Accelerators - too much of a good thing?

SINGAPORE - Start-up accelerators are kicking into high gear. In the last one and a half years, over 15 accelerators have been created and S$5 million committed to these set-ups - which run intensive, mentorship-driven programmes to help startups rapidly grow their businesses.

Observers say it is a positive development, but warn also of extravagance, competition and vain attempts at innovation.

Just this month, two household organisations NTUC Income and Chan Brothers launched an insurance tech and tourism accelerator respectively, becoming the latest large local enterprises to identify and engage startups this way. This comes six months after five accelerators were unveiled in February, three of which were led by incumbents OCBC, Singapore Power and Ascendas-Singbridge.

Alex Lin, head of Infocomm Investments Pte Ltd (IIPL), told The Business Times: "The surge in acceleration activities happened after IIPL announced its investment in JFDI in 2014, and began promoting the acceleration strategy."

Singapore-based JFDI (Joyful Frog Digital Innovation), founded in 2010, is reportedly the first accelerator in South-east Asia.

Accelerators, unlike incubators, run fixed-term programmes that are typically three months long and culminate in a Demo Day where graduating startups pitch their refined business ideas to investors. Like incubators, accelerators help startups define and build their products, identify customers, while providing seed capital, working space, as well as networking and mentorship opportunities.

IIPL's Dr Lin noted that accelerators help startups find product-market fit (PMF) - which gives them a higher chance at business sustainability and fundraising.

"Previously, most startups focused on creating a product before finding the market and customers.

"By focusing on market first, startups eliminate the wasteful step of failure - making something no one wants - and are able to reach sustainability earlier."

Arnaud Bonzom, corporate innovation director at venture capital firm 500 Startups, observed a spike in accelerators in three categories:

• Corporate accelerators that seek innovation to invigorate their core business (for example, SPH Plug & Play, UOB's The FinLab);
• commercial, pure-play accelerators that groom generalist-type, tech startups (for example, JFDI, muru-D); and
• themed accelerators that focus on verticals such as healthcare or fintech (for example, Modern Aging, Startupbootcamp FinTech).

The growth in the number of accelerators is significant in a few ways.

JFDI chief Hugh Mason said that the trend reflects greater support for startups and exposure to what entrepreneurship entails. Angel investor Christopher Quek said that corporates now understand the need to engage and co-innovate with startups. Hian Goh, founding partner of NSI Ventures, added that talented people are now coming together to solve problems.

But is this many accelerators too much of a good thing? Observers said that there could be some downside.

Mr Mason cited a scarcity of truly qualified founders and mentors, and the risk of putting lower-quality teams through acceleration. He said: "It could be a waste of the founders' time, a waste of the investors' capital, and it burns the goodwill of mentors who typically give up their time for free."

Mr Quek said that the proliferation of accelerators could impair expectations. Entrepreneurs might associate accelerators with "sure success", given the media coverage and connections that startups will gain. Mr Goh cautioned that ideas might become "too similar", and that entrepreneurs might start thinking of ideas that accelerator partners "like to solve" but not those they are passionate about.

Observers acknowledged that it is too early to judge the success of accelerators here, as most were launched in the last two to three years.

Mr Bonzom said that it might take four to six years, and that success can be measured by a variety of metrics, such as the percentage of startups that go on to raise funds after Demo Day, the quality of the investors, and the number of exits (via a trade sale or initial public offering).

Mr Mason said that JFDI's "most successful startups" are only now reaching Series B investment, typically raising S$5 million to S$10 million each, and it will be a couple of years before exits take place. Among JFDI's standouts are TradeGecko, Glints, Silent Eight, DataStreamX and Vault Dragon. In the interim, Mr Mason is most proud of the "high-value jobs" that accelerated startups have created for Singaporeans.

Mr Quek added that success comes when the startup gets "connected deeply to the vertical", having developed newfound relationships with mentors and investors, and gains new clients because of the networks.

"An example would be Attores, a fintech startup in UOB's The FinLab, which has been working closely with UOB to develop their blockchain finance product."

Likewise, OCBC is piloting wealth management and customer service technologies developed by three graduating startups from its first cohort of The Open Vault @OCBC FinTech Accelerator, with its customers. On such collaborations with banks, IIPL's Dr Lin said that these will produce "better acceleration graduates" and help the startups achieve sustainability earlier.

Accelerators - the very entities that produce startups that could disrupt industries - are primed for disruption, added Dr Lin. In a more mature ecosystem with deeper institutional memory, the need for pure-play accelerators has decreased.

"The accelerator has disrupted itself and now needs to be re-invented. It's not an easy task, but a critical point of a maturing startup ecosystem."

This article was first published on August 22, 2016.
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