Since around 2007 there has been a huge outburst of accelerators around the world, especially so in Europe. Yet, since the whole concept is fairly new, there are a lot of questions surrounding the practice. Are accelerators successful? Will it be easier to raise money after an accelerator? How much value can an accelerator program add to your company?
These and many other questions, are difficult to answer. Especially so, when there is very little data available on them. Sure there is some public data, that accelerators must submit, but it is very hard to get a hold of real hard-core statistics. Unless of course an accelerator comes up to you and passes on all of their “books” to you. This is what Accelerace from Denmark basically did and there is a lot to learn from what was inside.
Accelerace goes through a rather large amount of companies in IT, Life Sciences, Industry and Consumer sectors. So far they have worked with 198 companies and are rapidly increasing the amount each year, with an aim to go through 100 companies in 2013 alone. This sample size makes the data just that tiny bit more interesting, as we can deduce larger trends from it. Take for instance the valuation. Accelerace tracks the valuation of the company on entry into the program, during it and right after. In that data, you can clearly see that the companies at entry were worth around €54.53 million in total or around €275 000 on average.
When talking to Christian Hoffmann of Accelerace, he noted that “[they] usually enter a little bit later than other accelerator and the companies are a little bit more mature. Some of them already have customers.” So to all of you out there valuing your startup in the millions pre-traction and pre-launch, please make a mental note of this fact and think carefully when you decide how much money you want to raise and how much equity you are willing to give away.
Of course it would not be fair to leave out what the current valuation of the total portfolio, which sits nicely at €184 million and takes into account negative valuation as well as the 13 companies that went bunk. So the average valuation of those that are still alive is around one million euro, or 3.6 times more than what they came with.
But which sector is the top performing? Average IT valuation is at €784k, Life Sciences is at €1.54 Million, Industry at €312k and Consumer is at the bottom of the group with €53.7k.
What is more, this performance extends to raising further capital as well. Where the IT and Life Science categories are by far raising the most capital with €39.5 million and €34,7 million respectively.
This is not only about the numbers but also about the percentage of companies that raised further funding. 48.4% of the IT cases, 53.45% of the Life Science cases, 28.57% of the Industry cases and 33% of the consumer cases have raised additional money. Overal 58.4% of companies raised money after Accelerace, 48.4% of which raised the funds right after graduation.
The same trend continues when we look at the amount of capital raised, the IT sector raised on average €808k per startup in further funding and Life Sciences bagged an impressive €1.05 million.
Although this might lead you to believe that Life Sciences and IT are definitely the best sectors to go after, you have to take into account that many sectors are not represented in the data and also that this analysis does not take into account companies that did not want to raise capital at all. So take it with a grain of salt and make your own conclusions.
One other extremely interesting finding by Accelerace is the importance of VC funding. You see, they wanted to make their own investment strategy and did not want to depend on billion dollar exits from “VC DNA” companies. So they did some research and found out that in the US, only 20% of all the companies that reached IPO were backed by VC’s and that in Europe the number is even lower. So they wanted to take on companies that would follow the organic growth curve.
This is something I would definitely salute to as this is a known problem amongst many new entrepreneurs. They know all too well the beaten path of Angel Investment followed by A & B rounds, etc. They know the process so well that they often forget that organic growth is a valid option that needs to be heavily evaluated and that there are other ways of raising capital, without giving away equity, especially if you have a positive cash flow.
And indeed, Hoffman commented that they only “want 30-40% of companies that have VC potential. We are not interested in cases that can only be VC investments. Really good companies can grow organically.”
This can be a problem for many new startups and you should think carefully about how to approach your fundraising as it is often that by pursuing VC money, you will be left in a position where your investors will push for short-term decisions that aim at an exit rather than healthy organic growth. That being said, there is a lot of companies that absolutely need VC funds. All I am trying to say is that you should be aware of the options. For instance, you could consider loans with an investor upside / convertible debts, which is an instrument that Accelerace itself uses. If you are interested in applying for their program, you can do so here.
In short, be aware of your valuation at the very start, know the trends in your industry, look at different funding options before you run to angels and VC’s and learn how to value a company. Finally, make sure that you spend some time investigating how your investment choices can affect your startups long-term health and funding chances.
Top Image Courtesy of Shutterstock // Accounting