The accelerator model of helping young start-ups to grow has been around for a little over a decade now. Within this time frame accelerators have evolved in terms of business models, monetization strategy, organizational models and adaption to different industries – especially accelerators working in healthcare.
The beginning of modern tech accelerators started in 2005 with Y-Combinator as the first of its kind. After the big success of Y-Combinator other accelerators like Techstars, Seedcamp, Startupbootcamp or PlugAndPlay have followed this path. The trend of more and more accelerators entering the market came to a peak and turning point in 2013. The number of accelerators is in a steady decline since 2013. Running an accelerator successfully for a longer period of time isn’t so easy.
Accelerators adapting to healthcare
The first accelerators working in the health industry were mere copies of their successful role models. Typically the accelerator model was – and is – to offer mentorship and seed-capital in exchange for company equity. This plus other perks like free office space, product development, access to investors) would be given in very structured, school-like programs. The start-ups would attend 1-6 months classes, mostly on-site of the accelerator’s premises.
With more and more accelerators specialising on particular industries this typical one-size-fits-all solution of the first movers (original accelerators) is diversifying.
Some accelerators are adapting their models, some are sticking to what has worked so far.
Some adaptation strategies for accelerators in healthcare – with its slow-paced product development cycles (on average it takes 10 years to develop a new drug) – are e.g. by extending the length of the accelerator programs. Whereas a non-health accelerator program would usually be 3-6 months long, some health accelerator programs nowadays are 6-12 months long or even longer.
Another adaptation strategy for health accelerators is to adjust the funding sum for their start-ups. Longer business cycles in healthcare translates to longer time-to-market for start-ups.
Again, the adjustments are rather young. Best-practices have not established yet.
Types of accelerators in healthcare
Based on the diversification the accelerators landscape in healthcare has evolved into a colorful mix of different accelerator types offering different focuses and services. The Californian Health Foundation distinguishes six different types of accelerators in healthcare:
– Independent commercial: Independent accelerators with shareholders and typically a CEO – This is the type of accelerator we are referring to mostly
– Enterprise-based innovation: Accelerator usually serving as innovation centers for companies
– Product- or sector-amplification: Even more specific than the enterprise model these accelerators are concentrating on enhancing one singular corporate product.
– Economic development: Usually government-funded bodies with the goal to create jobs or strengthen local entrepreneurship
– University-affiliate: Based around a university these programs vary from co-working spaces to full accelerator programs (mentorship, funding, networking)
– Collaboration platform: Platforms enabling the collaboration between small start-ups and bigger corporate entities in form of strategic partnerships mostly with a corporate sponsor
To find out more about the changing market conditions, adaptation processes and how to survive and become successful in the fast-paced accelerator business, we talked to Neda Amidi from Plug and Play. Plug and Play is an accelerator with more than 500 investments, 400 start-up companies in their offices and 11 years of accelerator experience. It has been ranked as Top Accelerator Program 2016 by Seed Accelerator Rankings Project. Neda is the Investment Director of Health at Plug & Play. She is responsible for sourcing disruptive innovations, leading strategic investments, and managing partnerships with leading corporations including Johnson & Johnson Innovation.
Research2Guidance: Your accelerator has been doing business for a while. How are you perceiving the changing landscape for acceleration investments?
Neda Amidi: The accelerator space is more crowded than when we first started Plug and Play in 2006. Since we have been operating in this space for a while we’ve developed a unique niche – with our stage agnostic programs, corporate partnership network and 12 industry-specific innovation platforms.
Research2Guidance: You have seen the rapid growth of the number of accelerators that started in 2008/2009 and has come to a peak in 2013. Do you think there are too many accelerators out there today?
Neda Amidi: There are definitely a lot of choices for start-ups. There are a lot of accelerators that specialize in helping early stage start-ups. We help later stage start-ups getting from zero to a million in revenue. There are not too many programs that specialize in our sweet spot of helping a company get from a million to ten million in revenue.
Research2Guidance: With so many accelerators out there do you see the danger that start-ups get funded by accelerators who are in need for investments that otherwise would not have received money? So that start-ups are able to secure accelerator “seed investment” but no follow-up funding?
