2007) and startup costs as accessing affordable space and shared services. Furthermore they address other market failures like lack of services and business assistance and financing (Bøllingtoft & Ulhøi, 2005).
Through the incubator`s network, incubatees can achieve economies of scope, arising from the sharing or joint utilization of different resources, services, skills and assistance (Bøllingtoft & Ulhøi, 2005) and exploit technologies fully and transform them into marketable solutions (Aerts et al., 2007). Hence the incubator has the potential for creating and exploiting synergy (Bøllingtoft & Ulhøi, 2005).
A distinction can be made between internal and external networks. By fostering the internal network between incubatees, knowledge and talent can flow easily and marketing and technology relationships forge between them (Hansen et al., 2000). The internal network also provide social inputs, resources and psychological support across and between incubatees, hence building social capital, and provide them with access to business networks. This is more likely to happen when the incubatees are operating under the same roof (Bøllingtoft & Ulhøi, 2005). External networks, on the other hand, are crucial to incubatees as they link them with potential partners, customers, local businesses, advisors etc.
- 24 -
(Bøllingtoft & Ulhøi, 2005;Hansen et al., 2000). These valuable stakeholders can either be public or private and incubators need to create the right mixture of relationships to be most valuable for the incubatees (EU, 2002).
Bergek & Norrman (2008) make the distinction between an incubator`s mediating role in terms of networking and networking itself. In the mediating role, the incubator mediates between the incubatees and their environment (relevant innovation system) in order to leverage entrepreneurial talent and/or critical resources including knowledge, technology, financial capital, market related resources and human capital. These networks may include potential customers, partners, employees, university researchers and financiers, but also between incubatees to build social capital and the development of agglomeration economies. Mediation may also take the form of institutional mediation to interpret or even influence e.g. laws and norms. The mediation can take the form of either regional (/national) innovation systems, technological/sector innovations systems or focusing on cluster
formation. The researchers see networking, in contrast with mediating, as a means to complement the incubator`s business services.
Bøllingtoft & Ulhøi (2005) argue that formal networks can be arranged and controlled by the incubator`s managers, but that entrepreneurs mostly rely on informal networks to build their businesses. The best thing to do is to act like facilitators or hubs for networking activities so that the entrepreneurs can form their informal networks themselves to get better changes to survive in the long run. Hansen et al. (2000) provide some recommendations for how an incubator could design the network best:
- Create formal links with external experts. - Bring outside experts on site.
- Schedule occasional – but regular – meetings
- Establish processes for exchanging information and know-how across companies - Implement economic incentives
- 25 - Ecosystem Incubator Incubatees Applicants Shared space Support services Business support Selection External network
- To leverage critical resources and talent
- Complementing incubator`s business services
- Top tier service providers - (launching) customers - (governmental) institutions - Capital providers Internal network - Other incubatees/incubator as customers
- Marketing and technology relationships
- Building social capital - Knowledge and talent flow - Access to business networks Mediation
2.1.3.9 Graduation and aftercare
The time that incubatees can spend in an incubator is most of the time limited, usually between 3 to 5 years. In many cases incubatees move out, or graduate, on their own initiative because they need more space to grow. Most incubators have furthermore well-functioning exit criteria to foster turnover and some of them gradually raise the rental rate after a given period of time to above market prices to encourage incubatees to move to another location. However, at the time incubatees leave the incubator, most of them are in their topmost vulnerable phase. Arranging effective aftercare like keep in touch with the leaving incubatees and assist them when needed is hence very important (EU, 2002). Lewis (2001) find that on industry average 3.3 incubatees graduate per year per incubator and that 82.2% of incubatees remain in the community.
- 26 - Ecosystem Incubator Incubatees Applicants Shared space Support services Business support Selection Graduation
- After a certain period of about 3 to 5 years
- Well-functioning exit criteria are needed to foster turnover - Gradually increasing rental rate - Many incubatees graduate on their own for space to grow - Aftercare is needed, because of the vulnerability of alumni Mediation
Internal network External network
Alumni
This model drafted from the literature will be tested in practice with the interviews with managers of incubators and with the innovation experts. Special emphasizes will be placed on the selection process, partners (external network), benefits to partner, which role mentors play and which services are offered to the incubatees. The reason for this is that it seems that these characteristics of incubators can be useful for USG Professionals. The quality of the selection process will determine if the incubatees are high potentials and hence the incubator itself. USG Professionals might benefit from good incubators and incubatees. The partners are included in the research, because USG Professionals seeks partnerships and collaboration opportunities to get high performances. Also obviously the potential benefits for partners are included, because that could give us insights about whether or not partnering could have upside potential. Mentors/coaches are researched, because this could mean a possible way to get employees involved with high potential incubatees and to get infected with innovation spirit. Finally, the offered services will be determined to get possible leads to USG Professionals to offer its current and possibly future service offerings to the incubators and incubatees.
