Venture Capital/Analysis/ There are only two accelerators European VCs care about Accelerators programmes are aplenty in Europe — but what do VCs really think about them? By Sadia Nowshin 2 December 2022 Vectorjuice / Freepik Vectorjuice / Freepik \Venture Capital Hoxton Ventures to add a new partner in April By Amy Lewin 17 February 2023 Venture Capital/Analysis/ There are only two accelerators European VCs care about Accelerators programmes are aplenty in Europe — but what do VCs really think about them? By Sadia Nowshin 2 December 2022 There are, according to 20-odd top tier European VCs, just two startup accelerators really worth getting into: Entrepreneur First and Y Combinator. VCs flagged these programmes as the only ones “still able to attract amazing talent”, with one investor going as far as to suggest that all others are “a waste of founders’ time”. Over half of the VCs Sifted spoke to had a good word to say about London-founded “talent investor” Entrepreneur First (EF): “[It has] been brilliant in providing an actionable pathway both in terms of enabling founders in meeting prospective cofounders, but also commercialising academic research,” Carlos Eduardo Espinal, partner at Seedcamp, says. Just under a third say they keep close tabs on Silicon Valley’s Y Combinator (YC) — in part because it’s done such a good job of maintaining its world-class reputation. “YC has done an incredible job building their product and brand as THE best accelerator,” says Sam Cash, partner at Project A Ventures. But some of the investors think that even EF and YC didn’t cut the mustard, with one saying that the accelerator ecosystem “just doesn’t mean anything anymore”. 23 accelerators in total received at least one positive mention from the VCs we surveyed — and given that there are hundreds across the continent, that seems pretty damning. So, 17 years on from Y Combinator’s launch, why are top-tier VCs paying attention to so few accelerators? And which ones do stand out? Read on. Pros and cons There are a lot more accelerators than there once were in Europe. At the same time, several VCs say, there’s less need for them. “I would say that the [YC] brand has eroded slightly given cohort sizes are in the hundreds now.” When the European ecosystem was immature and just starting to bloom, accelerators had a “special place”, says one investor — but this relevance has “declined over time”. “With markets struggling they are becoming “fashionable” again,” they continue, but the perks of early support for sponsors are offset by high operational costs, which “can be a distraction from the core investing business for many”. Some accelerators have also increased their cohort sizes, and as a result become less selective, some VCs say. Techstars and Plug and Play (PNP) are guilty of this, some say — as is YC, as Sam Cash adds a caveat to his praise: “I would say that the [YC] brand has eroded slightly given cohort sizes are in the hundreds now.” Despite that, having graduated from YC is still often a shortcut to a meeting with many VCs. But that isn’t the case for other accelerators, says one investor: “Whether [a startup] graduated from a programme doesn’t influence whether we take the meeting or invest at all.” One investor’s recent experience at an accelerator revealed that they’re “falling out of flavour, and I don’t think it ever properly took off in Europe”. Emma Phillips, partner at LocalGlobe, echoes the sentiment, saying that “we still don’t have that YC brand that the best founders want to go through here”. That said, Emma, along with several other VCs, point out that accelerators play an important role in increasing the diversity of the startup ecosystem. “When run and managed well, [accelerators] can be great to give a wider set of diverse talent the opportunity to launch a business, form a group of (often relevant) peers, and gain access to capital (or at least VC intros),” she adds. VCs’ top five accelerators Entrepreneur First (EF) Focus: Individuals with founder potential Companies in portfolio: More than 600 since 2011 Average investment and equity taken: £80k for 10% equity in Berlin, London and Paris Notable alumni: Accurx, Magic Pony Technology (acquired by Twitter), Sonantic (acquired by Spotify) EF refers to itself as a “talent investor” rather than an accelerator, as it focuses not on startups in need of development, but on individuals with the potential to become strong founders. Applicants don’t even need to have an idea for a business. The programme is designed to help participants find cofounders, and then launch a startup from scratch together. So far, 626 companies have been formed in the programme, of which 450 are still going. It’s free to apply and take part, and EF offers a living expenses stipend — £2,000 per month in London, €2,000 per month in Berlin and Paris and roughly the equivalent in the Singapore, Bangalore and Toronto programmes. It won’t share how many applications it receives or how likely it is someone gets onto the programme, but it does say that around 30% of applicants will make it to the interview stage. Y Combinator Focus: Pre-Series A companies, sector agnostic Companies in portfolio: Over 3,000 since 2005 Average investment and equity taken: $500k into every startup, split between $125k for 7% and $375k on an uncapped safe with a Most Favoured Nation provision Notable alumni: Stripe, Monzo and Airbnb Based in San Francisco, Y Combinator is one of the best-known accelerators for both startups and investors. Its three-month biannual programme