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Revisiting the Market for Innovation How Accelerators and Incubators Can Reinvent Themselves 2 Think:Act Revisiting the Market for Innovation

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Revisiting the Market for Innovation How Accelerators and Incubators Can Reinvent Themselves 2 Think:Act Revisiting the Market for Innovation navigating complexity September January 2019 Revisiting the market for innovation How accelerators and incubators can reinvent themselves 2 Think:Act Revisiting the market for innovation INTERVIEWS THE BIG WITH EXPERTS AND RECOGNIZED 3 PLAYERS X5 marks how fast the number of accelerators and incubators grew between 2009 and 2018. Page 6 35% of accelerators/incubators specialize in a specific technology, mainly IoT, big data, mobile, AI/machine learning, hardware, and cybersecurity. Page 15 49% of accelerators/incubators offer international programs through partnerships or their own locations abroad. Page 17 Think:Act 3 Revisiting the market for innovation Beyond the hype? "What is the last Google or Facebook that came out of incubators worldwide started surging in 2009, at first in an accelerator?" is perhaps the question that comes up collaboration with universities and research centers. most often in discussions about accelerators and incu- Between 2009 and 2018, the number of A&Is grew more bators (A&I), the startup development structures that than fivefold globally, with both public (universities) proliferated in the 1990s. After a boom that saw the and private (companies) sectors wanting their own pro- number of A&Is explode worldwide, the innovation grams to generate new forms of innovation. It is diffi- market has changed dramatically in recent years. The cult to count the exact number of structures existing economic models of some structures are proving to be around the world. Depending on whether one takes fragile, while at the same time the A&I market is be- into account the different implementations or only the coming more concentrated and competitive. There is active structures, the number can vary from single to now some doubt about their ability to develop tomor- triple digits. But all data sources identify 2009 as the row's business gems. inflection point. Roland Berger counted 2,616 active Following the craze of the late 2000s, is the hype structures in 2018 (and not implementations), as around accelerators and incubators over? The answer against 560 in 2009. B is that the phenomenon continues, but it is changing Most first-generation incubators built their service with the arrival of new types of innovation-related col- offers on the typical features of startup support: office laboration. space, mentoring, and networking. But this generic In this uncertain context, Roland Berger surveyed a package did not allow for differentiation, since spe- large sample of A&Is worldwide to understand their po- cialized services such as investment and access to sitioning, challenges, and strategy. technologies were not the norm. Accelerators then ad- dressed this issue, providing go-to-market and fund- THE RACE TO THE "NEW ECONOMY" raising services. C The history of accelerators and incubators is linked to the increased adoption of the startup model and new TOWARDS THE BURSTING OF THE BUBBLE? innovation processes. Towards the end of the 1990s, There is now a widely held view that the accelerator the internet and web technologies created new markets and incubator market is saturated. The number of and changed the way businesses operated. Successful structures is continually increasing, as is competition entrepreneurs became the public face of this new econ- in what has become something of a jungle. Differenti- omy, which was no longer the preserve of the large cor- ation is therefore a challenge. porations. A However, as accelerators and incubators prolifer- From that moment the existing concept of "start- ate, critics even ask if they have the capacity to boost an up", a watchword today, gained ground and quickly be- entrepreneur's chances of success. Indeed, the more came a must in innovation and technology. It is used to programs there are, the growing risks include being describe a young company with great growth potential less selective in the choice of startups. A&Is currently and a disruptive idea, usually based on new technology, enroll on a rolling basis (40%) or through regular in- but which may need some private funding. takes (60%), with cohorts of up to 10 startups and usu- Incubators and then accelerators were created for ally one to four intakes per year. They therefore rarely situations that could not be adequately handled by play a role throughout the full startup lifecycle, from Cover illustration: antoniokhr / Istock antoniokhr illustration: Cover "classic" companies. The number of accelerators and initial gestation to rapid growth. D, E 4 Think:Act Revisiting the market for innovation A SHARED GOALS, DIFFERENT