Could corporate accelerators emerge as winners?

ACCELERATORS are playing an increasing role in the startup communities globally, and South-east Asia is no exception. There is considerable potential for accelerators to benefit startups, but this varies significantly depending on each accelerator programme.

Over the past five years, I have gone through a total of six accelerator programmes for the two startups that I founded. (My current startup Pand.ai specialises in conversational artificial intelligence, or AI, for financial services). These experiences took me to six different markets, namely China, Switzerland, Malaysia, the United Arab Emirates, Thailand and Taiwan.

Participating in these programmes was part of my market entry strategy, and I conscientiously avoided those that offered to provide seed capital in exchange for a minority stake. My experience has been mostly positive, and I hope to offer some practical advice to startup founders looking to join an accelerator.

Startup accelerators differ from other institutions supporting early-stage startups as they offer education, mentorship and financing for a fixed period of time. The aim is to jump-start the life cycle of these young companies, and compressing knowledge and experience into just a few months.

In general, there are currently three types of accelerators operating in South-east Asia: micro-venture capital (VC) funds, bridging platforms and corporate accelerators.

1. Micro-VC Funds

Startup accelerators are an imported construct from the US, and it is still a relatively foreign concept in South-east Asia. Early startup accelerator programmes were modelled after the Silicon Valley-based Y Combinator, the legendary accelerator that produced unicorns such Airbnb and Dropbox.

Operating like a micro-VC fund, they selected early-stage startups or individuals and offered to invest a token amount, usually ranging from US$20,000 to US$120,000, in exchange for about 6 per cent to 8 per cent in equity.

Besides financing, founders who attended these accelerators were also provided with mentorship and education. This was to prepare them for a "demo day", where startups would be showcased to potential investors. Once startups have raised follow-on funding, these accelerators can make a successful exit.

Personally, I find that business-to-consumer (B2C) startups usually benefit more from this particular accelerator. Although there is nothing wrong with its business model, it requires the accelerators to have strong operators that can coach inexperienced founders.

While Y Combinator was started by the serial entrepreneur Paul Graham and later run by another successful serial entrepreneur Sam Altman, most accelerators of this kind in South-east Asia are run by civil servants, corporate citizens, financiers or unproven entrepreneurs with little successful experience to draw on.

As these accelerators in South-east Asia tend to lack experience and strong operators, it is best to view them purely as financial investors to help startups off the ground.

2. Bridging platforms

Bridging platforms are independent accelerators with the main aim of linking sponsor corporates, who have a problem or challenge, with startups that may have a suitable solution or product. These accelerators market themselves in their own brand and encourage startups to apply to their programme, before choosing those that are the best fit for their sponsors.

Therefore, they typically look for more mature business-to-business (B2B) startups, which tend to come with the experience and knowledge to put sponsors more at ease in using their proposed solutions. Occasionally, B2C startups are accepted as there are potential partnership opportunities with the sponsors.

Bridging platforms are great for B2B startups because direct access to the sponsor's senior management is often granted, therefore shortening the business development cycle. However, the sponsors of these accelerators in South-east Asia are often first timers and may not have concrete problems to solve.

Therefore, startups may not be able to fix a problem that has not been clearly identified. The operators probably won't be able to help to close the gap either, as they are unlikely to be domain experts - especially if the accelerator is industry-agnostic.

3. Corporate accelerators

Corporate accelerators tend to start off as vanity projects within large corporates, and are often part of innovation labs. These types of accelerators are often seen as a win-win, as corporations possess the resources that startups need, while startups have the innovation and ideas that corporations value.

Earlier corporate accelerators often had the budget to run a proof of concept (POC) but insufficient money or authority to follow through with an implementation. Oftentimes, a POC facilitated by the corporate accelerator is only the beginning of the sales cycle, and another six to nine months - or longer for some cases - of resources is required by the startup to sell the product to another department within the same organisation that has an actual use case for the solution. Corporate accelerators can be run independently or in collaboration with professional accelerator operators.

From all the accelerators I have participated in, the corporate accelerator's rate of maturity is probably the fastest of all. There is tighter collaboration between the corporate accelerator, or innovation lab, and the various business units that will be the ultimate buyers of the startup's solution.

This means that corporate accelerators are now playing the role of the facilitator, bridging startups with internal business units. As a result, the POC is often built and paid for by the business units, which opens up a direct pathway for startups to sell to corporates while aligning with the interests of every stakeholder.

The future of accelerators

In the short to medium run in South-east Asia, micro-VC funds will find it challenging to compete as the ecosystem continues to mature. This is because of the increasing cash grants programmes from various official bodies - that is, government grants in Singapore and China that offer funds in the range of US$36,000 to over US$120,000 - that are very competitive compared to those of a micro-VC. In addition, grants within this range from government bodies don't require founders to give up a 6 per cent to 8 per cent equity stake.

Similarly, independent bridging platforms will struggle as information asymmetry reduces between sponsoring corporates and startups. As mature startups become increasingly well-known, they have the resources to reach out to corporates independently which will eventually eliminate the need for bridging platforms to connect both parties together.

That leaves corporate accelerators as the likely main stayer here. Large corporations often lack the time and budget to solve a myriad of problems themselves in a more traditional way, and working with startups in the corporate accelerator environment will help get their solutions out in the market in a timely and usually affordable way.

With this in mind, it is likely that large corporates will invest more resources into running corporate accelerators, as they gradually move from being vanity projects to solving actual business problems.

Moving forward

In the coming years, we can expect to see more corporate accelerators emerging across South-east Asia, while witnessing a decline in both bridging platforms and micro-VC accelerators. Indeed, a number of accelerators such as JFDI are shutting down, while more large companies are starting their own accelerator programmes, such as Bangkok Bank's Innohub and SAP.IO Foundry.

Through these corporate accelerators, large corporates can engage with innovative B2B startups for solutions that solve their business challenges directly. This is not unlike the traditional vendor-client relationship where large corporates pay for the products or solutions offered by these startups. Value is created, as accelerators make a positive impact in the startup ecosystem in South-east Asia and around the world.