Start-Up Incubators

Big Fish Help Small Fry

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Getting hip to helper syndrome.
  • Why it matters

    Why it matters

    Experts consider the founding of an incubator a good way for companies to gain a start-up feel and a way for young firms to benefit from mentors’ experience.

  • Facts

    Facts

    • Electronics retail chain Media-Saturn plans to support start-ups with capital and expert advice.
    • Many major German companies including Axel Springer, Otto, BMW, Deutsche Telekom and Siemens have start-up incubators too.
    • Established companies worldwide invested an estimated €19.6 billion in fledgling companies in 2013.
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    Audio

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When Martin Sinner became head of the Media-Saturn holding group’s online services in 2014, he announced the electronics retailer would launch an incubator to help start-ups.

The Media-Saturn holding group is the largest electronics retailer in Europe. Its parent company is the Metro group, the world’s seventh-biggest retailer.

Media-Saturn has now firmed up its plans and will financially participate in new consumer-electronics companies and work with them in their development.

“Spacelab” is the name of the program that, as a so-called incubator, will take start-ups with a good product or business model and get them to a market-ready state.

“We’re aiming to find start-ups that fit in with us, either in our value chain or our range of products,” Mr. Sinner told Handelsblatt.

“Despite the prophecies of doom, the collaboration of a major corporation like Deutsche Telekom with small, agile start-ups has proven to work well and both sides benefit from it.”

Peter Borchers, Head, hub:raum

Each year, 10 new companies will be accepted into the program. Each will receive €30,000 ($34,279) in capital and an even higher amount in non-cash benefits.

Founders will have the opportunity, through workshops and mentoring, to develop strategy, marketing or distribution.

“The Spacelab is something like a new type of business school for young entrepreneurs, in which we help founders towards the next step in the development of their companies. Instead of lecture halls, we just do it for real right away,” said Mr. Sinner, who was a co-founder of the Idealo price-comparison website.

Media-Saturn is involving prestigious partners in the project. The companies participating in the program will receive support from Ernst & Young for finances and planning, Serviceplan for marketing, Payback for customer relations and Barkawi Management Consultant for their supply chain management.

Media-Saturn is relatively late with its founding of an incubator for start-ups. Many major German companies already have such incubators – most notably many publishing houses such as Axel Springer, Burda and Bauer.

Corporations from other industries, such as BMW, Deutsche Telekom, Commerzbank and Siemens, have them too.

This spring, Media-Saturn’s parent company, Metro, announced it had set up MetroAccelerator together with U.S. mentorship-driven start-up accelerator Techstars.

According to the consultant firm Volans, established companies worldwide put about €19.6 billion into fledgling companies in 2013.

Experts consider the founding of an incubator a good way for existing companies to gain a start-up feel. Major corporations often lack fresh ideas. They tend to cling to existing business models, their company structures have become rigid and lack the innovative spirit to help develop in line with their future needs, such as digital models.

 

Attractive Start-Ups-01

 

Additionally, as an incubator, a corporation is much more closely involved in the development of a start-up than if the firm is only involved as outside venture capitalist.

“Both sides can greatly benefit from this kind of cooperation,” said Tobias Kollmann, professor of digital business and entrepreneurship at the University of Duisburg-Essen. He sees the start-ups as “innovative speedboats” for companies, while the start-ups in turn make use of the reputation and management expertise of the incubator. The start-ups also gain quick access to customers and markets they lack, especially in the beginning phase.

Mr. Kollmann said there is no guarantee for sure-fire success when an incubator is formed: “Frequently the very disparate company cultures there collide with each other.” Experts advise companies not to locate their new start-up centers in grassy meadows next to corporate headquarters. There, the young entrepreneurs would lack interaction with the companies and start-up community.

Some companies have already learned the hard way with their involvement with start-ups.

German television network Pro Sieben Sat 1, for example, has dissolved its incubator, Epic Companies, which had employed up to 250 people – even if some firms founded in connection with the incubator are continuing operations under the supervision of Pro Sieben Sat 1’s own investment company SevenVentures.

