3.3 Dilemma 3: finding support

Your idea may require you to take on premises and employees from the outset. However, for many small businesses and start-ups, their growth will be more gradual until they literally outgrow their own resources.

The entrepreneur community is known for the concept of ‘paying it forward’ – in other words, recognising the help, advice and support they have received personally, they are willing to provide the same for others. In this spirit, a growing number of organisational opportunities have arisen for entrepreneurs and investors to step in to provide an infrastructure that brings together entrepreneurs in the early stages of their ventures, and start-ups, usually supported by a programme to help them grow. There are a variety of set-ups and models for these, including incubators, accelerators and co-working spaces.

Incubators, which are typically physical work spaces, may also provide training, mentors, access to commercial networks and equipment. They may be rent free, or charge rent or even a membership fee. Often they may have a particular sector focus (e.g. biotech). Many are aligned with universities or enterprise development agencies.

Accelerators are a slightly different concept that appeared more recently based on the original ‘Y Combinator’, which is a US-based programme that began in 2005 to support digital start-ups.

Watch Video 3, which describes a range of providers of accelerators run by Barclays, Lloyds of London and Microsoft, based in London.

Download this video clip.Video player: Video 3

Show transcript|Hide transcript

Transcript: Video 3 What are accelerators?

[MUSIC PLAYING]

[TEXT ON SCREEN: What are accelerators? How does your programme work?]

CHRIS ADELSBACH:

Techstars really invented the modern accelerator back in 2006. It's a 12 week programme, broken into three parts. The first part is all about mentorship. The companies get to meet about 100 amazing mentors that range from, in terms of fintech, ex-bankers, lawyers, entrepreneurs, investors. The second part of the programme is all about traction. This is actually getting out and actually doing deals. And the third part of the programme is about story. And this is about getting yourself ready for demo day, investor day.

KIRSTY RUTTER:

Barclays are involved with Techstars because they give us access to a phenomenal global startup community. They give us access to an amazing mentor community, too. And that helps us build partnerships with startups to solve real banking problems and provide new opportunities.

JESS MCGAHAN:

At L Marks, we run a range of different programmes across sectors with large corporates. And we help them find interesting startups that are meeting their business needs and help them to work together effectively. An example of one of our programmes is the Lloyd's Lab. And that's our programme run with Lloyd's of London. It's focused on insurtech. And we'll be bringing 10 startups into a 10 week programme to work closely with just Lloyd's and the market participants to bring new innovations to life.

KEVIN MONSERRAT:

We have one programme for early stage businesses, which we offer $25,000 of free credits of Azure. And then we have a more hands-on programme, which is the Microsoft Full Scale up Programme, which is divided into two pieces. The first piece is four month full-on Programme, whereby we help the businesses to understand how to leverage the Microsoft network. And the second pillar of our Programme is to actually create sales distributions for those businesses.

[TEXT ON SCREEN: What kind of businesses do you support?]

KIRSTY RUTTER:

So the businesses we support through the accelerator are very diverse. They range from those who are absolutely on point to deliver our strategy, be that our internal strategy or our client strategy, and then there are those teams who give us an opportunity to be more efficient in the way we do things, be those, for example, in HR tech, from an internal development point of view. And we've even had examples where we've gone into renewable energy, and it supports our green agenda.

KEVIN MONSERRAT:

So the type of businesses we support are typically B2B enterprise software, mostly focusing on deep technology. Our particular idea is to understand the complexity of their business from a technology angle.

CHRIS ADELSBACH:

We support businesses within health tech, within regtech, within fintech, sustainability, smart cities, mobility, a whole variety of important themes. Within my world of fintech, we support payments, regtech, companies that are using AI and blockchain. Provided that it's a great team that are solving big, important problems, we try to support them.

[MUSIC PLAYING]

[TEXT ON SCREEN: How is your accelerator model different to others?]

JESS MCGAHAN:

Each Programme is sponsored by one corporate partner. And we're looking at finding solutions that meet that specific partner's innovation agenda or business challenges. So a startup joining our Programme is going to get a deep dive into that one business with a view to actually working with them in a commercial sense.

KEVIN MONSERRAT:

We are only helping the businesses with technical support. So they can leverage our technology. And we create sales distributions for our startups.

CHRIS ADELSBACH:

We're an investor. We run a $420 million fund. We're on fund four. We have had 165 exits. And amazingly, 90% of the companies that we've invested in, over an 11 year period, remain in business.

[MUSIC PLAYING]

[TEXT ON SCREEN: How can start-ups prepare themselves to be successful in an accelerator?]

KEVIN MONSERRAT:

So startups are preparing themselves by ensuring that they articulate their value proposition clearly. They have a clear growth plan and growth strategy. They have understood what we stand for and the duties and rights of leveraging our Programme. And basically, they also have to be fully scalable businesses. Because what we are doing here it's taking the businesses to other continents.

CHRIS ADELSBACH:

In order to give yourself the best chance to be accepted onto our Programme, it's all about forming a great team. Most people would have an MVP, Minimum Viable Product preprogram. And that's because the partner we work with wants companies to be close to or at enterprise ready capability.

JESS MCGAHAN:

Make sure the right person from your team has enough time to engage with the Programme. Be flexible about your thought process and your ideas. Don't think you know all the answers. And be open to listening. You'll get so much input from so many different people when you're on a Programme.

KIRSTY RUTTER:

I guess the winning candidates for the accelerator are invariably differentiated by the founder. The founder, and usually founders, are energised. They have vision. And they have clarity of purpose.

[TEXT ON SCREEN: What advice would you give to start-ups on finding the right programme for them?]

JESS MCGAHAN:

There are loads of startup accelerator or growth programmes that a startup could think about joining. And it can be quite difficult to identify the right one for you. My advice would be think about what your business needs at that point in your journey. And look for the Programme that's going to provide that opportunity for you. That might be breaking into a new industry with new clients by going to an industry focused Programme. It might be finding funding by going to an investment focused Programme.

KEVIN MONSERRAT:

I always recommend them to understand the business model of the incubators and accelerators, because they will tell you a lot about how they're going to be able to help you.

[MUSIC PLAYING]

[TEXT ON SCREEN: How would you define success for start-ups on your programme?]

The way startups qualify their success is on profit and revenue. And our Programme has a direct impact on their revenue lines, because we take the business in front of customers in a very programmatic way.

JESS MCGAHAN:

Success for startups on our programmes is all about how far they're able to secure a commercial relationship, or an investment relationship, or both with the corporate sponsor on that lab.

End transcript: Video 3 What are accelerators?

Download

Video 3 What are accelerators?

This model of support to start-ups has been replicated all over the world. In addition to the developmental support, accelerators are more focused on and involved with investment and the potential for high growth. For this reason they are more selective and they tend to bring start-ups on to the programme in cohorts, with the aim of developing their business plans, prototypes and pitch to investors. The programme may last anything between three and 12 months. The involvement of investors means that they will usually seek equity in these companies rather than requiring a fee. There may also be mentorship, training and even seed funding (the initial investment) to get the business up and running. Some provide physical workspace and others provide services only. Figure 3 shows the location of accelerators and incubators in the UK.

Figure 3 Location of accelerators and incubators in the UK (NESTA, 2018)

Show description|Hide description

This figure shows two maps of the United Kingdom. One shows the location of incubators and the other shows the location of accelerators.

Figure 3 Location of accelerators and incubators in the UK (NESTA, 2018)

Co-working spaces are simply that. Beyond a place to work and be in contact with other companies or similar organisations (e.g. some are run as social enterprises) these provide access to networks, and sometimes events and other opportunities to participate in publicity events.