Is the accelerator and incubator model still relevant in Israel? After in-depth research about 2015 and the beginning of 2016, we present you with the results
Last year was an exceptionally good year for the Israeli startup ecosystem. This wasn’t only in terms of the quantity and quality of investments and exits but also due to the unprecedented growth of accelerators and incubators. Since these organizations are a significant cornerstone of the Israeli startup ecosystem, we saw fit to dive deep and understand their accomplishments during 2015 and understand their importance for the industry and ecosystem in Israel.
This report doesn’t include mentorship programs, co-working spaces or advisory firms that provide support for early stage startups. Co-working spaces also saw a lot of growth in 2015, but it’s important to separate them from accelerators and incubators since their role in the ecosystem is different. Additionally, we didn’t include accelerators that have Israeli and non-Israeli startups (such as NFX Guild).
Not all startup programs are born equal
Before we begin, let’s go through some definitions. While both accelerators and incubators help startups reach growth in a focused, hopefully faster manner – and with resources such as a shared workspace with other early stage startups and mentorship from the accelerators and incubators’ networks – there are a few key differences between them.
Companies typically participate in an accelerator for a limited, short time period such as five months. Usually, their time in the accelerator ends with a demo day or a pitch event in which startups present themselves and their product.
Some accelerators demand payment for their services while others ask for a symbolic fee. The accelerators also differ in the amount of money they invest in startups, if they invest at all. In most cases the sums of investments are relatively low in comparison to other types of investors, usually in the range of $10,000-$50,000. In return for the investment, some accelerators take some percentage from the companies, called equity, usually between 5-10 percent.
Lately we’ve noticed a trend of accelerators trying not to take equity from startups. In this case, however, the accelerators must have deep pockets. Some accelerators also become VC funds and in this case, invest bigger sums in follow-up investments. Some also provide co-working space for startups that already finished the accelerator.
Unlike accelerators, startups in incubators operate within a longer time frame, such as between a year and a half and two years. In the past, incubators’ unofficial goal was to provide assistance to startups in more “dangerous” sectors (like life sciences) where it takes longer to reach results. These sort of startups might encounter problems when trying to raise money through other channels. However, in more recent times we see a wider variety of sectors that are represented in incubators.
It is important to note that incubators in Israel are directly supported by the Office of the Chief Scientist (OCS). Organizations that call themselves incubators but are not part of the OCS program go under the accelerators category in this report.
A note about data collection
When we turned our gaze to the accelerators and incubators scene, we wanted to receive the most updated and accurate data. Therefore we turned to those organizations themselves for answers. We received extensive cooperation. In the few cases we we didn’t get such cooperation, we relied on the public data available.
Was 2015 the year of accelerator nation? More than 90 active accelerators in Israel
Because of the different work methods of these two types of organizations, we’ll discuss each one separately. Let’s start with accelerators.
As of today, we’ve tracked over 90 active or pre-launch accelerators in Israel across the country, including in Beer Sheva, Jerusalem, Herzliya, Haifa, and of course, the Tel Aviv area. The main types of accelerators that have become dominant over the last few years are corporate, municipal, academic, VC-based, or NGO-based accelerators.
Over the last year, we witnessed a strong trend of corporate accelerator launches. Global corporations want to be a part of the startup and innovation world with the hopes of catching up with the latest innovations in the tech world. Because of their size and complexity, corporations tend to be a little more slow and cumbersome and access to fast-moving startups is exactly the way to solve this.
Such accelerators can contribute their substantial financial resources without the need to receive equity from the startups. Instead they receive the chance to track startups at a very early stage that they can “snag” for acquisition or even as potential customers down the road, and the startups get access to the corporation’s huge pool of customers. This would have taken many years otherwise, if at all possible. The startups also get access to the corporation’s experience and knowledge. So it’s not surprising that quite a few accelerators we’ve tracked were corporate-based.
