Why investing in business acce

Why investing in business accelerator programmes make sense

With our subsidiary Caban Investments Ltd in South Africa in setting up its own business accelerator programme we explore some of the reasons why investors are increasingly becoming more enthusiastic about investing in accelerator programmes.

Why investing in business acce

In the past few years, the term business accelerator has been making a comeback to describe a new class of early stage development programme that combines the elements of traditional incubators, small amounts of equity-based funding, and in-depth coaching/mentoring. “Business accelerator”, a term that emerged during the dot-com bubble, can also be referred to as micro-seed funds, business growth accelerators, or boot camp programmes.

Compared to the thousands of private equity and venture firms in operation, these programmes are a tiny segment of the market. However within the software sector, the number of these programmes is growing rapidly and drawing a lot of attention.

As there is often allot of confusion on the difference between business incubators and accelerators, it may be useful to clarify that business incubators normally support and mentor companies through initial start-up phases while business accelerators guide them through growth until a business can sustain itself, is potentially acquired or perhaps targets an IPO.

Why are more accelerator programmes emerging now?

Business accelerators have been around for some time and especially those operating in the technology space started to become noticed in a more systematic way when Paul Graham started experimenting with a new model of “angel investing” back in 2005. An avid hacker, Graham soon realized that a number of trends were working together to make the cost of launching a software company much cheaper, especially ones that deliver their products or services through the web. What Graham also found is that by supporting entrepreneurs, not only financially but with knowledge and expertise, infrastructure, contacts and a dynamic environment, business had both a shorter learning curve, reduced their risk of failure and could get products to the market more effectively.

Today we see accelerators operate across a wide variety of industries and product categories including financial technology (fin tech), agriculture, manufacturing, Consumer Goods, Telecomm, and Financial Services.

How do they work?

With the lower cost of entry to launch products and services on the web especially, more web-based businesses are being launched and tested for a relatively low investment. These programmes aren’t successful because it’s easier and better, but because the cost of failure is so low. With the cost of failure near zero, many more ideas can be attempted and the likelihood that one of them will turn out to be the next big success is higher.

This is what business accelerator programmes achieve with start-up companies. By putting small amounts of capital into many ideas, the cost of failure is reduced and many more ideas can be tested in the market. Some are bound to be winners, and those that don’t make it don’t go down in flames because little capital was put at risk — the cost of failure is low. In addition to the financial investment start-ups crucially also benefit from knowledge, experience and contacts that the accelerator have built up over its lifetime. As those who offer these services have been involved in many successful start-ups before the new entrepreneurs don’t have to make the same mistakes again. And by providing a strong support net and education program, these programmes do their best to shift the odds of success in their favour.

Why should I invest?

The biggest advantage these business accelerator programmes offer are the efficiency they bring to the market. Supporting the right accelerator programme with investment not only makes allot of financial sense due to the lower level of risk but the potential return on investment will also certainly also be far higher. Accelerator programmes in many ways are helping to ensure that your investment is being put to better use.

Additionally, the value these types of programmes can provide to budding start-ups and the local economy is well worth the investment.

So its not surprise that accelerator programmes are becoming increasingly popular in many parts of the world and many of them are receiving government support through tax incentives and grant initiatives. A focused environment where entrepreneurs are supported by both funding, business contacts, financial and technical skills and a can do culture, can only lead to more productive local economies.