Startup accelerators maintain strategic role in challenging funding environment

With more than 400 startup accelerator programmes operating across Europe, entrepreneurs have the opportunity to explore the potential of such initiatives that can guide founders in their efforts to raise funding or pivot with their idea or product. Accelerators are also gaining ground in Romania and while they’ve mainly been focused on the tech sector, some niches such as healthcare and food are also amassing more startups.

By Ovidiu Posirca

In an ideal scenario, when a startup founder applies for an accelerator, they already have a prototype or actual product. Usually, an accelerator is a mentor-based programme that aims to provide support and limited funding in exchange for equity, according to a Silicon Valley Bank (SVB) presentation.

Startups enrolled in acceleration programmes can have better shot at funding Startup founders who are enrolled in an acceleration programme get access to advisors and seasoned entrepreneurs that can help them with product development and business plans, while opening doors to potential investors.

“Romanian founders are showing real interest in acceleration programmes, and this is something we’ve noticed both in our own accelerator as well as in other startup initiatives we are involved in. Despite the specificity of our accelerator, we’ve had quite a few applicants, mostly novel startups embarking on their entrepreneurial journeys. Interestingly, even startups with prior accelerator experience have applied and completed our programme,” says Laviniu Chis, head of department for the INNO platform and programme coordinator in the LevelUP Health & Life Sciences Accelerator, organised by North-West Regional Development Agency (ADR) and EIT Health.

“It’s fantastic that they’re able to leverage resources from different channels and recognise the value of being exposed to a variety of approaches. There is a collective openness within the Romanian startup community to continuous learning and a willingness to explore different methodologies,” he tells BR.

So far, the accelerator has offered over 150 hours of 1-on-1 mentorship and consultancy sessions, covering vital topics such as marketing & sales, legislation, funding, product market fit, networking, and more, ensuring a comprehensive skill set for each startup.

Moreover, each startup accepted in the programme has received EUR 8,000’s worth of support, with funds coming from INNO and EIT Health.

When founders get to an accelerator or incubator, they quickly realise how many things they need to learn and experience, says Cristina Toncu, Techcelerator cofounder & programmes partner and ROTSA regional director.

Techcelerator focuses on four pillars in its acceleration programme It includes a mentorship network of more than 100 local and international experts and provides investment readiness acumen for founders. This means that founders are taught how to approach investors so they can increase their chances to get an investment.

At the same time, Techcelerator is looking constantly to increase its pool of European Partners, venture capital funds, and pan-European organisations. This is done to strengthen its connections in multiple markets and help founders get to their market quicker and with local support. Furthermore, the accelerator is hosting monthly events on Artificial Intelligence (AI) to brief founders on the latest developments in this field.

One key question is how important an acceleration programme is for startups that are looking for finance. Chis of LevelUP Health & Life Sciences Accelerator says, “we can’t guarantee our startups will receive funding; we make sure they are well-prepared to approach and deal with investors. The success stories speak for themselves, with some of our graduating startups having engaged in discussions with investors, received perks like scholarships and Silicon Valley pitching opportunities, and established agreements with international universities for product utilisation.”

At Techcelerator, selection is careful considering the tough economic environment, but the programme has continued to consolidate partnerships with large investment players since its founding in 2018. The organisation is working with over 50 venture capital funds in Europe as well as with EIC Accelerator, which offers funding as well.

“There are different approaches to the learning services offered, depending on the level of the funnel a programme addresses. The majority of early stage programmes keep themselves industry agnostic and concentrate on the basics of product and business building and clarifying the go-to-market OKRs,” Toncu tells BR.

Programmes that target more mature startups tend to specialise either in topics (e.g., investment readiness, access to market, investment) or industries. Toncu adds that deep tech, clean tech, cybersec, and artificial intelligence are part of a hype at the moment and that some programmes are focusing on finding the best teams that are building products in these fields. For example, Techcelerator has designed the Investment Readiness and Advancing AI programmes.

