Marcello Schermer, regional manager for Africa at Seedstars World, takes a look at Africa’s accelerator space, how it is developing and the challenges it faces.
Accelerators are incredibly popular these days. If you are a corporate, you have to have one (or more), if you are an investor, you are thinking of opening one, and if you are an entrepreneur you are most likely working with one (or will do so soon). Especially in Africa, accelerators are everywhere. All of this is for good reasons:
- Accelerators provide stable infrastructurein terms of connectivity, office space and power which is a significant value proposition in many countries across the continent.
- Accelerators offer a communityof entrepreneurs where people can learn from each other, help each other and collaborate on various projects.
- Lastly, accelerators provide access to education and mentorsthat most startups and entrepreneurs would not have access to otherwise.
Despite the numerous programs out there, the number of successful startups coming from accelerators is still quite small. In a recent article, Mark Essien, the founder of Hotels.ng, a Nigerian startup that recently raised $1.2 million believes the accelerator model doesn’t work and attracts the wrong founders. Based on my experience designing, implementing and working with numerous accelerators in Africa, the US and Europe I see two main shortcomings in the current accelerator model:
- Too little specialisation and differentiation. Most programmes are industry agnostic and take entrepreneurs from many industries and stages and pair them with a broad variety of mentors. The problem is that most accelerator run into the issue of not having the right mentor for the right startup who can really make an impact but instead focus on generic mentorship that only adds marginal value. In addition, they assume a one size fits all approach to their acceleration programme, meaning that a fintech startup will go through the same programme as an e-commerce startup and both startups will be accelerated for an equal amount of time, ignoring the inherent differences between industries, founders and development stages.
- A misperception of venture and accelerator returns. Many accelerators don’t understand the fact that in startup land, returns follow simplepower laws. This means that a small number of startups will generate all the profits whereas most of them won’t. If you look at Y Combinator, over 80 per cent of its current portfolio value after nearly 10 years of operation is made up of only two companies, Dropbox and Airbnb. This means that accelerators either have to work with a large number of startups (spray and pray model as 500 Startups runs it) or be incredibly good at attracting and picking winners. The first model has not yet proven to be successful and the second approach only works if the accelerator is differentiated and attractive enough to attract the best talent. Most accelerators don’t work hard to attract and cater their programs to the potential big shots, which will make their business models hard to sustain in the long run.
What can accelerators do to avoid these two risks? It’s actually quite simple: they need to specialise and move from adding a little value to many startups to adding a lot of value to a few startups.
Slowly but steadily, corporates and accelerator programmes on the continent are realising this and building specific programmes for fintech, health and hardware instead of general purpose accelerator programmes. Good examples are the fintech accelerator that Barclays runs with Techstars or the health accelerator that AMPION runs with Merck. These programmes have a few key advantages:
- Industry specific mentorship and support.By bringing together industry leaders and experts from one specific industry to support a company in that space, the accelerator can provide much more and deeper value to entrepreneurs and mentors alike.
- Access to market:A specialised accelerator, be it with a corporate or without, can build partnerships that open doors into a specific market for a startup. Access to market can in many cases be much more valuable than money for startups, especially if they are tackling a highly regulated or competitive market that is hard to penetrate without support. Piggybacking on established players who are already active in the market can give a huge head start and competitive advantage to any startup.
- Easy testing environment:Those specific connections can also be used to provide an easy testing and prototyping environment. This allows faster iteration and improvement and can lead to early success stories to show that the startup has a proven model.
I think that in the future we will see more specialised and niche accelerators with a laser focus on one industry or issue and a highly specialised network of mentors, resources, partners and advisors that can create maximum impact in one specific area instead of a little impact in all of them.
With enough specialisation, focus on value add and quality it will only be a matter of time until the first highly successful African startup comes from a local accelerator programme.