Corporate accelerators are putting ambitious entrepreneurs in touch with big firms, but not all relationships succeed
There was a time when traditional corporate juggernauts, fearing that their most creative days were behind them and that they could be left behind, had an easy solution. They simply bought their most promising competitors. In today’s fast-moving world, however, those companies are opting to press the accelerator pedal.
In a growing number of “corporate accelerators”, big businesses are offering investment and guidance to start-ups in the hope that some of the bright ideas and energy of young companies might rub off. Government research published in April found that there were 163 such accelerator programmes operating in Britain, with most relying on corporate sources of funding. Big hitters as varied as Microsoft, William Hill, Aviva and News UK, publisher of The Times, have all tried their hands.
The vast majority of accelerators have been created since 2011, with April’s report noting that the trend for “corporate-funded accelerators appears to be growing very rapidly”.
Others are noticing the same trend. According to Beauhurst, a research company, 2,861 start-ups have taken part in such a programme since 2011. A concept that barely existed six years ago has become so widely adopted that those in the industry are expressing concerns about the quality of some of the initiatives, as well as the motivations of some sponsors.
“The market is saturated with programmes that really aren’t very good,” argues Stuart Marks, a technology entrepreneur who has run accelerator programmes on behalf of household names including John Lewis, William Hill and Bupa.
“There aren’t enough programmes where corporates with the right mindset come together and produce proper results. A lot just provide desk space with a bit of mentoring thrown in, but there are no tangible results. Sometimes it’s just a box-ticking exercise because it’s cool to be seen working with start-ups, but there’s no real support and the programme just drifts.”
Joe Scarboro has set up Touchpaper, a not-for-profit organisation that provides guidance to help big business and start-ups to work together more effectively. He says the increased interest that giant companies have shown in start-ups in recent years is “net positive . . . The more people working in innovation with start-ups, the more seriously it is being taken.”
Mr Scarboro, 38, believes that there is a mixture of motivations for corporate sponsors of accelerators, but notes that “more than half have some sort of public relations element to them. It might be because they need to be seen to be doing something innovative to retain staff. If, say, Barclays has an accelerator, another retail bank might say, ‘We need to be doing something.’ There’s a bit of a ‘me, too’ approach and that’s why the quality of programmes varies.”
Despite the distinct sound of bandwagon-jumping, Mr Scarboro does not believe that any accelerator is established “solely for PR. They hope to find something disruptive out of it, to find new revenue streams, as well as get some PR and improve staff retention.”
Accelerators certainly have the potential to provide a powerful launch pad for emerging companies, with the opportunity to secure funding, valuable introductions, expert guidance and sometimes a famous customer or two. Wrisk has created an app that it hopes will be used by consumers for all their insurance needs, from motor to travel, home to health. It has secured partnerships with giants including Hiscox and BMW and has just launched a £500,000 crowdfunding campaign on the Seedrs platform.
This year the company took part in a ten-week accelerator programme run by BMW Financial Services UK, the financing division of the German automotive group, and L Marks, Mr Marks’ business. Wrisk was given access to BMW’s senior management and sales, technology and support teams to help to develop its business models and is in talks over a funding round.
Darius Kumana, 44, co-founder of Wrisk, admits to having held reservations about joining the scheme: “I wasn’t enthusiastic we’d get much out of it. As a start-up, you’re focused on the goal directly in front of you. I was concerned this would be a distraction. I’m happy to say I was proved massively wrong. Not only did we get to understand fundamentally where the automotive industry is going, it was transformational in our whole ‘go to market’ approach.”
L Marks’ work with John Lewis has seen the retailer buy equity stakes in an eclectic batch of start-ups, working on projects ranging from home furnishings to wedding lists and using social media as a shopping tool. The most recent graduates of the 12-week JLab programme include Wefifo, a “sharing economy” start-up that allows home cooks and professional chefs alike to turn their kitchens and living rooms into pop-up restaurants.
Alex Wood is another happy accelerator customer. His online publishing start-up, The Memo, is based at the London office of Wayra, an international accelerator programme established by Telefónica in 2011. “Being surrounded by like-minded entrepreneurs and experts has transformed my business. I feel like I’m part of an elite business bootcamp where everyone has similar goals and dreams and that energy rubs off on you.
“I’ve moved around countless accelerators and shared workspaces and what sets Wayra apart is the network. In a typical month we get visits from the Cabinet Office, international delegations from other start-up hubs and even the occasional visit from the Duke of York. You can’t put a price on connections like that.” Then again, “in the past five years, there have been countless start-ups chewed up and spat out by badly run schemes”.
The Memo reports on the technology industry and Mr Wood noted last year that the “corporate accelerator had become the must-have accessory for big brands”. Since then, however, “the market has continued to become saturated with ‘me-too’ accelerators that offer little to start-ups”.
Mr Wood says that one of the consequences is that there are not enough high-quality mentors to go around. That has led to “mediocre and sometimes damaging advice being given to start-ups”. Other programmes simply prove to be a waste of time: “The first few years of building a business are critical, yet I’ve seen countless examples of start-ups being treated like a petting zoo, with unreasonable demands placed on their time to give ‘innovation workshops’ to corporates with little tangible benefit [in return]. These examples don’t happen everywhere, but they are becoming increasingly common.”
He advises that companies should scrutinise any offer from an accelerator “with a fine toothpick”. The Memo didn’t give up equity to join Wayra, but that is far from the norm. “Don’t be afraid to negotiate the terms — big businesses aren’t charities — so check the initial offer doesn’t mean you end up giving away a chunk of your company. If you’re building a genuinely solid business, the right accelerator should want you as much as you want them.”
Mr Scarboro says that he, too, has seen “bad deals” emerge from accelerators, sometimes relating to aspects such as exclusivity clauses and intellectual property rights. He is hoping that accelerators will become “less trendy”. “Over the next few years we’ll see people learning from their mistakes and the quality of the programmes will increase.”
How to spot the good, the bad and the ugly
Neeta Patel, a former private equity, insurance and media executive, has seen it all when it comes to big business cosying up to start-ups.
She recalls working for Legal & General in the 1990s when “people were jumping at web start-up companies” as the dotcom bubble inflated. “We set up the first new media incubator in an insurance company. It was, ‘Let’s do it and let’s be seen to be innovative’. ” The enthusiasm waned when the bubble popped around the turn of the century.
Ms Patel is now chief executive of the New Entrepreneurs Foundation, an organisation that works with bright young adults to equip them with the skills to build ambitious businesses. She is lukewarm about the recent rise of corporate accelerators, saying that it is a case of “the good, the bad and the ugly”.
Neeta Patel advises that entrepreneurs choose carefully
“I know a lot of corporate accelerator people and I always ask, ‘What are you trying to achieve?’ In the early days, it was, ‘We have to be seen to be doing this or our smartest people will leave us.’ A lot of financial services companies are doing it to keep an eye on the competition.”
With another lumbering corporation announcing a new accelerator programme “every week” at the moment, she says that the schemes can “suck some of the energy out of the start-up ecosystem”.
However, she adds: “I’ve seen more soul-searching recently over what the value that a corporate can bring. Three, four years ago, companies were doing this as a PR exercise. That approach is dying and that’s a good thing.”
She says that the crowded accelerator landscape can be confusing for companies to navigate, but notes that the right placement can help a company to get off the ground. “The smart ones do it to extend their runway and their connections and hopefully learn if their business has legs or not.”
Her advice? “Go for one that works in your sector and go in with your eyes open. What are you giving up to participate, and what do you expect to get back in return?”