For example, Sigma Labs was founded by two partners from Entrée Capital that partnered with Yahoo. March 2016 saw the opening of the first batch of the Barclays Accelerator, the British financial services giant. In the beginning of 2015, the first batch of Alpha Zone, IBM’s accelerator, ended. And of course there are also other corporations that back accelerators in Israel such as Strauss, Tyco, AOL, Deutsche Telekom, and so on. It would be hard not to mention Microsoft’s accelerator, Microsoft Ventures, which ranked 10 in our leading investors ranking report.
Some accelerators are unique not because of the organizations that fund them, but because of the sectors they specialize in, the specific community they target, or their clients. For example, the field of social accelerators in Israel has been expanding gradually. In this list we can see A3i with startups that specialize in creating products for people with disabilities. Other social accelerators are Tech For Good Rally, the 8200 Social Program, and Social Tech Lab, which aim to improve the quality of life for society as a whole and for individual groups within it. Ecomotion specializes in solving transportation problems and MindCET in education. There are a number of accelerators with entrepreneurs that are new immigrants (TheHive), Bedouins (Mubadren), or Arabs (Q-Startup).
The municipal accelerators operate from north to south: from Eilat Hub through The Streets Hub in Rehovot, the veteran HAC in Herzliya up till Spark in the western Galilee.
It is impossible to name all of Israel’s accelerators in this report. For a fully detailed and constantly updated resource for all of them, see this guide [in Hebrew]. You’re welcome to read it and write to us if you have an update on new accelerators or a status change, such as a new batch. We will soon publish a new and updated guide for 2016.
Number of graduates in 2015
Some would say that accelerators and incubators are measured first and foremost by the number of new startups they produce each year. If 1 out of 10 startups succeed, then by helping more startups graduate, there’s a bigger chance of getting more successful startups in the market.
By this measure, the outstanding accelerators are in the following order:
In 1st place is Hubanana, which helped 45 new startups grow fast and enter the world more formulated. CitiLabTLV helped 23 startups go through a similar process. Microsoft Ventures and Ichilov Hospital’s accelerator in Ha-mitham both helped 22 startups emerge from an idea/prototype to a product suitable for display in front of an interested audience.
Number of graduates (from all years) that received funding in 2015
For startups to be able to follow their dreams, they need funding. Upwest Labs, an accelerator for Israeli startups that sits in Silicon Valley, boasts 27 portfolio companies from all years that got funding during 2015. Last year, 21 of Microsoft Ventures’s graduates got funding and similarly, 21 startups of Hubanana received new financing.
Total sum of funding by all graduates in 2015
In the first place, we see that the portfolio startups of CitiLabTLV raised $72 million in 2015. In second place, the portfolio startups of Upwest Labs raised $70 million in 2015. And finally in third place, the portfolio startups of Microsoft Ventures raised $61 million in 2015.
Exits and IPOs of graduates (from all years) in 2015
The 8200 EISP accelerator boasts three acquisitions of graduates that happened in 2015. Both MindCET and the Zell Entrepreneurship Program sold two startups that participated in their programs. There were three accelerators with one graduate each accomplishing an exit in 2015: CitiLabTLV, IBM Alpha Zone and Keyrus Innovation Factory. In 2015, there weren’t any IPOs of accelerator graduates.
|Accelerator's name||Number of graduates during 2015||Number of graduates from all years that received funding during 2015||How much did graduates from all years raised during 2015?||exits of graduates from all years during 2015|
|Cockpit Innovation Hub||5|
|Hamitham - Kimberly-Clark||6|
|Hamitham - R&D Department of Ichilov Hospital||22|
|Hamitham - Students||9|
|IBM Alpha Zone||5||1|
|Keyrus Innovation Factory||3||3||0.75||1|
|NBIC - Business Incubator Nazareth||16||7||15|
|The Entrepreneurship & Innovation Support Program (EISP 8200)||19||18||28||3|
|The Social Program - 8200||13||5||2|
|TheHive (Ashdod & Tel-Aviv)||21||12||10.1|
|Zell Entrepreneurship Program||4||14||50||2|
*The total sum of funding by BizTec is just by companies that participated in the accelerator since 2013 (by our definition of what is an accelerator)
The year is 2016: Is the incubator model still relevant?