2.1.4 Characteristics of incubatees
Incubatees have a low failure rate compared with firms “outside” an incubator (only one in seven incubatees had discontinued operations) (Bøllingtoft & Ulhøi, 2005). Some even say that 80 to 90% of incubatees still exist after five years, compared to a fail rate of some 75% of the SME`s outside an
- 27 -
incubator for the same period of existence (Aerts et al., 2007). The survival and growth rate of the incubatees is probably the best parameter for success of an incubator (Lalkaka, 1996). It is, however, not for every startup or early stage venture beneficial to enter an incubator. It also seems that incubation adds most value in particular industries or sectors. This section examines for which types of entities incubation seems beneficial and hence what their characteristics are.
Incubatees are typically ventures in their early phases whose ideas are immature and not yet developed into business ideas. In these cases incubators are helpful to close the gap between new venture idea and the attempt stage (Bergek & Norrman, 2008). Aerts et al. (2007) determined with a survey to which sectors incubators focus and hence where their incubatees operates. They found that three quarters operate in the ICT business, making this the most popular sector. Followed by knowledge-based industries- new economy industries such as e-commerce and B2B services (59%), R&D (52%) and the financial sector (44%). Least present are sales, marketing and distribution (21%) and agriculture (10%). Most incubators focus on one or a limited number of sectors and particular technology and businesses (EU, 2002).
The potential incubatees that apply for an incubator can and should be categorized in three groups: 1) those that cannot be helped through business incubation, 2) those that should be incubated due to the existence of some resource gap(s) and 3) those that do not need incubation. Ideally
incubatees are weak-but-promising, hence those who lack resources, but have a compelling business case (Hackett & Dilts, 2004). There are differences between types of incubators where the ideas and hence incubatees come from.
Grimaldi & Grandi (2003) argue namely that UBIs and CPIs are mainly inward-oriented for ideas. Their incubatees are most of the times academic spin-offs and corporate spin-offs respectively. BICs and IPIs are likely to be more outward-oriented for new entrepreneurial ideas to incubate. It is noteworthy that some researchers argue that science parks and technology parks should not use the incubator concept, because their focus is on mature ventures (Bergek & Norrman, 2008).
2.2 Accelerators
Accelerators are a relatively new phenomenon in startup assistance. In 2005 the first accelerator was founded by Paul Graham: Y Combinator. In the period hereafter, the amount of accelerators took off. Estimations about the total number of accelerators existing today vary from over 300 to even 2000 globally (Cohen & Hockberg, 2014). Some even say that accelerators have become so popular that a new
- 28 -
one is created every day (Forbes.com). Because of the novelty of accelerators, there is not much
research conducted in this field of study yet and thus the amount of literature is thin. In the next section an attempt is made to determine what is already known about the subject and which processes and stakeholders of accelerators create value for the startups in the programs and the entities with in order to compare this later on with the results from the field study.
2.2.1 Accelerators, an intense startup program
Accelerators, most of them still being startups of their own, are program driven entities that try to create the perfect environment for startups to develop and grow. Startups are provides with their basic needs such as office space, expertise and (management) services (Hoffman & Kelley, 2012). Most of the accelerators are for-profit and take an equity stake in the startups they assist, in return they offer some seed capital. The founders and managers of accelerators are mostly entrepreneurs themselves or
business angels (Cohen, 2013). They select high potential startups in a certain industry or area of interest or expertise (Cohen & Hockberg, 2014). Most accelerators select only 1 percent of all the applications for their program (Kim & Wagman, 2014) and let them enter each program in batches of about 10 startups at the same time (Cohen, 2013). Cohen (2014) find that the American accelerators take on average 6% equity of the selected startups. The selected startups enter the program which has a limited duration of around three months (Cohen & Hochberg, 2014). During these three months, the startups follow an intense bootcamp style program where they are offered lots of educational, mentoring and networking opportunities with peer firms and mentors. During the limited period the startups gets the tools to go through accelerating growth and development to let them fail or succeed early. One of the reasons that the program is of limited duration is that it is such an intense program for the entrepreneurs that they virtually only work and sleep, often seven days a week. This can`t be much longer than three months be done (Cohen & Hochberg, 2014). The bootcamp often include sessions with successful entrepreneurs, program graduates, venture capitalists, angel investors and even corporate executives (Cohen & Hockberg, 2014). During the program market interactions are encouraged in order to test the startups` business ideas and products to let them adapt and grow fast (Cohen, 2013). At the end of the three months program there is a public event called demo day where the startups pitch their business and development during the program to a selected audience of potential investors. These investors are mostly venture capitalists and business angels. The purpose of demo day is for startups to get the attention of the investors to further fund there development and growth (Cohen & Hockberg, 2014).
