When a London tech entrepreneur gets tired of working out of a Hoxton hipster coffee shop, it's probably time to think about moving into an accelerator.
Startup accelerators take on a small company with a smart idea, then try and help it grow by providing access to investors, office space, expertise and (some) money — all things small startups might otherwise struggle to attract.
In exchange for all that support, most accelerators take some level of equity in the startup, effectively betting on the success of the company at a later date if it floats or is acquired. Not all accelerators take equity though; some are looking out for small companies with smart ideas that they can incorporate into their own business, or simply crave the reflected glory of being associated with cool new companies. Some just want to sell office space.
Startup and VC activity in London is higher than anywhere else in Europe, and has grown rapidly recently. New York mayor Michael Bloomberg has even warned that London is now a threat to New York's attempt to take on Silicon Valley.
The arrival of tech accelerators is a step towards the industrialisation of London's tech scene. While there have been accelerators operating in London and elsewhere in the UK for several years, a number have set up in recent months, reflecting the growing scale of London's startup scene, mostly focused around the Tech City or Silicon Roundabout area in the east of the city.
These organisations are skilled at taking startups with bright ideas and adding the money, skills and contacts to turn them into success stories, then doing that over and over again with each new crop of eager entrepreneurs. It's an approach that has stood Silicon Valley in good stead over the last few years and potentially creates a batch of fresh tech companies every few months.
That in turn creates a virtuous cycle over time: founders of succesful companies become serial entreprenuers and investors, putting more and more money into the startup ecosystem which then continues to grow bigger. In the UK this hasn't really happened yet because there have been few major exits, but it's something that could happen over the next few years.
Most accelerators will offer investment in the range of £5,000 to £50,000 with various strings attached. If you think that doesn't sound like much, you'd be right. Instead of cash, getting access to the right skills is now the biggest barrier for new businesses, which is where accelerators claim to come into their own.
Jon Bradford, managing director of Techstars in London, said that a decade ago, entrepreneurs would need to raise millions to get a company built. "That was the barrier to entry at that point: if you couldn't raise the money you couldn't get into the startup game," he said. But thanks to cloud and open source the capital cost of getting into the startup business "has fallen through the floor".
Instead, it's now access to industry knowledge and potential customers that entrepreneurs crave.
"We've always had a need for people with strong networks and experience; that's what accelerators address. It's less about money and more about how can you be connected to the smart and intelligent people. That's the unfair advantage," he told ZDNet.
In addition, bringing together a number of new businesses together in one programme creates a critical mass, a honeypot, to attract investors and mentors and potential customers which a single startup would struggle to generate.
TechStars arrived in the UK earlier this year and has just selected its inaugural crop. The London tech startup scene is now becoming a reality, according to Bradford: "Until the last year there were lots of interesting things happening but it was very noisy and hard to get the signal in the noise. Somehow over the last 12 months that noise has turned into something that is tangible and real."
One difference between US and the European companies he sees is that European teams tend to be more focused "around opportunities which might have revenue potential earlier in the cycle, and B2B-focused, rather than B2C", he said.
And while these accelerators are usually massively oversubscribed (for example, Wayra said it has received 20,554 applications but has only funded 240 startups worldwide) the increasing numbers of options for startups will mean entrepreneurs have a better chance of finding the outfit that best suits their needs.
Accelerators are where startups go to grow up, said Eric Van der Kleij, who runs Level 39, a co-working and accelerator space in London's Canary Wharf financial district.
"You see real startup spaces like Google Campus creating this flow of young companies ... so you can startup up somewhere else in Tech City and when you are ready to be a grown-up company or start your growing up phase you can — places like Level 39 and other places are starting to emerge that have the content and the accelerator programmes necessary."
Online security company Digital Shadows took part in an accelerator programme which ran at Level 39. The company's CEO Alastair Paterson said one of the most important things about such a programme is its ability to puts startups in touch with potential customers.
"It's the opportunity to get in front of potential clients and get more feedback. As a startup your goal is product-market fit; in an accelerator the onus is on them to hook you up."
Paterson said during the sorts of meeting made possible by the three-month accelerator project would have taken "a year or longer" for the company to arrange on its own.
