Startup Ecosystem

I am Alex Mahr and I am sharing links, comments and insights about startups, entrepreneurship and venture capital, along my journey of learning about the fascinating dynamics of startup ecosystems, in which startups can prosper. I am living Germany and working all over Europe (currently in Switzerland).

[startup-ecosystem]

The Corporate Accelerator Program Flood – A Blessing or a Curse?

Starting a startup company is becoming an increasingly attractive career choice for graduates, although most startups will eventually fail. Depending on how failure is defined, according to Harvard Business Professor Shikhar Ghosh, we can expect 70-80% of startups end up being a failure. Startup Genome data suggests that 75% fail within the first two years – with or without venture capital backing. CB Insights finds that failed startups typically shut down 20 months after their last funding round having raised a median of USD 1.3 m. The top reason for failure: no market need for the product.

Accelerator programs are the “new MBA” for startup founders trying to identify the most promising startups and to help them succeed – hopefully mitigating the risk of failure. The role model for accelerator programs are large programs, such as US-based Y Combinator. 72% of their startups raised money after demo day (the final event of the three-months-program) and, as of May 2013, 37 startups have a valuation higher or have been sold for more than USD 40 m (ca. 12% of their startups not counting their last 2012/13 classes). The latest statistics including their winter 2015 class are impressive: 842 startups since program launch, total market cap of over USD 30 bn, total money raised USD 3 bn and, most interesting, birth of four unicorns (private companies valued over USD 1 bn, e.g. AirBnB) with a total number of startups valued at over USD 100m: 32.

The accelerator model has been copied around the world and has also been picked up by corporates as part of their innovation strategy. Looking at those Corporate Accelerator Programs (CAPs) in Germany we can identify 16 by end of 2015, a number which has quadrupled in the last three years. The programs concentrate in Berlin – however, Munich represents a strong second place as the local CAPs benefit from their proximity to the corporates’ headquarters.

With the number of CAPs also the number of graduated startups is increasing – we count 334 by the end of 2015. However, it is by far not easy to be accepted to a program. For instance, ProSiebenSat.1 Accelerator claimed to have more than 300 applications to their sixth batch, while only five have been accepted – roughly a 2% acceptance rate (in comparison: “Ivy League” universities like Harvard or Princeton accept about 6-7% of their applicants). While we can find a multitude of different business models among the CAP startups, there is a clear bias towards e-commerce (11%), marketplaces (13%), consumer app (15%) and software-as-a-service (16%) models.

The duration of the programs is typically three months and includes mentoring, workshops or presentations by internal and external experts. Typically, for the program duration, a workplace for the team and a small funding ticket of ca. EUR 25 k is granted (to cover the costs during the program). Eight out of the 16 CAPs ask for 5-20% in the startup’s equity in return.

Performance

Based on our data analysis, the performance of CAPs in Germany is not yet promising from a financial perspective

8% of the CAP startups founded in 2013 or before are inactive according to their website. Besides the many unreported cases and “zombies” (startups that are being kept alive although it doesn’t make sense), CAP startups seem to outperform the 75% of startups that fail within two years

We can identify 33 CAP startups, which account for a total of USD 300 m in venture capital funding (source: Crunchbase), i.e. only 10% of the startups manage to raise venture capital with an average of USD 9 m

Lighthouse examples of startup success cases are still missing, e.g. large exits or high valuations – however, the CAP ecosystem is still young

Strategies

If the CAPs do not perform financially, what are the corporates’ expectations in respect to their CAP’s performance?

The selected examples of Hub:raum, Wayra and ProSiebenSat.1 Accelerator (all taking equity from the participating startups) show that value growth is only one element in their strategy – soft factors, such as partnerships, know-how, and human capital also count.

From the sample of German CAPs, we can identify two distinctive strategies: “Mass Accelerator” and “Super Strategy Accelerator”. Mass Accelerators are following the original role model of Y Combinator and have the goal to find and accelerate great startups. They are not necessarily biased towards certain business models or industries and take an equity share in the participating startups in order to participate in the value growth. If the startup has potential synergies with the corporate, even better but this is not their focus. Super Strategy Accelerators have a very strategic approach, ideally playing a role in the corporates innovation strategy. They accelerate only startups with synergies in respect to their current strategic initiatives. Of course, the financial performance or value growth of the startup is not in their focus.

