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What is Your Break-Even Point?

What is one of most frequent questions investors ask start-ups after hearing the pitch? It is the question about the break-even point. Is there a simple way to calculate it? Yes, there is. Let me show it to you.

The break-even point is the number of products, services or solutions that you need to sell to generate enough revenue to cover all fixed and variable costs. Anything going beyond that number will be your profit. That’s why investors are so interested in this subject.

Calculation and analysis of break-even point will help you to determine whether the volume of products, services, or solutions you assume to sell will result in profit or loss. It will also tell you what is the minimum volume of your offering that you need to sell just to be profitable. Knowing your break-even number will also strengthen your business plan. So how to simply calculate it?

The first step is to determine what are the costs of running your start-up and creating its market offering. Start-up costs, in principle, consist of fixed costs and variable costs. Fixed costs are costs incurring regardless of how much you sell. These are the expenses you need to pay every month, even if you sell nothing. They include expenses related to renting you space, paying the loan you took to start your business, insurance costs, and utilities costs, such as access to broadband or your website hosting fee.

Variable costs in contrary to the fixed ones are represented by expenses depending on how much you sell in defined period. They include manufacturing costs of a single product, service, or solution, and certain overheads, which are operational expenses such as advertising.

To finish your break-even point analysis you’ll need one more thing—the price you are going to charge the customer for a single product, service, or solution. I’ve already elaborated on some of the pricing models in one of my previous posts.

Having all those things in place (fixed and variable costs of your business, and single price of your product, service, or solution) you are ready to calculate your break-even point.

So how does the formula look like?

Break-even point equals to fixed costs divided by price of your single product, service, or solution less variable costs. In calculation format it looks as follows:

Break-even Point = Fixed Costs / (Unit Selling Price – Variable Costs)

Let’s see how it works in practice and assume that you plan to run a small business of preparing and selling customized stickers, which fits the trend of mass customization by allowing clients to personalize their mobile phones.

In step 1 you estimate your fixed costs. Let’s assume its EUR 3000 per month. It includes fee for renting space for your activity, fee for utilities, fee for running your website, and a salary for your one employee (assuming you are hire someone regardless of demand for your offering, or it can be your management salary if you are going to run operations in person).

In step 2 you estimate your variable costs. Let’s assume it’s EUR 2,5 per manufacturing 1 sticker. It includes costs of direct materials you used for its preparation, incl. special paper and set of inks.

In step 3 you need to estimate the price of the product you are going to charge. After performing market research, incl. analysis of prices of your competitors you plan to sell stickers at price of EUR 10 per 1 piece.

Now you are ready to put your numbers into break-even formula:

Break-even point = EUR 3000/ (EUR 10-EUR 2,5) = EUR 2500/EUR 7,5 = 400.

What the number 400 means?

Selling 400 designed stickers per month will enable you to cover you both fixed and variable costs. If you sell more than 400 designed stickers per month, you’ll make a profit, and if you sell less, it will mean you are losing your money.

Now you might be interested in how to estimate the profit you are going to make by selling more than your break-even number. To estimate that you need to use the following formula:

Profit equals sales revenues less fixed costs less variable costs multiplied by number of units sold. In calculation format it looks like this:

Profit = Sales Revenues – Fixed Costs – (Variable Costs x Units Sold)

So you know that you need to sell 400 stickers to get to break-even point. Now you are interested in how much profit you’ll make if you sell 500 stickers in a month. Before we’ll go to calculations let me just explain that sales revenues is the total number of EUR from your sales activity. In other words it’s the number of what you sell multiplied by the price you charge.

Profit calculation looks like this:

Profit = (500 x EUR 10) – EUR 3000 – (EUR 2,5 x 500) = EUR 5000 – EUR 3000 – EUR 1250 = EUR 750.

What EUR 750 stands for? It’s the profit you would make by selling 500 stickers in a month after you covered all fixed and variable costs related.

And what would happen if you’d put number of stickers sold into the formula? Your profit would be exactly 0! It means that your break-even formula works.

So, now after getting basic concept of break-even and profit you are ready to think on how to make your business case attractive for you and investors you pitch.

Knowing that the profit is triggered by fixed costs, variable costs and the price, you can think whether and how you could reduce both fixed and variable costs and increase sales revenues by charging more for what you sell.

If after reading on break-even point formula you still feel a little bit fuzzy, you can use one of online calculators available here (don’t forget to use double click when entering your numbers).

If you’d like to deepen business case preparation beyond calculating the break-even, take a look at HBR Guide to Building your Business Case, which in addition to break-even, explains basic concepts of return of investment and payback period, and more advanced ideas, such as net present value or internal rate of return.

Dzida!