- 29 - 2.2.3 Value creating aspects of accelerators
Now that we have a general description of accelerators, we elaborate more in this section on how accelerators create value for the startups in their programs, according to the literature.
2.2.3.1 Partners
Accelerators make use of partners and other stakeholders. For the primary funding accelerators rely mostly on the donations or investments of key stakeholders. This can be either government, universities or professional services firms amongst others. The later can also offer free or discounted services to the cohorts of startups. Some partners actively participate in the program by holding workshops for
example. Venture capital firms also partner with accelerators to gain access to promising startups (Caley & Kula, 2013).
2.2.3.2 Network and mentorships
Networking and mentorships opportunities are the most cited benefits of accelerators. Virtually all accelerators state that this is the most valuable aspect for startups in their programs (Hoffman & Kelley, 2012; Caley & Kula, 2013). The network of an accelerator include advisors, ‘entrepreneurs in residence’, partners and service providers (Isabella, 2013). This network is expanded through an extensive mentor program (Hoffman & Kelley, 2012).
Mentors of accelerators include entrepreneurs, representatives of the program`s partners and investors amongst others who commit themselves to an accelerator program as a volunteer and assist the participating startups on an as-needed basis. With the help of mentors, the network of the startups expand rapidly (Cohen & Hochberg, 2014). The network and the mentors help the startups to obtain further funding and provide assistance even after program`s end. High-quality mentorships is invaluable for startup`s success, the success rate is namely highest when mentorship is in play. Most mentors advise the startups throughout the program and provide valuable feedback based on their personal experience as business owners or entrepreneurs (Hoffman & Kelley, 2012).
The selection and organization of the mentor program with an accelerator seems challenging however. Because the mentors are ideally high profile individuals it seems hard to get the commitment of the best suited mentors and get them together at set dates and times (Caley & Kula, 2013). Mentors seems hence an essential part of accelerators and organizing this well should be a primary focus of them.
- 30 -
2.2.3.3 Education
Most accelerators offer their chosen startups an extensive education program to accelerate their development and growth. This education is executed by the directors of the program or guest speakers (Hoffman & Kelley, 2012).
Caley & Kula (2013) find that an accelerator offers an environment where entrepreneurs can learn university style and that this is something that most entrepreneurs really need.
2.2.3.4 Collaboration
Caley & Kula (2013) state that the startups in an accelerator program have the unique opportunity to work closely with a lot of fellow-entrepreneurs and that they benefit from that.
Ecosystem
Accelerator
Startups
Mentorships
- Very important asset of accelerators
- Entrepreneurs, representatives of partners and investors
- Volunteering
- Extensive education, advice and valuable feedback
- Challenging to get the best high profile individuals commitment
External network
- Very important assets of accelerators
Education
- By program`s directors and guest speakers
- extensive program
Partners
- External advisors, entrepreneurs and service providers
- Providing mostly (financial) contributions
Investors
- Business Angels and VC`s - Provide investments for incubatees at Demo-Day and after program
- Financiers of program
Bootcamp program
- Limited duration (3 months) - All basic needs: office space, expertise and (management) services
2.2.3.5 Selection criteria and cohorts
The selection process for the startups in accelerator`s program seems very important for the success of accelerators. Top tier accelerators gets a large number of applications and select less than 1 percent of them, normally around the top 10 most promising startups and those that suits the program best (Kim & Wagman, 2014). The startups in one cohort of some 10 startups develop strong relationships among each other and help each other in their development and growth (Cohen & Hochberg, 2014). Having an
