FT: [Dighero, White Bear Yard] Community spirit helps start-ups to grow

Hooks that once held horse carcases still hang from the walls of the former Royal School of Veterinary Studies in Edinburgh. But this seven-storey building in the centre of the Scottish capital has found a new purpose – and one considerably more forward looking than preserving dead animals.

Thanks to a group of local entrepreneurs, it has been reopened as TechCube, a start-up “factory” designed to nurture fledgling technology businesses.

These so-called business incubators and accelerators have been popping up in towns and cities worldwide in recent years, as entrepreneurs attempt to foster start-up communities in their local neighbourhoods. Each works in a different way, but all see a benefit in providing a network of like-minded individuals.

Some accelerators, such as London-based Seedcamp, operate under a brand name and offer to invest in new businesses in return for equity. Their aim is to back a range of start-ups, rather than individual companies, give them a short period of intensive support and then let them move on.

In the past seven years, 143 accelerator programmes have been created, according to Seed-DB, a database that tracks their growth. These have backed 2,113 companies, which have together raised $1.5bn in funding and created more than 5,000 jobs.

Most incubators, including TechCube, differ in that they provide communal office space without financial support.

However, those setting up a business often find that the presence of others is support in itself. Among the first residents at TechCube is Colin Hewitt, founder of Float, a software start-up that is developing a cash flow forecasting tool for small businesses.

“It just gives you a little bit more confidence to build your company,” he says. “If we were doing it in a vacuum, it could be intimidating. But, here, there is already a good network of other founders – so it takes the pressure off.”

Seedcamp is now Europe’s largest accelerator programme, having backed 83 companies since it ran its first week-long competition for start-up teams in September 2007. Of these, 75 are still operating – an above-average survival rate for early-stage ventures.

Carlos Eduardo Espinal, one of Seedcamp’s four directors, likens the programme to the Olympic Games in the way it raises the aspirations of founders.

“Before the Olympics existed, people said no one could run a mile in under four minutes. Then someone did it, so people went further.”

Seedcamp is unlike other accelerator programmes because it leaves its base in London to run smaller, day-long accelerator events in cities across the EU and beyond. To date, Seedcamp has visited New York, Singapore, Cape Town and Mumbai – and 5,000 early stage ventures have attended its events.

“The per capita income in some of these countries means that people on average wages cannot afford to fly to Silicon Valley or New York to get help, so we go to them,” explains Mr Espinal.

Robert Dighero, a co-founder of White Bear Yard – one of the original incubators serving London’s tech start-up community, which set up in a Clerkenwell warehouse in July 2009 – believes there is room for many more programmes.

“As long as there are successes, there will be more investors and talent and the cycle keeps building,” he says. “The question is not really what is the absolute limit to how many can be sustained. The issue is that the volume should grow in proportion to the overall ecosystem.”

But not everyone is convinced that accelerators and incubators are such a good idea.

Jonathan Ortmans, a director of the Kauffman Foundation, the US-based centre for entrepreneurship research, says: “While, in public, almost everyone is bullish about this sudden expansion, privately they are not all so sure.

“Several investors have expressed concerns to me that the sudden influx of these programmes is bringing down the overall quality of ideas.”

One particular concern is that many new accelerators and incubators are too parochial in their outlook, Mr Ortmans notes.

“If these local programmes do not have quality mentors with broad international experience or ambitions, they ultimately lack vision,” he warns.

“We already know that Europe has a reputation for clones [companies repeating other people’s business models]. It needs more entrepreneurs focused on becoming pan-European or global players, not just being the best Groupon clone in Germany.”