Place Where Investors Pitch the Start-ups

If you are tired of perfecting your business plan and honing your pitch instead of focusing on growing your business, VentureFund.io might be just the right solution for you.

Motto of VentureFund.io is “Grow, don’t pitch. Let your data do the pitching”. The data VentureFund.io has in mind relates to quantitative evidence of customers demand of your product or service, and of how it fits the market. In start-up world such evidence is called traction.

VentureFund.io is a digital, web-based platform providing data analytics compatible with Google Analytics, Stripe, Mixpanel, Braintree, and other interfaces, which measure traction of users of your business. What VentureFund.io provides extra is enabling investors that are registered on the platform to see your growth, what may trigger them to contact and pitch you.

VentureFund.io can also coach you in better understanding of traction through dedicated dashboard it provides to present new users acquisition (also those coming from referrals), activation, retention, and sales conversion. Nowadays traction is used by investors as indicator to assess start-ups growth potential and investment risk, therefore you might find it valuable to understand its principles well. You can find more on its fundamentals here.

The platform is worth to be considered by early stage start-up developing software, or hardware driven by connected software, especially in areas of mobile applications, e-commerce, software as a service, or two-side market platforms. Such start-ups should be easily compatible with what VentureFund.io requires from its users.

Unique value of VentureFund.io is to enable start-up founders to focus on growth and scaling up the business in very first stages and simultaneously to enable tracking this growth for potential investors. It might save time for preparing, polishing, and mastering of business plans and pitches. It might not perfectly substitute a direct meeting with investors where you can often count on honest feedback, however it might prepare you well for such a meeting.

On the other side of the platform there are investors, who like VentireFund.io, as it enables them to discover, follow and pitch to early stage start-ups. The rule of VentureFund.io is that it’s investors, not the start-ups, that have to make the contact first, what is quite a change in paradigm of contemporary start-ups-pitch-world.

The platform was founded in 2015 and have gathered around 200 VC firms, investors, and start-up accelerators. Its founder, Clarence Wooten explains the rationale behind this new way of raising seed funding here.

Investors might also like Mattermark, which makes sense of data about start-ups and companies growth, and can personalize the results according to your search criteria. Mattermark might be interesting especially for seed funds, VC funds, and investment portfolio managers, who look for fast growing companies, have clear expectations about investment opportunities, and would simply not like to miss them. Mattermark can be also supportive in developing B2B and partnership relationships for companies, and through generation of leads contribute to growth of those, which target well.

Dzida!

Internet of Things and Next Industrial Revolution

Internet of Things (IoT) is a phenomenon that is expected to transform manufacturing, healthcare, energy, transportation, and other sectors ofeconomy, which is expected to reach value of USD 11,1 trillion by 2025.

What IoT is about? In a nutshell IoT refers to ability of hardware, software and sensors to collect and exchange data through networks and deliver services enabled through it.

What differs IoT from current machine-to-machine (M2M) communication is going beyond simple data exchange to advanced data usage resulting in various applications.

IoT fields of exploration are linked with electronic devices and refer to e.g. build-in sensors in vehicles leading to decrease in energy consumption, weather forecasting impacting home heating systems, monitoring of human vital signals for preventing diseases, and many more.

At this moment, part of IoT value proposals being worked out can be found at Angel Lists, which collected almost 2500 start-ups focused on IoT area.

IoT is a cornerstone of wider phenomenon that in public discourse is called Industry 4.0. Industry 4.0 refers to the next wave of industrial revolution, which is happening now, thanks to the exchange of data between devices, incl. manufacturing technologies and also cloud computing.  Industry 4.0 creates aan opportunity for start-ups to foster interoperability of machines, devices, and sensors, increase quality and transparency of information being exchanged, creation of assistance systems for aggregation and visualization of information collected, and execution of accurate decisions basing on them.

More insights on value looked for in Industry 4.0 era can be found in McKinsey’s report here. A lot of IoT enriching materials have been published by Cisco in form of white papers and case studies available at their website here.

IoT is supported by numerous start-up acceleration programmes and government agendas around the world. Current open start-up acceleration programmes incl. Plug and Play IoT Accelerator from Silicon Valley with ongoing call for applications, Techstars IoT Accelerator with multiple applications scheduled for 2016 in US, or ABC Accelerator in Slovenia with call for IoT oriented start-ups with deadline of 31st of July 2016.

European Commission also fosters IoT with focus on integration and creation of open platforms leveraging its usage. Under Horizon 2020 programme European Commission announced dedicated call for research and innovation projects with particular IoT focus with EUR 35 mln budget. The call is planned to be opened on 8th of December 2016 and closed on 25th of April 2017. As in all Horizon 2020 co-financing programmes participation requires creation of consortium of entities from at least 3 European Union countries. Funding rate covered by European Commission is up to 100%.

