Flat6Labs debuts a new model; will it set the tone for regional startup acceleration?
Accelerators in the Arab world are all the
rage lately. For every one that has shut down since we last listed
the Top 10 Accelerators in the Middle East and North
Africa two years ago, another has sprung up in its place,
Palestine’s Fast Forward, Gaza Sky Geeks, Dubai’s in5, Abu Dhabi’s logistics-focused Turn8 among them.
The list will likely continue to grow this year; demand from
startups is building, and, when it comes to teaching startups what
they need to know, stakeholders support accelerators as a quicker
fix than education reform.
What is an accelerator again, exactly? It’s been called an
alternative to an MBA, typically a fast-paced three-month program
designed to bring a startup to market by offering mentorship, a
workspace, technology, and seed capital, all in exchange for an
equity stake.
In 2005, Y Combinator debuted the model; eight years later, its
graduates include online discussion community Reddit (now valued at
close to $400 million) accommodation rental site Airbnb
(which clocks in around $2.5 billion) and cloud storage service
Dropbox (now valued at a measly $4 billion).
By setting a gold standard, Y Combinator has inspired an explosion
of similar accelerators around the globe. Yet most haven’t achieved
near its success.
Of course in emerging markets like the Arab world, acceleration is
a different ballgame.
Here, most accelerators tend to invest more and take a higher
equity stake than Y Combinator does, offering valuations more in
line with an emerging economy (although Y Combinator’s US $14,000
for 6% equity remains at the low end globally).
Today, that trend is building; as accelerator teams realize just
how hard it is to keep startups afloat after graduation, they're
further increasing funding amounts and offering longer incubation
times.
For example, in 2010, Jordan’s Oasis500 was investing around US
$14,000 for a 10% slice of equity; today, it invests US $30,000 for a 10-15% stake (a higher
valuation), to give startups a better chance of getting on their
feet.
Tenmou in Bahrain sits at the high end of the spectrum, offering
startups around US $50,000 to US $80,000 in exchange for a 20% to
40% stake. It also incubates startups for over 6 months, or for “as
long as they need,” if I recall founder Hasan Haider correctly.
Now, Flat6Labs, Egypt’s biggest accelerator, launched in 2011 by by
Sawari Ventures, is also pivoting debuting a new model, one
its founders think will succeed in various markets as it goes
regional this year. Flat6 is now:
- incubating for five months instead of four, and focusing even
more on Lean Startup methodology
- running two cycles a year instead of three, to allow for longer
incubation times (any companies applying for the next cycle will begin in January
2014).
- offering more money, 200,000 EGP (US $28,000), instead of
100,000 EGP, for the same amount of equity (10-15%), to cover the
cost of longer incubation as well as inflation in Egypt
- running an initial five-day bootcamp before each cycles, with
up to 25 teams. The 10 teams that enter the next Flat6Labs cycle
will be chosen based on their execution during the bootcamp, not
just from their applications and interviews as before.
- launching a roadshow at universities to showcase its startups to students.
It might be early to assess Flat6Labs'
relative success or failure, but the accelerator has graduated
several companies that are going places, most notably Instabug, which just chosen as a finalist in The Next Web's USA Mobile
Rally. Other interesting graduates include Taskty, a TaskRabbit-style
portal, GoEjaza, a trip review site for the Arab world,
and Nafham, a learning management portal set to go
global.
After graduating 36 startups and launching in Jeddah this May in
partnership with Qotuf, the accelerator is now about to roll
out new locations in partnership with local entities.
The vision is to build a truly regional network that also leverages Flat6’s membership in the Global Accelerator Network, says Mohamed: “Think of the countless opportunities that come from an entrepreneur from Egypt getting advice from an mentor in Saudi, launching in Dubai, having a team member in Tunisia, and a business contact in Turkey.”
Starting on Monday, September 8th, the
Cairene accelerator will test the new bootcamp in Jeddah, where the
majority of its applications come from “Saudi entrepreneurs who
want to quit their jobs and are dying to start a startup.”
If successful, its model will, no doubt, encourage other
accelerators to enter/overrun the Saudi market. Yet its
experimentation may also help other accelerators find a sweet spot
where the seed funding and equity stake deal is good enough to help
startups out the door but not high enough to make follow-on funding
impossible.
[Disclosure: Wamda Capital has partnerships with both Oasis500 andFlat6Labs].