"There's a plethora of accelerators, there's almost too many," he said, adding that startups evaluating accelerator programmes need to first work out who their own customers will be, and then work out which accelerator can put them in front of those potential clients.
For example, Digital Shadows' customers are financial services organisations, so operating out of Level 39 made sense. "What we found was the ability to have office space in One Canada Square made it easy to bring the banks in and host them in our own space — they can just walk over the road," Paterson said. "Sometimes we have nicer facilities than they do which is a far cry from where we were before."
Here's a small selection of the accelerators in operation right now:
Seedcamp is a group of angel and VC investors across Europe which invests several times a year through Mini Seedcamps and the Seedcamp Week in September held in London. Each event includes 20 startup teams competing for seed funding, with the winning companies receiving up to €50,000 per team to support living and operational expenses in London for three months, in exchange for a minority stake (eight to ten percent) in the company.
TechStars London aims to support up to 20 start-ups each year across the UK and Europe through an investment of €85,000, made up of €15,000 in seed funding and an optional €70,000 convertible debt note for each company. The company said its European track record includes Memrise in the UK, GrabCAD in Estonia and docTrackr in France, which between them have raised €16m in investment funds.
Microsoft Ventures' 12-week accelerator programme will offer up to 20 startups mentoring from execs at Microsoft, Jenson Solutions, Train2Game, Lift London, Lionhead Studios and others. Companies chosen will also get membership of BizSpark, which gives startups access to three years of free software and support. Microsoft will not be taking any equity in the startups but hopes working with early stage startups like this will encourage them to build their businesses using its software.
Wayra is Telefonica's accelerator, offering startups up to €50,000 depending on the project's "level of maturity and need". After that initial phase, Wayra will continue to collaborate with the most attractive proposals chosen, helping them to access further financing.
The Bakery is a workspace and accelerator programme designed to introduce new technology to large brands and their advertising, creative and media agencies. The Bakery describes itself as a 'second stage' accelerator "all about getting your first big reference client". The programme works with startups to refine their technology so that it can "drop straight into" a brand's existing marketing strategy. Startups get a full brief and a budget of up to £50,000 and eight weeks to develop the tech. Rather than taking equity The Bakery takes a commission on each deal.
Oxygen runs a 13-week intensive mentor led bootcamp that culminates with a series of investor days where startups can pitch to angel investors, VCs and private equity groups for next stage funding. Companies receive up to £18,000 for the acceleration phase of the programme, £6,000 per founder an in exchange for the programme, pre-seed funding, advice, mentorship, connections, and investor demo days, Oxygen Accelerator receives an eight percent equity stake in your company.
Early stage technology startups who are tackling a social or environmental problem could find a home with Bethnal Green Ventures. It's looking to solve big problems, "the key is that your idea must have the potential to help millions of people somewhere along the line" which might include issues such as the health and wellbeing of an ageing population or the environmental sustainability of communities. The fund invests £15,000 in each team in exchange for six percent equity, and each team gets to spend three months with the accelerator working on improving their idea. There's also an offer of six months of free office space as well.
BBC Labs is looking for early-stage digital companies focused on the intersection of technology and media, based in the UK but with global reach, and is interested in companies in technology areas including web applications, gaming, virtual worlds, mobile, advertising technologies, collaborative software and CRM. BBC Worldwide offers time, mentors and office space but does not invest cash nor take an equity stake. "Our main point of differentiation amongst the various incubators and accelerators already out there is the increased ability to partner with BBC Worldwide," it says.
Not every accelerator is based out of London: for example Collider focuses on B2B startups who have created something that will interest large companies such as measurement tools, big data analytics or ways to revolutionise internal comms, which have to be registered outside of London, and under two years old. Collider invests £100,000 into 10 startups: £40,000 of that is an interest free loan from Creative England, which has to be paid back over three years, the other £60,000 is for 15 percent equity. Collider specifically focus on creating collaboration between startups and large companies. "Startups are young and exciting, but they need help from companies who have done it before, and can offer advise. Large corporates have the money and know-how, but lack innovation and access to tech companies who have the potential to be truly ground-breaking." The accelerator provides 'speed-dating' with brands followed by a 13-week period where the companies that partner with Collider and startups work together.