Corporate accelerators: a strategy for success

When the global recession hit in 2008, many corporate purse strings tightened. But though some businesses may have been tempted to cut back research and development (R&D) expenditure, others sought alternative, potentially more cost-effective means to increase innovation rates through setting up corporate incubators and accelerators, including Disney, Barclays, Telefonica and Red Bull.

According to last year’s report by Spain-based phone operator Telefonica’s accelerator Wayra, corporate incubators and accelerators accounted for 12% of UK total startup programmes. These corporate accelerators are following the rapid growth in independent accelerators, many of which are courting relationships with business to boost their cohorts of startups.

Last year’s paper, Accelerating startups: the seed accelerator phenomenon, by academics Susan

Cohen and Yael Hochberg, identified the first accelerator as Y Combinator, founded by Paul Graham in 2005.

Nine years later the academics noted estimates of the number of accelerators ranged from 300 to more than 2,000, spanning six continents, and the number is growing rapidly. The Global Accelerator Network, a selective international umbrella organisation for accelerator programmes that follow the Techstars model developed in 2007 by David Cohen and Brad Feld, two startup investors, counted 50 accelerators in 63 cities among its members.

Techstars’ first corporate partnership was with software provider Microsoft in 2011 and focused specifically on Kinect – motion sensing input devices for Xbox and computer – but others include media group Disney.

Dave Drach, vice-president of partnerships at Techstars, said: “Disney has a huge amount of marketable intellectual property with characters from the historic Disney franchise, from Pixar, Star Wars, Marvel, the Muppets, ABC content and ESPN content. Disney needed new ways to engage people around this content and monetise around that engagement. They tried different programmes, but the Disney Accelerator, powered by Techstars, has proven very effective.”

Drach said robotics company Sphero developed the new robot, BB-8, at the accelerator for the forthcoming Star Wars film.

But while the number of accelerators has been growing rapidly, questions remain about whether accelerators create or select for success? Christopher Haley, head of new technology and startup research at UK-based innovation charity Nesta, said: “There is a big question mark around accelerator programmes in general. Do they work? There is not yet quite enough evidence to point at what works and what does not,” even if some accelerator graduates, such as room reservation service Airbnb, a graduate of Y Combinator, have been successful.

Haley added: “The second question is the signalling effect of having been through one of these courses. There is undoubtedly a benefit in saying you are a graduate of Y Combinator as it will be a little bit easier to get a meeting with a venture capitalist.”

While accelerator motivations are clear-cut, as they usually take equity in their cohorts or fees for providing services or space, the motivations can be less obvious for corporate-backed accelerators.

They can be viewed as a channel of open innovation to support in-house R&D, a way to grow the market for a proprietary product or a means to create an ecosystem, or just part of a public relations or corporate social responsibility (CSR) campaign, financed through a marketing budget.

Haley was concerned about the latter. “The danger of funding this from a marketing or CSR budget is that the activities can be insufficiently aligned with corporate strategy, and fail to get the necessary internal buy-in.”

To help align their innovation strategy with startups, corporations are looking to select from a broad range of open innovation and corporate venturing tools.

Tracy Isacke, managing director of corporate relationship management, and Claire Lee, head of early-stage banking at Silicon Valley Bank, said the financial services group created a four-month, virtual accelerator programme, Commerce.Innovated, in 2014 by partnering credit card provider MasterCard “to leverage the massive growth in fin-tech [financial technology] innovation”.

Another trend followed by SVB is corporations building deeper ties with universities. Isacke and Lee said: “This has long been a useful way to keep a finger on the pulse of innovation. In today’s world of startups, that relationship plays itself out in different ways.”

They said that in January SVB brought 18 students of mixed entrepreneurial experience from 10 US universities “to Silicon Valley for a first-hand view of the entrepreneurs’ world”. They added: “This was the bank’s first attempt at immersion for a group of students pursuing diverse degrees at a time in their life when they could really benefit from meeting top entrepreneurs and venture capitalists.”

