Are accelerators still struggling to exist?

#News(Startup) [ via IoTForIndiaGroup ]

The discontinuation of the Singapore operations of Telstra-backed accelerator programme muru-D in July 2018 illustrates this point quite well. Backed by Australian telco giant Telstra, the accelerator programme was abruptly shut down mere months after completing its third cohort.

Although Telstra did not disclose specific reasons for the shutdown, muru-D Entrepreneur-In-Residence Craig Dixon said in an earlier blog post that the programme’s untimely end was brought about by the “complete reliance on its corporate sponsor.”
Although corporations have proven time and time again that they can add significant value to startups, corporate and time-bound priorities may sometimes clash against startups whose disruptive ideas may take some time to gain traction, suggested Hugh Mason of JFDI.Asia.

“Firstly, most power and money in a corporation is held by business units who must hit their KPIs next quarter,” said Mason. “So they need off-the-shelf, tried-and-tested solutions, not startups that ‘fail fast’ and can only ever show real impact in a few years.”

The nature of the corporate world which rewards playing it safe and by the book could also hamper startups seeking to introduce new ways of doing things.

“[C]orporations are brilliant at scaling up things that are already working but generally very poor at searching in an agile way for truly transformational opportunities. They have the resources and mindset for ‘execution’ in a way that minimises risk but lack the resources and mindset to ‘search’ in uncharted waters for the truly new solutions,” added Mason.

“I believe that in an ideal world a startup accelerator would live off of startup exits. However, since exits from startup investment typically take 3-8+ years (assuming a successful exit) there needs to be a short to medium-term funding strategy,” said Dixon.

Such model never quite worked for Mason’s JFDI.Asia whose accelerator programme was widely considered as a pioneer in what was then Asia’s nascent startup ecosystem but eventually shut down in 2016. The company has since remodelled into a corporate venture partner but not before raising $3m and investing in 70 startups.

“Like many of our peers outside the USA, we never found a way to recirculate risk capital fast enough to make JFDI a self-sustaining business. In the US, some Techstars accelerators have been able to virtually guarantee that one startup from each of their batches will realize value within 18 months or so after the program finishes. So the accelerator’s investors get 2-3X back on their money and everyone is happy to roll the dice again. In Asia, the time to exit is more like 6-8 years and the valuation at exit is perhaps 30% of that it would be in the US. So any accelerator trying to sustain itself independently will find it very tough going in this part of the world,” the firm said in a 2016 blog post.

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