How accelerators and incubators can reinvent themselves Revisiting the market for innovation 2019 September January navigating complexityTHE BIG 3 2 Think:Act Revisiting the market for innovation INTERVIEWS WITH EXPERTS AND RECOGNIZED PLAYERS X5 marks how fast the number of accelerators and incubators grew between 2009 and 2018. Page 6 35% of accelerators/incubators specialize in a specific technology, mainly IoT, big data, mobile, AI/machine learning, hardware, and cybersecurity. Page 15 49% of accelerators/incubators offer international programs through partnerships or their own locations abroad. Page 17Think:Act Revisiting the market for innovation 3 “What is the last Google or Facebook that came out of an accelerator?“ is perhaps the question that comes up most often in discussions about accelerators and incu- bators (A personal coaching; networks of partner academic institutions and companies; and fundraising. Incubators enabled the transfer of technologies from publicly funded re- search to innovative startups. However, the early incubators were not sufficiently business-oriented and this led to the growth of busi- ness accelerators. Silicon Valley set the pace in 2005 with the launch of YCombinator, the first seed acceler- ator and which notably supported Dropbox and Airbnb. T echStars then popularized the concept of an integrat- ed program of acceleration, involving a stake in the company's capital. A SHARED GOALS, DIFFERENT MODELS This new form of support for startups, “made in Cali- fornia“, was quickly replicated in other parts of the U.S. and in Europe. There are important geographical differ- ences in acceleration and incubation programs. In North America, Europe, and Oceania there are typically larger investments than elsewhere; and invested amounts in North America are four times larger than in Europe. Finally, accelerators and incubators should not be confused: they operate at different stages of maturity, have distinct business models, have diverse enrollment processes (42% on a rolling basis, 58% through regular intakes), and provide different services. While incuba- tors are based on rent in exchange for facilities and ser- vices, accelerators rely on investment in exchange for equity (usually 7%). Overview of incubators' & accelerators' value propositions.Think:Act Revisiting the market for innovation 5 Source: Roland Berger INCUBATORS ACCELERATORS VALUE ADDED STARTUP RECRUITMENT Cohort recruitment STARTUP RECRUITMENT Rolling basis recruitment MATURITY STAGE More mature stage From efficiency to growth stages MATURITY STAGE Large maturity spread Development from early phases up to growth stage PROGRAM LENGTH From 12 to 24 months PROGRAM LENGTH 3 to 4 months BUSINESS MODEL Rent in exchange for infrastructure and services BUSINESS MODEL Investment in exchange for equity (usually 7%) ACCESS TO ECOSYSTEM/ EXPERTS & MENTORING Intense mentoring Strong access to network experts Not focused on local ecosystem ACCESS TO FUNDING Access to investors (e.g. demonstration day) INFRASTRUCTURE Office space and facilities ACCESS TO ECOSYSTEM/ EXPERTS & MENTORING Strong access to local ecosystem Industry know-how through experts & university connections Light mentoring ACCESS TO FUNDING Access facilitated but not core element INFRASTRUCTURE Office space and facilitiesThink:Act Revisiting the market for innovation 6 Source: Roland Berger Africa MENA Europe APAC Latin America North America 3,000 2,500 2,000 1,500 1,000 500 0 2001 2007 2013 2004 2010 2016 2002 2008 2014 2005 2011 2017 2003 2009 2015 2006 2012 2018 B INFLECTION POINT Openings of accelerators and incubators started surging in 2009. Inflection pointThink:Act Revisiting the market for innovation 7 sovereign funds. The purpose of A&Is, which was to assist in the search for financing, is less clear in the face of new players in this increasingly tense and spe- cialized market. NEW PLAYERS AND AN INCREASINGLY COMPETITIVE, COMPLEX MARKET New players have entered the innovation market, in- creasing its complexity. Accelerators and incubators now have to face new competitors, while preserving their legitimacy. First and foremost, larger companies are now back in the game. Their innovative approach has changed significantly, having been inspired by the startup eco- system, its ideas and methods. Corporate incubators are therefore developing, benefiting from companies' financial strength, expertise, and client bases. Furthermore, some accelerators and incubators have an unviable business model, focused on building a community rather than making money, and are not profitable. Some choose to ignore their apparently use- less graduating businesses while searching for poten- tial gems in the new intake.One reason for the greater tension in the market is that entrepreneurs need less visibility towards and de- velopment by third parties due to increased liquidity in the financing market. The balance of power has changed in favor of startups who can select whichever financiers offer the best conditions. As a result, “off-market“ transactions are sought, and the role of intermediaries is reduced. There are also many more financing players in- cluding business angels, venture capitalists, corporate venture, private banking, private equity funds, and Source: Roland Berger, based on 202 respondents CLASSIC FEATURES OF STARTUP SUPPORT STILL RULE Cash investments and access to machinery or cloud services are less frequent. C Classic features More specialized features Mentoring/coaching Services: Free access to experts Workshops/training Connection to corporates Office space Cash investment Access to machinery or cloud services 96% 90% 86% 86% 85% 62% 51%Think:Act Revisiting the market for innovation 8 Enrollment process # of intakes/year # of startups/intake 1 to 4 intakes/year 5 to 10 intakes/year +10 intakes/year Less than 10 11 to 25 + 25 8% 14% 23% 14% 44% 69% 71% 56% the only fund to make Series C in Europe, is opening its innovation incubator in Paris. Another example is Founders Future (by Marc Menasé, founder of MenIn- vest), which offers dedicated support to entrepreneurs. The offer to startups has become higher quality, which is a positive change. Big companies are not us- ing startups as much to make themselves appear inno- vative, and less mandatory, time-consuming training and networking is imposed on entrepreneurs. Instead there is more support from dedicated teams who have been through the experience of entrepreneurship. In this increasingly mature and high-quality market, ac- celerators and incubators need