Recently, some German CAPs have made some adjustments in their positioning in order to support their future CAP strategy:

a) Increased focus on corporate strategy  – Wayra Munich

Although Wayra is “not the me too, but the me first” as Tanja Kufner, former Academy Director of Wayra said, they have to rethink. Wayra Munich recognized already in 2013 the necessity to change the focus of their business idea: They wanted to diversify the focus in to Machine2Machine (M2M) or Internet of Things (IoT), as there are so many companies from the automotive and IT-industry in Munich. With startups like mynudge (M2M) or Centersonic (IoT) they pursue this vison partially. By focusing on these two segments Wayra fits perfectly into his parent company Telefónica – a clear move towards the Super Strategy Accelerator model.

b) Strategic risk reduction – ProSiebenSat.1 Accelerator

In future, ProSiebenSat.1 Accelerator will focus on consumer startups, which are already in an advanced status and will accelerate their growth by advertisement. From now on, every later-staged startup gets EUR 500 k TV-advertising budget which they can reinvest in TV-Spots of the ProSiebenSat.1 Group. In parallel, venture capital partners like b-to-v, Earlybird, E.ventures, Lakestar and Holtzbrinck Ventures signed a partnership agreement with the accelerator. ProSiebenSat.1 clearly reduces its risk profile and therefore, this move seems to be part of a respective set of measure (for instance, the group has recently divested their company building arm Epic Companies). In addition, ProSiebenSat.1 accelerator will cooperate with the Axel Springer Plug and Play Accelerator to support new digital business models by consolidating their efforts (although the merger between the two groups was canceled).

c) Combination of accelerator and corporate venture capital – Hub:raum

Following up with startups in the CAP, Hub:raum decides whether the startup gets a seed investment from their investment arm. Therefore, Hub:raum can first push the early-stage startups and then invest and accompany the later-stage startups, if they find it attractive enough – a clear focus on financial performance and a more Mass Accelerator-like approach.

Outlook

Given the performance of Corporate Accelerator Programs in Germany so far, a focus on the pure Mass Accelerator model does not seem promising. Best-in-class pioneer Y Combinator has launched with a long haul vision and has accelerated over 800 startups so far with some significant financial performance. This approach with its order of magnitude is clearly not what German corporates have in mind.

We believe that more and more German CAPs will move to the Super Strategy Accelerator model in order to support their corporate strategy more effectively. The accelerator program will be an integral part of the innovation strategy.

This study appeared first on the Strtg.io blog. About the authors: Alexander Mahr is the Founder & Managing Director of Strtg.io, Markus Dirr is a Business Analyst at Strtg.io.

[startup-ecosystem]

German Real Estate Tech Market in 2015 – A (R)evolution?

Germany is the largest country in the European Union by population and hence, its real estate market has a significant volume: in 2014 EUR 195 billion have been invested in the real estate market overall and in 2015 a total investment volume of EUR 230 billion is expected in the building sector. Despite of 245 thousand newly constructed buildings, the number of properties is still under the required level. According to the German real estate index vdp-Immobilienpreisindex the real estate prices increased up to 6% in Q3 2015 compared to the second quarter.

The Deutsche Genossenschafts-Hypothekenbank estimates that one out of three Germans will move his or her domicile in the next two years. The situation in Germany´s major cities has intensified – for example: in the last ten years, the annual growth rate for the population in Bavaria’s major city Munich has been about 14%. Therefore, it is getting more and more challenging to rent an apartment in Germany´s high-density areas like Berlin, Cologne, Dusseldorf, Frankfurt, Hamburg, Munich and Stuttgart. Also, it is getting more complicated for landlords to cope with the number of applicants entering the market.

Recent changes in legislation trigger a tectonic shift in the conventional real estate market for rental properties. As of June 1, 2015 the “causer principle” has become effective. It states that real estate agents have to be paid by their mandating clients and not – as it has been the case before, no matter who initiated the mandate – by the tenants.  Typically, this means shifting the obligation to pay the agents to the landlords, who have often enjoyed a free service in the past.

While landlords face the new challenge of how to finance the agents’ fees (increasing the rent is probably not an immediate solution, since this market is to some extend regulated), an increasing number of startups is taking on the opportunity to offer renting services on a low-cost basis. For real estate agents this potentially results in a disruptive shift in their industry, although – according to industrial estimates – their income comes to 80% from selling and only to 20% from renting properties. Unsurprisingly, some startups go after the selling part of the business, too.

