Be part of one of the biggest startups ecosystem worldwide
The startup accelerator sector, which was started in the United States 10 years ago by YCombinator, has grown almost exponentially and has spread around the world as a new form of supporting tech entrepreneurs and startups. Its origins stem from the traditional incubator model, however, there are stark differences between them. To distinguish between accelerators and incubators we used the definition given by Miller and Bound (2011), who define an accelerator as having:
1) An application process that is open to all, yet highly competitive;
2) Provision of pre-seed investment, usually in exchange for equity;
3) A focus on small teams not individual founders;
4) Time-limited support comprising programmed events and intensive mentoring;
5) Cohorts or ‘classes’ of startups rather than individual companies;
The aim of this report is to have a better picture of the accelerator sector in Asia / Oceania and how it supports entrepreneurs in these regions.
*61 accelerators responded to the survey out of 72 accelerators contacted from all over Asia and Oceania. 27% of the contacted accelerators decided not to respond to the survey because of privacy concerns and/or inactivity during 2014. We included corporation-backed, government-funded and vertical accelerators operating in Asia and Oceania.
** We decided to exclude incubators from this report because there are over 100 incubators across the region and not all are focused on startups. Moreover, their business model and services they provide often differ from accelerators’ which are the focus of this study.
*amount of cash actually invested in 2014
Startups in Accelerators
Expara, a top Singapore VC, was one of the first to launch an acceleration program in Asia in 2007. Many others followed, including Chinaccelerator and Appworks (Taiwan) in 2010, and AngelCube (Australia) and HAX (China) in 2011. Like in Europe, 2012 marks a turning point when it comes to the launch of new accelerators, with 11 new players launching their programs that year, including JFDI Asia (Singapore) and Kyron Global Accelerator (India).
All these accelerators have similar, yet different structures and business models, inspired by the world’s top accelerators’ models, but adapted to the reality and needs of the region. Each Asian country has its own leading accelerators, which are attuned to the local market: The region’s biggest growth markets for tech (China, Korea, Indonesia, Vietnam, India and Singapore) have quite specific local conditions which require accelerators to understand each market well. For example, Western accelerators usually use a lean startup approach, rooted in ‘Customer Discovery’. While directly asking potential customers about their problems is culturally acceptable in the West, this method would be considered intrusive in Asia.
The surge in the number of accelerators is in part explained by the increase in demand for modern and innovative products, stimulated by the growth of the Asian middle class, as well as advances in digital technology, which importantly decrease costs of starting new ventures. As more and more startups were created each year, developing effective ways of incubating and supporting them became more relevant than ever. At the same time, the decrease in startup costs has created the opportunity to invest much smaller amounts of money than previously, which made it easier to launch and run a startup accelerator. We can also point out the relatively large percentage of public funding, which implies that startups are increasingly being seen by local governments as important economic agents, able to contribute to the creation of good-quality jobs, higher growth and innovation.
There are currently around 70 startup accelerators in Asia and Oceania, and this number will keep growing in the near future. As in other regions we expect to see more vertical focused acceleration programs and corporate accelerators, such as Microsoft Ventures (China and India) or Citi Mobile Challenge APAC 2015. Regarding the latest seed accelerator entrants, we can name Startupbootcamp Fintech (Singapore) and River City Lab - a well known Australian incubator that recently launched its acceleration program. Both started operations in the region in 2015.
We do however expect to see growth at a slower pace as some accelerators will inevitably run out of funding and freeze operations - thereby reducing the total number of active programs in the region. Funding is a large concern for accelerators and many have yet to reach cash flow sustainability or establish secure and reliable long term financing to cover their cash flow needs until some of their portfolio companies exit. This concern was noted in this year’s Acceleration Summit in Lisbon and in Dublin’s Web Summit where ‘accelerator business models’ was a hotly debated topic.
There are two important elements to the funding structure of an accelerator: the funding of the accelerator itself to fund operations, and the funding available to startups. The following graph illustrates the source of funding for accelerators in Asia and Oceania for 2014.
Most accelerators from the region follow the traditional model set up by YCombinator of offering a small amount of funding in exchange for equity (typically around 5-10%). Private accelerators are usually the norm. These accelerators are most of the time funded with private capital (from angel investors and private investment funds) and aim to generate revenue from follow-on investments and startup exits in the ventures they back.
We also included corporate accelerators (i.e Microsoft Ventures), which are similarly backed by private sector capital, but their aim is directed towards generating innovation that can increase their operational efficiency (cost cutting) or developing new products that they can sell to their customer base (revenue creation).
However, many accelerators in Asia and Oceania (32%) have some type of involvement with local governments, in the form of financial support. They are known as semi-public accelerators, and they aim to both generate revenue and strengthen local startup ecosystems.
100% publicly funded accelerators generally have a different objective, which is to promote job creation or technological innovation, either in a given region, industry or technological area.
Lastly, it is important to point out that not all accelerators provide seed funding. Some of them don’t give money to the entrepreneurs but support them with free services such as co-working space and tailored mentorship.
% of accelerators that said that they intend to invest
in this market in the next 12 months
The vision of top accelerator directors from the activest countries of the region
Asia’s current transition from exports, manufacturing and heavy industry to consumption and services, is generating a handful of new opportunities for startups and tech entrepreneurs. New tech hubs are emerging across the region - not only in China, India and Singapore, but also in Vietnam, Malaysia and the Philippines - leading to the apparition of accelerators and a greater startup ecosystem.
Accelerators are increasingly being seen as new seed or pre-seed forms of venture capital that emerged due to growing entrepreneurial culture - which the public sector is keen to support. They provide initial investment, mentorship and other support services to help entrepreneurs kickstart and grow new ventures. Asian and Oceanian accelerators seem to have based their models on leading western accelerators such as YCombinator, or Techstars. With the accelerator industry still being in its nascency, the majority having launched after 2012, we expect interesting evolutions and developments to take place as accelerators adapt their acceleration model, imported from the US, to the local market.
*The survey above was compiled using information reported by the incubators/accelerators and was not verified or audited by Fundacity or any other third party > quitar incubator
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