Accelerator programs are an integral part of the startup ecosystem since they help startups to drive innovation as growing markets demand new solutions. The key activities involve mentoring and creating a network of infrastructure to support startups in the initial stages. They create an open innovation environment to tackle challenges across various domains which includes trade, logistics, construction, health, and urban solutions.
At present, the region has over 100 incubators, 53 accelerators, and over 150 Venture Capitals which have resulted in developing a robust base of startups. As per Enterprise Singapore, funding activities through incubators and accelerators increased to 353 deals amounting to US$1.5 billion in 2018. As of 2017, the number of tech startups has increased to 4,000, providing employment to about 22,000 individuals. To facilitate different requirements of entrepreneurs, two main models of accelerators are used: self-financing programs and corporate programs.
However, the recent exits of startup accelerators, JFDI and Telstra’s muru-D, raises questions about the viability and sustainability of using such start-up models in the region.
Issues faced by Self-supporting programs
Such programs have historically experienced the cash-flow challenge and even though they are able to reinvest in the program, they are unable to cover the requisite overhead costs of running the program. Just like the firms, accelerators also struggle to find their niche and sustainability as they grapple with the similar risks encountered by promising startups. While steps can be taken to minimize operating expenses to sustain the program for a longer duration of time, they also create a negative loop resulting in the admission of lower quality startups which diminishes the odds for exits. Hence, private money lenders become the prime funding source since operating expenses are met by way of short-term and medium-term business loans.
Issues faced by corporate accelerator programs
Instead of a slow drain of cash, leading to termination of the program, they try to strike a balance between nurturing startups and ensure that the sponsors receive sufficient value for their investment. The Global Accelerator Report 2016 states that funding through partnerships or sponsorships increased to 66% in 2016. Usually, startups have to deal with exclusivity clauses, interference from corporate staff and events that hamper focus on core activities. In many cases, the startups are unable to get access to potential corporate sponsors and consider taking a personal business loan from a licensed moneylender. This also creates a negative loop similar to that of self-supporting programs leading to their closure.
The way ahead
A survey conducted by NUS Entrepreneurship Centre states that 47.9% of startups have utilized support schemes such as mentoring, incubation and accelerator programs for their growth in 2017. Hence, it is important to ensure sustainability of the accelerators in the region. One way of supporting them is to have multiple stakeholders or investors in order to avoid over-reliance on corporates. This will help the accelerators to continue their programs even if one or two partners pull out. Also, building partnerships with multiple corporates and other organizations enable to provide innovative consulting services specific to the business domain and create an opportunity for the startups to tap foreign markets.
There is no ideal model as “one-size-fit-for-all” concept cannot be applied to accelerator programs since the nature of startups vary. So, a successful accelerator should balance the interests of stakeholders, startup founders, mentors, investors, and communities.