Real Estate Tech Ecosystem Germany 2015

More than 24 startups have launched respective selling and renting services in the last 12 months in Germany. Our Real Estate Tech Ecosystem for Germany illustrates the startups´ business models (non-exhaustive):

We count seven different business models. By definition, the incumbent players in the real estate agent market such as Sparkassen Finanzgruppe, Engel & Völkers, LBS Immobilien NordWest, and Postbank Immobilien, which accounted for a total of EUR 1 billion in commissions in 2014, are not included.

Selling and renting services are the startup business models that intend to replace the real estate agents as described above. These startups typically build their services on top of existing market places or classified models, i.e. they use existing online channels to gain access to prospects. We see similar concepts in other industries, e.g. for pre-owned cars (Beepi.com).

Therefore, the marketplaces are the backbone of the ecosystem, e.g. ImmobilienScout24. They have brought real estate classifieds online and bring demand and supply together. Meta listing services help property owners to create a listing on multiple marketplaces in one user interface. Meta search services provide a similar service to property seekers and, hence, provide search results from different marketplaces in one user interface.

Agent matching services are lead generation models that help the property owner or seeker to find a relevant real estate agent in their region. Crowdfunding / investment players are the fintech elements of the ecosystem and enable real estate investments in a more accessible way.

In total, we can identify 47 startups in this ecosystem. In the last two years we have observed 4 funding rounds (mainly seed) with a total funding volume of more than EUR 12 million. Clearly, once the new selling and renting services startups show traction, we expect more early stage funding to be available. The critical question for us is whether their business model is really scalable through technology?

Case study selling/renting services

Note: prices for rent assume that landlord mandates the agent.

Based on three selected examples each for selling and renting services we have analyzed their proposition along the typical selling/renting process. Since there are process steps involved that simply cannot be automated through technology (for instance, on-site gathering) or – at best – can be supported by technology (for instance, organisation of on-site appointments for prospects), it is not surprising that the main share of the process has to happen offline, just as typical incumbents would do it. Overall, we are unable to identify significant efficiency gains in the process through the use of technology.

Where the disruption kicks in is the pricing – clearly, the respective startups are much cheaper as compared to their incumbent counterparts. Example calculation: a regular agent used to collect up to EUR 2,380 in fees for an appartment with EUR 1,000 monthly rent from the tenant (2.38  times an one-month-rent, including VAT); the cheapest player in our case study charges EUR 199 from the landlord.

Outlook

We believe startups are currently too focused on pricing and consequently on deflating the market, while it remains unclear how they actually can win market share on a sustainable profitability level. The startup that can manage the selling/renting process most efficiently has a competitive advantage over its peers and the incumbents. Further, due to the necessary on-site elements in the process, the startups will have to build a business model that can cope with its local nature. Typical in such cases, execution speed and a smart roll-out strategy are keys to success. A team that provides convincing solutions for these issues is well positioned to attract funding from venture capital firms interested in this industry.

Incumbents are exposed to the risk of declining profits in case these startups succeed. The aggressive pricing of the startups shows their appetite to win this market. Small real estate agents with a high dependency on rental transactions will feel the impact first.

This study appeared first on the Strtg.io blog. About the authors: Alexander Mahr is the Founder & Managing Director of Strtg.io, Helena Auer is a Business Analyst at Strtg.io.

[startup-ecosystem]

The State of European Tech

Atomico, the venture capital firm, and Slush, a startup event organizer, have teamed up to create the “The State of European Tech.” 

This insightful analysis sheds light on what is the current state of European ecosystems around entrepreneurial mindset, tech community, talent, capital flows and success stories. Here are some highlights:

London, Paris and Berlin seem to be the most active tech communities by number of meet-ups in 2015 (Jan-Oct) with London far ahead of other ecosystems (or with the highest penetration of Meetup - which provides the data for this analysis). Of course, London is significantly larger than Paris or Berlin by population - 3.9x and 2.4x, respectively (city only).

This correlates well with the data for number of business angels per ecosystem (based on AngelList/FiBAN). As highlighted in the call-out “Europe now has over 5,000 active business angels...” - and 42 % are based in London.

When ecosystem effects come into play, naturally, also venture capital gets more and more concentrated around the top hubs in Europe. The top 5 hubs by total sum of venture capital invested (Crunchbase data) account for 47% of Europe’s total venture capital invested in 2015. 