Media company Bertelsmann also ended its incubator, Bevation, last year.

Incubators run by companies in other industries have seen some success.

Deutsche Telekom, one of Europe’s largest telecom companies, started its incubator hub:raum in 2012. Some smaller firms to benefit from the support include Salonmeister, an online booking service for hairdressers that the founders have sold to a British competitor, and Reputami, a software provider that helps companies monitor their online ratings.

Hub:raum also has branches in Krakow, Poland, and Tel Aviv, Israel. Deutsche Telekom says it has so far had around 4,500 applications to participate in its program from over 20 countries. The incubator offers support in early financing, expertise, access to Deutsche Telekom and, not least of all, office space.

Similar standards are set in the selection of start-ups as in the company’s other activities, such as the business models being scalable. The incubator looks for start-up founders that work in same the field of activities as Deutsche Telekom  – such as, the Internet of things, TV solutions, IT security and mobile payment.

“Despite the prophecies of doom, the collaboration of a major corporation like Deutsche Telekom with small, agile start-ups has proven to work well and both sides benefit from it,” said Peter Borchers, the founder and head of hub:raum. It was a pioneer of sorts with the incubator, he said: “Now, there are hardly any DAX companies or corporations that aren’t working together with start-ups.”

Major corporations often lack fresh ideas. They tend to cling to existing business models, their company structures have become rigid and lack the innovative spirit.

Tengelmann began building its venture capital business six years ago. Today the retail corporation is a shareholder in more than 40 start-ups. Tengelmann is also active in the United States through its subsidiary Emil Capital Partners. There, Tengelmann invests in the fields of food and food supplements.

The retail giant’s boss, Karl-Erivan Haub, has a great deal of sympathy and understanding for young founders: “They always laugh at you in the beginning, call you crazy.” But often in the end, success proves you are right, he said. No enterprise in which Tengelmann has invested, Mr. Haub said, is more than six years old and altogether the firms generate €3.6 billion in revenues.

Each year, 600 companies apply to Tengelmann. Last year, for example, the company invested in the food delivery service Shopwings, the price comparison website Pricepanda, the taxi booking app EasyTaxi and the real estate site Lamudi. Often Tengelmann Ventures works together with investor Rocket Internet in the enterprises.

Mr. Haub is particularly proud of one involvement. As one of the first, he invested around €20 million in Zalando – at a time when hardly anyone knew the online retailer for clothing and shoes. The head of Tengelmann later recalled the investment as being “bold.” He still holds 5 percent of Zalando, and, since the company’s IPO, the stake has increased in value many times over.

Axel Springer and the Otto Group collaborate on the incubator Project A and saw benefits in June when British company Wahanda took over the start-up Treatwell, a booking website for hairdresser appointments, manicures and massages, for €34 million. Project A had a quarter share in Treatwell and had worked with the founder and made it a success.

That is the fourth successful exit for Project A. Its business model is to buy good ideas and make them big with other investors. Project A’s four founders — Florian Heinemann, Uwe Horstmann, Thies Sander, and Christian Weiss — learned their craft at Rocket Internet. Project A is nowhere as big as the publicly listed Rocket Internet but together with Axel Springer and the Otto Group, the four launched an €80 million fund, which now maintains shareholdings in around 20 start-ups.

In contrast to a pure investor, incubators such as Project A are involved in the substantive work of their shareholdings. Start-up founders can not only make use of the business space and infrastructure at Project A, but they also receive advice and assistance in building up the company.

At Media-Saturn, it’s not only about making a successful exit through a sale or by going public.

“When the team and the ideas are a fit, we want to keep them with us and also possibly take them over sometime,” Mr. Sinner said.

 

Florian Kolf leads a team of reporters, who cover the trading and consumer sector for Handelsblatt. Bert-Friedrich Fröndhoff is the deputy head of the ‘companies and markets’ section at Handelsblatt. Miriam Schröder also contributed to this article. To contact the authors: kolf@handelsblatt.com and froendhoff@handelsblatt.com

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