The first rule of understanding accelerators is to get to grips with the fact that they are not, repeat not, the same as co-working spaces.
This confusion is fast becoming one of the tech-set’s great frustrations: “In the simplest of terms, accelerators are programmes, not spaces,” says Juliette Morgan (pictured right), partner at Cushman & Wakefield, head of property at Tech City and now co-founder of Europe’s first property accelerator, PiLabs, which launched in Shoreditch last month.
“You can operate an accelerator programme out of a shared working space, but an accelerator does not refer to the space itself. It refers to the mentorship and financial backing that comes with being part of the programme” (see glossary).
The concept, traditionally associated with the entrepreneurial start-up culture of the US in general and the San Francisco Bay area in particular, has seemingly leapt onto the UK tech scene – better known for its incubator spaces – out of nowhere in recent months. It was the launch of PiLabs that focused the attentions of the real estate sector on accelerators just a few weeks ago.
As the rise of our own start-up culture has turned the spotlight on these types of support programmes, just how much can we expect to see the trend grow in the UK? Will we be learning our lessons from the San Francisco and New York success stories or from our homegrown counterparts? And what could access to fresh young start-ups here mean for the UK property industry?
Starting up for start-ups
An accelerator is ultimately a support system for young companies which have a good business concept or model – one that could potentially attract investment – but often little business experience, contacts or capital. When a company is in its early stages then accelerators are often referred to as seed accelerators.
They can be privately or publicly funded, but follow the same pattern.
First, the companies need to apply for a place on the programme. This has become extremely competitive in some cases. The acceptance rate at some of the US’s best known accelerators such as Y-Combinator, which launched AirBNB and Dropbox, is now just 1%.
Those that do make it receive a seed investment in return for equity. The start-up will then be offered free space from which to work, mentoring and access to investors – usually as part of a “Demo day” at the end of its stint in the accelerator. This stint is usually three months – as it will be at PiLabs in Shoreditch – and the start-ups have only until then to “graduate” which, in effect, means securing first-round investment.
C&W’s Morgan says that the rise of UK start-ups and the trend to set up accelerator programmes should not be underestimated by the property sector. “With so much start-up maturity coming into the market – particularly prop-tech and property start-ups – real estate companies could use accelerators like a quality filter to decide who gets into their building. It is a good way of being closer to some of the industry’s most exciting young firms at an early stage,” she says.
She adds that keeping an eye on these programmes from a pure investment perspective can be lucrative – PiLabs will be open to anyone looking to make an investment – but that there are implications that need to be fully appreciated: “You can make an early stage investment via an accelerator, but you need to have follow-on funds in order to defend that investment. The accelerator is just the first stage of the funding round and you don’t want to be the person to have helped launch a start-up and then not be able to see it through, because someone else can then easily swoop in with the next round.
“The key is for the property sector to understand exactly how the system works, how venture capitalists operate and where our place is in the ecosystem.”
Home-grown or the American dream?
Thanks to the growing similarities between the Bay Area and (albeit far less advanced) London start-up worlds, comparisons have been drawn between accelerators in each.
Duncan Logan, founder of San Francisco-based accelerator RocketSpace, says: “Silicon Valley has always had a stream of accelerators to help get products to market fast. The past four years have seen a boom in corporate incubators and accelerators housed independently or at RocketSpace. As ‘technology eats the world’ there has been a growth of innovation clusters outside Silicon Valley. One of the most impressive is London incubators and accelerators all driving the innovation ecosystem.”
Here in the UK, we have a history of delivering successful incubator programmes. These are similar to accelerators, but differ in that there often is not a strict time limit on how long a company can remain in situ and there is less of a focus on investment. They are often attached to universities and offer access to space, facilities and resources.
The St John’s Innovation Centre at Cambridge University – which has been running for more than 20 years – is one of the UK’s best known incubator spaces. “It’s not just about bricks and mortar,” says Rob Sadler, head of offices at Savills in Cambridge. “It has everything you need on site and the success rates there for launching businesses are very high. It’s around 75% against a national average of nearer 40%. But the question is increasingly how long do you keep people in there? Five or six years ago there was more space available. So the rule is that once a business gets to a certain size and needs more than 1,500 sq ft – which is a dozen people plus – that’s a good cut-off point.”
Level39 – the Fintech incubator/accelerator hybrid set up by former Tech City chief executive Eric Van Der Kleij in 2011 – is perhaps the best example of existing UK accelerators based on the incubator model.
The company uses the space available in its Canary Wharf office to run a series of different accelerator programmes. It offers five levels of membership ranging from Drop-In through to High Growth Space Level 42 – aimed at more developed tech companies which have graduated from one of the Level39 accelerator programmes. One major difference, though, is that the Level39 programmes do not demand equity in return for seed investment.
Last month Level39 announced its most recent accelerator programme, Cognicity. The premise is to accelerate start-ups that could help make cities more efficient. Companies accepted onto one of the six 12-week programmes will be based in a new space around Level39 and will benefit from mentoring, support and a £50,000 prize to help get their business going.
“This will, in effect, actually be six full-blown accelerator programmes in one,” says Van Der Kleij. “This is because there will be six strands: sustainable buildings, transportation, connected homes, virtual design and construction, resource management and automated building management. Six finalists in each of the six subcategories will be chosen for each three-month period. As well as the prize money there will also be an opportunity for them to win a ring-fenced contract with Canary Wharf Group.”
Applications are open for the buildings and transportation strands, with the programmes kicking off in early 2015.
Van Der Kleij adds that now is the most exciting time for accelerators in the world of property – particularly following the launch of PiLabs. He says: “When an agent like Cushman & Wakefield starts to care that much about prop-tech, it is time to pay attention. Agents won’t take notice unless there is something pretty significant to take notice of.”
Glossary
Accelerators: fixed-term, cohort-based programmes including seed funding, working space, mentoring and access to investors and venture capitalists – usually as part of a public pitch event at the end of the programme
Incubator: support space for start-up and early-stage companies, usually providing access to facilities, resources and mentoring and, where necessary, laboratory space. Unlike accelerators, they do not necessarily have a short-term time limit or offer access to investors in the same way
Demo day: an opportunity for start-ups in an accelerator programme to meet a number of key investors – usually in one day – and pitch their business for investment
VC: Common abbreviation for venture capitalists.
Co-working space: an office or other space where people from different companies work together in one area. Often based on individual desk hire as well as offering larger desk clusters and/or work areas. Not – repeat not –
the same as an accelerator
