ACCELERATORS : THE DIGITAL MAGICS MODEL TO SUPPORT THE GROWTH OF THE ECOSYSTEM
Andrea Peroni
Every ecosystem changes, develops and evolves throughout time. It is clear that the Italian innovation ecosystem has been growing through a rapid growth sprout, the increasing number of investments, startups and public attention is evidence to the pace of change.
However, even when growth arrives, and with it no doubt an increase in the level of maturity of the technology and of the entrepreneurs, pre-seed and seed investors & acceleration programs play a vital role in quality assurance and validation of the new ideas, products and solutions that come into the market.
As the leading pre-seed and seed operator in Italy, we at Digital Magics believe we are playing an important role in boosting the ecosystem forward, especially thanks to the goals we have set of reaching 200 startups in our portfolio and reaching a fair value of over €100 million by 2025. The core of the plan is an investment model that is focused on acceleration programs and, for this reason, it is important for us to highlight the value generated by our programs and the way they work, told by those who, like me, are living them from the inside.
In particular, I have been working for the past year on Magic Spectrum, our IoT and 5G vertical accelerator. Thanks to this experience, I can now share the goals Digital Magics is trying to achieve and how we operate in the building and running each one of our programs.
Our main goal and focus is to run accelerators that are based in Italy and are able to attract the best startups, locally and from all of the EU, by building sector-specific hubs managed and funded by industry experts to grow, test, deliver technology solutions and address them rapidly in their target-market.
Our final goal is to invest in the best startups and prepare them to scale.
So, how does it work?
Typically, our programs are divided into 4 macro stages:
Stage 1: Setup: the first phase starts once the target sector or market trend is identified as having significant growth potential and Digital Magics initiates the structuring of the program. At this point Digital Magics focuses on creating a group of dedicated corporate partners who have market and innovation interest in the sectors of the program to act as sponsors, as well as launching, whether it includes co-investors, a dedicated investment vehicle.
Stage 2: Scouting & Selection: During this phase Digital Magics continuously aligns with the corporate partners, in order to determine their needs and understand the potential innovative opportunities. This works adds great value to both the startups and the partners and is a fundamental requirement for startups to be selected, as well as the main added value of the programs, to activate specific projects with partners to accelerate the go-to-market. The programs are highly competitive, the scouting and active selection process tends to run for 3 to 4 months, during which on average 800 to 1,000 European entities are screened and only 8 to 10 startups are shortlisted for investment. Essentially, this means that only 1%/2% of the startups we see eventually receive the investment.
To help guide us in the selection process, we search for startups that can respond primarily, but not exclusively, to 3 criteria:
· Investment fit: there is a fit between the program’s investment model and the startup’s growth stage
· Market fit: the solution is coherent with the specific batch of the program and highly scalable
· Corporate Partners match: there is a business compatibility with at least one corporate partner within the accelerator in order for the go-to-market and the PoC to generate the highest value
Stage 3: Acceleration: This stage is the one in which we actively start working with the selected startups and lasts approximately 12 weeks. Our approach consists of identifying and analysing strengths and weaknesses and setting specific objectives tailored to each startup (KPI), which are measured during the entire journey through weekly progress sessions. At the same time, we hold a wide range of masterclasses on key value-added topics. During this stage, the startups actively work alongside the program’s partners, establishing use cases to bring the startups’ products and services to the market by exploiting the potential of the network and accessing the resources provided by the partners on a national and international level.
Stage 4: Post-Acceleration: at the end of the acceleration path, we provide a follow-on investment for the most outstanding and best performing startups. The follow-on is aimed at completing and/or triggering the fundraising of the next investment round and companies who are receive it will rely on DM’s proven expertise in deal structuring and benefit from the extensive network of national and international investors.
What makes Acceleration programs unique in supporting the growth of the entire ecosystem?
The participation in the acceleration programs generates value for all stakeholders involved and drives the growth of the entire ecosystem.
1. Startups, spend a number of months working with DM and our corporate partners and are able to significantly reduce the pre-seed phase and the go-to-market time and this is where the key success factors come in.
2. Corporate partners have first hand access to the innovation relevant to their sector and are able to work closely with the talent and the technology they need for their growth
3. Investors can mitigate the risk of their investment in early stage startups that graduate from our programs, seeing that the team, the market and the product has been reviewed and worked on in depth during the program.
On the basis of the track record and experience of Digital Magics, with over 150 investments, we have learnt that our role as a first mover in the startup successfully activates a virtuous mechanism that attracts other investors to the company much more easily and results in a multiplier effect of about 13x on the following investment rounds.
The growing number of initiatives we are pursuing will certainly enhance the quality of all the participants, partners and startups, and attract more and more players to the startup ecosystem and to innovation in general, an ecosystem that we strongly believe has all the potential to become a disruptive force at European and global level, making the best possible use of the great entrepreneurial skills that identify it.