What is your favourite application of IoT, worth to explore?

Start up our Health with EIT Health!

EIT Health is healthcare focused initiative of European Institute of Technology with a budget of EUR 2 bln. EIT Health aims to accelerate entrepreneurship and innovation in the area of healthy living and active ageing in Europe by incubating 340 new business ideas, creating of 165 start-ups, and launching 160 new services  and products in 2016-2018.

Key areas of interest of EIT Health are biotech, medtech, and digital health enabling: self-management of health, motivation for active lifestyles, ageing with a healthy brain,  treating and managing chronic diseases.

Why start-ups should  consider joining EIT Health? It not only offers new forms of  supporting  enterpreneurship , but also gives advantage ofexpertise of over 140 leading healthcare companies and organizations, which are the partners  of the initiative , including: Philips HealthTech, IBM, Siemens Healthcare, GE Healthcare, Medtronic, Abbott, Abbvie, Roche, Sanofi, Astra Zenca, Bayer Pharma, and Merck.

EIT Health headquarters are in Munich, and its branches  are in London, Stockholm, Barcelona, Paris, Mannheim, Heidelberg, and Rotterdam. EIT Health also nurtures network of so called InnoStars, which are regional clusters of industry partners, academia, and healthcare in Croatia, Hungary, Poland, Portugal, Slovenia, and Wales.

Some of the most interesting initiatives for start-ups led by EIT Health in 2016 include:

GoGlobal aiming to provide start-ups with competences needed for growth and international expansion, which is already under execution.

GoGlobal DigiHealth offering   travels to Silicon Valley, US for hands-on experience to boost start-ups internationalization by participation in GSV Labs and Health 2.0 Conference in Santa Clara, US, between 25th-28th of September 2016 . The start-ups will also have a chance to pitch Silicon Valley Health 2.0. Delegation. Deadline for submissions is 29th of April 2016.

EIT Health Accelerator Programme  that will cover ideation, discovery, validation, scaling-up,  preparation of pitch video, invitation to EIT Health Innovation Summit, and vouchers to join other initiatives of EIT Health, such as LaunchLab, GoGlobal, or Test Beds & Living Labs. The latter provide unique conditions for execution of Proof of Concept phase of start-ups’ inventions. Deadline for submissions is 31st of July 2016

Learn more about other initiatives of EIT Health in 2016 including Local Trainings, Business Plan Competition, Investors Network, Proof of Concept Projects, and Market Coach here.

Dzida!

How to Valuate a Start-up?

Have you founded a company, and don’t know how much it could actually be worth? Or are you maybe  a Business Angel considering investment into newly founded business, who needs to estimate its value?

Start-ups valuation methods I’d like to share with you can be supportive in both of the   situations. I will focus on valuation of early stage technology start-ups, and so called pre-seed valuation, which refers to the stage of a company before it attracts any external funding such as Business Angel, or Venture Capital. For later stage start-ups, especially those which attracted funding, you should use a different valuation methods . By technology start-ups I mean start-ups, which build their value thanks to owned intellectual property rights, which consists of non-obvious know-how, industrial designs, and patents.

For applicable purposes of this post let’s assume you are a CEO of a start-up, who prepares to meet with its potential investors. The question you ask yourself is how much your company is  worth, and how much you should ask for, which always will be a derivative of your company’s valuation.

Whereas old, good, and favored by Venture Capitalists multiplies method, or Discounted Cash Flows (DCF) method needs to base on solid or well educated market size and your sales projection, it cannot be used in all examples, and sometimes it’s just inadequate to use. Such cases include creating new product or service entering new market of unmet needs, which you cannot back up with any solid benchmark. For sure you can make your own assumptions, do primary and secondary market research,and check flexibility of demand of your product or service against proposed price, however it’s good to have back up valuations, especially when your DCF is challenged by investors you negotiate investment with.

Seriously thinking investors can check value of your company against couple of pre-seed valuation methods, which are currently in use. One of my favorite methods, which I learned from serial entrepreneurs Prof. Malte Brettel from RWTH Aachen in Germany, and Prof. Tony Warren from Pennsylvania State University in the US, is Berkus valuation model.

Berkus valuation model comes from the US, and is especially valuable when you lack financial history, your business plan is uncertain, and still you need to determine value of your company. According to Berkus valuation model you need to check the existence of, and add up values for the following elements, which your start-up might consist of:

1) Sound idea your start-up represents (creation of basic value)  – add up to USD 500 k

2) Having prototype (reduction of technology risk) – add from USD 500 k to USD 1 mln

3) Having good management (reduction of execution risk) – add from USD 500 k to USD 2 mln

4) Having strategic relationships (reduction of marketing risks) – add from USD 500 k to USD 2 mln

5) Having good quality of the board, incl. advisors (reduction of governance risk) – add up to USD 1 mln

6) Having ongoing sales (reduction of production risk, doesn’t apply in very early stage) – add up to USD 1 mln

Berkus valuation model originates form Dave Berkus, early stage private equity investor, who made over 140 technology investments. Original Berkus method assumes fewer factors and sums tan provided in method above, and if you are conservative entrepreneur, you can stick to orthodox approach of Berkus presented here.

