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Startup Support Ecosystems
Building a Conscious VC Fund
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 ecosystem exists:
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 anywhere between USD 25k-150k.
Length: 3-6 months
Most of the 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. E.g., Startupbootcamp
Take sweat equity (> than accelerator) and invest a small amount, generally anywhere between USD 50k-250k.
Length: 6-12 months
Incubators are slowly and 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. For more, read my piece on the promise of venture studios here.
It is still at a very nascent stage - there are only 200-300 VBs - Venture Builders or Studios. Look at GAN, a global community of startup studios - http://gan.co/.
Generally, charge high equity, act as the founders and get more operating CEOs or additional founders.
Lengths: 9-24 months before spinning out as a separate venture
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 strategy in the VC world:
Act 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 - a lot familiar in the PE world
Venture Consultants - Act as external CTO, CFO, CCO = CXO and charge the startup equity for the work and some consulting fees
What do these startup support ecosystems (existing) offer apart from the capital?
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 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 or B2C or B2G or C2C, or it can be sector focus like Agriculture, Education, Consumer Tech, Lifestyle, Media, etc. or it can even be AI focus, Deep tech focus, Computer Vision focused, etc. Generally, theme-based startup ecosystems are small micro funds or minor in size in terms of total capital size.
Sector/ Theme Agnostic: Most of these ecosystems have some focus areas, but they 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, investing in this asset class. E.g., family offices, HNIs, or HNWs.
Corporate VC and Corporate Innovation - most of the time for strategic reasons - e.g., Touchdown Ventures, which provides CVC as a service to corporates.
Considering the whole startup support ecosystems, most of them have focused on technology ventures (whether accelerators, incubators, venture studios, or early-stage VCs).
Theme-based startup ecosystems are smaller than Sector/ Theme agnostic. However, they are catching up a lot of attention as theme-based startup ecosystems develop deep expertise and knowledge.
Recently, there has been a lot of activity in the corporate VC and innovation space.
There is a considerable rise in venture studio funds, and many LPs are looking to invest in them, especially in mature markets like the USA and Europe.
Last but not least, 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
I am continuously looking for first-time fund managers looking to create their first-time impact funds with an edge or a differentiated value proposition in emerging economies. If you are building one, please do write to me. I would love to learn more from you and would be happy to help in any way.
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