Models are startup programs that have made a name for themselves and serve as templates for others. They define an entire category.
The book is about how to design a startup program. We purposely avoided to focus on a specific schema, such as “accelerator” or “incubator” or any other template. On the contrary, we claim that Startup Program Design should be interpreted as a much more ample design space, where hybridization and customization are not just frequent, but are the new normal. And for good reasons.
At the same time, we recognize that design archetypes and models are useful. While none of them is the holy grail of startup engagement, they provide a blueprint to start your reasoning. We had planned an entire appendix in the book to describe the details of each archetype, but for the sake of space and accessibility we decided to move it online.
Here follows a list of the most common models we mention in the book.
Accelerator
Accelerators are medium-duration, highly intensive programs, rich in educational content, mentoring, and networking opportunities. The term “accelerator” has been applied to very diverse startup programs targeting very early-stage startups (seed, or even pre-seed), often for lack of a better word.
However, the archetype accelerator is modeled on the original Y Combinator or Techstars of the mid 2000s, what we call the “YC-style accelerator” (covered in Chapter 3). That model was designed within the investment community to access deal flow in a stage before that of venture capital funds. Within that context, it was natural to include an equity investment in the deal, typically signed upfront for US$ 50,000-150,000 in exchange for 5-10% equity.
Intakes are organized in one or two regulated cohorts yearly, following a formal call for applications. Term sheets are standardized, sometimes partially negotiable (e.g. the exact equity stake). Cohort/peer interactions are highly encouraged and often enforced. The activation stage culminates with a demo day in front of a selected audience of investors. Ideally, startups should raise funds within 6 months after the program.
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Financial (or strategic) investments (Chapter 3).
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Long-term partnership with precondition: Growth.
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Recruitment: 2-4 months.
Activation: 3-6 months.
Follow-on: until divestment, plus long-term alumni network. -
Seed-stage (early validation) ~$0.5-5 million valuation
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Venture-capital-ready startups.
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Knowledge, Resources, Network, Strategy.
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Capital, Mentors / Advisors, Training, Access to investors, Peers / Alumni, Credibility / Vetting.
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Equity and/or Investment rights and/or convertible debt, Full-time commitment of founders.
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Traction, valuations (and long-term: return on investment).
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5-10 years.
Challenge
One of the simplest models employed for solution sourcing, challenges use an essential version of the brief-pitch-pilot-partner sequence. Often incentivizing startups with a cash reward, challenges consist in publishing a description of a business problem and solicit startups’ replies. Proposed solutions may include a startup’s core product or an ad-hoc customization.
The whole model is heavily centered on the recruitment stage, often without any activation - little or no mentors, training, or other perks such as office space. The development of the solution can be postponed to after prize awarding, when it would be negotiated only with the winners. This limited scope shortens the program length but releases the control in the follow-on stage, leaving it to the business unit owining the business problem.
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Solution sourcing (Chapter 4).
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Deal flow of solutions.
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Recruitment: 2-4 months (or open-ended)
Activation: null, or a few workshops
Follow-on: null, or aftermath with a different program -
Early-stage to late-stage ~$5+ million valuation.
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Identified supplier of a solution to a business problem.
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Resources, Networks (customer).
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Capital, Access to Customers, Credibility / Vetting.
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Solution idea, prototyping, development plan.
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Applications.
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For identification: 5-10 months. For actual solution: left to an independent follow-on outside of the challenge.
Collaboration platform
This is a wide category encompassing models with a many-to-many matching approach, in effect creating a marketplace of innovation between the participating startups and multiple potential clients, sometimes belonging to different organizations. Essentially, they are innovation brokering platforms.
They can take the shape of a startup fair, a speed-dating event between startups and potential partners (clients or investors), or longer programs featuring a pilot implementation and, sometimes, educational content targeted at facilitating a reciprocal understanding between startups and corporations.
Commercial matchmaking programs can be, and usually are, external to any and all of the organizational sponsors, unburdening them from the management and operational costs. These programs are often created by innovation consulting firms, looking for sponsors in verticals where they spot an opportunity.
Having a working prototype is often a requirement for startup participation. usiness models vary, and, when not fully sponsored by organizations, may include a fee (fixed, or success fee) or minor equity shares (0-5%).
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Solution sourcing / supplier identification (Chapter 4).
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Interaction (matchmaking).
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Recruitment: 1-2 months.
Activation: a matchmaking event or series of events, sometimes accompanied by workshops on sales and startup contracting.
Follow-on: absent, or funneling to a different program. -
Late-stage, product-ready ~$2+ million valuation.
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Initial introduction, with the target of developing a pilot and then closing a commercial deal.
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Resources, Networks (customers, usually more than one), Knowledge (sales).
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Brokerage (customers), Training, Credibility / Vetting.
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Prototyping, Customization.
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Outputs: Applications, Matches done. Outcomes: Deals, deal value.
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Usually quicker than with other models, 6-18 months.
Hackathon
Hackathons are events of one to three days, in which participants work intensively for a goal - such as an early prototype of a solution to a short challenge, or simply an idea. They end with a showcase of what was accomplished during the event, and often a jury of experts awards a prize to the best teams.
The short duration and high intensity are the defining characteristics of this model, which is otherwise very versatile. Because they are particularly strong in the function of activating people and creating new connections, hackathons are often used for any kind of ecosystem adoption (as discussed in Chapter 5), as a doorway to a technology platform or a community.