Dror Pearl, head of the IBM’s Global Technology Unit, said it had set up first accelerator – IBM Alpha Zone Accelerator – in Israel in April last year. “In the past three years, we have seen more and more accelerators and incubators open their gates to invite Israeli startups to work with them.

“Whether we needed an accelerator or not was not a tough decision – if the market is there we must establish one. But unlike others, we decided to be completely different and focus on A-round companies and beyond. We want to take the more mature companies, bring them to the enterprise markets and help them to sell globally.”

IBM requests in return that its startup participants check whether IBM’s technology can be used to help in their products or services. Pearl said: “The goal is to increase sales. When they start to be successful and sell their solutions, which includes our technologies embedded in it, it is a win-win.”

And the limited evidence so far suggests some corporate accelerators can be helpful to themselves and the entrepreneurs. Wayra’s report includes data from three corporate accelerators in London, UK, that reveals a survival rate of 90.1% among its graduates.

Wayra itself was established in 2011 by Telefonica, which needed a way to remain competitive as its market was disrupted by startups and its domestic Spanish market was hit by the global financial crisis.

Wayra’s academies in both Barcelona and Madrid have helped Spanish startups raise more than $13m over the past 18 months.

Until Wayra’s launch, the company’s approach to startups had been somewhat limited, having made some “very expensive acquisitions” over the years, according to Gary Stewart, director at Wayra in the UK and formerly launch executive in Spain from 2011.

Stewart added: “Wayra was created to help Telefonica in its transition to a digital telco, because we saw companies like WhatsApp were eating into our SMS business, and Skype was eating into the roaming business. Working with startups gives Telefonica more of a preview as to what the future might look like.”

Now Wayra operates 14 accelerators across 12 countries with a notable presence in Latin America. In the UK alone it accelerates cohorts of 20 businesses in which Telefonica invests as a minority shareholder, as well as cohorts of 10 social ventures in which Telefonica and the UK government invest as minority shareholders through Wayra UnLtd.

However, given competition and other factors, other locations have been less successful. Wayra’s Prague outpost in the Czech Republic was recently closed, and the future of its Dublin presence remains uncertain, while the group is also exploring the possibility of opening further spaces in partnership with other telcos.

In March, Wayra launched an entrepreneurship alliance with Korea Telecom and the South Korean government, and it has a similar initiative in China.

The development of alliances with competing international telcos points to the often multiple and occasionally conflicting rationales behind corporate backing of accelerators. Stewart said: “I have spoken to all the other telcos, like Orange. If one of them can help to do a pilot for our startups, or they want to invest, well that is not something we view negatively.

“To be clear, I have two key performance indicators. The first is to see if I can help startups raise financing. The second is to see how I can help them to scale. Telefonica is the first and most obvious channel to pursue, but we are also open to working with other corporates that might be potential clients and distribution channels for our startups. In fact, on various occasions we have invited other corporates like Turk Telekom and Santander to sit on our judging panels so that our startups might have greater access to other markets.

“The impression I have is that telcos are more concerned about companies like Apple, Facebook and Google, which are launching mobile plays without any sort of regulation, than they are about each other.”

Last year, companies accelerated at Wayra UK had 27 trials with Telefonica, with seven gaining contracts, including Qudini, a queue management system for phones used by O2, Telefonica’s commercial brand in the UK. Qudini is expected to close a funding of more than ￡1m ($1.5m), with reinvestment from Wayra.

While significant for Quidini, for Telefonica it is virtually a rounding error for a company that is part of a select group of companies that invest more than €1bn ($1.2bn) a year in R&D or has dealt with acquisitions worth hundreds of millions or billions of euros.

The greater impact could come if Telefonica and the other corporations with accelerators can deliver better service to customers or insights into their needs that can be met in different ways and by accelerating the results from product development.