You can make Berkus method even more pragmatic if you combine it with Kawasaki method, also used for early stage start-ups valuation. In a nutshell  Kawasaki’s method introduces additional element you can add to Berkus, this is value you add for each engineer on board of your start-up  – USD 500 k, and value you subtract for every full-time MBA on board (such as top management consultants) – USD 250 k. In that context it’s always better to ask full-time MBAs to join the advisory board of your start-up, and present them as non-core staff, as they cost a lot, and increase the monthly burn/run rate of early stage venture. It doesn’t mean that full-time MBA start-up founder by definition decreases value of the venture of course.

You can complement both Berkus’ and Kawasaki’s valuations with Cayenne Valuation Method . Cayenne Valuation Method is based on 25 questions, which High Tech Start-up Estimator of Cayenne Consulting consists of.

Other early stage start-up methods include angel’s standard method, rule of thirds method, start-up advisor method, or virtual CEO method, however these I detailed above seem to be the most substantial in terms where the numbers you present comes from.

If you’re determined and not afraid to learn it’s good to master basic DCF method. Sooner or later you’ll need it, especially when you start growing in a way requiring investments more serious than from Business Angels. I’ve learnt DCF from Principles of Corporate Finance by R. Braeley, S. Myers and F. Allen therefore I can recommend it to you. You can find some basic information about DCF here

However if you are real entrepreneur you should find someone who is DFC-literate to support you, including your peers who graduated from economics, finance, or business studies, worked for top management consulting or valuation practices in other consulting companies.

Don’t start valuation of your company with DCF if you don’t have thorough business plan of your venture in the first place,  especially including industry, market forecast, and marketing plan detailing targeted market segment, envisaged pricing of your products, and/or services, promotion, distribution, first five years sales projection, and also production and operations plan. You’ll need this data as assumptions for state of the art DCF valuation every potential investor thoroughly investigates.

In that context you might find supportive basic financial model template and early stage pitch deck template prepared by Amplify, which is one of US start-up accelerators I researched for my Master Thesis at MBA Entrepreneurship and Innovation in WU Executive Academy.

Dzida!

Start-Up Europe Week has just Begun!

Start-Up Europe is a platform aggregating several organizations, supported by European Commission,that contribute to European start-up ecosystem. Start-Up Europe is a part of European Union (EU) Entrepreneurship 2020 Action Plan. That is why its mission is to connect players of local start-up ecosystems in EU countries, including connecting start-ups, entrepreneurs, and researchers with start-up accelerators, co-working places, private investors, public funds agencies mentors, or local authorities, which all can support start-ups’ “go to market journey”.

Between 1st -5th of February 2016 Start-Up Europe organizes the biggest entrepreneurship event in Europe. This is 1st edition of Start-Up Europe Week, with 220 cities in 45 countries participating, and hundreds of events being planned, including conferences, workshops, meetups, or mentoring sessions.

If you are a start-up ecosystem stakeholder, you can be a participant of the planned events. And if you are a start-up player, you can support Start-Up Week by organizing event or becoming part of the initiative by using the form here.

Start-Up Week goal is to promote initiatives of Start-Up Europe, which are in force for a while now. My favorite initiatives, which altogether create European start-ups support ecosystem, include:

– Open call for Micro-Grants for start-ups to enable them participating in relevant start-up events, workshops, and usage of local, start-up dedicated services. Micro-Grants are also strong enabler of networking at European level, including events planned for start-ups stakeholders in 2016.

– Start-up Future Roadshow with series of workshops for students, and aspiring entrepreneurs, where they will find training sessions on funding opportunities and meet with mentors. The roadshow is organized by by European Young Innovators Forum, and kicks-off in Poznan in Poland on 27th of February 2016.

– Start- Up Europe Club of over 4 thousand investors interested in funding start-ups ad various stage of their development.

– European Crowdfunding Network, which is an initiative to support European crowdfunding services providers with self-regulation issues, and strengthen crowdfunding voice of crowdfunding in policy making discussion to result in growing number of local crowdfunding platforms and wider access to capital for start-ups.

– Database of almost 300 thousands companies founded in Europe, including funding amounts, and companies’ details, which might be a great deal of support in looking for potential business partners, including suppliers, and customers, but also mentors.