to develop strategies to stand out. The degree of success has been variable though, and many companies have realized that having a startup in-house is not always the easiest path to disruptive in- novation. But new types of collaboration have ap- peared, such as startup factories and studios, whose aim is to develop truly win-win partnerships between entrepreneurs and large companies, based on each other's strengths (see interview with Tobias Rappers, Spielfeld.) There are also more links with venture capital funds. Choosing relevant projects, providing mentoring and access to a network these services can now be offered to financial operators. More funds are starting their own incubation programs. For example, Partech Ventures, Source: Roland Berger, based on 190 respondents REGULAR INTAKES ACCOUNT FOR THE MAJORITY OF THE ENROLLMENT PROCESS Most intakes occur 1 to 4 times a year for up to 10 startups each. D On a rolling basis 42% Regular intakes per year 58% 1 to 4 5 to 10 +10 79% 14% 6%E BUSINESS MODEL 76% of incubators/accelerators leverage cash investments or fixed fees when integrating a startup in their program. Think:Act Revisiting the market for innovation 9 Source: Roland Berger, based on 156 respondents CASH IINVESTMENT TYPE/FEES Cash investment or fixed fee 76% No cash investment or fixed fee 24% 45% 55% 25% 75% 35% 65% 34% 66% BUSINESS MODEL Fixed equity stake Convertible notes Variable equity stake (% negotiated) Fixed fee for services provided Yes No“While the Thai startup landscape is strengthening with an influx of capital and expertise, there is still a long way to go. We want to see concerted A&I related efforts by private and public players to collectively resolve industry-wide and national challenges. “ Thanasorn Jaidee, President of T rue Digital Park “We take employees out of their existing structures and routines (and comfort zone) and give them a secure envi- ronment to build a product, service, or business model, meanwhile applying new ways of operation, process management and leadership.“ T obias Rappers, Managing Director, Spielfeld Digital Hub “Station F provides a whole startup ecosys- tem under one roof. “ Grégoire Schiller, Founder of Simundia “The best structures attract the best startups, but also keep close links with key investors and corporations. “ Axelle Lemaire, Global Head of T erra Numerata “Entrepreneurs priorities are to satisfy an increasing number of customers, and to finance this development. Their issue is then to expand to compete with other fast-growing technology companies, particularly those in the U.S. and China. Accelerators therefore have a major role in helping them to find new business and raise funds to grow business internationally.“ Guillaume T oublanc, Managing Director France at EIT Digital “We are now entering a new phase in incubation and acceleration. The idea that startups and big companies are worlds apart is definitely behind us. T oday's challenge is creating sustainable and successful alliances involving everyone concerned.“ Marie-Vorgan Le Barzic, Co-founder and CEO of NUMA Think:Act Revisiting the market for innovation 10Think:Act Revisiting the market for innovation 11 Guillaume T oublanc is Managing Director France at EIT Digital. EIT Digital is a leading European digital innova- tion and entrepreneurial education organization. It pro- vides digital innovations to the market and breeds en- trepreneurial talent by mobilizing a pan-European ecosystem of local ecosystems. This comprises Euro- pean companies, small and medium-sized enterprises, startups, universities, and research institutes. How is the acceleration market evolving? The increasing number of accelerators globally has brought some successes. However, the acceleration market is complicated, unclear, and over-supplied. Entre- preneurs therefore tend to be extremely critical of their in-program experience, and of the quality of support re- ceived. Furthermore, the equity model seems out of date because it is untenable. To a certain extent, so is the coaching at the early stage of the startup, as young en- trepreneurs are now fully capable of determining their strategy and business plan, and are extensively helped by different structures. The challenge is therefore to support companies' devel- opment, rather than their launch. Venture capital funds are investing heavily in digital, and accelerators are in- creasingly backed up by funds, which seems more viable and sustainable. In this respect, startup studios are also an interesting development. In any event, the fee-based model is undergoing huge change. Entrepreneurs' priori- ties are to satisfy an increasing number of customers, and to finance this development. Their issue is then to expand to compete with other fast-growing technology companies, particularly those in the U.S. and China. Accelerators therefore have a major role in helping them to find new business and raise funds to grow business internationally. How do you implement all your actions? We focus on accelerating business expansion, including across Europe and worldwide, helping startups to find customers and raise funds to fuel this growth. We are also well positioned in deeptech and we think Eu- rope has strengths in this market, including in artificial intelligence where we see excellent researchers, talent, and training courses. EIT Digital therefore wants to sup- port business initiatives in which European creative and technological strengths can create great companies. While Europe has failed to shift to digital platforms, it can be a leader in deepech, Internet of Things (IoT) and other breakthrough innovation. Public acceleration programs have a role here, since such innovation requires more time to mature, major investment and it is more risky to private investors. As a public organization, we have a neutral approach. Our goal is to create economic and so- cietal impact, so entrepreneurs trust us. Indeed, the search for meaning is important when entrepreneurs choose where to accelerate their companies. Can you tell us about an EIT accomplishment you are particularly proud of? With our help, the French scaleup Metron, a leading pro- vider of artificial intelligence algorithms to reduce the energy consumption of industrial plants, has recently gained funding from investor Breed Reply. Metron is now one of the 20 companies in Breed Replys portfolio of Eu- ropean IoT investments. Since it was founded in 2013, Metron has raised a total of EUR 4.5 million. Guillaume T oublanc Managing Director France at EIT Digital