MODELS Overview of incubators' & accelerators' value propositions. Accelerators and incubators are now key operators in This new form of support for startups, "made in Cali- the entrepreneurial ecosystem. They help startups to fornia", was quickly replicated in other parts of the U.S. grow by providing facilities and services such as office and in Europe. There are important geographical differ- space, management training, funding, connections to ences in acceleration and incubation programs. In companies, links to mentors and experts, and access to North America, Europe, and Oceania there are typically markets. Around 60% of A&Is also offer investment. larger investments than elsewhere; and invested They therefore help to create and sustain local ecosys- amounts in North America are four times larger than in tems around their enrolled startups. Europe. The incubation concept began in the Batavia Indus- Finally, accelerators and incubators should not be trial Center, New York, in 1959, long before startups confused: they operate at different stages of maturity, became trendy and widespread. Incubation saw rapid have distinct business models, have diverse enrollment expansion in the 1980s and 1990s, particularly in Eu- processes (42% on a rolling basis, 58% through regular rope and the U.S., where their forms included innova- intakes), and provide different services. While incuba- tion centers, pépinières d'entreprises, science parks, tors are based on rent in exchange for facilities and ser- and technopoles. vices, accelerators rely on investment in exchange for At the start incubators were opened mainly under equity (usually 7%). the leadership of research institutions, supported by universities and governments. They increasingly be- came catalysts for economic development, providing entrepreneurs with integrated facilities and services such as: offices and research laboratories; personal coaching; networks of partner academic institutions and companies; and fundraising. Incubators enabled the transfer of technologies from publicly funded re- search to innovative startups. However, the early incubators were not sufficiently business-oriented and this led to the growth of busi- ness accelerators. Silicon Valley set the pace in 2005 with the launch of YCombinator, the first seed acceler- ator and which notably supported Dropbox and Airbnb. TechStars then popularized the concept of an integrat- ed program of acceleration, involving a stake in the company's capital. Think:Act 5 Revisiting the market for innovation INCUBATORS ACCELERATORS STARTUP RECRUITMENT STARTUP RECRUITMENT Rolling basis recruitment Cohort recruitment MATURITY STAGE MATURITY STAGE Large maturity spread More mature stage – Development from early phases From efficiency to growth stages up to growth stage PROGRAM LENGTH PROGRAM LENGTH 3 to 4 months From 12 to 24 months ACCESS TO ECOSYSTEM/ ACCESS TO ECOSYSTEM/ EXPERTS & MENTORING EXPERTS & MENTORING Intense mentoring Strong access to local ecosystem Strong access to network experts Industry know-how through experts Not focused on local ecosystem & university connections Light mentoring VALUE ADDED INFRASTRUCTURE INFRASTRUCTURE Office space Office space and facilities and facilities ACCESS TO FUNDING ACCESS TO FUNDING Access to investors Access facilitated (e.g. demonstration day) but not core element BUSINESS MODEL BUSINESS MODEL Rent in exchange for Investment in exchange for equity infrastructure and services (usually ~7%) Source: Roland Berger 6 Think:Act Revisiting the market for innovation B INFLECTION POINT Openings of accelerators and incubators started surging in 2009. 3,000 2,500 2,000 1,500 Inflection point 1,000 500 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Africa MENA Europe APAC Latin America North America Source: Roland Berger Think:Act 7 Revisiting the market for innovation C CLASSIC FEATURES OF STARTUP SUPPORT STILL RULE Cash investments and access to machinery or cloud services are less frequent. Mentoring/coaching 96% Workshops/training 90% Office space 86% Services: Free access to experts 86% Connection 85% to corporates Cash investment 62% Access to machinery 51% or cloud services Classic features More specialized features Source: Roland Berger, based on 202 respondents Furthermore, some accelerators and incubators have sovereign funds. The purpose of A&Is, which was to an unviable business model, focused on building a assist in the search for financing, is less clear in the community rather than making money, and are not face of new players in this increasingly tense and spe- profitable. Some choose to ignore their apparently use- cialized market. less graduating businesses while searching for poten- tial gems in the new intake. NEW PLAYERS AND AN INCREASINGLY One reason for the greater tension in the market is COMPETITIVE, COMPLEX MARKET that entrepreneurs need less visibility towards and de- New players have
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