There is a certain gap between an acceleration program and the first serious investment a team should secure after being accelerated. This is a critical interval in an early stage startup, when it still needs support to deliver a product that has achieved product/market fit.
Are European funding programs a possible gap closer? How about corporate accelerators that could support teams for longer than 3-6 months? Should they? We wanted to find out, so we spoke with Cosmin Ochisor, Business Development Manager at Hub:raum acceleration and incubation program of the telecom juggernaut Deutsche Telekom.
Cosmin is highly experienced in a wide variety of business fields within or connected to the telecom industry: Directory Services, Value Added Services and general new business development. His skillset encompasses re-organization/outsourcing processes, M&A and working with multi-skilled international teams. Moreover, he is an experienced product manager in product development, marketing communication (ATL&BTL) and rolling-out new products on the market.
Hub:raum invests in early stage startups, backs them with co-working-space, mentoring and helps them find the right business partners within the group.
How to Web: A lot of European financing programs were announced in the last few years. Do you see them as alternatives to accelerators or more like complementary solutions and why?
Cosmin Ochisor: At Hub:raum we see them as complementary solutions. They say that money has no color, but in a way it does, because this type of solutions do exist in Western countries – and the idea is that, on one hand, a sort of limitation to access them does exist and, on the other hand, they do not help as much to get further financing.
At one moment your startup will need a round A financing and it is recommendable that you have been already accelerated by a reputed program, that you have an investment track record. Accelerators usually finance the ongoing cost to develop a product during the program itself. So I see this EU funding right here, like a buffer between seed funding and accelerator and round A financing.
Ok, but there are some accelerators funded from public EU money, like the Estonian BuildIT program…
I know, that is a hardware accelerator and there are many others among them. Of course you can work this way too, and it’s totally fine, but in the end we are talking about public funds…
And are those funds more difficult to access, is there more bureaucracy involved in the process?
No, the main problem is not the bureaucracy as far as I know, but some limitations of how much it can be invested specifically because there are public funds involved. The end results will always be different than the case when you decide on private money, even if the final goal is the same, to support and encourage entrepreneurship.
The reason behind the money is different and VC’s know this very well. But the fact that such funds do exist, especially for the CEE region, where it is harder to get funded, is very good indeed. However, my opinion is that it shouldn’t be only public funds, because anyone that will get a round A or Round B investment will have to ultimately deal with private funds.
How many of your accelerated teams usually get investments at the end of the Hub:raum program?
It’s up for discussion, because we are quite young on the market: the entire Hub:raum program has only 2 years. I can say that we have a total of 10 investments – one company just made an exit to an US big player.
However, a lot of the teams we invested in are still in the program, but between 60% and 70% of those already accelerated got follow-up investments.
Can you tell us which company made the exit?
The details are not public yet, but the name of the company is Salonmeister from Berlin. Their product is a sort of booking system for the hairstyling market.
Which are, in your opinion, the main challenges of the accelerators’ current investment model? There are a lot of alternatives around…
I think this relates to the first question also. There is a sort of a gap between seed funding and the next round of investment. In almost all cases the money a team receives from an accelerator really only covers the cost of living while going through an accelerator. To get to the next round they need to reach certain milestones and there is a time factor involved as well. If you begin discussions with an investor, you will not get your money in two weeks, but at least 2 to 6 months in the most optimistic scenario.
I think that maybe an accelerator should have also the option to sustain some teams an extra 3 or 4 months. You need time to secure the team and build internal business processes. And there’s also the actual cost of the product if it’s successful. Someone should be available to sustain the team right here, between seed funding and pre-round A.
The increasing number of accelerators brought increased competition between them as well. What do you think is the impact on programs’ structure, recruitment and investment strategies?
The CEE region still lacks accelerators in my opinion and Western ones have been in place for quite some time now. The really good projects within the region succeeded to be recruited to US and UK programs fairly easy.
What I think will happen is what we see in the West: some accelerators will become more vertically focused which is good, and investors will be more attracted if the teams are better selected. I think the market is in its very early stages and we will see a lot of growth; I think we are on the right track.
At least from Hub:raum’s perspective we think that accelerators should be partners not competitors. And if there is any competition it should not be in the “who pays more” area, because no one wants to encourage “startup lifestyle” teams. Personally, I met some teams that were at their third or fourth program and that’s not the point.
Besides this startup lifestyle some teams are tempted to develop, have you noticed other deficiencies among your applicant startups?
The lack of business experience. Everybody talks about this within the region and Romania is no exception. There are some extremely talented people among them, but with no experience business-wise. Then again, demographically speaking, the founders’ age is notably more mature in the US and Western Europe than in the East.
There are several causes for this. First of all, the appetite for risk is considerably low after the thirties here [in the CEE]: maybe they have families, the economic environment is tougher, access to funding more difficult, or they are not willing to quit their jobs so easily.
It’s a great thing that we have young and enthusiastic teams, but we would like to see more experienced ones, I think they would have better chances to succeed.
Being part of a telecom organization makes you more oriented to certain type of projects?
Not necessarily. We are focused indeed on some verticals or we are not interested in others to be more specific, because we can’t help there. The whole reason behind a corporate accelerator is to offer more than just money. If we are talking about telecom, this involvement should be access to our customers and this is a process we are determined to improve. In the end, this is what a startup needs: access to market as soon as possible – there is no product without users. And there is also the technical competencies area involved. We can facilitate access to certain technologies or support e.g. some special permissions from e device vendor.
Telekom has a solid strategy and a special division to handle partnerships (from Microsoft to Spotify), top tier players on specific verticals. On the other hand, we are focused to nurture new partnerships and help them develop their business.
Are there any other telecom operators with similar acceleration programs?
I think that the most notable is Wayra from Telefonica, but they are more developed in South America, where they’ve accelerated around 200 teams so far, but I don’t know how many ended to secure partnerships. Then there is Orange Fab, a pretty recent one, again not so present within the region, although they opened an office in Warsaw, Poland. This is more like a classic 3 months acceleration program and the investment only covers that period. Vodafone group had something, but not anymore and that’s pretty much it.
Who do you think will be the innovation drivers in tech and startup investment? Will they be the accelerators, UE, investment funds?
Accelerators are arguably the foundation of the innovation. But that doesn’t mean that if you covered the foundation you already have the whole house. The ecosystem is very important, it’s like a circle that starts with an angel type investment and ends with an exit. The whole mechanism is not yet in place in my opinion.
UE funds are very welcome, but still pretty complicated to access, and there is not enough information around them. To reiterate, the problem is the gap between acceleration programs and the first important financing round, even for very talented teams with promising products. Some EU grants could be welcome here. We might say that money is not everything, but in the very early stages it is crucial for a team to be able to dedicate itself 100% to the product.
There is no acceleration program that covers a year of product development. Maybe in this area of corporate accelerators there should be an opportunity. It’s not only us: Orange, Cisco, Intel are looking for opportunities in the region, but other real big investors are not yet here. We still don’t have the entire ecosystem and the only real successful startups are those who moved to the West.