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Accelerators Tilburg Law School ACCELERATORS Master Thesis LLM International Business Law Alja Pecenko ANR: 283644 Thesis Supervisor: Ivona Skultétyová, LLM TILBURG, JUNE 2016 Abstract Several circumstances enabled the development and the popularity that accelerators have today. As there is no widely accepted definition, there are several characteristics that are common to all accelerator programs: the fixed and short duration of the programs, which provides cohorts of startups with networking and mentoring opportunities and end with the event called »demo day«, and in most cases, seed capital and working space. Those characteristics along with the stage of the development of startup when accelerator usually admits startups sets them apart from other investors, such as angel investors, and incubators. One of the characteristic that many have is also the standardized investment terms. As such, accelerator terms mainly resemble the terms of other investors. Accelerators need backers that invest money, which influences the strategy of accelerators. Depending on the strategy and backers, there are four different types of accelerators: independent accelerators, corporate accelerators, university accelerators and government accelerators. But as the government are now investing in independent accelerators and corporation and university accelerators are starting to collaborate more and more, the clear distinction between them is blurring. Due to the high number of accelerators, the low number of exits and thus return on their investment along with a trend of micro- acquisitions, consolidation in the industry might happen. Keywords: accelerators, startups, incubators, angels, pre-accelerators, investment terms, Corporations, government, business model 2 TABLE OF CONTENTS 1 INTRODUCTION .................................................................................................................. 5 2 STARTUP ECOSYSTEM ........................................................................................................ 6 2.1 CONDITIONS IN STARTUP ECOSYSTEM THAT ENABLED THE DEVELOPMENT OF ACCELERATORS ............. 8 3 HISTORY OF ACCELERATORS ............................................................................................... 9 3.1 GENERAL INFORMATION ...................................................................................................... 10 4 DEFINITION ...................................................................................................................... 11 4.1 FIXED LENGTH OF TIME ........................................................................................................ 11 4.2 COHORTS .......................................................................................................................... 12 4.3 DEMO DAY ........................................................................................................................ 12 4.4 SELECTION ......................................................................................................................... 13 4.5 SMALL TEAM ..................................................................................................................... 13 4.6 MENTORING ...................................................................................................................... 14 4.7 PROGRAM ......................................................................................................................... 15 4.8 NETWORKING .................................................................................................................... 17 4.9 FUNDING .......................................................................................................................... 17 4.10 STAGE OF DEVELOPMENT ..................................................................................................... 18 4.11 ALUMNI ............................................................................................................................ 18 5 COMPARISON OF ACCELERATORS WITH OTHER ORGANIZATIONS AND INVESTORS IN THE STARTUP ECOSYSTEM ............................................................................................................... 19 5.1 INCUBATORS ...................................................................................................................... 19 5.2 ANGEL INVESTORS .............................................................................................................. 22 5.3 MICRO-VENTURE CAPITAL ................................................................................................... 23 5.4 PRE-ACCELERATORS ............................................................................................................ 24 6 TYPES OF ACCELERATORS ................................................................................................. 25 6.1 INDEPENDENT ACCELERATORS ............................................................................................... 25 6.1.1 Business model .......................................................................................................... 26 6.2 CORPORATE ACCELERATORS ................................................................................................. 26 6.2.1 Strategic Objectives ................................................................................................... 27 6.2.2 Types .......................................................................................................................... 30 6.2.3 Business model .......................................................................................................... 32 6.2.4 Comparison between corporate backed accelerators and corporate venture capital 33 6.3 UNIVERSITY ACCELERATORS .................................................................................................. 33 6.4 GOVERNMENT BACKED ACCELERATORS ................................................................................... 34 6.4.1 European Union ......................................................................................................... 37 7 ACCELERATOR DEAL STRUCTURE ...................................................................................... 38 7.1 INDEPENDENT ACCELERATORS ............................................................................................... 38 7.1.1 Structure oF Independent Accelerator ........................................................................ 39 7.1.2 Convertible Note ........................................................................................................ 41 7.1.3 SAFE (Simple Agreement For Future Equity) ............................................................... 41 7.1.4 KISS (Keep It Simple Security) ..................................................................................... 42 7.2 CORPORATE ACCELERATOR ................................................................................................... 42 7.3 UNIVERSITY ACCELERATORS .................................................................................................. 43 7.4 GOVERNMENT ACCELERATORS .............................................................................................. 43 8 TERMS OF THE INVESTMENT ............................................................................................ 43 8.1 RIGHT TO PARTICIPATE IN THE PROGRAM ................................................................................ 44 8.2 INCORPORATION ................................................................................................................ 44 3 8.3 INVESTMENT ...................................................................................................................... 45 8.3.1 Options ...................................................................................................................... 45 8.4 ANTI-DILUTION .................................................................................................................. 46 8.5 LIMITATION ON THE TRANSFER .............................................................................................. 47 8.6 RIGHTS OF FIRST REFUSAL AND PREEMPTIVE RIGHTS .................................................................. 47 8.7 TAG ALONG ....................................................................................................................... 48 8.8 DRAG ALONG ..................................................................................................................... 48 8.9 PUT OPTION ...................................................................................................................... 49 8.10 REPRESENTATIONS AND WARRANTIES .................................................................................... 49 8.11 INTELLECTUAL PROPERTY RIGHTS .......................................................................................... 49 8.12 INFORMATION AND INSPECTION RIGHTS .................................................................................. 50 8.13 RESTRICTIVE COVENANTS ..................................................................................................... 50 8.14 CONFIDENTIALITY ............................................................................................................... 51 8.15 EMPLOYEE OPTION POOL ..................................................................................................... 51 8.16 STOCK VESTING .................................................................................................................
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