Startup accelerators are now a fixture in the tech world. With little or no resources, founders turn to accelerators for mentorship, office space, connections, and funding, hoping to transform their idea into the next multi-million-dollar company. Accelerators are meant to advance a startup’s growth, but this is often in exchange for owning a portion of the company. Well, the equity approach makes sense because accelerators also need to make returns on their investments.
Philippines-based IdeaSpace Foundation has decided to go a different route, however. In a bold move, the accelerator arm of the Manuel V. Pangilinan (MVP) group of companies announced today that it would no longer take a 20 percent stake in startups it will fund through its annual startup competition.
IdeaSpace executive director Diane Eustaquio explains why. “The reason why we took 20 percent before was to be sustainable. We thought we would sell our shares to angel investors or anyone who wants to invest in the startups later on. But angel investors always prefer that their money go to the founders so the founders can continue growing the product. Obviously, if we sold our shares, the money would go to IdeaSpace. It wasn’t really helping the startups.”
Besides, if we’re talking sustainability, Diane says that taking equity during companies’ very early stages is more of a strain rather than an opportunity. She points out it will take “so long” before IdeaSpace will be able to realize the returns on that equity, while holding on to it means IdeaSpace needs to provide its equivalent value – from an operations point of view, that’s resources such as manpower to attend to the startups.
“It’s unfair to the founder who continues to develop the product if we say our part ends when the program finishes,” she adds. “From the beginning, IdeaSpace was a [corporate social responsibility] effort of the MVP group so we said let’s just keep it a CSR effort.”
As for the stakes they took in the startups they supported in the past, Diane says they will sell them back to the founders this year.
Now the challenge is for IdeaSpace to look for other sources of funds to keep going. IdeaSpace was given half a billion pesos (US$10.4 million) in funding when it was established in 2012. That’s equivalent to a budget of PHP 100 million (US$2 million) a year until 2017. “The vision was after 2017, we will be on our own and we will have enough money to sustain us,” Diane says.
But not to worry, she says. The foundation still has money in the bank to last it several years. “We’re fully funded by the MVP Group. We’re hoping they’ll continue to support us even after 2017. Though we also have to look at other funding sources. Some private foundations have signified that they want to support us. We’re also looking at monetizing some of the things we do. We have different events and activities we might charge for.”
Diane assures the Philippine startup community that this new equity-free structure, which starts this year, will not in any way dilute what they’ve been offering startups since the start of their program. IdeaSpace holds an annual competition where the top 10 startups get access to PHP 1 million (US$20,800) worth of benefits, including PHP 500,000 (US$10,400) cash, housing, transportation, incorporation, office space, communication, software support, mentorship, and training.
IdeaSpace today kicked off the application process for its 2016 batch, which is now open to individuals and groups not just in the Philippines but also across Southeast Asia. Submissions will be evaluated until March 18, and the top 20 startups that will enter two-month incubation will be announced on July 5. Among the 20, 10 will enter the four-month acceleration phase, beginning August 1.
Since 2012, IdeaSpace has helped give birth to 38 startups, the most notable of which is SALt, which developed a saltwater lamp.
Source: TechinAsia
