Startups have changed our lives, both the personal and professional aspects of it. On the personal side, they have changed the way we go on vacation, where we stay when we travel, how we shop, or even how we choose and meet our partner(s). On the professional side, we have definitely become more productive and efficient thanks to startups, who have simplified the manner in which we target new markets, recruit employees, advertise, analyze, etc.; basically, every single aspect of conducting business.
There is no precise definition of what a startup is, but we must make a clear differentiation between a startup and a newly established micro or small company/business. Startups are newly established companies (usually less than 5 years old) with replicable and scalable business models, based on innovative and technology related products and/or services. The key part of this definition is the replicable and scalable business model, which means that these businesses can easily and quickly target new and larger markets. These are typically businesses that offer innovative and technology related products and services, which are not capital intensive, hence can penetrate new markets without dedicating large amount of resources. As an example, these are companies such as: Facebook, Instagram, Airbnb, Outfit7, Uber, etc.
There are various types of programs and organizations that provide support to early stage technology and innovation driven companies or startups. However, the most effective programs directly target the reasons why startups fail. According to CB Insights, US based tech-market intelligence platform, the top reasons why startups fail are (in order of importance): 1) No market need 2) Ran out of money 3) Not the right team / team structure 4) Get outcompeted 5) Pricing / cost issues 6) Poor product and 7) Poor or no business model.
Startup / Business Accelerators are organizations which directly assist startups with funding and business guidance. The business guidance or educational component, is usually an intensive three months program, which using international best practices and frameworks, mentors, and experts assist startups to effectively plan their business, and monitor their progress. The funding is usually the earliest stage of funding for startups, or pre-seed round, and ranges from EUR 10,000 to more than EUR 150,000. In exchange for the program and funding, the startups usually give percentage of ownership (equity) to the accelerator. In addition, the role of accelerators is to assist startups to secure additional / follow-on rounds of funding. Startup accelerators have drastically increased the speed of development of startups, and have systematized the manner of early stage funding.
The concept of accelerator was introduced by Y Combinator (www.ycombinator.com) in 2005, by Paul Graham, Jessica Livingston, Trevor Blackwell and Robert Tappan Morris, in Cambridge, Massachusetts, USA. Since then, Y Combinator has invested in more 1,800 companies, including Airbnb, Dropbox, Reddit, Quora, WePay, etc.
Although there is no single model for an accelerator, in general we can group them in four categories:
- General Purpose Accelerator: independent organization which is agnostic in terms of the startups and industries that it targets. However, they all have to be innovation and technology related, and tend to be geographically tied to a particular area.
- Corporate Accelerator: accelerators that are started, funded and/or managed by a large corporation. Corporate Accelerators usually target startups operating in markets of interest to the corporation (examples include HUB:RAUM, accelerator of Deutsche Telekom, and Porsche Accelerator).
- Vertical Market Accelerator: accelerators which only target startups in particular industry, such as FinTech, Life Sciences, Internet of Things (IoT), Blockchain, etc.
- Venture Capital (VC) Backed Accelerator: accelerators that have been established by a Venture Capital organization/fund, in order to help them with their deal-flow (development of investment pipeline).
In 2019, co-financed by the Fund for Innovations and Technology Development of the Republic Macedonia, we have established Business Accelerator UKIM (BAU), with the mission to identify and support the growth of the most promising technology entrepreneurs, startups, and spin-offs in Macedonia. BAU was established by Ss. Cyril and Methodius University in Skopje (UKIM), Crimson Development Foundation (CDF), CEED Hub Skopje, RSM Macedonia, and the Foundation Prof. Dr. Dimitar Stamboliev. The first startup accelerator in Macedonia, combines the expertise and resources of the biggest and most technologically advanced university in Macedonia, a finance fund, financial advisory firm, and other business support organization. Apart from the acceleration program, BAU will finance startups in the amounts of EUR 25,000, and follow-on financing of up to EUR 75,000. BAU targets technology startups at a pre or early revenue stage. These are usually startups that have just completed, or are about to complete their product / service development process.
At BAU, we have just started our first acceleration program for startups. We envision to implement two acceleration programs per year, including two investment cycles each year. For our inaugural acceleration program, out of 40 applicants we selected six startups in the field of big data, IoT, haptic vest, smart wearables, FinTech, and enterprise messaging and management.
Even though there have been many successful companies coming out of accelerators, the reality is that most startups fail. Therefore, when selecting a startup for our programs and funding we must truly be convinced of their business model, team structure, market potential, and scalability. The ultimate goal is to provide enough funding for the startups to reach their next milestone, product revenue or additional investments. At BAU, we will utilize our extensive network of EU investors to help our startups to reach this next milestone.
We hope that this article will inspire some of the audience who have identified a real market need, to work on their ideas and/or product and apply to our next acceleration program in autumn 2019. For more information on BAU, please follow us at: www.facebook.com/acceleratorukim.