offers one-to-one and group office hours, in which startups can get advice and ideas, attend talks with experts in the industry and access an internal networking platform. Each successful startup is given $500k on acceptance, which is made up of $125k for 7% of equity, and the remaining $375k on an uncapped safe with a Most Favoured Nation (MFN) provision. A safe, where early-stage startups receive investment that converts to shares after an agreed valuation on a certain date, would usually have a valuation cap so investors get more for their cash if a company is valued higher than the agreed figure. On an uncapped safe, however, there is no such limit and the shares convert at the rate of the achieved valuation. The MFN provision means that the company can’t offer later investors a better deal — so, if a YC graduate company wants to give a second investor more attractive terms, it would have to offer YC at least the same terms before it could close that second deal. The accelerator introduced these new terms at the start of this year, with the hope that “it removes the immediate pressure [on startups] to fundraise and accept less than favourable terms”. Given its reputation, it’s in high demand: of over 30k applicants, around 2% are successful each year. Startups aren’t expected to pay for any stage: the application process is free, as is participation in the programme itself. Startup Wise Guys Focus: B2B across SaaS, fintech, cybersecurity, AR/VR, sustainability and industry 4.0 Companies in portfolio: More than 300 since 2012 Average investment and equity taken: €90k for up to 9% of equity Notable alumni: AR/VR startup Ready Player Me, fintech Ondato and software company StepShot Startup Wise Guys offers five-month sector-specific programmes across Europe, which can be in-person or remote. They focus on scaling and sales and primarily accept B2B startups across a range of sectors. Around 200-300 startups apply for each programme — for just 10 places. As long as they meet a set of performance targets throughout the largely online process, every startup in the programme receives a €90k investment. Around 35% of applicants pass the due diligence checks, with 20 to 30 companies invited to “Bootcamps”, which are usually the last step before a decision. While the application process is free for founders — and those at too early a stage are offered a place on a free pre-accelerator course — companies that are selected for the programme are expected to cover the cost, which comes to between €25-30k, out of the investment they’re given. Techstars Focus: Industry agnostic, for early stage, pre-seed founders from anywhere in the world. Companies in portfolio: 3,300 since 2006 Average investment and equity taken: $20k cash upfront for 6% of equity, and a $100k convertible note with a cap of $3m — so, Techstars receives a minimum of another 3.3% in equity, but more if the startup raises at a valuation lower than the cap. For startups with previously raised investment, the cap can rise to $5m Notable alumni: Chat API Sendbird, cryptocurrency platform and broker Safello and cloud computing company Digital Ocean Techstars’ three-month programmes admit a cohort of 12 startups, and are either sector-specific (like the energy programme based in Norway, which anyone can apply for) or industry agnostic and location-specific instead (like the Stockholm programme focusing on startups in the Nordic-Baltic ecosystem). Thousands of companies apply annually. Applicants can flag a first and second-choice programme to increase their chances of landing one, and can apply again at the next intake if unsuccessful. The Europe-based accelerators — in Germany, Sweden, the UK, Italy, Norway and the Netherlands — are in-person, with one hybrid programme in France. Every founder accepted to the accelerator gets the same funding deal: $120k made up of $20k cash and $100k in convertible notes, with Techstars taking 6% of equity — which it receives immediately before the company’s next equity financing of $250k or more. So far, 22 unicorns have graduated from the programme. Plug and Play Focus: Any stage, depending on the needs of its corporate partners Companies in portfolio: 5,269 between 2013-21 Average investment and equity taken: No equity is taken by the accelerator. Plug and Play’s VC arm writes cheques of between $50k to $500k Notable alumni: Pet care provider BetterVet, online file storage DropBox and PayPal Plug and Play (PNP) is an early-stage VC firm with a separate accelerator programme. It partners with large corporations, governments and NGOs, which have problems, barriers or inefficient processes that they need help with — and sources startups developing services designed to serve those needs. The accelerator then supports teams to produce a proof of concept to show to the partner organisations. It receives thousands of applications to its sector-specific programmes. It runs programmes around the world, including in Germany, France, Spain, Austria, Italy and the Netherlands. However, most of the startups selected have been scouted by the team to match the needs of a partner, which pick the companies that they’ll work with in the accelerator. This article was last amended on Dec 7 2022 to correct information about Techstars’ equity and investment terms, and the number of startups admitted to their programmes. Sadia Nowshin is editorial assistant at Sifted. She tweets from @sadianowshin_ Related Articles What do Gen Z founders really want from VCs? 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