Recessions are a prime environment for start-ups to flourish. During the first year of the 2009 recession, more than 550,000 new businesses launched. We wrote about this phenomenon and the rise of crowdfunding during such times. When traditional mechanisms fail, we see alternative financing sources spring up. This also goes for business support networks.
Incubating Ideas and Accelerating Businesses
With the rise of all these start-ups, there is less reliance on universities, research and development labs, and corporate business programs for start-up growth and support. In their place, two institutions have expanded as support structures: incubators and accelerators. Incubators take individuals with ideas but no business model and direction. Over the course of a year (or more), the incubator transitions that idea into reality. Once that reality has taken hold, start-ups transition to accelerators that help them with growth.
The crossover and synergy between these two institutions has facilitated their expansion. Between 2008 and 2014, US-based accelerators increased by an average of 50% each year. Accelerators have helped funnel nearly $19.5 billion in funding to US start-ups. Start-ups that graduate from these programs have excelled, reaching a median valuation of $15.6 million. Through years of maturity, start-ups flock to these programs to hit milestones, like raising venture capital, exiting by acquisition, and gaining customer traction, faster.
There are 170 accelerators in the US and many more globally. Ranking lists identify accelerators by investment inflow, start-up survival and acquisition rates, and other factors. While these can be subjective in nature, recent research shows that programs are most successful with smaller cohorts, sponsored by investors or universities, and run by former investors.
Start-up Success in the Built Environment
As incubators and accelerators have popularized, we’ve seen segmentation in the market. Accelerators have been divided up by content, technology, and market orientation. When it comes to the built environment, Smart City Works, Shadow Ventures, and Plug and Play have stepped up to develop incubator and accelerator programs for start-ups in the industry. These programs have been responsible for developing start-ups in the ConTech, CRETech/PropTech, and InfraTech spaces. They bring together experts to guide these start-ups and introduce them to a network of peer companies and investors with a specific interest.
This intersection between product-market fit and investment is key for any start-up. Often investors are looking at the landscape of an industry to make strategic investments throughout a horizontal or vertical pipeline. And often, the market is looking at the granularity of a product or business and its impact on current operations. This separation can pull start-ups in two directions. There are several ways to align investors and the market. Investors can learn more about the market through their own work. Start-ups can create compelling user cases to convince investors of the market value. Pilot projects also communicate the market’s need for a product.
Aligning the Market and Investor
But, the most direct way to align the market with investors is to create a pathway to allow the market to invest directly. Enter crowdfunding. Crowdfunding democratizes investments into ventures and projects. Practitioners who support specific products and ventures can invest their dollars through online portals. Individual entrepreneurs and start-ups have turned to crowdfunding platforms for early branding and consumer feedback. But, without the backing of an incubator or accelerator, these start-ups are left on their own to rise, or fall.
Previously, several incubators have partnered with Kickstarter and IndieGoGo to help their start-ups test product ideas with the market and get consumer feedback. This kind of donation based crowdfunding has been key for early stage start-ups who are establishing their business model. As start-ups progress, equity crowdfunding becomes a better mechanism for attracting market investors. There are at least 18 accelerators that integrate equity crowdfunding.
Just as incubators and accelerators have differentiated themselves in regards to industry, so have crowdfunding platforms. There is huge potential to match incubators and accelerators with crowdfunding platforms that cater to the same industry. This helps market investors, specifically future consumers and potential clients, easily identify start-ups, products, and ventures that will benefit their own business.
InfraShares is one of those industry-specific crowdfunding platforms that supports start-ups and ventures within the built environment industry. Individual InfraTech and ConTech start-ups are coming through the platform’s investment pipeline. And, our patrons are those market consumers and clients that are interested in supporting new technologies. A partnership between InfraShares and an industry-specific accelerator has the potential to empower start-ups and investors, alike.
ESG Clean Energy