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Inspiring Investigation 7 August Aug 2017 1100 7 August 2017

Business accelerators: where startups get their wings

Once they come out of the incubators, thousands of innovative companies encounter the market for the first time. But they are not alone.

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After being kept warm in the chicken coop, the chick hatches and starts running around: more or less, things are the same with innovation companies. Those so-called startups are launched onto the market after being “coddled” and accompanied through the very first phases of their development by incubators. The mission of these “helpers” is to teach them to fly. These are business accelerators, programs finalised towards developing startups and early stage companies, as well as the natural evolution of incubators. “Accelerators are supposed to help companies meet with investors, validate business ideas behind startups, launch them on the market and make them competitive,” said Domiziana Ferrari from LVenture Group, a partner of Luiss EnLabs, an accelerator based in Rome that has invested over 28 million euro in over 45 startups.

Accelerators are typically managed by entrepreneurs and mentors. They assist the business in creating a business model, and help it in other ways as well. “An important feature of accelerators is the investment of capital during the startup's second development phase, when it has been constituted and must measure itself against the market,” added Matteo Bartolomeo, CEO of Make a Cube, the first incubator-accelerator in Italy specialised in companies with high social, environmental and cultural value. “The focus of accelerators is to verify scalability, replication and market interest in products and services that startups develop. Given that schedules are tight, they have a tight program: they work on batches, putting several startups into the same “class”, to make the acceleration program more effective to distribute. They also invest funds and mentoring services in the new company, in exchange for equity in the startup, and they hope for a long term return, at the moment of termination of their participation quotas.”

Validating the business ideas of startups, having them meet with investors, launching them on the market and making them competitive: this is what accelerators do.

How many are there, and where are they?

These are consolidated businesses in many developed nations. In Italy, accelerators have been active for a few years now, supported mainly by private investors, even though public bodies like the universities are lacking. According to the Osservatorio Startup Hi-tech of the School Of Management of the Milan Polytechnic, institutional investments in Italian startups amount to 63 million against the 624 in France and the 127 in Spain. In particular, the panorama in the other countries has become very dynamic thanks to the approval of public investment, managed by BipFrance and strongly desired by President Macron, of the record amount o 10 billion euro. Concerning private investors, the Polytechnic tells us that financing for innovative startups was 217 million euro in 2016, up 24% from 2015.

How many accelerators are there in Italy, and where are they located? The Associazione Italiana Startup has counted 57 “Innovation Centres” among the companies in its network, and those that refer to APSTI (Associazione dei Parchi Scientifici e Tecnologici Italiani). Of these nearly sixty companies, 32 perform mainly the function of accelerators: 23 in the north, 8 in central Italy, and only one in the south, the Consorzio Area Tech Coroglio of Naples, which collects the companies created within the Technological Pole of Città della Scienza. However, said the general manager of AIS, Federico Barilli, seeing that “the mission of each of these 57 innovation centres concentrates on innovation and growth, with an objective of important and rapid growth, we can define them all as authentic accelerators.”

Small numbers, broad perspectives

With regard to the future of innovation hubs, there are places were light mixes with shadows. If the survival rate of a startup in the warmth of the incubator, according to Bartolomeo, is three years on average, it stays less time in the accelerator and then is forced to leave the nest early. After the market storms, the final exit sales (sales after years, of the shares of a startup by the accelerator that invested in it to make a profit) are really very few: in 2016, only 19, six fewer than in 2015, even if, as he said, “Italy is a newborn in this field. We are waiting on a new crop of companies to emerge from the incubators: there are dozens of them, and so it is too early to get depressed with the numbers.”

Direct investments from accelerators are falling,” said Barilli, “in favour of the development connected with accompanying them, or mentorship finalised towards finding institutional or corporate investors.” This trend has been confirmed by data from the Observatory on Italian models of Open Innovation and Corporate Venture Capital promoted by Assolombarda, Italia Startup and Smau with Ambrosetti and Cerved, the Advisory Board of which is made up of 25 companies, including multinationals, interested in investing in Italian startups: around 6500 are registered in the Companies’ Register, and of these, over 1,900 have at least one corporate partner.

In Italy, the accelerators have just emerged, and we are awaiting a crop of dozens of new companies to come out of the incubators: it is early to worry about negative numbers.

Working on investors

What can be done to improve the situation? “Now more than ever, it is necessary to promote the culture of investing in startups in our country”, suggested Ferrari. “From a legislative standpoint, we have taken great steps forward by introducing, on 1st January of this year, a fiscal benefit of 30% for people who invest in startups. To further improve, however, we need to work on the cultural sensitivity of investors,” he continued, “ so that they can consider venture capital as an ethical type of investment with a high potential, and also as an authentic driver for economic development. Secondly, we need to make it so that there are more institutional investors, such as pension funds and pension institutions, which due to their intrinsic structure are the best players for supporting and sustaining venture capital adequately.”