Accelerators are sometimes referred to as mentor-driven programmes. But first let’s define what an accelerator is, and why mentors are so important.
In the classic investor-driven model, an accelerator is a human institution that runs a programme that adds value to a startup. In other words, an accelerator “buys” startups by taking a share of their stock, and then resells them to investors by selling its share at a higher value. Of course, the increase in value varies with the maturity of startups targeted.
Then, of course, there are different models of accelerators. In most cases, accelerators that are government-backed do not usually take equity, since they have a socio-economic goal. They do this because they want to create an ecosystem that can stimulate innovation, create jobs and attract talent and, of course, investment. In this context therefore, MITA helps government in its policy to create a technology-friendly economy.
So why are mentors so important?
In a 2015 article on TechCrunch, the author, entrepreneurship researcher Rhett Morris, calls mentors the “secret weapons of successful startups”. He cites studies that demonstrate that 33 percent of founders mentored by successful entrepreneurs eventually became top performers. This was more than three times better than the performance of other tech companies without a top-quality mentor. Mentors are therefore the secret weapon that help the accelerators add more value to the startup.
Getting the advice of a seasoned mentor who’s had plenty of experience starting up or conducting a business successfully can actually become a young tech founder’s competitive advantage that could eventually enable her to outcompete other founders. With such a background and reputation, a good mentor will go out of their way not to underperform and disappoint their mentees.
Mentors are not only entrepreneurs or investors, they can also be intrapreneurs and functional experts with decades of experience in tough corporate environments. Most decisively, they bring their high value networks of other entrepreneurs and investors, which they can activate to the advantage of the startup founders. The beneficial effect of this becomes exponential.
The interesting part is that mentors usually provide their support on a pro bono basis, at least initially.
A unique 2017 study carried out by Brad Bernthal from the University of Colorado Law School actually analysed mentor motivation: in essence, why are mentors ready to give away thousands of Euro worth of advisory services to founders for free?
The researcher argues, that the benefits that mentors gain are not financial as they would through a paid commission regulated by a private agreement. The benefits are indirect, and they come in various forms: they strengthen the mentor’s relationship with other mentors such as investors and serial entrepreneurs; they keep honing the mentor’s skills and help them realise the benefits of disruptive technologies and new business models being executed; and they keep enhancing their reputation and the gains they make from it within the community.
Free advice, or against equity?
There is, however, a new school of thought making in-roads in the startup community. And it is something that the MITA Innovation Hub is currently looking into.
Providing mentorship on a pro bono basis at least initially is all very well, but in the long run, to maintain a sustainable relationship with a top-quality mentor, there should be other incentives. These could be done by involving mentors in the success of the startup through vested shares in the company. In this case the relationship would need to be regulated through an agreement between the startup and the mentor without the involvement of the accelerator. This is clearly an area that will require the intervention of legal and tax advisors to help with the drafting of an agreement to regulate the relationship, covering, for instance, the hours of advisory, the amount of equity, and vesting – a system which allows a startup to gradually grant ownership of shares to the advisor over time. Such agreements are not a common practice in Malta.
Despite working in a heavily regulated area such as government, the MITA Innovation Hub has proven to be a trend-setter in the country. Nearly three years after launching YouStartIT, it is still the only tech accelerator in Malta taking on startup ideas based on new technologies such as Blockchain, IOT and AI, and now receiving an average of 150 applications per call worldwide. Importantly, it is still the only startup programme that revolves around the concept of involving mentors who are primarily entrepreneurs that continue to volunteer value to the YouStartIT programme so generously, giving startups the competitive edge they need to become successful.
More news about YouStartIT success stories in forthcoming articles.