Although we thought we would get full disclosure from the Ministry of Economy and the Office of the Chief Scientist, we got this response to our request for information: “Although these are incubators and companies that received government funding from the country, they are not obligated to disclose information that is a trade secret. In our estimation, details on follow-on investments, employee hires and status of activity constitutes as a trade secret and thus we can’t accede to your request.”
The only item of information that they were willing to provide was that the total sum of governmental funding that the OCS program has given was about ₪640 million for 300 startups between the years 2011 and 2015. Nonetheless, an individual request to each of the incubators wielded cooperation from most of them. These are the answers we received.
Number of startups that entered incubators in 2015
Explore invested in nine new startups during 2015, after which was the FutuRx incubator, which invested in eight startups. Hutchison-Kinrot and TheTime invested each in six startups.
Number of graduate startups (from all years) that got funding in 2015
In first place is TheTime incubator with 15 startups that received funding during 2015. In second place, we have 14 startups of Explore incubator that got funding that same year. In third place, we find Incentive incubator, which has 10 startups that received funding.
Total sum of funding by all graduates in 2015
TheTime wins this category as well: the total sum raised by their portfolio startups during 2015 was $47 million. The graduates of Explore incubator raised $28 million and RAD Biomed incubator’s graduates raised $16 million.
Exits and IPOs of graduates in 2015
Hutchison-Kinrot, Incentive, JVP Cyber Labs, RAD BioMed and VLX each had one exit of a portfolio company during 2015. There was only one IPO by an incubator graduate during 2015 and that was of SteadyMed Therapeutics, a graduate of RAD BioMed.
|Incubator's name||Number of startups accepted into the incubator during 2015||Number of graduates from all years that got funding this year||How much did graduates from all years raised during?||exits of graduates from all years during 2015||IPO's of graduates from all years during 2015|
|Incubit Technology Ventures||3|
|JVP Cyber Labs (Beer Sheva)||2||1|
|JVP Labs (Jerusalem)||4|
Who will succeed more: an incubator graduate or accelerator graduate? And are they really competitors?
Since 2011 and especially during the last year and a half, it appears that accelerators are a hot trend in Israel, even more than escape rooms. There are a lot of people pondering whether this trend is worthwhile or not and we’ve arrived to sort the mess.
The database f6S reports on 840 accelerators around the globe. In comparison, the database Seed-DB reports only on 235. We can see there is a data problem here. If we’ve found more than 90 accelerators in Israel only, how come just 840 or 235 accelerators are reported in the databases we’ve mentioned? Part of the reason is that both of them don’t make a good distinction between mentorship programs and accelerators. Both of them also don’t present many Israeli accelerators and it is likely that their accuracy level is similar in other countries. The most respectable research organization in this regard, the Kauffman Foundation, estimated in August 2015 that there were 230 accelerators globally.
Yael Hochberg and Susan Cohen, who manage the Seed Accelerator Rankings Project, claimed in March 2015 that there were only 200 accelerators in the U.S. Often there is also a lack of distinction between accelerators and incubators when trying to access these kinds of numbers. In the case of databases that rely only on crowd wisdom (without a validation process), a lot of incubators can write themselves as accelerators and vice versa. Also, the distinction between those organizations vary between countries.
A lot of people claim that the accelerators and incubators model is a broken model and that 90% of them fail. There are also claims that the mentorship promise from accelerators is false and in reality, the startups receive very little support from the accelerator itself, that the inspiration they get from the social environment that includes other startups is a myth and maybe it’s best for a startup to stay in the entrepreneur’s basement.
There’s a lot of grievance out there about the fact that we live at peace for many years with a similar percentage of failure among startups. If we’re okay with the fact that one out of ten startups succeeds, then why not consider an accelerator or an incubator? They are in a sense a type of startup.
