STARTING POINT

The trouble with narrowly backed startup accelerators

STARTING POINT

The trouble with narrowly backed startup accelerators

5 -min read
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5 -min read
Listen to this article

The spotlight on South-east Asia’s startup ecosystem has never shone brighter. Startups have mushroomed in every corner of a region that has attracted record levels of venture capital and private equity investment, and that is expected to produce at least ten unicorns within the next five years. The pace of such development owes mainly to the convergence of several market conditions such as young and tech-savvy populations, robust regulatory support and not least, the glut of startup accelerators which have sprung up to bolster the ecosystem.

There are 53 active accelerators headquartered in the region, all looking to identify and support ambitious founders in transforming their ideas into the next multimillion-dollar and globally significant company. Yet, for every new accelerator program that launches with fresh capital to stoke the boom, just as many seem to be closing their doors with alarming frequency. In Singapore, the recent exits of JFDI and Telstra’s muru-D have raised questions about the viability and sustainability of such models in the region. Is there a replicable model to Y Combinator’s legacy of success?

There are two main models of accelerators in the regional ecosystem:

  1. Self-financing programs like JFDI, and similar programs like Y Combinator and 500 Startups in the United States; and
  2. Corporate programs such as muru-D and many others.

Each has its strengths and weaknesses.

Self-supporting programs have historically experienced a cash-flow challenge. Can their portfolios quickly produce enough exits to reinvest into the program? Even then, the proceeds might be in stock, which cannot be used to cover the requisite overhead costs of running the program. The runway is often shorter for independent programs, which may revise their terms to be less founder-friendly, relocate to a smaller space farther from attractive areas or take other measures to narrow the gap. While these steps might preserve enough operating expense to sustain the program for a little longer, they also create a negative feedback loop whereby lower quality startups apply to and are admitted to the program, thus diminishing the odds for exits, and so on. At some point, it collapses in upon itself, and the doors close.

However, self-supporting programs do not have to concern themselves with corporate alignment and can remain vertical agnostic. They are able to create more innovative cohort groups comprising diverse founders and startups. They also enjoy the advantage of not constantly having to worry about how well their corporate sponsor is faring. In a sense, they operate more like startups themselves, which offers advantages such as nimbleness, independence and program innovation. Consequently, startups generally enjoy a better experience in these programs.

Corporate accelerator programs tend to have very different problems. Rather than a slow drain of cash, leading to death, these programs need to strike a balance between nurturing startups and ensuring that the sponsors are receiving sufficient value for their investment. As a result, participating startups may have to deal with exclusivity clauses, interference from corporate staff and events that prevent them from focusing on their business. The investment terms are often not as attractive to the best startup founders, creating a negative feedback loop similar to the one for independent programs. In many cases, there is also minimal real access for startups to the corporate sponsor.

At Accelerating Asia, we believe there is a need to break the typical accelerator model that often gives rise to competing interests through the reliance on a single source of funding. Operating independently allows us to better align our outcomes with the startups we work with and ensure our founders will always be our priority from day one. We also work with governments and organisations to design and manage effective startup engagement programs.

The crux of Accelerating Asia’s model is an ecosystem built around the core accelerator. The core programme attracts quality startups, which in turn draws top investors and mentors. Connected into this core are the other programs that we design and run in partnership with organisations looking to build a valuable platform for startup engagement. These programs add their own high-quality startups, mentors and investors that can be shared across the ecosystem.

By designing and running startup engagement programs for our partners, we generate revenue that we can use to diversify the income streams and invest in resources that benefit the AA ecosystem as a whole as well as each individual program. Most programs in South-east Asia are "putting all their eggs in one basket", which is inherently risky should the sponsor change tack.

The high quality of Accelerating Asia’s first cohort speaks to the success of the program. These 10 teams all have revenue and customers with aggregate monthly revenue exceeding S$100,000, had raised more than S$1 million in investment prior to joining and have raised more than S$1 million in the first six weeks of the programme.

South-east Asia’s thriving startup ecosystem is developing at an incredible pace and as startups and investment activity continue to grow exponentially, so too must accelerators evolve to meet these new challenges head-on. A little over a decade ago, accelerators were merely a foreign concept viewed by investors as an unproven, complicated model. Today, scaling a tech community to a critical mass without accelerators in place as enablers is almost unthinkable.

In a region as complex and disparate as South-east Asia, success is also often predicated on the compatibility between startups and accelerator programs. This requires a fundamental shift in the operating models of existing programs that often focus on identifying the best but not necessarily the right founders. To this end, independently run accelerators can offer a glimpse of the way forward and propel the next wave of successful startups.

  • The writer is the co-founder of Accelerating Asia, a startup accelerator.