– EU Accelerators Assembly, which aggregates over 70 start-up accelerators, I was writing about some time ago. If you are start-up accelerator, you can register there and find partners for Horizon 2020 call for projects called “
Startup Europe for Growth and Innovation Radar”, which enables financing of strategic partnerships building between European start-up hubs. Imagine that as a start-up accelerator you can submit an application e.g. for creation of Pan-European acceleration programme with professional mentors, and international demo-day. Find details of applying for EUR 1,5 m per project till 25th of April 2017 here.

– As a start-up you might also be interested in using co-working space for leading your start-up daily activity in Europe. For that purposes you can use information aggregated by Co-working Assembly, where you will find already registered co-working spaces. In case you are co-working space founder, you can submit information on its location and services offered.

– Beside over 4 thousand of private investors Start-Up Europe shares the knowledge on over 1300 other start-up funding opportunities, including public funds’ co-financing, in the database of Start-Up Europe Club here.

If you like what is happening in Europe, and you are start-up ecosystem stakeholder consider to sign a manifesto for Entrepreneurship & Innovation to power growth in the EU.

If you are still looking for “a meat on the bone” you might be interested in Practical guide to doing business in Europe. The guide doesn’t only provide details of starting a company, including registration of European company online including, but also provide knowledge on intellectual property rights protection of your start-up, selling your products and services abroad, employing people in the EU, building up your team, exploring taxes and customs related issues, and  getting the basics of merging and acquisitions, which might be interesting for later stage start-ups considering exit strategies.

If you still feel hungry, reach out to us using our contact form, and still “stay hungry, stay foolish”.

Dzida !

 

Value Based Pricing – How to Charge?

Every start-up, or entrepreneur offering goods or services in the marketplace ask themselves a question about how much they should charge for what they deliver. Although there are many classic approaches for measuring customer value, and the willingness of customer to pay it  (e.g. contingent valuation, or conjoint analysis), I would like to focus on value based pricing. I had the good fortune to deepen this topic thanks to Prof. Christian Luthje heading the Institute of Innovation Marketing at Hamburg University of Technology in Germany.

Value based pricing is moreabout charging for the usage or access to the product or service, than for the ownership of it. It may be also about charging for defined output you are committing to deliver. Let me explain it with the following examples:

Software-as-a-Service, also known as SaaS is the pricing model which reference point are functionalities and intensity of usage of what you are to offer. E.g. cloud-computing solutions, or software offered in SaaS model is charged for number of users having access to the solutions, or software and intensity of their usage, incl. customization, and personalization options. Sometimes fee depends on usage time, and usually is offered in subscription based contracts (not licenses, and sublicenses, which are popular y typical in software business) . An example of company offering their products in SaaS model is Salesforce, which once had been a start-up, and today thanks to exponential expansion and growth we could rather call them a “corp-up”.

Build-own-operate-transfer, also known under abbreviation of BOOT, is the model applied to businesses, where the goods, or services providers are remunerated against the delivered output, not the creation of the output potential. Examples are space of the surface, which is to be maintained clean in contract with cleaning company, number of concerts organized by company operating philharmonic, or culture-oriented entity, volume of drinkable water delivered to houses by water operator, as in case of Veolia, who signed a contract with Abu Dhabi Water and Electricity Authority for financing, design, construction, and operation of two wastewater treatment plants. My favorite example of BOOT model is Putzmeister, which offers feed pumps for delivering concrete for construction of skyscrapers of more than 600m height. Putzmeister supplies, installs and operates the feed pumps on their cost at construction site of the highest buildings in the world, but what they are paid for is the actual, cubic meters volume of concrete transported through these pumps at the construction site.

Performance-based payments – this model is used in transportation and logistics business, where basic fee is paid for the service itself (e.g. forwarding, or storage of the goods in the warehouse as in logistics business), and all additional payments depend on meeting performance criteria and metrics. For example, if you are in logistics, and know that you can deliver the service against certain criteria, you can charge premium basing on performance agreed to measure e.g. percentage of deliveries made on time, or number of complaints received by recipients.

Outcome-based contracts – here the contract prices depend on your Client’s expectations of the desired outcome of your service. One of the commercial-blast-based services company Orica, which operates e.g. in mining business uses outcome-based approach in charging for cubic meters of blasted rocks, not for the number of kilograms of explosive materials used to blast them, as in case of their competitors.

Transaction participation – transaction participation relates to brokerage services, and commission charging in relation to the value of the transaction, which had been closed thanks to your engagement. E.g. real estate agents commissions depends on the price of estate being sold, banks offer commission in re-selling their financial products for individual operators of banking franchises, as in case of RBC, Chase, or Lloyds.

