The Value of Accelerators

The Value of Accelerators

15202742_1435546749806623_8869701141692096511_nDemo Day

Monday 28 November saw E2 and the Foundation’s first accelerator programme culminate at Demo Day. Allan Gray Orbis Fellow entrepreneurs pitched their hearts out to investors, mentors, industry players and family members gathered at the Accelerator venue at Standard Bank in the Cape Town CBD. The event generated such buzz that we were trending #1 on Twitter South Africa for much of the day. Each group was given 8 minutes to display their compelling, fully validated idea and the market traction they have achieved over the short period.

Each venture has been on quite a journey to get to this point. Before this programme began, each had progressed through a 4-month part time validation programme which aimed to ensure that the original idea had a probable Solution Market fit (meaning that the problem they identified was actually experienced by an identifiable group of customers, and that those customers were likely to pay to have their problem resolved). Once this conclusion was arrived at, the Ventures received a R200 000 pre-seed investment and a place on the next step: The E2 / Foundation Accelerator.

The accelerator is a 3-month intensive programme aimed at launching companies to market and assisting them in gaining rapid market traction.

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Accelerators

Start-up Accelerators first emerged in 2005 with the launch of Y-Combinator in Silicon Valley. Since then hundreds of accelerators have started all over the world with great interest shown by private and public sector alike, drawn to the potential of these programmes to generate economic development.

According to the recently formed Global Accelerator Learning Initiative (GALI), the standard hallmarks of an accelerator are:

  • They tend to be limited in duration (as opposed to incubator programmes which can be years in length);
  • They work with cohorts of early stage entrepreneurs; and
  • They aim to facilitate connections with potential investors.

Basic elements of most Accelerators include:

  • Equity based seed funding;
  • Provision of office space and basic business services;
  • Access to discounted service providers, industry experts and mentors;
  • Structured community support and accountability from fellow entrepreneurs in the cohort;
  • Access to further funding, focused around refined pitches at a Demo Day.

Despite the great interest shown in acceleration and hundreds of programmes run globally, there is very little research showing the concrete benefits of acceleration. GALI has been formed in reaction to this as a collaboration between the ASPEN Network of Development Entrepreneurs and Emory University.

GALI’s initial study, which can be found here, found major benefits to ventures who were accepted into a group of accelerators when compared to applicants who were rejected. A year after the programme, accelerated ventures had seen greater growth in revenues, employees, and most significantly in investment received: accelerated ventures averaging investment of $54,236, while non-accelerated ventures averaged just over $6000.

The same study compared more successful programmes to less successful programmes, resulting in the following insights:

  1. Partner quality improves programme performance. Partners include service provides, experts and mentors.
  2. Time spent on programme-related activities lowers programme performance. Most successful accelerators allowed entrepreneurs to spend most of their time working on their businesses.
  3. Quality of the applicant pool improves programme performance. Programmes who selected entrepreneurs with advanced education and greater experience were more successful.
  4. Networking among cohort members improves programme performance.
  5. Emphasis on financial acumen decreases programme performance. High-performing programmes spent less time working on finance, accounting, and formal business plan development and more time on presentation and communication skills, networking, and organisation structure and design.

Major other learning we have gleaned from our first Accelerator experiment is that the model has significant room for development to better cater for non-tech focused businesses, and to better fit into an African context. The majority of accelerator programmes have tended to be tech focused. The short time frames are suited to the tech development and launch cycle. Though the basic principles are universally applicable, Lean Start-up methodology around which the programmes are typically built, was initially conceived with tech in mind. This presents a challenge and an opportunity to accelerator programmes with a diverse group of entrepreneurs and ventures.

The field of new venture acceleration is in its infancy and there are endless possibilities for innovation and improvement in implementation, especially in creating an inclusive acceleration model suited to diverse African entrepreneurs and industries.

Where to from here?

Bringing us back to last Monday’s Demo Day, veterans of the entrepreneurial eco-system in attendance commented on the uniformly excellent quality of the group’s presentations, and were amazed that such a diverse group of businesses could all have come so far in such a short period of time. But this is just the beginning.

As you might imagine, though this programme has now come to an end, this is only the beginning of the journey for the 9 new ventures. There is a long road ahead and the Association and E2 will continue to provide as much support as possible. This will include the ongoing provision of basic office and business services and access to networks when necessary.

We are also anticipating beginning the journey again with a whole new cohort of Allan Gray Orbis Fellows in March 2017.

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