Central Europe Accelerator

To the Next Beginning: StartupYard in Numbers

This month, we say a heartfelt goodbye to the six startups we’ve gotten to know and love over the past 3+ months. Every year, we have to start all over. New teams, new ideas, new challenges. We have to fall in love all over again. It’s not going to be easy.

This post is going to be partly about the past, and partly about the future.  Where have we been as an accelerator, and a team, and where are we going next? What is our next beginning? As we so often preach to our startups, we’re going to apply some numerical discipline here, and talk in numbers.

5, 6, 36

This has been StartupYard’s 5th batch of startups since our founding in 2011. In addition, we are now a team of 6: comprised of Managing Director Cedric Maloux, Executive in Residence Philip Staehelin, Office Manager Helena Nehasilova, Legal Manager Nikola Rafaj, our intern Ian Abildskou, and myself.

Cedric and I joined StartupYard’s management team in 2013, and have done two cohorts together. Philip and Helena joined us this year, and Nikola has been involved with StartupYard since the beginning. Ian will be leaving us this week. He’s been great, and if you’re looking for a junior graphic designer, I suggest you hire him.

36, 13, 4, 10, 26, 68.6%

All told, we’ve accelerated 35 companies. 14 of those companies have raised either angel or seed round financing (so far), including 4 which have been acquired by other companies, and 11 are no longer with us (though their founders are still alive and well). That leaves 25 still operating, in various stages of animation. That represents a 68.6% “success rate.” We’ll talk more about that number later.

So how are we doing? As VentureBeat has noted, that can be difficult to assess. We could (and we sometimes do) take credit for all of the financing that our startups have gained since they’ve left the accelerator. In addition, we could take credit for the acquisitions of StartupYard companies that together represent over $20 Million in market value. We could also take some credit for the at least 150 jobs that our startups have created.

Smaller, Smarter?

Those numbers might seem small if we were to compare ourselves to some other accelerators, such as SeedCamp, Techstars, or Y-Combinator, the latter of which has 37 startups alone valued at over $40 Million each. But that wouldn’t be the whole picture either. Y-combinator has accelerated over 840 companies in the past decade- a rate of 10 times more per year than StartupYard (and more than most other accelerators). And they’ve been around 6 years longer, in a much richer market. Of those companies, while the successful ones represent some $30 Billion in value, 75% of that value is represented by their two biggest successes: Airbnb and Dropbox.

What exactly defines “success” when it comes to an accelerator’s portfolio company is murky. This list, for example, shows that out of 840 Y-C companies, just under 100 are “dead,” however, the vast majority are “operating;” many on the original investment they received from Y-C. Since internet companies can “operate” by keeping up a website for years, while the core team may move on to other projects, it’s not easy to nail down a number for the companies that are effectually shuttered.

So exact figures and failure rates for Y-C, given its size and the softness of the numbers, is difficult. A recent episode of the Startup Podcast placed Y-C’s projected failure rate at over 90%, but that also accounts for the likelihood of current companies eventually failing. That would mean that less than 1 out of 10 of Y-C’s companies would either exit, or turn a reliable profit in the future. But that’s not being very generous- we shouldn’t count failures before they happen. I would estimate that Y-C’s “failure rate” is probably similar to our own.

To measure success by the only fair indicator in StartupLand, which is to say: success is the absence of failure, then we are also doing well, with a 68.6% success rate.

36, 840, 40, 6%

But here I’ve been comparing us with Y-Combinator, when it isn’t a fair comparison, either for Y-Combinator, or for us. I asked Cedric this week, what he thought he would do if StartupYard could have access to the level of funding that Y-C enjoys.

“Well, I would love to invest in 80 startups a year… but there have to be 80 startups I would invest in.” Just as Y-C has ridden the waves of growth in the startup ecosystem in California for over 10 years, and just as Y-C in many ways helped create that wave, we are on a different wave, and we have to help create it for ourselves.

Part of the frustration, but also a positive challenge, of working in the shadow of places like London, Berlin, or the Bay Area, is convincing the brilliant, innovative, and energetic minds in the Czech Republic and across central Europe, that we too can play this game. We too can grow, year on year, and offer more.

Our team consists of native Czechs, and of expats who have been living here for a long time (a combined 40 years), and we understand the region, and the culture, very well. For two decades, Central Europe and the Czech Republic have battled an inferiority complex and a brain drain that fixates local media, local politics, and local investors on what is happening in other places. The Czech economy is dependent upon its skilled workers (few countries boast more qualified IT workers and engineers per capita), but also on the larger economies that surround us.

