Innovation & Economic Growth (or: why accelerating startups matters) Chris Haley Head of New Technology & Startup Research, Nesta May 2016

Transcription

1 Innovation & Economic Growth (or: why accelerating startups matters) Chris Haley Head of New Technology & Startup Research, Nesta May 2016

2 Contents 1. Why startups matter 2. Startup support 3. Accelerators

3 About Nesta Policy & Research Help bring great ideas to life Investments Tools & Skills Est by government Now independent Staff ca. 180 people Spend ca. 32m p.a. Practical Programmes ( Lab )

4 Innovators Non-Innovators Innovators Non-Innovators Innovators Non-Innovators Why innovation matters UK Economic growth Revenue growth, percentage/year Source: Nesta Innovation Index (2010), The Vital Six Per Cent (2010) 4

5 Why startups matter Net Employment growth rates by surviving firms, Source; Criscuolo, C., P. N. Gal and C. Menon (2014), "The Dynamics of Employment Growth: New Evidence from 18 Countries", OECD Science, Technology and Industry Policy Papers, No. 14, OECD Publishing, Paris. DOI: 5

6 Why startups matter Source: Nesta analysis using ONS Business Structure Database

7 Nesta s work on Startup Support AccelerateUK Capacity Building in Colombia 7

8 UK Startup Support Landscape (simplified!) VCs Gov. Grants Angel investors Investment Marketplaces Hackathons / Startup weekends Meetups Startups Accelerators Incubators Foundries / Studios Co-working spaces Social Vent. Academies Makerspaces IPO HEIs TTOs AUTM PraxisUnico Corporates BVCA BBB BBVA CfE BBAA 8

9 Emergence of the Accelerator model Founded March 2005 by Paul Graham, UK programmer in US who made software to help entrepreneurs open online stores (Viaweb) $50m exit; gave seed money to hackers Premise: open-source software + falling hardware prices digital start-ups becoming cheap to finance It's like Rob De Niro wants to start an acting school : >200 applicants for 8 places Quickly repeated & replicated Now give $120k in return for 7% equity Funded >500 startups (inc. Airbnb, Dropbox) start.html

10 Within 5 years Numbers = firms accelerated as of Source: Nesta

11 Within 10 years Source: Nesta 2014 using data from Seed-DB 11

12 This is a growth phenomenon Massive explosion in number of entities calling themselves an incubator (<100 in 1980s >8000 globally) & accelerator (1 in 2005 >650 in 2015) Total number of incubators and accelerators in 10 survey countries Sources: Telefonica Global Affairs & New Ventures 2013; Barrow 2001; Nesta 2011; ANDE 2015

13 Nesta s definition 1. Cohorts or classes of startups rather than individual companies 2. An application process that is open to all, yet highly competitive. 3. Provision of pre seed investment (around 10k to 50k), usually in exchange for equity. 4. Time limited support, usually between three to six months, comprising programmed events and intensive mentoring. 5. A focus on small teams not individual founders. Source: The Startup Factories, Nesta 2011

14 Accelerators vs. Incubators INCUBATORS ACCELERATORS Targeted at local startups Cheap rental space Mentoring Technical assistance Fixed term Cohort-based Culmination in Demo-day Seed-funding? Source: Dempwolf et al. (2014)

15 Accelerators vs. Incubators & other startup support Source: Dee, Gill, Weinberg & McTavish (Nesta 2015a)

16 Accelerator Trends 1. Growth: explosion of numbers variation in services & quality (a few appear quite predatory) 2. Diversification: along several dimensions, including Mission, Specialism (e.g. digital social, health, education, pharma, building, gaming, fintech, IoT, eye-care!) 3. Funding Structure: More corporates & zeroequity models downwards pressure on rest of industry. Also publicly-funded & hybrids. 4. Experimental Models: Virtual accelerators, Highly compressed courses, pre-accelerators, startup weekends, etc. 16

17 Do accelerators work? What is the success metric? (esp. if accelerator is non-profit?) Follow-on funding received / market cap of graduates? Number of unicorns / high-value graduates? Ecosystem development (how measure)? Exits by graduates - number or value? Survival rate (after how long)? Satisfaction of graduates? ROI for funding VC? 17

18 Do accelerators work? (Answer 1/4) If the accelerator provided no funding to your company at all, how much equity would you give them just to go through the program? Survey answer: 21% of startups would allocate no equity; 55% of startups would allocate 1-6% equity, even without funding. Most valued components: Mentorship / Coaching / Feedback (>80% ) Network / Alumni / Prestige (>80%) Investment & Financial benefits (>30%) Connections to investors (>30%) Source: Jed Christiansen for Accelerator Assembly, based on suggestion from Ian Hogarth 18

19 Growth Do accelerators work? (Answer 2/4) accelerated ventures grew revenues at a rate (+36.4%) that was roughly three times faster than the ventures that applied but were not accepted... Employee growth was also roughly 3x larger. Source: ANDE/ Emory - Entrepreneurship Acceleration Research Initiative (2015) Temporary value Long-term value added Life support Original growth path Time Nesta 2011

20 Do accelerators work? (Answer 3/4) First, the rate that companies get acquired after completing top tier US programmes is higher than the average rate of US VC backed companies. Second, companies from top tier accelerators are likely to see earlier exits than the average VC backed company. Acquisition rate Source: Michael Birdsall, Clare Jones, Craig Lee, Charles Somerset and Sarah Takaki, University of Cambridge,

21 Do accelerators work? (Answer 4/4) Average Survival Rate of Startups Source: Michael Birdsall, Clare Jones, Craig Lee, Charles Somerset and Sarah Takaki, University of Cambridge, 2013 But do they create success or just select for it (or both)? If former, how much is due to signalling effect? 21

22 What activities do we know make a difference? 1. Building social capital: building connections, credibility [Gonzalez-Uribe & Leatherbee] 2. Peer learning: collaboration and competition with cohort. [Cohen] 3. Time to work alone: putting learnings into practice; not [GALI] 4. Structured Accountability : holding founders to their own plans [Gonzalez-Uribe & Leatherbee] 5. Mentor & Director expertise: Not all programmes are equal! [Cohen] 22

23 Do accelerators work? Nesta Standards of Evidence Source: Puttick, R. and Ludlow, J. (2012) Standards of Evidence for Impact Investing. London: Nesta GALI 23

24 6. Concluding comments It is worth supporting startups! There is limited evidence of accelerators impact on startups survival, growth, acquisition. Not all are equal due diligence required Variance in quality, mission, funding structure Trends in specialisation, corporate involvement Also new emerging funding models some likely unstainable Unproven models and unproven impact bubble, fashion, or just need for more research? Participate in RCTs! Share data!

25 Further Reading Yael Hochberg, "Accelerators and the Regional Supply of Venture Capital Investment Jonathan Ortmans, "A Hard Look at Accelerators" Brad Bernthal, University of Colorado at Boulder "Investment Accelerators" Susan Cohen, University of Richmond "Do Accelerators Accelerate? The Role of Indirect Learning in New Venture Development" Gonzalez-Uribe, Juanita and Leatherbee, Michael, Business Accelerators and New-Venture Performance: Evidence from Start-Up Chile (August 26, 2015). Available at SSRN: Ian Hathaway (February 2016) Accelerating growth: Startup accelerator programs in the United States; Brookings: Global Accelerator Learning Initiative (GALI): What s Working in Startup Acceleration: Insights from Fifteen Village Capital Programs (March 2016):

26 Thanks for listening uk.linkedin.com/in/cdhaley 26