Pay-what-you-want – this model is also known as extreme form of value-based pricing where customers might officially pay as much as they like for the product or service. This model is implemented in restaurants, or movie theatres, and turns out to operate better in the former ones. In software business it is known under donation-based offering of freeware software and applications, which creators can be financially rewarded only if their customers would wish to do so.

Which other value-based pricing models you know?

 

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Dzida !

What Type of Start-up Accelerator is for You?

I’ve been interested in start-up accelerators for years, but recently as I chose them to be the topic of my MBA master thesis I’ve started to directly interact with, and research them deeper. Here are the some of my findings that you might find useful in preparation and growth of your new ventures.

So what does “to accelerate a start-up” mean exactly?

After S. G. Cohen and Y. V. Hochberg, let me  define a start-up acceleration programme as a short-time business programme, lasting usually up to for 3 months, whose participants (start-ups) are chosen by strict selection in the early stage of it.is . Participants of start-up acceleration programmes receive extensive mentoring in business- and relationships building, so they get ready to find their first clients and investors. Start-up accelerators engage private capital. The core of their business model is  to cover the costs, earn profit, and recruit new cohorts of start-ups for acceleration. Most of the start-up acceleration programmes provide working space and some small seed capital at start. Game theory method research of J. H. Kim and L. Wagman proves that  a start-up that participated in but didn’t find an investor during  the programme, still has a higher  probability to get financing a than a start-up that didn’t participated in the such. Highly selective acceleration programmes give a start-up  a sort of “certification”.

What is the difference between start-up accelerators and start-up incubators?

Start-up incubation programmes last usually from 1 to 5 years, they are not as selective as acceleration programmes; they invite start-ups to join incubation, and are interested bothl in early and later stages oftheir development. Mentoring in start-up incubators is rather minimal and tactical, when compared to accelerators where it is considered as strategic. One of the biggest differences is in the business model start-up incubators are into. They are usually not interested in investing in start-ups, but in start-ups paying them a rent for being incubated in the working place they offer. They can also work non-for profit, as in case of incubators co-financed with public money. You might find a lot of start-up incubators under tag name of co-working spaces or centers, with wihich they are almost identical considering the business model they execute.

You will also find accelerators displaying some traits of   incubators, and vice versa, as these forms of supporting entrepreneurship like experimenting, and are still evolving. Both of the forms of nurturing entrepreneurship are vital, but let’s focus on accelerators today.

Start-up accelerators have gained on popularity in the recent 10 years. One of the first professional start-up acceleration programmes was launched by Y Combinator in 2005, in which companies such us Airbnb, Rededit or Dropbox have started. They were followed by participans of other, professional start-up accelerators such us Techstars founded in 2007, which now is one of the biggest acceleration programs worldwide. It’s estimated that global number of start-up accelerators might oscillate around 3000.

So what types of start-up acceleration programmes, are there?

