(Editor’s note: Dispatches covers the startup/scale-up world – incubators, accelerators and venture builders – because no innovation happens in Europe without our highly skilled internationals. This is part of a series of posts about the startup scene in Europe. This post on Europe’s best venture builders, accelerators and incubators is part of Tech Tuesday series. Note that several of these programs have application deadlines and pitch days coming up in November.)
The global pandemic finally is winding down and people are coming together again to collaborate in person. At the same time, Europe is suddenly the new Silicon Valley, with venture capital and private equity firms arriving with massive amounts of capital to invest. The amount of venture capital pouring into VCs is nearing the historic high of the Dotcom Bubble. American venture capital firms have raised about $90 billion from investors in the first three quarters of 2021. Most of that capital is waiting to be deployed.
Bottom line: There has never been a moment for startups like this … ever. Or, as PitchBook phrases it, “Nobody wants to miss out on the great venture capital gravy train of the 21st century.”
Capital is more global. Innovation is more global. Teams are more global.
So, how do you and your lean-and-hungry startup team get in on this if you’re in Europe? Startup incubators, business accelerators or venture builders are the first stops on the road that leads to raising serious capital and – if you’re insanely great – an IPO.
Each is a little different. Incubators, as the name suggests, are programs where teams brainstorm and come up with an idea. These are often sponsored by big tech companies looking for solutions to their own technical challenges or spin outs in which to invest. Business accelerators typically work with teams to help refine their ideas and create market strategies on the way to scaling. Finally, venture builders recruit smart people who want to work outside corporations, then put them into startup teams built around new technologies.
Some reality checks:
• Some of the early accelerators and incubators started as altruistic efforts to change the world for the better. Now, it’s largely a money game with corporations trying to capture promising startups, and VCs are incorporating accelerators. There are exceptions. But if you’re Little Mary Sunshine, this isn’t the game for you. As the Americans say, “it is what it is.” But you can expand your startup much faster, raise more capital and work with talented mentors in these programs.
• Most, though not all, incubators, accelerators and venture builders will end up with a significant stake in your company, up to 20 percent. Which doesn’t sound like a lot but is a huge amount when it comes to raising more capital rounds. Founders often ending up with a tiny slice of their own company at the end. Still, venture capital exists because no bank lends money to startups, and startups would have to be crazy to take senior-secured debt anyway. Though we’ve seen more than a few Dutch startups that have! Sad ….
• Some, though not all, incubators and accelerators claim they invest hundreds of thousands in startups, but that often includes in-kind contributions in software and even office space … and very little in the way of operating capital.
• Many of the largest and most successful fund/accelerators, including 500 Startups, don’t have physical operations in Europe, only in the U.S., the Middle East and Asia.
What we see in Europe’s startup ecosystems is incredible skills in engineering and physics, but a total lack of financial expertise or even a basic understanding of early stage capital.
So, here’s how it all works, courtesy of former Apple exec Frederic Filioux’s Monday Note blog:
On average, a mid-tier VC firm will receive 4,000 startup projects a year and hold 120 meetings that will translate into 12 investments. That’s a success rate of 0.3 percent per contact. Then, the success/failure ratio for the startup: roughly half of the companies end up burning most or all of their investment. 20 to 30 percent make some money, a few times their funding. And 10 to 20 percent are home runs with a return ten to a hundred times the VC’s investment (typically a unicorn exit), always after multiple funding rounds.
He points out that 80 percent of startups don’t even make it to the funding phase.
Just so you know what you’re getting into ….
This is a new European affiliate of the mentor-focused American Techstars three-month accelerator, which is very, very picky about whom they accept. TechCrunch has a post about how Techstars just opened operations in France and Sweden because Europe is now on the VCs’ radar.
About 500 startups per year worldwide make it into the program, but the aggregate numbers are impressive.
Graduates typically raise $1 million in their seed round after leaving Techstars, and 2,620 startups have raised a total of $16.5 billion. At least six Techstars alumni have gone public.
In Paris, they advertise $400,000 in cash “and equivalents,” which usually means in-kind contributions such as accounting and whatnot.
Applications opened 13 September and you can apply through 1 December.