But that ignores the totally unique accomplishments of the Czechs in their own backyard. We are home to the only search engine outside of Asia that beats Google in its own country- Seznam.cz. We are also home to two of the world’s leading software security companies, AVG and Avast, and we are a major hub for DHL, the world’s leading logistics operation.

Due to sensible fiscal policies, a business friendly tax structure, and a conservative debt culture, the Czech economy was one of a very few to expand during the most recent economic crisis- growing around 6% from 2008 to 2011.

Prague, the Capital, also leads the world in various indicators of quality of life. We are in the top 10 ranked countries with the fastest growing internet speed, and Prague has one of the densest and most used urban transit systems in the world, and a quality of life index score higher than South Korea, Poland or Italy, and just below France.

Europe comes to the Czech Republic for its top-shelf engineering talent, its low prices, and its productive and no-nonsense work culture. Just as the communist world relied on “golden Czech hands,” to innovate in transportation, heavy machinery, medicine, and material sciences, so too does the west now look to us for an even broader range of talents- a dependence that keeps Czech unemployment persistently low, rivaling the US and the UK, and beating Estonia, Finland, Sweden, Poland, France, and Canada, among many others.

In short, we do some things pretty well, and we get a lot done. And it’s absurd to assume that we can’t be among the best in the world when it comes to mobile, e-commerce, security, and B2C online businesses.

We recently published this slideshare about the Czech tech scene, and we encourage you to take a look.

60, 240, 500

When Cedric and I joined the accelerator, it was on the eve of an open call for the 4th batch of startups. We received 60 applications- most (though not all) from the Czech Republic. This year, thanks in part to the accelerator consortium CEED Tech, which we run in cooperation with established partners in other CEE countries, we upped that number to 240. We were also able to secure grants from the EC that allowed us to invest €30,000 in each of our startups, up from €10,000 in previous years.

We received more applications this year from Slovakia alone, than we had from all countries combined in 2013.

And our mentors and investors have noticed the difference. Excitement surrounding our current batch of startups, while still early, is stronger than any we’ve seen before.

This year, we have an ambitious goal. We are looking to collect 500 applications to the accelerator, from which we will again pick only 7 to 10 of the absolute best applicants.

While other accelerators like Y-C, or Techstars, who have had the opportunity to take advantage of a groundswell of new interest in startups and startup investments, and expand both geographically and in sheer size of their programs, we are in an earlier phase of evolution at Startupyard.

There haven’t been the number of massive successes in the Czech tech ecosystem that would be needed to drive a huge movement toward startup culture. So we continue to focus on the quality of the startups we accelerate, and on seeking the drivers of the wave that will raise all ships in Central Europe.

1,000, 50 Million, 1 Billion

There are 6 startups leaving our program this month. I believe that every one of them represents a smart investment, and a potentially very profitable and rapidly growing company. But I’ll be uncharacteristically conservative and biased. I believe that the 6 startups finishing our program this week can employ 1,000 people within 5 years. They can serve 50 Million loyal users or customers, and together, they can be worth $1 Billion or more.

The defining moment for most accelerators, particularly in the eyes of this industry, is when they generate their first “unicorn.” Their first $1 Billion company. Airbnb, for example, now a household name, put Y-Combinator on the map, and they have added 2 more 10 figure companies since then.

Techstars, which has focused more on geographical expansion of its program, based on B2B successes like SendGrid, and Softlayer (both Startupyard partners), has a track record not dissimilar to our own, with a 76% “success rate.” SendGrid continues to raise money, and Softlayer sold to IBM in 2013 in a $2 Billion deal.

Time will tell whether we’ve already met our unicorn. But I don’t think that’s the right metric at all. Given $100,000 to invest in each of 800+ startups, in an industry and region where investors are dying to throw money at tech companies, I think a decently intelligent person could pick at least a winner or two. And Y-Combinator and TechStars are run by more than decently intelligent people.

But it’s a strange metric for success that would make me feel embarrassed to only to aspire to having these 6 companies, together, be worth $1 Billion. That isn’t dreaming small, when you think about it. We’ve been trained in StartupLand to view success in a strange way. We talk about “making the world a better place,” enough to make that an ironic punchline. But the story of late has persistently been about large purchase prices, and big valuations.