Some of the claims against this model is that it strengthens the famous Series A Crunch. It is possible that too many startups receive seed funding, partially due to accelerators and incubators, and that only a few of them are good enough to receive Series A funding. It is also plausible that the surplus of existing startups makes it harder for investors to uncover the gems in the rough.
Maybe it would be better if only the more organically strong startups existed and then it would be easier to find worthy ones for a Series A investment. On the other hand, accelerators offer so many resources, financial and otherwise, for entrepreneurs that it seems like a trend that isn’t going away anytime soon.
Who is the main benefactor here? Is it the startups who struggle to find funding beyond VCs or angels, or is it the accelerators themselves and the organizations behind them?
First of all, many researchers have reviewed the success rates of startups that graduated from accelerators and incubators and don’t compare them with early stage startups that didn’t choose this path. We also commit the same sin in this report because such a comparative analysis demands many resources and a long period of time.
We mentioned the Kauffman Foundation earlier. This research organization relied on previous academic studies and reached the conclusion that the incubator graduates don’t necessarily do better than the ones that don’t. Only one report found that there was a minuscule difference in favor of incubator graduates.
The possible reasons for these low success rates for incubators might be first of all manpower. An average incubator employees 2.5 employees and has on average 25 companies.
Also, the long period of time that startups spend in an incubator may delay the startups’ entry into the “real world,” which would necessitate a faster check on product/market fit. However, the length of time that startups stay in an incubator can conversely be viewed as an advantage, along with incubators’ connections to academic and governmental organizations and the possibility it provides startups from more “challenging” sectors to succeed.
Another issue is that it is hard to compare the relative success of accelerators and incubators when some of these programs define themselves very differently even within the same type of program. They vary in the length of the program they offer, their structure, and their goals. Also the measurements for checking the success of these programs are controversial. Some of the information isn’t publicly available and some of it wasn’t documented in the past so it’s hard to do a comparative analysis over time. It is also important to remember there are some startups that go through several accelerators and others that have been both in an accelerator and an incubator. This makes it even harder to measure success rates.
Which model is more successful in Israel: accelerators or incubators?
With all this in mind, we will now present some conclusions based on our research on Israeli accelerators and incubators. These conclusions are based on the summary of results of each measure and a relative comparison between them. There were 14 active incubators in 2015 that are included in the report and 43 active accelerators, so the ratio between them is 3.07. The comparison of the bottom line shows these conclusions:
1. An early stage startup is 2.5 times more likely to to get into an accelerator than to get into an incubator.
2. Based on the success rates of graduates from past years, an early stage startup that was accepted to an incubator program in 2015 has a 2.7 times higher probability to raise a follow-on investment than an accelerator graduate.
3. Well, here comes a surprise. The average sum of a funding round for an incubator graduate was $1.43 million, whereas an average sum of a funding round for an accelerator graduate was $1.96 million. In other words, statistically, the accelerator graduates’ mean financing round after leaving the program is 37% higher than the average sum raised by incubator graduates.
4. What is the chance for an exit? According to the statistics of the graduates’ performance in 2015, incubator graduates have a 3.5 times better chance of getting to an exit than their accelerator graduate counterparts.
5. IPOs and exits: If we take these two scenarios as marks of a startup’s success, then which model is more effective at getting them to this point? We feel that that it is too early to properly provide an answer to this question, since the incubators have a significant head start of nearly 30 years on the accelerators, and it is too early to draw a fair comparison between the two.
From the data we’ve collected, SteadyMed Therapeutics, a RAD BioMed graduate, was the only IPO among the cadre of Israeli accelerators and incubators that were active in 2015. Because of the time gap between the beginning of these models in Israel, we think that we can draw a fairer comparison only after a significant amount of time passes, allowing the accelerator model to prove its worth (or not) in this category.
Bottom line: At least according to 2015’s data, incubator graduates showed better rates of success in the entire lifecycle of a startup, including funding and exits. It’s important to take into account that the Israeli model of accelerators is much younger than its incubator model and therefore it makes sense that incubators had more graduates who matured and did exits. We also didn’t refer to whether or not the exit was successful or not for investors.