It is amazing to see that after the rise of Berlin in the recent years and steady contribution from Paris, London is still far ahead of these thriving startup ecosystems - even when normalized for population (see middle graph, active business angels per capita). Also, UK does see the largest overall deal flow in Europe (638 deals Jan-Oct 2015) as well as the largest share of venture capital invested (USD 3.8 bn in the same period). 

You can find the slide deck and study here.

[startup-ecosystem]

Startup spaces

Startups tend to create great places to work. Maybe because they have to in order to motivate the high potentials to choose to work for them over a better paid corporate, consulting, or bank job - or Google and Apple. But - I think - also because they can. 

Officelovin’ (based in Prague) is promoting cool work environments:

Or check out TechCrunch Cribs for amazing videos:

Startup spaces are small ecosystems for themselves - great places to work. When corporates try to copy this for parts of their premisses, it really doesn’t feel the same.

[startup-ecosystem]

Unicorns - past, present & future

Unicorns are private companies valued at one billion US dollars or above. And most venture capitalists are in the business of hunting unicorns due to the economics of larger funds.

There are some interesting statistics about unicorns, for instance (based on 2013 US data):

the average age of the unicorn’s founders is 34 years - ca. 80% of those have previous founding experience

enterprise-oriented unicorns raised on average USD 138 m venture capital

consumer-oriented unicorns raised on average USD 348 m - 2.5x more than their enterprise peers

Based on this first time unicorn analysis there have been 39 unicorns identified in the U.S., i.e. companies started 2003 or later and reached the one billion dollar valuation until 2013.

Is the number of unicorns growing?

Since there is so much buzz around it, it seems that the number of unicorns has increased over the last years. But is that true? Here are two sources for unicorn lists (both world wide):

unicorn tracker by CB Insights - currently, 132 startups (81 in the US)

billion dollar startup club by Wall Street Journal / Dow Jones VentureSource - currently, 116 startups (77 in the US)

It seems to be true: the number of unicorns in the US has doubled since the first analysis in 2013.

Klaus Hommels, founder of VC firm Lakestar, has outlined his findings in his speech at this year’s NOAH conference in Berlin (I was attending). He explained that tech companies go for a much later IPO nowadays - while, for instance, Cisco, Amazon and Microsoft IPO’d at a valuation of USD 0.2 bn, 0.4 bn, and 0.7 bn, respectively, LinkedIn, Twitter and Facebook went public with a valuation of USD 5 bn, 18 bn, and 104 bn, respectively. Therefore, the “magic” in value creation is happening before the IPO rather than after. This lets money, formerly invested in public markets with decent returns, shift over to the private sector in order to participate in the private companies’ late stage performance, which otherwise would not be addressable. As a consequence, more money is available in series D financing rounds today (with a median series D round size in 2015 4.7x the size of 2010). These structural changes in late stage vs. public investments (i.e. later IPOs + larger series D rounds), naturally, are significant drivers of the unicorn’s ecosystem. 

So, where to find the next unicorns?

Of course, this is literally the billion dollar question. Forbes comes up with a list of 25 startups that have the potential to join the unicorn lists in 2015 (their analysis is survey-based). CB Insights and The New York Times identify 50 startups based on an algorithm-supported approach analyzing an array of signals, e.g. financing volume.

Good Hunting!

PS: since equity shares in unicorns can be very small, when investment happens late stage for a very high valuation, venture capitalists start hunting for dragons now (a company that returns an entire fund; 17 have been spotted so far in the wild). Basically, this means investing in unicorns when they are young at a decent valuation.

Photo credit: Flickr user Ancella Simoes

[startup-ecosystem]

The ecosystem trap for Pebble

Last week I have received my Apple Watch (I was traveling for business, so I had to wait an extra week or so to get it) and yesterday finally my new Pebble Time has arrived. Great.

Pebble’s Kickstarter campaign was insanely successful - largest funding so far with a little over USD 20 m. Clearly, there is a large crowd of supporters and Pebble, as a startup company, is doing an amazing job. With currently around 130 people and a total of USD 46 m in funding (with 67% coming from Kickstarter campaigns and USD 15 m “real” venture capital) Pebble pulled off a great device with all major smartwatch use cases (calling, messaging, calendar, ...).

As you can see from the picture, which I have taken this morning, I have had the Pebble Steel before and I am very excited that I can test the new Pebble Time now. However, now there is also the Apple Watch in the market. Which makes me wondering what will happen to Pebble?

Pebble was the first smartwatch in the market, before Android Wear devices or the Apple Watch, and - for instance, compared to the Apple Watch - it has some advantages, e.g. it is 30 meter water resist, has a much longer battery life and is retailing for a much cheaper price. 

