In my attempt to understand the overall startup ecosystem, I thought of summarising my thoughts on how I see startup support ecosystems, or as some call ESOs - entrepreneur support organizations. There are five specific kinds of startup support ecosystems exist:
Accelerators- generally a program like YC and Techstars to accelerate the startup from idea to MVP to growth.
Take sweat equity and invest a small amount, generally between USD 25k-150k.
Length: 3-6 months
Most good accelerators have follow-on funds to invest in series A rounds.
Incubators - an older cousin of the Accelerator model - deeply entrenched support for a more extended period. For example, Startupbootcamp
Takes sweat equity (> than accelerator) and invests a small amount, generally between USD 50k-250k.
Length: 6-12 months
Incubators are slowly fading away, evolving into accelerators
Venture Studios - a new and emerging model in this space, which means building ventures from scratch and finding operating teams and CEOs to take it further after 9 to 12 months of seed support and venture building. E.g., Rocket Internet, Rev1, Atomic, etc.
It is still nascent - there are only 200-300 VBs - Venture Builders or Studios. Look at GAN, a global community of startup studios - http://gan.co/.
Generally, they charge high equity, act as the founders, and get more operating CEOs or additional founders.
Length: 9-24 months before spinning out as a separate venture
For more, read my piece on the promise of venture studios here.
Early-stage venture funds - a typical early-stage seed VC. E.g., Bloomberg Beta, Quona Capital, Blume Ventures, etc.
Invest for equity and very low-touch portfolio support
Ticket size: USD 50k - USD 1 mn
Different kinds of Portfolio support strategies in the VC world:
Acting as a hedge fund - invest and leave the portfolio - in theory, it is a more scalable strategy. E.g., Correlation Ventures
Mentor strategy -systematic, standardized support - this is the best working strategy -Historically proven strategy - it's a relatively low cost
Portfolio Operator Strategy requires a significant investment of capital. It is very familiar in the PE world.
Venture Consultants—Act as external CTO, CFO, CCO, or CXO and charge startup equity for the work and some consulting fees.
What do these startup support ecosystems (existing) offer apart from the capital?
Recruiting
Outsourced Financial Services - especially for tech startups
Service Providers - PR firms, legal firms, SEO firms - it takes a lot of money in advance - late-stage VCs do that
Templates of how to build your company
Types of Startup Support Ecosystems:
Theme-based: Theme-based or sector-focused ones are generally started by experts in those fields with deep knowledge and expertise. The theme can be a particular business model focus like B2B, B2C, B2G, or C2C, or it can be a sector focus like Agriculture, Education, Consumer Tech, Lifestyle, Media, etc., or it can even be AI-focused, Deep tech-focused, Computer Vision focused, etc. Generally, theme-based startup ecosystems are small micro funds or minor in total capital size.
Sector/ Theme Agnostic: Most of these ecosystems have some focus areas but generally invest/support across sectors and different business model types. All the significant startup support ecosystems are mostly sector agnostic, as their investors like to invest in a diversified pot rather than focused areas.
Who are the investors of startup support ecosystems?
Philanthropists and CSRs to do good and to give back to the entrepreneurial community.
Professional investors invest in this asset class. E.g., family offices, HNIs, or HNWs.
Corporate VC and Corporate Innovation are mostly used for strategic reasons—e.g., Touchdown Ventures, which provides CVC as a service to corporations.
Key Insights:
Considering the startup support ecosystem, most have focused on technology ventures (whether accelerators, incubators, venture studios, or early-stage VCs).
Theme-based startup ecosystems are smaller than Sector/theme-agnostic ecosystems. However, they are gaining a lot of attention as they develop deep expertise and knowledge.
There has been a lot of activity in the corporate VC and innovation space recently.
Venture studio funds are rising considerably, and many LPs are looking to invest in them, especially in mature markets like the USA and Europe.
Lastly, to build a thriving theme-focused startup support ecosystem, it needs to build its reputation and thought leadership. E.g., Publishing a playbook and blueprint on how to build an impact-tech venture.
Curated Resources for further curiosity
[Blog] Startup Studios and More
[Website] Global Accelerator Network
[Directory] Compiled Global Accelerator data
[Blog] Venture Capital: Rumors of my death have been greatly exaggerated
[Report] The Emerging Role of Venture Builders in Early-Stage Venture Funding
[Blog] Why do VC firms become Platforms? (or why a16z is successful)
[Blog] Corporate Venture Capital: The Devil...or an Innovative Growth Channel?
[Research paper] The Lower-Risk Startup: How Venture Capitalists Increase the Odds of Startup Success
PS: Originally published in First Followers Substack.
Sign-off for humanity,
Sagar Tandon
Follow me on LinkedIn» https://www.linkedin.com/in/sagartandon/
Mail me at » sagar@firstfollowers.co or sagar@idexaccelerator.com
Stay humble, stay curious 🌟🌟🌟!
Note: These are my personal opinion.