Currently in Berlin, we’re witnessing a shift from the startup accelerator to the incubator model. Incubators typically allow startups to share working space and resources, and receive mentorship. Is this good enough for the startups and talent who have migrated to Berlin to build their companies? Nope, says techxpert Jewell Sparks. This is a city and a country where angel investors and local venture capitalists are notoriously risk-averse, therefore accelerators are a key resource to ensure that startups will continue to thrive.
When I first moved to Berlin in 2014, I was a mentor for Hubraum which was the Corporate accelerator for Deutsche Telekom (located on Winterfeldtstrasse in Schöneberg) they were offering financing of up to €300,000, coworking, mentoring and access to group executives. Companies in their portfolio includes startups such as: relayr which was acquired by MunichRe for $300M, Blinkist the reading app who raised $35M in 2019, and also Teraki who most recently raised $11M from Horizon Ventures. Hubraum has now transitioned to an incubator and will focus on 5G, the Internet of Things and Artificial Intelligence. This is a symptomatic development starting in 2018: a shift to more mentorship/network-based models due to budget cuts and post three year external acceleration programme contracts from companies catering to European Corporates from the US and Copenhagen (Plug and Play, Techstars, Startup Bootcamp and more).
Birth of the acceleration landscape
Once upon a time, startups were mainly funded by angel investors, investing in projects as side gigs. But then venture capitalists and the accelerator model entered the scene. With the global explosion of interest in entrepreneurism, local and global companies began to make their first investments into their innovation/startup business units. Soon the evolution of startup accelerators moved beyond just the forerunners like Y Combinator (Paul Graham co-founded Y Combinator in 2005 graduating companies such as Dropbox, Airbnb and others) and 500 Startups of Silicon Valley. Let’s fast forward to Berlin in 2012: several accelerators started to establish themselves in the city with the main goal of providing services to entrepreneurs and executives alike in order to foster innovation and cultivate the creation and scaling of new technologies. FOMO (fear of missing out) was driving a lot of investments in innovation programmes in order to stay agile, work with cool startups and attend startup conferences across the globe.
Accelerators began to sprout up everywhere due to their fixed-term programme structure which lasted three to six months and focused on startup ideas that showed promise. These programmes typically led to capital generation which is needed for further development and growth. In 2015, the startup business became big business in Berlin. So big that the State of Berlin founded the Berlin Startup Unit which started specifically catering to the startup industry by aligning with local partners to improve conditions for startup founders and their growing companies. There were 20+ early-stage startup accelerators listed in Berlin according to the Startup Ecosystem Resource’s list published by the Founders Institute in August of last year. The list is a bit outdated, but provides a snapshot of how robust the acceleration landscape was in Berlin. Currently, over half of the accelerators listed are now operating as incubators versus the traditional accelerator business model which started to invade Berlin approximately nine years ago. This trend appears to be symptomatic of a risk-averse European ecosystem and particularly the German one which I have observed repeatedly after relocating from San Francisco.
Europe vs Silicon Valley: Risk-averse investors
In the US most accelerators are privately owned, but in Europe the accelerator model has always been a bit more complicated, yet refreshing due to the fact that many of the programmes receive funding from public, private and institutional investors. Berlin is home to over 2500 startups according to Berlin Partner due to variables such as low living costs as well as quality of life, and provides the perfect playing field to implement industry changing business ideas without breaking the bank account of founding team members. As a mentor to several accelerators (APX, B/S/H Connected Home, MassChallenge, Rockstart, Maersk FoodTrack, Startup Bootcamp, World Food Programme, Techfounders and a few others) I have seen a unique trend emerging amongst startup founders in Europe and Berlin like I haven’t seen in other parts of the world. European founders tend to participate in more than one accelerator programme. For years I didn’t understand why founders I had mentored in one programme showed up in other programmes, but given the investment landscape, regional risk averseness, and the basic need of having operating capital resources to grow a startup, I totally get it! Startups need the money and the exposure! Corporates, venture capital firms and angel investors in Berlin appear to have their favourites and don’t really provide access to networking and/or capital resources to those outside of their trusted inner circle. This is of no benefit to local Berlin founders whatsoever, and as a result ends up benefiting local accelerator programme operators, international investment groups and seasoned startup professionals who are now angel investors and willing to take risks. Attending more than one accelerator programme has not only helped startups raise much needed capital to cultivate their concepts, but also generate dialogue which helps them gain national exposure.
Equity hungry investors – and the danger of squandering equity at an early stage
Another flaw of the regional system: The amount of equity taken for the amount of money invested has been a major disruption to startup growth. The GAN Data Report, which contains compiled information from 9500 startups across the globe, summarised that in 2017, the average valuation for a startup at seed stage was $4.2M in the US and approximately $2M outside of the US. On average it takes a company six months to raise a seed round post accelerator, 15 months to raise a Series A, and an additional 16 months to raise a Series B. It is important for founders to realize that giving away equity amounts during the early stages may seem minimal in the beginning but can end up taking a toll on your future fundraising rounds.