Techstars currently has accelerators across the United States, Europe, the Middle East and Africa. You can see all the locations here.
• In exchange for six percent of common shares, each startup accepted into Techstars receives $20,000 plus a $100,000 convertible note, access to the Techstars network for life, more than $1 million worth of perks (such as $25,000 to $100,000 in AWS credits), and a three-month accelerator program, which is conducted in three phases: mentorship, growth, and investment.
Techstars is creating a blockchain accelerator in Dublin starting in 2022.
This is the venture builder/accelerator that came up with the pre-idea, no team concept that Antler and other venture builders in Europe have since adopted. Rather than investing in startup teams, Entrepreneur First creates its own, luring the best and brightest individuals in engineering, mathematics and computer science away from tedious corporate careers and putting them together. Their motto is, “Join us as an individual. Leave as a company.” This approach includes paying founders for the six-month run of the program and paying startups a stipend to survive the first days is becoming more common.
The Entrepreneur First track record is pretty good … 3,000 participants have founded 500 companies. The overall landing page is a chaotic jumble of photos and random info, but if you have the patience, you’ll find several Unicorns have started at Entrepreneur First, including Tractable. Their story is super-interesting and you can see it here.
PayPal Mafioso and LinkedIn Founder Reid Hoffman is part of the network as a mentor an investor, so this is a serious program … if you can make it in.
Each city runs two programs per year and there are Entrepreneur First operations in Berlin, Paris and London in Europe as well as operations in Bangalore, Toronto and Singapore.
We knew who Tim Draper was, but we didn’t know about his accelerator program until this year when Draper University teamed up with LUMO Labs for a pitch event on High Tech Campus Eindhoven. Draper University was founded in 2012 by the Silicon Valley venture capitalist in the belief that to change the world, societies have to change their approach to education. Sort of along the lines of Peter Theil’s belief that universities are obsolete.
Instead, Draper brings together young entrepreneurs, startup founders, executives and investors all under one roof. Draper is a private, for-profit school/incubator/accelerator located in San Mateo, Calif. and focused on entrepreneurship. But increasingly, they’re looking to Europe for deal flow. Its early stage startups have raised more than $350 million. Affiliated entrepreneurs include VC and founder Tim Draper, his brother Bill, who’s also a VC, Elon Musk, Zappos founder Tony Hsieh and John Zimmer, founder of Lyft.
Draper University Hero Training program is designed to provide founders with the skills, mindset and network to take their ventures quickly to the next level.
However, this isn’t all rainbows and – so to speak – Unicorns. These programs get Draper the earliest possible look at promising startups.
You can see more here about Draper in Eindhoven.
SpinLab is in Leipzig, which is a pretty cool town. And it’s part of HHL Leipzig Graduate School of Management, with access to its faculty and resources. A number of global corporations are supporters, including Dell and Porsche, and SpinLab promises connections to capital.
Best of all, SpinLab takes no equity, no shares and no fees.
You can apply here, and the deadline is 16 November.
• Each team accepted into SpinLab gets 6,000 euros to help cover living expenses and traveling costs in Leipzig. Again, SpinLab takes no equity.
• Startups are also eligible to compete for four different awards, and each award is valued at 5,000 Euros: The Best Investors Day Pitch; Most Sustainable Idea for Leipzig; Community Award and Fastest User Growth.
• The right to rent a 750 m2 co-working office with meeting rooms, a kitchen and a recreation area. Teams that finish the programs get access to a 900 m2 co-working facility where alumni startups can rent working space and get up and running immediately following the program.
Reaktor in Berlin is a pre-seed accelerator. That means co-founders can show up with just an idea. If it’s a good one, Reaktor will give you 2,000 euros per month to get you through the six-month accelerator and up and running.
Now, here’s the best part … you don’t give up any equity! Which makes this a rare accelerator program that’s all about the startup.
The capital comes from private investors as well as from the European Social Fund and Berlin Senate. So, rather than a bunch of limited partners and institutional investors looking for a huge exit, Reaktor is more of an effort to catch up with the Americans.
This is an industry-agnostic accelerator and their next pitch night is 18 November, with the next cohort coming together in February 2022. You can apply here.