I occasionally fantasize about being the Wizard of Fintech-Oz, then I remember the wizard to be but an average middle-aged man and obviously that is not me nor is it enticing.
In the last twelve months I have been asked at least twenty times by startups if they should apply to an accelerator and if so which one. The narrative usually goes like this:
– Startup wearing red shoes comes to me for founts of wisdom.
– Startup: “oh Pascal, wise wizard of Fintech-Oz, we need to get back to the land of enlightenment, please grant us our wish and let us know which accelerator we should join.”
– Wise Wizard of Fintech-Oz, that’s me: ” well Dorothy – I call every startup Dorothy for simplicity’s sake as I just cannot remember all the names and various business models – do you know what an accelerator is and what do you want out of it?”
– Startup: “Hmmpphhh, what? My head hurts when I have to think, can you please help me?”
– Me: “Of course Dorothy, I will, but it will cost you much dilution once I invest in you. Plus stop pouring water over me, you are mistaking me for someone else. I do not melt when in contact with water like the angry Bank witches of the world.” (Btw, angry Bank Witch is not a spoonerism, much to all of my readers’ dismay I am sure)
– Startup: ” Well, ok then, go on.”
For ethical and humane reasons I shall stop narrating the next chapters of the above scintillating dialogue and explain in as plain words as I can the choices a startup has when contemplating structured help from third parties.
Roughly speaking the world of Fintech innovation – a world where the rubber meets the road and where the rubber is the startup and the road is corporates and investors alike, or is it the other way round – is divided into 4 spaces, well, make that 5.
3) Innovation programs
4) Hubs or co-working spaces
– Incubators go back to the early 1960s and were first tested in the USA. They tend to be either government or corporate sponsored, do not invest in the startups they incubate nor do they request equity. These programs help “incubate” an idea. Think of yourself as a pre-egg and an incubator will help you form as an egg and hatch. Incubators usually deal with very early ideas. In the context of Fintech, many incumbents (banks, insurance companies) run incubators. As a startup you will have to weigh the access to the sponsoring incumbent against the fact that you will be associated with a captive program – which may limit your options done the road. Sometimes the trad off is good other times not. Incubators may include startups from the outside world and teams of employees coming from the incumbent sponsor. Finally incubators run longer term or even open-ended programs, not short term programs.
– Accelerators deal with helping a startup reach adolescence whereas Incubators deal with childhood. Accelerators invest time, people and also some money in return for equity usually ranging from 3% to 8%. Accelerator programs run over short and very intense time periods very seldom exceeding 4 months. Arguably,the first accelerator was YC in 2005 out of Boston, USA. Accelerators tend to be independent, run by former startup entrepreneurs, although recently various FinTech accelerators have emerged with a strong unique sponsor, making them more captive and akin to an incubator.
– Innovation programs are run by financial services incumbents internally, with internal resources. These programs strive to interface with startups, entrepreneurs with technology ideas and aim to smooth integration and adoption. Arguably the line between incubators and innovation programs tends to blur nowadays.
– Hubs or co-working spaces are real estate plays where basic business services as well as office space is traded in exchange for a fee and/or equity. Most modern hubs also facilitate interaction between financial services incumbents, thought leaders, consultants and startups by running various ad hoc programs.
– I include Hackathons to the list not so much as peer programs to,the above but because of the effectiveness such one or two day programs have in bubbling up raw tech talent. Hackathons are flexible, easy to set and great at identifying talent that may later join an incubator or an accelerator.
Startups and founders should gauge the entities they want to partner with based on the following:
– Is the program independent or captive? Which is better for me?
– Does the program have solid mentors across various subject matters?
– Is the program run by seasoned former entrepreneurs or by corporate managers?
– Do I have clarity into what the program will bring me?
– How much help do I need, what type of help and for how long?
– Who are all the members of the management team and how will I interact with each over time?
– What is the track record of the program in terms of survival rate, funding success, alumni services, PR effectiveness?
These days every major bank has created its own innovation program has partnered with an accelerator, has its own incubator or R&D lab or all of the above (DBS, UBS, JP Morgan, BNP Paribas, BBVA, Santander, Wells Fargo and many many more). Tomorrow I expect most of the large insurance carriers will do the same'(Allianz and Axa have started for example).
To name but a few accelerators: YC, Nest, Stone & Chalk (these three not purely Fintech focused), Barclays Techstars, SBC Fintech program, Fintech Innovation Labs, Citibank Plug & Play.
Do your homework, figure out who has partnered with whom and invested in what. Happy huntings, and do not hesitate to reach out to ask me for advice.