It has a SDK for developers to create watch faces or apps. These apps can be native (running on the Pebble watch, e.g. little games such as Tiny Birds) or extensions of iOS or Android apps (e.g. making the Pebble watch to act as a GoPro remote). While the capacity of Pebble/Pebble Steel was limited to 8 places for watch faces or apps, the new Pebble Time doesn’t have that any more. It uses companion apps on the smartphone, i.e. apps on iOS and Android, that have Pebble extensions. Pebble is therefore piggy bagging on two large app ecosystems - great, right?

According to TechCrunch Apple had already 3′500 app extensions ready for the launch of the Apple Watch. And there are some quite delightful use cases based on the seamless interaction between phone and watch, e.g. having Passbook on your watch to quickly check your boarding time, gate or seat and then even pass the gate by showing the QR code on the watch.

Early 2014 it was claimed that the Pebble app store holds around 1′000 apps - maybe today they have as many as Apple for their watch. However, although the early success is quite impressive, it is exactly that seamless user experience and the power of the iOS and Android ecosystem that could break Pebble’s neck. 

It is very painful for developers to maintain their apps on different operating systems and it is easier for, for instance, an iOS-focused developer to release an Apple Watch extension than to deal with Pebble’s SDK. So, I assume in the long run, Apple Watch and Android Wear devices will have a much greater experience as they simply have a larger developer community and app base, they can build on

While Android is much more open, iOs is more limiting in what other companion devices can do (e.g. as explained here). And don’t forget the hassle of releasing the Pebble app on iOS. Assuming the future of smartwatches is defined as being a companion device to smartphones, Pebble will probably not be able to reach the user experience of an Android or iOS device

Now, if Apple limits competitors and Android Wear has already competing device partners, what is left for Pebble? Here are some scenarios:

Continue building an ecosystem around customizable e-paper hardware based on Pebble OS - I doubt that the features of the Pebble Time are good enough to compete on hardware with the ecosystem of iOS and Android for the reasons given. At best Pebble will be able to occupy a geeky niche, but if this is not profitable, the company will have to close shop at some point

Abandon Pebble OS and build hardware on Android Wear - the competition based on Android Wear is strong and a differentiation on hardware design or price is extremely difficult

What about a third ecosystem? According to IDC the mobile operating system market is split into 78% Android, 18% iOS, Windows Phone 3% and others (incl. Blackberry) 1% in Q1 2015. I believe it would be a smart tactical move for Pebble to get closer to the Windows Phone ecosystem, strike a deal with Microsoft to create a superior user experience there and maybe eventually get acquired by Microsoft, so Microsoft can strengthen their Windows Phone ecosystem in return.

I hope Pebble can find a way to continue building their story. It has been amazing so far and it would be very sad to get stuck in a native but sub-scale ecosystem.

[startup-ecosystem]

E-Commerce and marketplaces are hot in Europe

I have been attending the Noah conference in London in 2011 - that was quite interesting, but since there have been mainly Germans, there was no point for me to fly to London. This year they also have a conference in Berlin, to which I am looking forward.

This week, the first Noah newsletter arrived and interestingly, this newsletter included trading comparables from listed companies. Until now, Jefferies’ Internet Monthly was the preferred report to look up this kind of data.

Noah includes a similar data set but provides smaller segments, e.g. sub-segments of classifieds and e-commerce, and also cuts the segments differently, e.g. in Jefferies’ data set Rakuten is a marketplace, in Noah’s set it’s e-commerce diversified.

These sub-segments add additional value to your analysis, since the median EBITDA multiple for e-commerce (fashion & flash sales) is different from e-commerce (lead gen) with 25.5 and 12.9 (both 2015e), respectively. Jefferies shows a median of 13.4 for online retail.

Also, they provide the comparison of US vs. Europe-based players (see picture). Compared to the US, in Europe e-commerce and marketplaces seem to be super hot. While e-commerce models typically have a very low EBITDA margin (in Europe 2015e on average 6% according to Noah’s report), this is not necessarily true for marketplaces: on average 25% in Europe 2015e. 

Marketplaces always have been my favorite business models, mainly because of the decent EBITDA margin outlook and their hard-to-build and therefore hard-to-copy nature. The EBITDA multiple difference in Europe vs. US is nevertheless surprising and probably reflects the fact that they are even harder to build in Europe as compared to the US.

