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PERSPECTIVE

Most startup businesses are doomed

Yet accelerators proliferate and investors continue to chase them in the hope of finding the next big thing.

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In pursuit of potential talent, accelerators send people to trade shows like football talent scouts in parks, looking for category winners.

I USED to have a 1907 photography annual that carried ads for cameras made by hundreds of small British companies. Not many of those nascent tech businesses survived, even if their products were good. It was a fertile age for invention and entrepreneurship, but there is a limit to how much choice consumers need.

I think of that golden era of photography startups when I visit tech incubators - in London, New York, Stockholm, Copenhagen, Berlin, Turin, Hong Kong, even Guernsey. A friend in Nairobi reports that hundreds of new businesses there are striving to be the first African unicorn.

Startup people, mostly under 30, are delightful and inspirational but much like those British, Edwardian photography hopefuls, most of their businesses are doomed. The need for more choice or innovation is ultimately marginal. Yet accelerators proliferate and investors continue to chase them in the hope of finding the next WhatsApp or Uber, even on a tiny Channel Island.

Luke Heron, chief executive of TestCard, a British medical tech startup, has noticed the apparent oversupply. "Accelerators are now ten a penny," he said while enthusing about the Telefónica-owned Wayra incubator in London, where his business has a desk. "They are pursuing startups when you would expect startups to be competing to be noticed."

Mr Heron said his business gets an offer a week from rival accelerators. Elsewhere, accelerators send people to pad around trade shows like football talent scouts in parks, pursuing potential talent.

Accelerators are quite sanguine about the failure rate. Gary Stewart, director of Founders in Copenhagen, one of the more prestigious accelerators, said: "Well, as one investor has said, this is a hits business - the vast majority are going to fail. But the ones that do well make you really, really rich."

He explains incubators' insatiable appetites this way: "It's hard to be agile when you're as big as Telefónica, but if we can find the next WhatsApp or whatever, that can become a new source of revenue. So, yes, every accelerator, every investor is looking for category winners."

Mr Stewart's predicted future stars are: ChargedUp - portable power banks for public places; Trust Elevate - online age verification; and Stasher - offering space in hotels and shops to store luggage while you are out and about in a city.

What is striking about them is that what they offer does not appear to be world-changing but rather about efficiency gains on the margin.

At Founders in Copenhagen, a buzzy, collegiate floor where everyone from owners to startups and resident VCs has lunch together, co-founder Simon Sylvest said: "There's a scarcity of startups with real potential, so we go out and look for people - we don't encourage applications.

"We built the goose to lay the eggs, to find a smarter way to build companies from scratch, and to make that a repeatable process. We are operational as co-founders for each business."

And their successes? Star pupil is a business payment card, Pleo. It is doing well, but arguably tinkering with the fintech status quo rather than disrupting it. Others range from Son Of A Tailor - bespoke T-shirts - to Kontist, a bank account for freelancers, to Reach, an app to connect people to physios.

Jeppe Rindom of Pleo confirmed that Founders approached them. "We thought they were a pure startup studio. But we liked their offering. The alternative was angels and that's a lot more people and personalities to manage."

"They get a fair share of equity in the company, and that's a downside to be honest, but it's very transparent," echoed Christopher Plantener, founder of Kontist. So if you want the model with the studio and all the benefits, you are paying. But it's a good model if you don't have much experience as an entrepreneur."

Richard James of Reach started out in London. "We found Founders a more serious supporter," he said. "We got a sense of dabbling in London. There's more support here because this is a real community." FT