I was on a “Rise of the Accelerators” panel recently in San Francisco with Justin Kan (Partner at Y Combinator) and Thomas Forte (Founder at AngelPad). One of the questions was “Why are there so many accelerators?”, and more specifically, corporate accelerators and I wanted to provide some data behind my response. Fundamentally, innovation is driven by three investment sources.
· Entrepreneurship (Venture): Founder, innovators, dreamers, brilliant and crazy all at the same time. The capital driving today’s entrepreneurship comes from venture capital, angel investors, the founders of respective companies and if bootstrapping, from the business themselves.
· Corporate Backed R&D: These are the guys in lab coats, I always think of IBM Research, when they announce the ability to assemble machines atom by atom or the latest. Many great breakthroughs from history have come from far reaching corporate research. But the ability to go from R&D to money making products has been challenging in the last few years.
· Government Backed R&D: This could be academic grants, defense research, major programs like energy or space, and even startup funding through programs like the NSF SBIR Grants.
I’ve been working in the interface between major corporations and startups for over a decade and if there is one thing I’ve learned is that corporate R&D never moves from concept to product as quickly as a great entrepreneurial team. With respect to academic research, when it is fed into either corporate R&D or a great entrepreneurial team, I will place my bets on the entrepreneurs.
The world has changed since you had to leverage economies of scale to drive innovation in large well-funded R&D labs. Most of the tools required to move fundamental research into products is available on the web, or through easy to access services, such as 3D printing. The cost of experimentation and iteration, whether that’s a big data scaled analytics solution or fabricating machines, has fallen dramatically. And the methodologies that entrepreneurs are applying such as Lean Startup and User-Centered Design have grown around small, founder driven startup teams.
Corporate accelerators allow companies to bring a group of talented entrepreneurs together and focus on creating products for delivery in months where most corporations would take years. Granted these products are not ready to “scale” like some corporate products may be, but the entrepreneurs can build a solution, test it with consumer, get market feedback and make adjustments much quicker. So, innovations being driven from corporate accelerators can be more effective than classic R&D. Corporate mentors share what they know, expertise in their business, in the domain of the corporation, and the entrepreneurs move fast to build and test products based on the latest technology and innovations.
I often hear the question, when will it end, or slow down. So here is a quick comparison. Here are the top 5 R&D budgets for global corporations in 2013:
· Volkswagen $12.5B
· Samsung $11B
· Microsoft $10.4B
· Intel $10.1B
· Toyota $9.3B
So, just across the top 5 R&D budgets in one year, these corporations spent $53.3B. Summing up across the top 2,000 global firm, the total R&D spend is $670B.
Of course, the government can’t be left behind, in 2013, the total US R&D spend was $132.5B, primarily across the top 6 categories of defense (half), health, space, general science, energy and natural resources. And that’s just the US, Europe is investing heavily with $333B in R&D investments
Global Venture Capital investment in 2013 was $48.5B worldwide. An order of magnitude less than just the top corporate R&D, but delivering many of the new experiences and products that we use every day.
I believe that over time, more corporate R&D money will shift towards strategic investments in startups and towards corporate accelerators. If corporate accelerators are properly managed, allowing the startups to thrive at their best and attracting the very best venture capital, then for delivering product, nothing can deliver like a talented, driven, heavily motivated entrepreneurial team.