[startup-ecosystem]

A new Europe-focused tech map

Tech.eu and Dealroom.co are teaming up to present you a Europe-focused tech map with listings of companies, investors, and insights - the Tech.eu Radar.

Tech.eu is one of my favorite newcomers in the European tech blogging scene. Dealroom.co started as a carve-out from the Noah conference and used the participants’ list to start an European AngelList-like proposition. Now, however, it seems more like they want to be your virtual investment banker (similar to Gust).

I like the wealth of filtering options and the depth of data that is available - even if it seems that there are still some bugs, e.g. filtering startups for Switzerland -> Wix came up (according to the data set headquartered in Zurich), however, they are from Tel Aviv. This his probably how they have 283 company entries in Switzerland - more than my own map SwissStartups ;)

Anyway, a great initiative and an European alternative to AngelList and CrunchBase.

[startup-ecosystem]

In terms of VC funding in Europe - only Germany, UK and Switzerland are in the 2 bn Dollar plus club

According to CBInsights there were 1,274 VC, Corporate (incl. Corporate VC) and Business Angel deals closed in Europe in 2014 - with a total volume of USD 13,266 m.

Interestingly, only Germany, UK, and Switzerland are in the USD 2 bn plus club with Germany leading in overall deal volume (indicated in the graph in dark blue). Here are the top 5 according to funding volume:

Germany with USD 2,989 m through 215 deals

UK with USD 2,749 m through 421 deals

Switzerland with USD 2,348 m through 35 (!) deals

Italy with USD 1,370 m through 61 deals

France with USD 1,038 m through 99 deals

They highest amount of funding per deal is clearly to be found in Switzerland. This database only counts 5 Business Angel deals in Switzerland for 2014 - this sounds a bit low, however, the Swiss Venture Capital Report counts only eight seed stage investments in 2014. So, there is definitely not much going in terms of smaller deals.

In general, there seems to be a bias for larger deals, as also in Germany and UK there are only 10 and 63 Business Angel deals recorded, respectively. This is clearly not market reality.

Although the number of deals is almost twice as high in the UK as compared to Germany, Germany still beats the UK in terms of deal volume.

[startup-ecosystem]

Why consultants should start startups together

It's common knowledge that a large portion of startups do fail. According to CBinsights' recent findings 29% of startup failures happen due to running out of cash. 42% face a missing market need - I would argue that this is also another formulation for "running out of cash" since these teams simply haven't found a product-market-fit before they eventually ran out of cash.

How can you avoid running out of cash? Well, you have a few options:

start a business that has a favorable cash-flow profile (hint: more often than not, it is not an e-commerce model)

raise money as soon as and as often as possible (if you are an experienced founder with an impressive track record and have good relations to business angels and VCs)

reduce your burn rate to a minimum, moonlight or bootstrap

or simply do all of the above

You have heard this before. Reality is, it is quite hard not to run out of cash before your startup actually works. Here is another way to tackle this problem...

As I see it, and also have held it in my last startup, a startup team should have a clear time commitment. For instance, you are working on that idea that you all are so enthusiastic about. You should not blindly work without a goal but rather have a plan with milestones, e.g. when do you plan to go live, when do you want to achieve X dollars revenue, etc? Also, overall you should be clear how much time you can invest until you actually have to pay a salary and make a living out of it. Worst case: when do you have to return to a day job? Once you have that time commitment, it actually doesn't matter what it takes to pull it off, you will just do it.

I am biased, of course, but I think consultants that run startups actually do have an advantage (full disclosure: I am a former strategy consultant). They are not only used to solve difficult problems analytically and data-driven under high time pressure, they are also used to sell their time for decent money. A team of consultants can quite easily take on an intermediate assignment for other companies or subcontracting for consultancies ("body leasing").

I have personally done this while running a startup and I also have some data points from other entrepreneurs and freelance consultants. In the European or Middle East context, you can probably make around 1,000 USD per day with a 2-3 years of consulting experience (that is the level of a senior consultant). Let's say 2 team members go for that option for 2 months: they can make 80,000 USD for your startup and safe you from raising a business angel round (which could easily take you longer).

Same is true for other skilled profiles, of course. You could do freelance assignments in online marketing, web design, engineering, and other areas. I am personally a fan of avoid raising money too early as it sidetracks you, absorbs a lot of time and dilutes your share and power in your own company. Of course, this approach cannot replace a proper series A round, when you need it. But maybe you can avoid a (pre-)seed round or at least do it later with a stronger profile.

