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Richard MacManus: Do startup accelerators work in NZ?

New Zealand is now festooned with startup accelerators. But do they work here? Richard MacManus takes a closer look, and details his own experience.

Many of New Zealand’s young or inexperienced entrepreneurs start their journey at a startup accelerator. These are typically three to five month programmes designed to help entrepreneurs take their ideas and make them a commercial reality. The idea is to match founders with so-called “mentors” – who are often angel investors looking to find (and fund) the Next Big Thing.

The problem is, there’s a clear disconnect between the accelerator model and investor goals in New Zealand. That’s because there’s a close to zero chance of finding a Next Big Thing startup in New Zealand.

Even in the US, startups that go big are relatively rare – hence their nickname, “unicorns.” The unofficial definition of a unicorn is a privately held startup company valued at over US$1 billion. Uber and Airbnb are two current examples. Others, such as Facebook and Spotify, were unicorns until they completed their IPOs.

New Zealand, though, has produced no unicorns. The closest we’ve come is Xero, which doesn’t count as a unicorn because it went public in 2007 (perhaps we can call it a white kiwi instead). Xero’s current market capitalisation, according to its ASX listing, is $7.5 billion. That ranks it among the most successful startups in the world today, a level of success that is extremely rare in this country.

What I’m getting at is that there’s not much financial incentive to become a mentor in a New Zealand accelerator. Sure you can volunteer to be a mentor out of your own goodwill and willingness to help entrepreneurs. But there is a fairly significant time investment required of mentors, so the lack of incentives seems like an issue if accelerators want to attract quality mentors.

Noted New Zealand investor Rowan Simpson goes even further. He believes there are several issues with the accelerator model in New Zealand.

“We don’t have any of the ingredients that have made accelerator programs successful internationally,” he told me. “We don’t have the volume of startups that could go through these programs, we don’t have the quality of mentors that are available elsewhere, and we don’t have the investor base to fund the ventures that come out the other end. It’s an imported solution that is extremely unlikely to work here.”

What Simpson does think we have in New Zealand is the ability to produce “individual success stories” – such as Xero and TradeMe. What he would like to do is “take all of the effort that is currently invested in trying to create an ecosystem from the top down, and invest it instead directly in creating more individual success stories. Just create one successful company. If enough people do that, there will be a thriving ecosystem that builds on itself.”

'Ours are different'

A founding investor of one of New Zealand’s longest running accelerators, Lightning Lab, disagrees.

Stefan Korn, whose organisation Creative HQ runs Lightning Lab, believes “the purpose of accelerators in NZ is completely different from the US.”

“US accelerators are almost exclusively funded privately and their absolute focus is on identifying potential unicorns and facilitating investment,” he said. “The model works in the US because of the massive talent pool of highly capable entrepreneurs. In New Zealand we don’t have that and consequently the role of accelerator and incubation programmes is different.”

Korn pointed out that in New Zealand, all accelerator programmes are supported by the Government through Callaghan Innovation. Although I’d add that for some accelerators, support also comes from other organisations – such as Kiwibank’s FinTech Accelerator, which Lightning Lab ran, and Te Papa’s Mahuki accelerator.

According to Korn, the main purpose of local accelerators is “to upskill and build entrepreneurial talent.” So, unlike in the US, our accelerators are not primarily focused on finding unicorns (or white kiwis). Although he added they do also provide the investment community “with opportunities for early stage investment.”

Korn’s colleague Brett Holland, who oversees Lightning Lab, told me that “we are not alone in believing that we need to build the entrepreneurial talent of New Zealand.” He pointed to the latest international Startup Genome Report, which puts New Zealand in the “Activation” phase of a startup ecosystem – the first of four phases of development. “This is mainly because the experience of our founders is very low relative to other markets in the world,” Holland said.

My ReadWriteWeb story

It’s time to insert some of my own story as an entrepreneur; and one whose focus was global at that. I founded a technology blog called ReadWriteWeb in 2003, bootstrapped it into a thriving business, and then sold it to a US media company at the end of 2011. I did this without any Government support and I had no mentors, despite being the very definition of an inexperienced entrepreneur when I started. So, in retrospect, I wonder whether an accelerator would’ve helped me?

If anything, I think the distractions would’ve hindered me. While a mentor would have benefited me at times, overall I’m glad I focused more on getting readers and sponsors than on filling out government forms and creating investor pitch decks.

However, I must note that professional blogging as a market didn’t exist when I started up ReadWriteWeb (nor did accelerators for that matter). So I had no choice but to learn by doing. For budding entrepreneurs now, an accelerator can at least provide market education, a solid support structure and useful networking.

I had one final question for Korn and Holland from Lightning Lab. If development of entrepreneurs is the primary goal of accelerators in New Zealand, how do they measure progress towards that outcome?

Korn replied that they ask all participants to take an assessment before the programme. “At the end of the programme,” he said, “we sometimes ask them to run through the assessment again, or we use a subjective measure from the lead coaches who have been working with them extensively for 14 weeks.”

He added they’re trying to formalise this system, with the help of Victoria University and using tools from Callaghan Innovation. Ideally Korn would like to develop “a more empirical assessment system” to measure entrepreneurial success.

Of course, the ultimate measure of success is how much revenue, how many users, and how many jobs a startup produces. Certainly that’s what investors are looking for, and indeed most entrepreneurs too.

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