Whats the Future for Startup Accelerators?

So those of us involved in the world of venture accelerators (Propeller Venture Accelerator) are used to telling our startups that they need to ‘pivot’ but there may be a case for ‘physician heal thyself’ coming in our own sector. The line between competitions, incubators and accelerators are becoming blurred. If you look at global competitions like General Electrics Ecomagination or Mass Challenge, you can see that there are similar treads to what incubators used to do during the dotcom period (anyone old enough to remember Ant Factory or Gorilla Park?), and what Accelerator’s do now.

So what are the trends coming through?

1. In the Venture or Seed Accelerator sector you are now seeing the venture capital and angel investors react. Techstars, our friends through the Techstars Network, have just raised $8 million to continue their four city acceleration program for the next few years, backed by angels and early stage funds. But there is also no doubt there is nervousness about pre-money valuations from early stage investors, particularly with some of the rapid-rise-to-valuation of the likes of Groupon, or the never-ending rise in Facebook. Every startup or indeed the vast majority will not get there. But their founders might think so (founder syndrome which in itself creates a type of bubble mentality). See last point in the list!

2. The Good News: with the huge amount of cash on-hand with US companies, and the continued issues with many of them in terms of internal revenue-generating new ideas (we are looking at you, Google), these two issues will continue to fuel the early stage buying frenzy that makes accelerators a decent enough bet. As the Technology Cold War continues to heat up (legal swipes and moves like Google +1) there will to be a race to find the next big thing, bought early.

3. But….it is all about two factors – the right mentor group and the right group of companies. Many accelerators are taking on 10-15 startups at a time. And there are multiple accelerators appearing in different cities. Is the continuous high quality deal flow really there? Having looked at some recent startup lists of accelerators in the US, I am beginning to doubt it a little. Particularly if your accelerator is Web 2.0 only.

4. More corporate involvement. Last week BMW announced a new incubation facility to open in New York. And a $100 million fund to back it up. So, this must be in alternative energy , right? Wrong, it is in the mobile space. Go figure. Or ‘individual mobility solutions’ as IBM puts it.  To be honest as the story came out on April 1st I thought it might have been a joke. But this new play, BMW i Venture, seems a serious one for the car maker. The focus is on solutions which will improve usage of existing parking spaces, as well as intelligent navigation systems with local information, intermodal route planning, and premium car-sharing. New York-based My City Way is the first company in which BMW i Ventures has taken a stake. As a mobile app, My City Way provides users with information on public transportation, parking availability, and local entertainment for over 40 cities in the US. The company plans to expand its services to Munich and other major European cities.

I think we will see more vertical plays in the acceleration/incubation space, in more specific areas, with corporate backers. These backers will probably get first look and probably have an investment priority with the new startups. And possibly pre-money valuation ceilings too.

5. Money but a Valuation Ceiling. A new fund (End Fund) announced in the US backed by some serious angel investors have offered $1 million to the first 100 startups to apply (this story appeared in Techcrunch, I presume it is $1 million across the 100 startups, unless this is an April Fools!), but and it is a big but the next round of financing cannot be closed at a pre-money valuation of more than $4 million AND the startup is only permitted to raise equity in the future from the funds and individual angel investors involved with End Fund. This is obviously designed to put a stop to rising valuations by US West Coast companies (we don’t that big a problem in Europe at this point). So this takes up back up to point number one. These things are happening and some are good for startups and some are bad. Trends will come and go, and Accelerators themselves will change.

So the bottom line is this – the Accelerator model is hitting maturity in 2010. At least the first blossom of adulthood. It will continue to develop and will shape the other complementary areas around it like incubation, venture capital investing and corporate involvement in innovation.

Tech Cold War Heats up – Google Takes on Groupon

So the virtual cold war between the Web 1.0 and Web 2.0 companies continues, rumours about “Google Offers”, their take on the now very successful Groupon model, intensifies. This of course will be yet another group-buying service on top of the Groupon clones that are appearing in various countries.

Obviously this is ‘Plan B’ for Google after their bid to buy the company was turned down recently. I guess this is a case of ‘If you can’t buy them, try to kill them.’ It looks like Google’s new CEO, Larry Page, will have his hands full. Indeed the Larry Page move reminds me a little of Steve Jobs returning to Apple…not that uncommon for successful tech companies to reach back to one of their founders to steady the ship when it hits rough seas. Of course this trend has had mixed results.

Either way the virtual ‘Tech Cold War’ that I have been talking about will be a continuing trend this year. Which is good for the startup scene, as internal innovation alone won’t be enough to give the tech giants and new kids on the block the upper hand in the continuing monetization of the internet. Startups that can offer a Google, Apple, Facebook, Groupon, LinkedIn or Amazon a weapon against the others stands a better chance of getting bought.