[startup-ecosystem]

A new breed of company builders (or consultants)

Having been a management consultant for many years, I am personally very interested in how the consulting industry develops (or gets disrupted) in client industries that are driven by digital transformation needs.

But where is the try-and-error approach of testing hypotheses, finding the right business model, partner or audience? Launching a digital business or a startup is faster, much more erratic throughout the process and requires try-and-error loops (that are backed by data and analysis but can only provide very limited certainty). Further, to really offer digital transformation as an end-to-end professional service, in-house access to additional skills is required, e.g. front and back end coding. Business skills alone will not do.

So, it seems that traditional management consulting firms fail in addressing their clients' digital transformation needs. Well, if they want to stay in business, of course they have to address this issue.

Many of the large players position themselves now with specialized teams - let's call them "consulting builders". Basically, among other services, they offer company building on-demand and hence, offer the "implement" phase of a digital strategy project as a natural extension to their traditional model. Let's look at the big 3 strategy consulting firms in Europe:

McKinsey - pioneering the combination of strategy consulting and IT services in the past with its Business Technology Office - now offers McKinsey Digital Labs

The Boston Consulting Group launched BCG Digital Ventures in 2014 with rapid expansion into Europe and Asia-Pacific

Roland Berger Strategy Consultants recently announced a joint venture with the well known company builder Rocket Internet dubbed Terra Numerata

But also at least two out of the "Big 4", i.e. Deloitte and Strategy& (formerly PwC), launched similar units: Deloitte Digital and Strategy& Digital Services (ex Booz Digital), respectively. Of course, technology consulting firm Accenture is joining in with Accenture Digital, launched in 2013.

Having worked in this industry (full disclosure: I am a Roland Berger Strategy Consultants alumnus) and started two startups myself, I have seen both sides of the table. It will be very interesting...

to follow the performance of these consulting builders as they all basically have to start from scratch in a fair competition. In this particular segment there is no "McKinsey advantage", i.e. having been around much longer than everybody else in the market - an exciting opportunity for the industry

to see their impact on the incumbent company builders and startup studios run by seasoned entrepreneurs by entering their game. I believe small & mid sized company builders could be heavily challenged as their natural exit partners now get help and start their own companies rather than acquiring them expensively. Which brings me to my next point...

to see if smaller or even new players in the market can challenge the consulting builders successfully, just as boutique consulting firms have done it in some niches in the old consulting model. Firstly, it is quite easy for company builders to offer on-demand company building services, too, and secondly, it also wouldn't be too hard to on-board strategy consulting skills and offer the whole digital strategy value chain, as well ("analyze, conceptualize & implement")

Photo credit: Flickr user Pedro Moura Pinheiro

[startup-ecosystem]

Thanks to @jenslapinski and @PJWilkinson for having set this up recently. It provides a list of VCs, Angels, Founder Investors...

Updated link (Dec 09)

[startup-ecosystem]

Health 2.0 in Europe – 35 startups to watch

After watching Apple's WWDC14 key note yesterday, one can imagine that  health 2.0 will get new momentum. With AAPL pushing Health & Health Kit new interesting opportunities arise.

Thanks to Tech.eu to shed some light on the European health tech scene: http://tech.eu/features/1472/health-startup-europe/

[startup-ecosystem]

Hello Alex! How are you? My name is Alex as well. As part of my MBA I am doing a research project on the start-up ecosystem in Europe, for the digital health sector. The project's aim is to enable us to get a holistic view of the start-up panorama and of the investor trends in Europe, in the e-medicine field. Germany is obviously one of the places where we will focus our research. Are you aware if data on funding deals, number of firms, etc, is available anywhere? Or contacts of startups? Thanks

Hi Alex,

I am not very familiar with the e-health sector in Germany. I haven't heard of a startup database in this respect. Life sciences and e-health is a quite big topic in Switzerland, though. Check out the data base of startup monitor, for instance: http://startupmonitor.ch/start-up-directory/?lang=de

I hope this helps

[startup-ecosystem]

Seed investments are a local game - Berlin, however, is hyperlocal

Last week Sten Tamkivi (an EIR at Andreessen Horrowitz) posted an article on TechCrunch that supported the general opinion that seed funding is a local game.

Well, this blog is about startup ecosystems and of course, I share this opinion. I have talked to many business angels in the past 12 months and I can confirm: while some of them could imagine cross boarder investments, the majority would rather invest in their home country.