Instead, I think we should measure success by a metric more commonly employed back here on Planet Earth. Are we doing better than we did last year? Is our region responding to that success by taking more creative risks, working harder, and making our investment decisions ever more difficult and interesting? Does our work add value to our industry, to our region, and to the economy we participate in on a daily basis? I think the answer in our numbers so far is clear: they show that we are on the right path.

Taking these as our KPIs, we should be more than able to make a lot of money. But even better, we should be able to make money doing the right thing. We should be able to make more money, and have a bigger impact, every single year.

Defining Success For An Accelerator

Having met members of dozens of accelerators from across Europe, I’ve come to what I think is a more complete picture of our place in the industry in the past few years. Often when we discuss startups and the tech industry, we talk in terms that are only actually relevant to a relatively small number of stakeholders. We talk about valuations- the hypothetical selling prices of private companies that are too big, too expensive, and too deeply rooted, to be actually bought or sold to anyone but a few behemoth parent companies- which means they will not realize that value until they go public.

Increasingly as well, super-unicorns, worth $10 Billion or more, are privately funded, and show no signs of interest in IPOs. That means that we also talk increasingly in the terms of return on investment for a small pool of investors. We know that investors in Uber think that they can make some percentage of $40 Billion on their investments in the company, but what does that mean to the public? Do we only benefit from these successes as customers, experiencing a new layer of convenience in our daily lives? Or do we profit more deeply?

While we don’t focus on it, surely most of those very successful companies in Y-C’s club of “minor hits,” with “only” $40 Million+ valuations have also benefited the smaller investors who have bought into them. Somewhere down the line, an investment fund linked to someone very ordinary, non-super-rich person’s retirement has been doing well thanks to these successes.

Hopefully they have made people more economically free, more financially secure, and ultimately more happy and productive people. Moreover, at least a few of those who have profited immensely will now turn around and reinvest those earnings into “making the world a better place.”

Today > Yesterday

That StartupYard’s successes in this area are more modest than an Uber or an Airbnb isn’t troubling to me. We have DameJidlo, Brand Embassy, Gjirafa, and most recently, TrendLucid, Shoptsie, TeskaLabs, BudgetBakers, Myia, and Testomato. Already, thousands of people around the world benefit from the work that these companies do, in real and measurable ways. Perhaps we should be focusing on those kinds of metrics as well.

Part of what brought me to StartupYard was the credo that our investors and team shared: something Cedric pitched me on when he first invited me to work with StartupYard as a part time blogger, and later as a member of the team. If our country and region do well, then so do we.

We can define success in many ways beyond money- and if we do that, then we can be proud of the money we do make. So we have focused much of our attention on more than short term gains in the companies we’ve taken on. We have tried to take the long view.

In his landmark book The Tipping Point, pop economist Malcolm Gladwell famously compared corporate America to professional sports: the unicorns are the Michael Jordans, and the investors are increasingly the agents, managers, publicists, investment counselors, and other hangers-on of the world that benefit from a massive empire of wealth, based on relatively fleeting value- the idea that someone can perform at an incredibly high level, for a while, and generate enough interest to make money for everyone involved.

But accelerators are fundamentally different. That’s something I’ve come to see in the past few years. Startup, the Gimlet Media podcast, in its 2nd season profile of a company attending Y-Combinator, called accelerators “a school for startups.”

At first hearing, I mentally rejected this notion. We aren’t a school. We don’t give marks, and we don’t “teach” a curriculum that equips all of our startups to do the same things. I spent some time as a teacher, and one of the chief frustrations I experienced was that I changed all the time, but the needs and problems of my students rarely did.

Education is and can be essentially standardized, whereas we are and have to be custom fit for each of our companies, who live in a world that changes too fast for the lessons of yesterday to be written down in a textbook.

But as I thought more deeply about it, I struck on a slightly different realization. We are like a school, but a school that owns a real stake in the success of our “students.” We are financially motivated not only to see our members succeed and do well, but for them to grow the diversity and strength of our country’s, and our region’s, economy; providing us with more future “students” to choose from, themselves with more diverse choices about what they want to work on, and how they want to achieve their successes.

Our Next Beginning

So what is our plan for growth? We think quality has to stay our priority. Only when it is time to grow- when the demand for more space and more accelerator programs makes itself impossible to ignore; when we simply can’t turn away enough startups, or enough investors from this region, that will be the day we truly know we’ve already succeeded.