Is There A European Tech Incubator Bubble?

Something is happening in Europe. The tectonic plates in the startup ecosystem are moving and, like penguins on ice-flows, we all are slithering around trying to get a handle on how things will play out over the next couple of years.

We’re having exits (such as Tweetdeck to Twitter for $40million), large funding rounds (such as Wooga raising $24 million) and higher valuations (like Moshi Monsters).

Events have ramped up considerably. GeeknRolla in London was a blast this year, as was DLD, Founders Forum and the 1,000-strong Dublin Web Summit. And we still have The Europas and Le Web to go.

At the same time the incubator and accelerator scene is booming. A new study named Seedcamp as the top European accelerator with StartupBoootcamp looking like a pretty strong second.

And this week the brand new Oxygen Accelerator in the UK said it would literally give away £75,000 ($84,000 Euro / $120,000) with no equity tie as a prize to the ‘most improved startup on its programme’ (applications close June 30th, apply here).

This goes to show just how white hot the incubator and accelerator market in Europe is right now.

But despite studies I really feel that, amidst the birth pangs of a genuine pan-European tech startup scene, it is far too early to be ranking incubators and accelerators. There remains a huge amount of chaos in the market, and what appears to be a scramble for positions across territories and cities.

So I asked some key players in Europe of their opinion of this incubators / accelerator scene, and what they had to say is enlightening.

Investor Pawel Chudzinski of Point Nine Capital believes incubators are “good for the ecosystem” and “promote entrepreneurship” especially since “young people need role models / teachers / facilitators who can show them the possibilities one has in entrepreneurship.”

Bill Liao, a former co-founder of XING and now an angel investor who bases himself between Ireland and Switzerland says he has “seen the growth in smaller deals and value investing and the growth of accelerators and I am convinced that the more lean startup and accelerators there are the absolute better especially those that focus companies on getting customers and have a baptism of fire as well as great mentors.”

But he makes a distinction about incubators: “Anything raised in too comfortable an environment will likely fail when it hits the real world. The incubators must get tougher on having shorter programs and be ruthless in ridding themselves of Zombie startups that pivot too often and never break out. We have not yet fully explored the models that will rock the world for making startups more effective and better value creators so a proliferation is a good thing and we will see who is right and wrong in about three years from now when the exits happen, or not…”

Max Niederhofer, CEO of Qwerly and a former VC with Atlas Ventures is much more hesitant about the growth in accelerators: “I am very wary of this trend in general. Some people in this industry are vultures… they don’t create, they just want to participate in the (small) wealth creation that is going on. But Europe kind of needs what it can get at this point… so anyone with an actual entrepreneurial background doing an incubator should be welcomed.”

He goes on: “There are some folks (Seedcamp, Startupbootcamp, Springboard, others on the list in the latest study) that have great advisers, some money, a good process, decent connections. So for an entrepreneur new to the scene, they can be very helpful. Just best to do due diligence on them before you commit.” Wise words.

Stefan Glaenzer of White Bear Yard and Passion Capital says they now have 11 teams with founders from 6 different nationalities. “We need even more options with ambition in Europe for talented entrepreneurs and coders if we want to create global competing companies (finally).”

Eileen Burbidge, also of White Bear Yard and Passion Capital believes “accelerator programs are valued by VCs more for the connection to the venture community and educational value to entrepreneurs than for deal flow”.

But for her, “accelerators are absolutely a benefit to the startup ecosystem. Anything which encourages, supports or motivates entrepreneurs to set up new teams, initiatives and “startups” is great for the ecosystem. We need more people who are trying more things, experimenting, iterating, testing, and generally thinking about different and new ways of doing things — from which great companies and value flow.”

Charles Grimsdale of Eden Ventures believes “Some of these incubators are doing a great job of helping to build the start-up support network… [and] are helping to drive the culture of start-ups…”

Unfortunately, he sounds an alarm bell about the longevity of the incubator/accelerator model : “However they generally can’t invest enough cash to be in any way meaningful. When they start to take too much equity for what they offer they may quickly turn people off, and will damage the ecosystem they are trying to help foster.”

This themes was picked up by Simon Murdoch, a serial entrepreneur, Angel and former VC who also works with Octopius Ventures. He had this to say:

“In the VC world you get a percentage of upside on exits and a management fee based on the size of your fund. But with early stage funds the fund is not large enough to live off, which is why VCs tend to move to larger funds as they go up. So Seedcamp should be encouraged as it’s harder at the lower end of the market. ”

But he points out a drawback to Seedcamp’s model, in that they “don’t have huge resources to look after the companies once they have won the competitions” but that they really help with marketing and taking their startups around, such as on showcase trips. “They don’t have the infrastructure to do what a VC would do with ongoing help. And ideally over time their investors will give them more money to support the companies in the long run. It’s important not to knock them but they do have challenges in their business model.”

For her part, Reshma Sohoni, CEO of Seedcamp itself admits that (although she might be biased) “There are probably too many incubators and accelerators already in the hub locations. There aren’t enough in smaller geographies that could be tied-in to hub locations.”

She says that “In 3-5 years…there will likely be way too many more. They aren’t differentiated enough as they copy existing models too much. Ultimately it all comes down to the people who run them and the network they are a part of and can tap into to be active. It also depends on companies that succeed out of the accelerators. That will continue to separate the best from others.”

But the “accelerators are definitely adding value to the ecosystem” and “status quo of say 5 years ago would just be depressing for growth of tech businesses in Europe and beyond.”

Amen to that – if nothing had changed in five years I would certainly not be bothering writing TechCrunch myself!

Whatever shakes out in the next couple of years, it would appear the 40 entities identified by the recent Kauffman-sponsored study, will be just the tip of the ice-burg in a year’s time. The tech bubble is incentivising anyone with money to create a programme, cobble together a list of ‘mentors’ and try their luck.

So to answer our question: Is There A European Tech Incubator Bubble?

I think the answer is that although we may see one forming, it might actually be a nice problem to have. For too long Europe has barely had any kind of support like this for startups.

More competition in the market for entrepreneurs can only be a good thing – so long as it all works out when it comes down to terms sheets – a theme I will be returning to soon.

For now, entrepreneurs would do well to work out exactly what each one is offering before making the leap into one of these programmes.