Elsewhere, the EU has drawn up its own strategy to boost startups and scaleups on the continent, with improved access to finance being one of the main goals. The EU’s ambition is to at least double the number of unicorns by 2030 and ensure that more than 90% of small and medium-sized enterprises (SMEs) reach at least a basic level of digital intensity by the end of this decade. The EU says this can be done due to the consumer base of 450 million individuals and a GDP per capita of EUR 37,000. By the end of 2022, the EU accounted for 249 unicorns—startups with a value above USD 1 billion—, while the US had 1,503, China had reached 348, and India recorded 108, of which more than half had been born over the last two years.

“Supporting startups and scaleups is also an important way to achieve the targets of the EU Green Deal and the UN Sustainable Development Goals,” according to a declaration of the Spanish Presidency of the European Union Council that was signed by several member states, including Romania.

ACCELERATOR AGREEMENTS CAN INVOLVE THE SALE OF A MINORITY STAKE

The money provided by private startup accelerators can help founders cover early-stage business expenses as well as travel and living expenses for the three-month residency.

SVB’s experts point out that like any other equity funding, signing an accelerator agreement typically means giving up a minority stake in the startup. Accelerators generally take 5% to 10% of your equity in exchange for training and a relatively small amount of funding. As a member of an accelerator, the startup founder can gain credibility and quickly build a network of advisors.

Michael Wolfe, a portfolio advisor at Point Nine Capital, suggested in an SVB article that “If you go with an accelerator that’s not as well known or not as respected, the benefits are not as clear.”

Adequately timing the entrance in an accelerator programme is another factor that startups need to take into account. Advisors say that startups should have a product with some traction if they want to join such an initiative. However, if the startup has already raised venture capital investments, the accelerator might not provide enough support.

It should be known that there are several alternatives to accelerators, but finding the right one depends on the startup’s stage of development and its founding vision. For instance, early seed funding can be covered from the founder’s own savings or money from friends and family. If the startup has high growth potential, venture capital funds can step in to buy equity for capital. In Europe, grants are accessible for startups, while smaller funding rounds can be attracted from angel investors.

EU DREAMING BIG WITH ITS ACCELERATION PROGRAMME

Finding new solutions for personalised cancer treatment, improving energy storage facilities, and developing quantum computing hardware components are some of the challenges put out for startups under the European Innovation Council (EIC) Accelerator. The overall budget for these challenges stands at more than EUR 500 million in 2023. The accelerator has a separate budget of more than EUR 600 million for proposals in any field of technology. The capital for these initiatives is covered by the Horizon Europe programme.

In the past year, the EIC Fund has reached the EUR 1 billion milestone in investments made for European deep tech companies, with 159 startups and SMEs selected for acceleration.

VC FUNDING TAKES A DIP IN CEE

The funding downturn in the global startup industry is also mirrored by investment activity in Central and Eastern Europe (CEE). While the region attracted over EUR 2 billion in startup funding during Q2 2022, this year the volume fell to EUR 560 million across 250 transactions, according to a Vestbee report.

During Q2, Europe as a whole also noted a cooling of investor sentiment. Despite the availability of dry powder, VC funds exercised caution, funnelling a total of USD 13.5 billion into 1,861 transactions on the continent.

“This can be attributed to various factors, including changing market dynamics, concerns about future fundraising opportunities, and an uncertain macro environment. Particularly in CEE, reduced participation from foreign investors and decreased activity from public funds have contributed to this challenging landscape. Despite occasional high-valuation funding rounds making headlines, there is a clear trend of market and startup valuations cooling down,” said Ewa Chronowska, CEO of Vestbee and General Partner of Next Road Ventures. She added that as we move forward into 2024, it’s reasonable to expect this trend of caution to continue. Nonetheless, verticals like AI, energy or climate tech offer growth potential for investors in the years to come.

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