Some seed investors (business angels and institutional) have even a regional preference. The institutional investors might be dependent on public money (that comes from a region or city) and business angels might be interested to build a reputation in one particular city.

The German blog Gruenderszene quoted a study (yet to be published) stating that 85% of Berlin-based venture capital firms invest their funds in Berlin-based startups as compared to only 20% of Munich-based venture capital firms investing locally.

Hopefully, Berlin - as a startup ecosystem - can deliver on that trust.

[startup-ecosystem]

Accelerators in Europe - too many? Don't think so...

As Tech.eu wrote there are probably around 100 accelerators in Europe but hardly a comprehensive overview. Some blogs express a fatigue when it comes to new accelerator launches and coined it "Inkubator Schwemme" (which is a negative expression and could be translated as "flood"). 

I think you cannot look at this number and state that it is too much. In geographical Europe there are 50 recognized sovereign states. That makes it 2 accelerators per country on average - definitely not much. In some countries, there are no accelerators at all. In Switzerland, for instance, there is no typical program as you can see in our map SwissStartups (let's see how the recently launched Seedspace will do). An earlier attempt to bring the Founder Institute to Berne/Zurich failed for the time being.

Also, if you look at the numbers of applicants for some programs, e.g. Wayra in Munich received 268 applications in their first class in 2012 (7 accepted) and YouIsNow received 220 applications in their last class in 2013 (5 accepted). Both are corporate accelerators from Telefonica and Scout24, respectively. These are acceptance rates of 3% and 2%, respectively. That's about the acceptance rate of Y Combinator (the "Harvard" of accelerators).

While in some local startup ecosystems, e.g. Berlin, it may feel like that there are too many accelerators as compared to the number in other ecosystems. However, when you take into consideration that great accelerator programs also attract foreign startups to come to Berlin, it is also not true that there is a local oversupply.

But how do they perform?

I think this is the key question. While the "originators" of acceleration programs, i.e. Y Combinator, form the "ivy league" of acceleration (Y Combinator has accelerated over 500 startups so far with a combined valuation of USD 13.7 bn), the jury is still out when it comes to the performance of European accelerators as most programs were formed 2012/2013.

However, it is very interesting to take a closer look at this and to follow-up throughout 2014. I have started a Google document for German accelerators with classes in 2012 onwards:

Google doc: Accelerator Startups Germany 2012 onwards

Please feel free to update/share. There is still some research to be done about the funding (although this is not necessarily a performance indicator). Interesting already in this data set:

you can see some startups attending more than one accelerator, e.g. Rockatoo, Get2play

although there is a multitude of business models SaaS, hardware, and marketplaces are dominant with 21%, 14%, and 11%, respectively

out of 154 startups in total taking classes in an accelerator 2012/2013, only 3% folded so far. Not surprising since in most cases the program has been conducted < 1 year ago and often startups receive small funding, which lets them survive for ~1 year

There are some more accelerators, which have communicated their launch, but have not yet started/completed a class. So, their not part of this analysis. Examples are Augsburg Valley, Black Forest Accelerator, Coca Cola, etc. Others refuse to disclose the names of the startups, e.g. Digital Accelerator. I have intentionally left out Founder Institute Berlin and Munich as well as similar "academies" as these are rather pre-seed launch platforms (and there is no information about launched startups available).

Photo credit: Flickr user Global X

[startup-ecosystem]

SeedstarsWorld - the first global startup competition that focuses on emerging markets

My friends at SeedstarsWorld have pulled off an amazing series of events throughout 2013.*

20 countries, 10 months, more than 1’000 invitation-only applicants, 1 winner per country. Now is the time to gather the winners from Cape Town, Santiago, Bangkok, Nairobi, Baku, Buenos-Aires, and all the other cities, learn from their mindsets, and elect the world best startup.

Big congrats to the team. But it is not yet over: there is a show-down coming up on February 4, 2014 in Geneva where they actually select the “Seedstars World Best Start-up” from the winners of all the respective startup ecosystems. The winner can get up to CHF 500k worth of investment.

Get your ticket here: www.ssw.vc CHF 119 (40% discount, was CHF 199) Use the code SE40offSSW13 (valid until January 25)

When : February 4th, 2014 Where : C.I.C.G. in Geneva/Switzerland partnering with the LIFT Conference. Visit www.ssw.vc to see the agenda and get more information about the final event.

* which I am happy to support by posting this