Neda Amidi: The biggest danger is giving away a large amount of equity when going through multiple programs that take 5-10% equity from start-ups across the board. We don’t take equity for a start-up to be part of our program, but at the end of each batch we end up investing in about a third of the companies. In our portfolio, around 70% of companies end up raising another round of funding after we invest, so we have not seen a big problem with follow-up.
Research2Guidance: Setting up and running a successful accelerator is a challenging task. A lot of factors must come together in order to be successful. If you would have to pin it down to the top three: What are the critical KPIs for your accelerator’s success?
Neda Amidi: Our various sourcing channels for access to the best start-ups. This includes our internal ventures team who proactively source the best start-ups in each industry. Our corporate partnership network. With over 180 corporate partners we provide our start-ups with unparalleled access to corporate business development deals.
Research2Guidance: If you ask the biggest names in the business it seems that the key to success is sourcing new start-ups, i.e. getting your accelerator’s name in front of the eyeballs of possible new start-up applicants. How important is sourcing for your success?
Neda Amidi: It’s the most important aspect of our business. We attract the best corporate partners and are able to scale internationally because of the quality of the start-ups we work with.
Research2Guidance: Big accelerators like yours are rather sector-agnostic. Smaller accelerators with less profile are often concentrating on smaller market niches (e.g. b2b, specific industries, specific regions). What do you think is more successful in the long run: big accelerators (with a lot of resources) or small (agile & specialized) accelerators?
Neda Amidi: Both have pros and cons. For example, we don’t have wet labs in any of our locations so we would not be ideal for very life-science focused companies. We are primarily focused on digital health solutions and devices. You can’t be everything for everyone, so you have to focus on the areas you perform best.
Research2Guidance: Accelerators vary from “one size fits all” model to specific industry and regional environment. For example, in the health industry with its uniquely long product cycles, some accelerators are extending the time of their programs. Do you agree that the length of the program is a killer criterion for a start-up’s success?
Neda Amidi: We’ve played around with varying the length of our program and have seen little difference. What is important is imparting on our corporate partners how important it is to streamline their internal processes so that they can engage with start-ups quicker.
Research2Guidance: There is a discussion between two “camps”: Should the start-ups of a cohort be on-site or can they be off-site. On-site advocates say there is nothing better than the dynamic of a group of eager entrepreneurs getting together. Off-site advocates say that it’s better for a start-up’s success if it can stay in its offices pushing the company instead of attending lots of meetings. What do you think?
Neda Amidi: We don’t require our start-ups to relocate but provide them with free resources here if they choose to. You obviously get more out of the program if you are on site and able to attend the events, mentorship sessions and networking opportunities we provide.
Research2Guidance: At the moment, 90% of accelerators are monetizing their program through a wide array of channels: Not only through exits and IPOs but also through alternative revenue sources like consulting, events, workshops, renting offices or corporate partnerships. How do you think the monetizing of accelerators will develop in the future? Will accelerators without a competitive edge turn into consulting companies (or agencies, co-working spaces, etc.)? Or will there be more accelerators monetizing through exits only after they have gained some financial buffers?
Neda Amidi: What has worked well for us is using alternative revenue sources (real estates, corporate partnerships, etc.) to cover the overhead and then investing on top of that.
Research2Guidance: You are investing in different industries. Industry-specific accelerators have been (and are) adapting their programs to characteristics of the industry they are in. You have the same program for all different sorts of start-ups. Have you ever thought of adjusting your program to different types of start-ups?
Neda Amidi: Yes, each of our programs curriculum is geared towards the industry our start-ups are in. We have industry experts from each of our verticals as mentors and advisors to the start-ups.
Research2Guidance: A lot of industries are shaken up by new disruptive business models and technological innovation. If we say that the main benefits of an accelerator are networking, knowledge transfer and investing money – all of them have successfully been digitized: business networks (linkedIn, f6s) connect people easily, countless blogs give away a wealth of knowledge about starting a business and crowdfunding platforms are investing into good start-up ideas. Nevertheless, your own industry, the industry of financing and helping start-ups to grow seems rather untouched by digital change. Do you foresee any major changes for the accelerator and venture capital business?
Neda Amidi: There is nothing that beats face to face interactions. Our partner round tables and executive dinners are not something that can be digitized. When looking for early stage investments, we look at the team as one of the most important criteria. Meeting the founders face to face and getting to know them is a critical step in deciding in which companies to invest.
Research2Guidance: Thank you Neda for your answers.