  1. Corporate, and private accelerators – it is a form of corporate innovation activity which can be run by corporation internally. Time of the programme is fixed (e.g. 3 months maximum), and only a limited number of start-ups is invited. Such accelerators are led e.g. by Microsoft, or Telefonica. One other form of corporate accelerators is a model called “Powered by” where corporations contract professional acceleration programmes operator to run such programs for them. Such accelerators include Disney Accelerator Powered by Techstars, Barclays Accelerator Powered by Techsters, or Sprint Accelerator Powered by Techsters. Another form of corporate acceleration programmes can be about engaging their employees into already existing private accelerators in form of investors, mentors, or programme partners/sponsors. You can find more on these kind of accelerators considered as the best in class in US in short article I have published at LinkedIn some time ago.
  1. Network accelerators – usually accelerator programme has a defined managing director and mentors, but network accelerators are about franchising accelerator programs to multiple locations with different directors andmentors , which can result in numerous advantages for their participants. One of such accelerators is Techstars with programmes run in Austin, Berlin, Boston, Chicago, New York, Seattle, San Antonio. There is also Healthbox running its programmes in Chicago, Miamo, and Salt Lake City; 500 startups present in San Francisco, Montain View, and Mexico City; or Dreamit active in Philadelphia, New York, Auston, and Baltimore.
  1. Accelerators integrated into Seed Funds – sometimes accelerators include seed fund, which is type of early stage venture capital investing in their acceleration programme. Examples are 500 startups and Techstars, which run accelerators pararelly to seed-stage focused venture capital funds in their portfolio. Other start-up acceleration programmes are transformed nto seed funds, as in case of Y Combinator, which initially was a cohort-based acceleration programme, and now “funds start-ups in batches”. In Poland I’ve observed this model in example of SpeedUpGroup, which runs one of publicly co-financed 10 BRIdge Alpha funds. In order to invest in promising new business ventures SpeedUpGroup is to launch a 3-months-long, intense acceleration programme for the scientific start-ups they focus on, where successful entrepreneurs and corporations are to deliver mentoring on getting paid or going global.
  1. University accelerators – this kind of accelerator subset is affiliated with tertiary education institutions, and typically requires start-ups being affiliates of these institutions (students, employees, or graduates). Programmes typically take place during the summer. They include e.g. StartX run at Stanford, Global Founders Skills Accelerator run at MIT, New Venture Challenge at University of Chicago, OwlSpark at Rice University, SkyDeck at University of California, Berkeley, or Red Labs at University of Houston.
  1. Public sector accelerators – these accelerators are sponsored by government programmes, as in case of Start-up Chile launched in 2010. The programme is run by Chilean Ministry of Economy, and Chilean Economic Development Agency (CORFO), which is an organization responsible for country’s economy promotion. Start-up Chile provides participants with USD 40 000 equity-free seed capital, 50% delivered at beginning of the programme, and 50% after 3 months after reaching agreed milestones. The programme also aims to attract foreign entrepreneurs, as it provides work visas, local identity card, and support in securing housing. On  top of that foreign participants get “buddies” from Santiago business community, whose interests and language match with them. Programme provides free office space in downtown Santiago, mentoring by programme staff and external mentors. What I particularly like about the programme it is “sustainability factor” design to impact  local entrepreneurship ecosystem. Each beneficiary of the programme has to contribute in building entrepreneurial culture in Chile. During the stay beneficiaries have to accumulate certain amount of “Return Value Agenda” points, which is like artificial currency used for paying for their social contributions. I included this programme to accelerators, as Chilean government is in fact investing here, but expected return is not financial profit, but cultural, economic change achieved by giving testimonials and sharing the know-how with others. Selection to the programme also resembles  the one of private initiatives, as all applications are assessed by external judges in outsourced start-up consulting Younoodle from California.

Interesting form of acceleration programmes, but rather beside the typology proposed would be non-profit ones (no equity expected), as in form of MassChallenge, which branch is in Boston I have visited this year. They are active thanks to their sponsors, and alumni funding. MassChallenge is also probably one of the biggest acceleration programmes in terms of size of cohort accepted in one batch, and pool of mentors provided (over 600 mentors, and from 2 to 4 working with one start-up). Their programme in Boston each year invites 128 companies from all over the world for 4-months programme. They are also active in St. Louis and London. You can find more on MassChallenge in their impact report.

So, which type of accelerator programme is for you?

Mass
Source: MassChallenge, Boston, own pictures library.

 

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Which Type of Venture Capital Firm is for You?

As an investor supporting new businesses in return for profit, or entrepreneur focused on growing your business you might be interested in different aspects of today’s venture capital firms. According to one of studies, from mid-nineties of 20th century till today over 286 million of new ventures  were launched globally, and 19 thousand of them had been financed by venture capital firms. Even if the number of companies supported seems marginal, venture capital firms provided USD 59 billion versus USD 271 billion provided by the family, and friends (who act as angel investors here) for all those, who didn’t go for venture capital funding. So you see the number of investments made by venture capital firms is not even close to 0,001% of all new business investments made, but the volume of money invested by them goes for almost 22% of total volume of money invested in growth of new companies.
So what types of venture capital firms we can distinguish?Let me present you a US-based typology created by R. Hisrich – author of 40 books and 400 articles on entrepreneurship, and also serial entrepreneuer, who currently actively lead 8 companies. I supplement this typologywith European context,  whereever possible.

Private Venture Capital Firms –  these firms are usually focused on investments ranging from 1 to 10 million USD. As an entrepreneur you should be  interested in them when your company;initially financed by yourself, your family and friends, angel investors or crowdfunding ; achieves a breakeven point (the moment when your business starts generating positive cash flow, which is a surplus of revenues over expenditures).As an investor you might be interested in joining venture capital firms due to the positions they offer: general partners responsible for management of firm and limited partners, who provide capital for investments in return for profit. In US will find more on private venture capital firms at National Venture Capital Association gathering data from over 400 partners. To see the merits of becoming limited partner you can visit website of Launchpad Venture Group from Boston, which I recently met. See the portfolio of investments they nurture here. For Europe you can take a look on the article recently published by Forbes, and for countries look for national venture capital firms associations. In case of Poland you can visit Polish Private Equity and Venture Capital Association, which gathers almost 50 partners.

Regionally Oriented Venture Capital Firms – these are  private venture capital firms with regional, not nation-wide orientation. These firms usually have a better knowledge on local setting and do business in a well-defined area, e.g. a state. You can find examples of such US-based firms here.