Sourcing of participants is based on promotion of the event. Sometimes teams are formed during the event, but other times hackathons accept pre-formed teams. Content includes training or mentoring sections (10-40% of total duration) alternated to free work (60-90%). The business model generally relies on sponsorships or entry tickets.
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Versatile, ranging from solution sourcing (Chapter 4) to ecosystem adoption (Chapter 5) and transformational impact (Chapter 6). Ecosystem adoption is most likely the strongest fit.
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Activation (new people, new teams, and new ideas in the ecosystem).
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Recruitment: 1-3 months (event promotion).
Activation: 1-3 days.
Follow-on: absent, or funneling to a different program. -
Typically, idea-team stage or early stage. Exceptions exist.
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Ideas, use cases, prototypes, and/or new teams.
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Knowledge, Networks. (Minor: Resources).
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Training; Mentors / Advisors; Access to talent; Access to investors; Resources (prize, food, perks).
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Full-time commitment (fee).
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Participants, New ideas, New ventures created, Media and press coverage.
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0-6 months depending on the objective.
Incubator
Incubators generally offer physical infrastructure (office, labs) at a lower cost than the market, and add services on top such as advisory, networking, or legal and financial counseling. The best incubators are densely connected in their ecosystem and can create new opportunities for funding, including public grants.
The main value proposition to startups is composed of cost efficiency (which intrinsically encourages retention) and community / connections with other incubated startups and external partners. Incubators often allow startups to long stays of up to 36 months or more. The business model is frequently based on rent, with exceptions based on equity stakes (1-10%). Sourcing is usually passive (first-come, first-served) but some incubators opt for a highly selective scheme.
Sometimes incubators are seen as preceeding accelerators and venture funds in the startup support chain, whereas other times they are a soft-landing platform to an ecosystem (country or regional). When used for ecosystem adoption, incubators strive to originate connections that evolve into transactions inside the ecosystem. The “platform” in that case is either the building or the community that is formed in hosted events and activities.
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Growth and/or Ecosystem adoption (and retention).
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Long-term partnership with preconditions: Retention / Growth.
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Recruitment: opportunity-based, sometimes first-come first-served.
Activation: 12-36 months.
Follow-on: absent, or funneling to a different program. -
Pre-seed to Series B $0-50 million valuation.
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“Live” startup, Investor-ready startups.
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Operational, Networks.
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Operational support; Facilities, platforms, open assets; Training; Access to talent; Access to investors.
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Rent (rarely, equity).
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Traction, valuations.
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Immediate for rent, 5-10 years for equity.
Venture client
This model is completely dedicated to one organization only. It establishes a new unit that develops opportunities for engagement between startups and internal units, either inside an existing innovation or corporate venturing department, or as a standalone unit.
The process starts from discovering an innovation need from inside the organization, either internal or pertaining to the organization’s customers, which is captured by a brief. The venture client team then scouts the startup community for solutions, sometimes complementing the outbound search with an inbound call for applications, in the style of a challenge.
Startups are assessed with the help of the brief owner and selected startups are offered an initial paid pilot agreement as fast as possible. After the pilot, when the organization has collected more data and can take a more informed decision, the venture client team facilitates the establishment of a commercial partnership or the path to an acquisition. This process is an instantiation of the brief-pitch-pilot-partner model, with a strong accent on a swift purchase before the pilot begins.
Key metrics are the speed of processing, the decrease in risk (i.e. information collected) associated with a future partnership, and the potential value of the collaboration when scaled to full operations.
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Solution sourcing (Chapter 4).
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Long-term partnership with precondition: Integration.
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Recruitment: 1-3 months.
Activation: 6-18 months.
Follow-on: absent, or funneling to a different program. -
Early-stage to late-stage ~$5+ million valuation.
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Commercial deal, or pilot and commercial deal.
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Networks (internal customers), Knowledge.
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Brokerage (internal customers), Training (sales), Coordination, Resources (commercial deal).
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Customization.
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Process performance, solution value.
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1-3 years.
Venture fund
Venture capital funds run by corporations are the most traditional way used by large organizations to engage with startups. Corporate venture capital (CVC) has evolved in time, and it is currently experiencing its fourth or fifth wave. In consists in acquiring a minority position (5-40%) in a startup of strategic interest for the corporation. More rarely, it might be done also with financial returns as a main goal.
Traditionally, CVC has struggled to navigate effectively the dicotomy between strategic and financial objectives, something that distinguishes it profoundly from most financial-driven venture funds. Several CVCs attempt to activate the internal resources and networks of the parent company to better support portfolio startups and offer a differentiator from non-corporate VC, but success has been dwingling.
Target startups are often post-product or post-revenues. They are typically labelled as “early-stage” by CVC standards, even though compared to other startup program formats they can be relatively of a later stage. Sourcing is based on outbound scouting, referral network of partners, and inbound spontaneous proposals - on a rolling basis.
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Investing: Portfolio of financial or strategic options (Chapter 3).
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Startup growth (or so should be).
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Recruitment: 2-4 years.
Activation: 6-18 months.
Follow-on: absent or short, restricted to the investment; or longer, when business development is provided to portfolio companies.
Follow-on: long, until divestment. -
Depends on the fund’s strategy, but usually at a later stage than many other formats.
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Prepare for follow-on investments. Long-term: exit.
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Resources, Networks.
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Capital, Credibility / Vetting. Sometimes also Access to investors, Access to customers.
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Equity and/or Investment rights and/or convertible debt, Full-time commitment of founders.
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Portfolio valuation, return on investment. More rarely: strategic metrics.
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5-10 years.