Posted By Simon Montford on Oct 21, 2014
The number of hardware startups reaching and exceeding their campaign goals on crowdfunding sites such as Kickstarter and Indiegogo is increasing dramatically. This is an indication that hardware is so hot right now, and this flourish of activity has not gone unnoticed by the investment community, and corporates.
In fact corporates are increasingly, and very sensibly, setting aside retained profits to invest in startups aka 'innovation funds'. Not all accelerators are corporate-backed but of the ones that are, like Telefónica's WAYRA, many prefer to make investments directly whereas some choose to sub-contract the entire process to 'independent' accelerators such as TechStars. Corporates that have programmes 'powered by TechStars' include Barclays, Disney, Nike, and Sprint.
As we reported a few weeks ago, having acquired Cambridge-based Neul, Huawei plans to establish an Internet of Things centre of excellence in Cambridge and now a further two dedicated IOT accelerators are set to boost London's IOT ecosystem. The first is Breed Reply which is already accepting applicants (Deadline: November 14, 2014) and Wearable World Labs which is expected to formally announce the launch of their London-based programme at GLAZEDcon tomorrow.
In order to attract the best and brightest, accelerators often make big promises to justify the quantity of equity they demand from entrepreneurs. Typically the amount relinquished is 5-10%, but I have heard of some taking as much as 30%! In return, entrepreneurs are offered swanky office space, an entourage of mentors, privileged access to an extensive network of well connected high-net-worth industry luminaries and gobs of publicity.
For the likes of YCombinator and TechStars, it is easy to justify the price of entry because their exemplar track record of churning out stellar performers proves they do indeed add value, big time. As of summer 2014, the combined market cap of all YC companies exceeded $30 billion!
Newly launched accelerators, however, are unable to provide evidence of how they have been able to add value in the past so the exchange can feel like a leap of faith for the entrepreneur. Perhaps more accelerators should follow TechStars' example by offering an 'equity back guarantee'. In the absence of a track record, therefore, entrepreneurs will need to think carefully before handing over equity to unseasoned accelerators. Don't forget that the slice of pie could potentially become tremendously valuable in the event that the venture ends up hitting the big time.
In general, the formula works very well and I have yet to come across any horror stories. A few months ago I came across one entrepreneur who had graduated from WAYRA. It was more of a grumble than a genuine gripe but he alleged that he had been given the impression that his team would be granted access to key contacts within the Spanish telecom giant. Apparently this never materialised because they were snubbed by the people they needed to see who were suffering from a 'not invented here' attitude. Although I cannot substantiate this accusation, I can totally empathise with both sides of the argument. On one side you have an entrepreneur who has handed over a large slice of equity in good faith and on the other side you have employees within well-resourced corporate R&D departments that don't see why they should 'play nice' when little upstarts come to them claiming to have all the answers. What you have here is a classic example of a culture clash!
Regardless of this isolated and yet to be substantiated scenario, in general the concept of accelerators has been repeatedly proven to benefit all concerned. In fact I would go as far as to say it is one of the most successful business models to aid growth and innovation out there.
With this in mind, providing the new breed of IOT-dedicated accelerators can offer their entrepreneurs sufficient value, it hopefully won't be long till the UK witnesses it's first ever billion dollar IOT startup.
No pressure then. ;)
For further dedicated IOT accelerator programmes, check out our directory. Get in contact if we have missed anyone out.
Finally, if you enjoyed this article why not check out "Rise of the Hardware Accelerator", and subscribe to our free newsletter?
© Simon Montford (WEB3IOT), 2014-2019. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Simon Montford and WEB3IOT with appropriate and specific direction to the original content at web3iot.com.