Witnessing the birth of startup accelerators in the San Francisco Bay Area from day one, I know that in order for a company to truly scale, founders need to have control over resources. Wanting to take risks, but being afraid to take them does not enable a startup to rapidly grow. If those surrounding you and investing in you are also risk-averse, the entire concept of scaling quickly becomes a buzz phrase not a reality. I have had Berlin founders tell me that both corporate leaders and investors alike have at times told them that their ideas are “too big”. Isn’t this the point of a startup? Why would I need to start a startup if my ideas and business models were the same as traditional norms? If this is the case I should start an SME versus a startup, right? This is again why traditional accelerator models versus just incubators are needed in Berlin.
A shortlist of Berlin accelerators to consider
Accelerators in their traditional form focus on early-stage startups, are cohort-based, and last from three to six months. Although Berlin is quite fragmented, the capital city is most definitely an ideal launchpad for those with ideas and early-stage startups. Unlike the incubator model by which startups are chosen based upon a current need (skill sets, new product development, agility, diversification of business channels, customer base expansion) aligned with the innovation efforts of an entity, accelerators help foster the cultivation of ideas which are forward thinking and disruptive. Some accelerators are industry specific while others are not. Regardless of the programme you choose, founders do need to make sure that the accelerator or incubator for which they apply for is aligned with their goals, by opposition to just try to obtain quick cash to continue their mission. Given this fact, I wanted to highlight a few Berlin accelerators still existing in their true form that enable startups instead of robbing them of precious time, energy, money and valuable resources.
Tagline: EIT Climate-KIC Accelerator is the only EU acceleration programme focused on climate impact by cleantech commercialisation.
Programme duration: 18-month programme
Focus area(s): Climate and cleantech
What you get: Up to € 85,000 (Stage 1 – Fundamentals, Stage 2 – Validation, Stage 3 – Delivery)
What you give: No equity
Location: EUREF campus, Torgauer Str. 12
Number of companies accelerated: 1000+
Tagline: It’s not the programme, it’s your programme, it’s tailormade.
Programme duration: 100 days
Focus areas: Industry agnostic
What you get: €50,000
What you give: 5%
Location: Markgrafenstr. 12-14
Number of companies accelerated: Not listed
Network: 10,000+ industry experts
Tagline: We know that innovative thinking also needs a creative environment.
Programme duration: 3 months
Focus areas: Rail infrastructure, logistics, construction technology, mobility
What you get: €25,000
What you give: No equity
Value add: Deutsche Bahn supports the development of your solution and may become one of your customers
Network: Not listed
Location: Holzmarktstr. 6-9
Number of companies accelerated: 1000+
Network: Not listed
My list is quite short given the changing landscape. This does not change the fact that Berlin has a fast-growing startup scene and still possesses one of the most successful infrastructures for financing and funding of startup success stories founded by Germans and multinationals. The city is now thriving with various incubators, and coworking spaces, which by default is also cultivating strong cross border collaboration. But traditional acceleration models should not be a thing of the past. Developing good ideas and early-stage companies independent of a corporate agenda must continue. Supporting #changeagents who take risks to start their own companies is business imperative. Maybe instead of shifting accelerators to incubators, companies should focus on up-skilling internal talent in order to foster collaboration and adoption of unknown and/or overly thought out business protocols or massively produced products. Now that we have dipped our feet in the water, maybe it is time to go ALL IN. Berlin is a hip city, but we are still in Germany and in order to implement sustainable change, culture and innovation must be integrated into programmes and new systems. This is all just my objective, yet globally savvy opinion. I love Berlin and I value my integration into German society… which makes me want to level the playing field even more for Germany, Berlin and startup founders collectively.
If we rely on the incubator business model to cultivate talent and ideas, we are right back where we started when startups started to form. The only difference is that Berlin is not Silicon Valley as it pertains to access to capital resources needed to scale without interruptions. We need a “let’s just do it!” mentality and the mindset that sharing and perfecting leads to access, awareness and scalability.
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If you run a programme that offers equity-free investment and/or has cultivated startup success stories, please send an email to [email protected]. If you have started a new and independent accelerator programme that integrates culture and is truly fostering startup mindset and culture without corporate and/or societal brake systems in place, please don’t hesitate to reach out. I would love to do a deep dive and talk to your programme directors and MDs directly. Most importantly, if you want to advertise your startup, programme or demo day in our printed March issue send an email to [email protected], space is limited and the deadline is February 5. If you are in Berlin and have a startup I can help you build awareness as well by listing you on our city map and sharing your info via our social media channels. My philosophy is, be local but think global.