Small-Business Investment Companies (SBIC) – these venture capital firms support investments ranging from0,4 to 1 million USD . As an entrepreneur you might be interested in them when you look for money smaller than private venture capital firms offer. There are approx. 500 small-business investment companies in US, which are usually interested in supporting companies from particular region. As entrepreneur you will find contacts to them within Small Business Investor Alliance. In US there is a pretty long tradition of supporting small-business investment companies by the state in spirit  of creating of national entrepreneurship ecosystem. If you are interested in becoming such a company visit the website of U.S. Small Business Administration.

Industry Sponsored Venture Capital Firms – type “A”. Venture capital firms can be run not only by private investors, but also by financial institutions. Almost every bank in the world has its venture capital division, but they don’t tell widely about it. You can read an excellent article on how Goldman Sachs became a tech-investing powerhouse  in article titled “Goldman is Ventureland”, Bloomberg Markets, September 2015. Be careful with indebting if you consider going for equity investment from your bank. In most  cases banks are obliged to implement a “firewall” not allowing them to invest in one entity at the same time both equity and debt instruments (e.g. a bank loan).

Industry Sponsored Venture Capital Firms – type “B”. Venture capital firms can be run not only by private investors, and financial institutions, but also by non-financial institutions. As internal entrepreneur working for a corporate you might be interested in setting such a firm for your company to boost the growth. Large companies often run their corporate venture capital firms to be close to development of their market and to sustain competitiveness of their business. For entrepreneurs, being funded by such a firm, comes with the advantage of getting access toenormous knowledge on industry they operate in, incl. market, trends, products, or competitors. In IT such a firm is run e.g. by IBM, in energy, or healthcare e.g. by Siemens, and for telecommunication you can check e.g. Deutsche Telekom, which for its operation in Central and Eastern Europe conducts its business from Cracow in Poland. The other thing which differs these form of VC firms from the others is that they don’t have to cash out under pressure. It means that business with them can be developed in more laid back manner, as a long term thing.

University Sponsored Venture Capital Firms – these firms are established with direct engagement of education institutions to support development and commercialization of invention of its internal stakeholders, this is students, school’s employees, and  alumni. For this type of firms in US you can take a look at UCLA VC Fund or Stanford Engineering Venture Fund. In Europe university sponsored venture capital firm has been launched e.g. by Technical University of Munich in Germany. If you would like to purse creation of such firm within your education institution, take a look at how it has been structured at Stanford.

Charity Venture Capital Firms – these type of firms also known as social venture capital firms, are a pretty new invention. They are incredibly interesting in form of their  business model. As an investor who would like to support ventures of such firm you can write-off your earnings for  tax optimization, and feel extremely proud for being entrepreneurship philanthropist. Why philanthropist? Because by investing through such a firm you cannot expect return on investments. They operate non-for profit organization (NGO). Still in some cases the tax you are due to tax offices will be lower. Phenomenon of charity venture capital firms has been recently described by Fortune. An example of such venture firm is Acumen.

I’d like to complement above with Private-Public Venture Capital Firms – which could be also called hybrid venture capital firms, as the capital they gather and invest comes from both public and private sector. In some cases to foster creation of national entrepreneurships ecosystems governments co-invest in private venture capital firms to increase their ration of new investments, and decrease the risk of losses in case of failed investments. This type of firms might be particularly interested for policy makers from emerging markets, who are interested in creation of new business investment instruments. You might be interested in programmes such as BRIdgeVC, if you run private venture capital firm and you are interested entering new, external market. An example of government initiative, which enabled creation of such firms is BRIdge VC run by National Centre of Research and Development in Poland. Thanks to the programme Israeli Venture Capital Firm Pitango created new venture capital firm in Poland together with a local player. Thanks to the initiative the biggest venture capital fund for high technologies in Poland had emerged.

 

So which type of VC is for you? 
 
                                                          Source: Own photo library.

Dzida!

How to Get PLN 150 000 and Go Global?

 
If you are a company based in Poland, or you consider to set up your business in Poland soon, and you are interested in commercialization for your research, development and innovation works abroad, you might be interested in GO_GLOBAL.PL – a call for co-financing to be announced by Polish National Centre for Research and Development.
 
The call is planned to be announced officially on 11th of May 2015 and will be closed on 15th of July 2015.
 
This co-financing can support advisory services, opening representative offices abroad, or participation in reputable business acceleration programmes.
 
Official partners of the programme include among others: US-Polish Trade Council, Plug and Play Tech Center, Fraunhofer-Zentrum fur Mittel und Osteuropa, Accelerace, and many more.
 
You can receive up to PLN 150 000 (approx. EUR 35 000) with public co-financing intensity of 85% (it means that 15% of total value of the project must be your own funds).
 
 

                                                        Source: www.pinterest.com


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