Finland’s government-backed Vigo accelerator program has released a mid-term evaluation of the Vigo program with the goals of determining the effectiveness of the Vigo concept for accelerators, as well as how Vigo has impacted high-growth entrepreneurship. Since the Vigo Accelerator program began in 2009, startups have received €100 million in funding (June 2012) when participating in the Vigo program. The collection of nine venture accelerators have a portfolio of 60 selected companies, and include some of the bigger startup names in Finland, such as Supercell, Transfluent, and Zen Robotics.

Of this €100 million in funding, the ratio between public and private money is about a 1:1 ratio. The following diagram shows the funding flows:

The report reviews some criticism of the program, namely from the power that the accelerators hold over their portfolio companies. They cite occasions where accelerators have managed to negotiate an anti-dillution clause, which may act as a deterrent to further rounds, as well as problems of entrepreneurs giving too much equity to an accelerator. They also mention “isolated issues” where accelerators have incorrectly led companies assume that they control access to Tekes’ Young Innovative Companies funding, for example.

Management fees were also on the list of criticisms, which has been the big issue that I’ve heard from entrepreneurs (who were not participating in the program). Vigo accelerators set management fees in addition to taking equity, and there have been issues with the level of management fees, as well as what portfolio firms should expect from the fees. In the best case scenerio, the report’s authors write “…on balance, management fees should allow accelerator teams to survive the gap between upfront investments and eventual capital gains returns, but not in undue comfort,” but it’s tough to determine if the right financial incentives are in place, especially since 2009, only KoppiCatch has exited Zokem, the Espoo-based analytics company.

The report concludes that the management fees worked well in most cases and provided the intended incentive at broadly the right level, and quotes an an external financial expert saying,

’When Vigo accelerators were chosen I think that knowhow was the focus. Only a little attention was paid on what is the investment that these accelerators make in their firms – whether one has any accumulated wealth at all. In this case then a portfolio firm’s finance is based on other sources than accelerator investments, in practice in many cases to public finance. When Vigo concept allows that the accelerators’ earnings are based on monthly fees from portfolio firms you may ask that where the risk is? I think that the earning model should be based on increasing the value of an accelerator’s initial investment in a portfolio firm.’

I appreciated the coverage of management fees and accelerators’ control over funding, since I think it was the issue I’ve heard the most grumbling about. But in general, the report is generally positive about the Vigo program achieving the goals set forth at it’s conception, and there is some evidence that Vigo accelerators are helping solve the seed-stage funding gap in Finland.

“Our evaluation shows that the Vigo Accelerator Programme has started off very well. It has succeeded in attracting a substantial amount of equity investment in innovative Finnish start-up companies. As such, we find the Vigo concept very innovative, and we believe it has a good chance to make a significant contribution towards the creation and growth of new innovative ventures in Finland,” says Professor Erkko Autto, one of the program reviewers.

There’s more interesting info in the report, and I recommend anyone who is interested in becoming a Vigo portfolio company to read it. If you’re an entrepreneur in a Vigo accelerator, or have applied, what’s your take on the program? Let us know in the comments.

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