London's First Maritime Startup Accelerator
According to the 2016 Global Accelerator Report put out by Gust more than $206 million was invested into 11,305 startups by 579 accelerator programs worldwide last year. The US and Canada top the list for money invested, while Europe had the most startups accelerated by region – 3,701.
One of the oldest industries in the world - shipping - has been one of the last to embrace startups. Things are changing rapidly however with maritime startup companies surfacing almost every other week (AngelList lists 71) and maritime startup incubators popping up in Gdansk, Rotterdam and Mumbai. Now it's London's turn.
This week I had the pleasure of speaking with Leonardo Zangrando, co-founder of Startup Wharf. Zangrando is a naval architect whose family tradition at sea spans four generations. Now he’s merging his passion for maritime with expertise from helping companies as diverse as Tesco, FremantleMedia, Google and the BBC to launch what will be London’s first maritime startup accelerator.
KNect365 Maritime: I believe Port XL was the first maritime startup accelerator in the world, Mumbai has one too, so technically you might be the third. Poland has a startup incubator in Gdansk that’s also been called a startup accelerator so if these terms are interchangeable technically you might be the fourth.
Writers seem to be using the terms incubators or accelerators interchangeably but there is a distinct difference. TechRepublic explains: "Startup incubators begin with companies that may be earlier in the process and they do not operate on a set schedule."(while accelerators do)
Can you explain the difference between a maritime startup incubator and a maritime startup accelerator - and have I missed any in my short list here?
Leonardo Zangrando: Indeed there is a difference between an incubator and an accelerator, although the definition is blurred. Remember that both incubators and accelerators are quite new types of institutions, which were born out of the radical change in the way startups develop in the digital world. The Lean Startup concepts which have become the best practice for a successful startup, have been made explicit only 10 years ago. Before that the accepted practice for starting up a company was “have an idea, write a business plan describing what you will do to transform it into reality, look for investors, get funded and execute on the plans.” The Lean Startup has turned this process on its head, after some forward looking Silicon Valley entrepreneur and investor asked himself, “what is that makes a successful startup, successful?” The answer was not sticking to the plan as much as experimenting and learning on the go, knowing that the business plan was just an illusion built on assumptions.
Experimenting made it possible to transform the assumptions into facts on which to build a successful business. This approach is much more effective, as well as efficient, to find the right fit between the product and what the market needs. Yet most entrepreneurs have the tendency to fall in love with their idea, product or service and put too much energy and resources, time and money, into developing it before they are sure that the market will want it. It’s our human nature. So an incubator and especially an accelerator task is to help the entrepreneurs focus on making sure that their idea can become a business by adopting a Lean Startup approach to it.
And we are back to the initial question. An Incubator is mostly focused on the initial stages of development of an idea into a business, whereas an Accelerator's purpose is to propel the business into getting to a product with a viable business proposition. The distinction is blurred because the business model of Incubators and Accelerators has been evolving since they first appeared in the last decade. And the evolution is similar to the one implied by the Lean Startup model, experiment with a product, see what works and what does not work, change it accordingly and experiment again. The original model of an Accelerator, launched by Y-Combinator in 2005 involved funding the accelerator by a VC who would then invest in the startups. Today the model has changed in that the Accelerator is an entity of its own, separate from the VC, and is funded as a business or by corporate sponsors.
Regarding digital in the maritime sector, it is not a new thing, it has been around for at least 20 years (and longer) and it has evolved a lot during this time. I have been involved with container terminal technology for almost 2 decades. EDI (Electronic Data Interchange) and TOS (Terminal Operating Systems) have been around for long, while dramatically evolving to the current days into high automation. Also, some digitally-enabled companies started in early 2000s like Q88 a marketplace for chartering and vetting, and ShipServ, a marketplace for ship operating expenses. But so far all digital innovation came from within the industry. Today there are so many things you can do with digital technology, innovation can come from outside your sector and disrupt it profoundly. No need to mention the usual suspects in other industries. But also in Maritime there are already disruptive startups coming from outside the sector, like the first digital freight forwarder Flexport, graduated from Y-Combinator, and VesselBot optimising charters between charterers and shippers. (Read an exclusive interview with those pioneering maritime companies here.)
The Maritime sector started to realise that it needs to open up to take advantage of this wave of technology. The first sector Accelerator was PortXL in Rotterdam, which has already graduated 2 cohorts of startups since 2015 and is currently recruiting startups for the 2018 cohort. Also in 2015 Inmarsat started a partnership program with tech companies to leverage its evolving technology in communications. Not an Accelerator per-se, still a way to accelerate digital applications. And Wartsila in the same year ran the Marine Mastermind prize.
2016 saw the advent of PSA unboXed Accelerator in Singapore with a SGD20m fund attached, the launch of the Maritime Knowledge Hub in Liverpool which includes incubation of new businesses in its mission, and the Gdansk incubator you mention.
2017 has shown a great proliferation of activities with the launch of a collaboration between Maersk and the US-based accelerator Plug and Play, a collaboration between MOL Group and Design Terminal accelerator in Hungary, the Smart Port Challenge in Singapore with participants also from PSA unboXed, a Maritime Startup Prize by BAN Norway, the Norwegian Business Angels network, the launch of BlockLab by PortXL on Blockchain for Maritime, and various digital startup initiatives planned by industry players such as CMA CGM, Wartsila and Wilhelmsen.
So I can’t tell if Startup Wharf is going to be the third or fourth Maritime Accelerator. Sure we are going to be the first in London and we plan to make also our offer a first for the sector. We want to create a bridge between the Marine sector and digital disruption.
Digital disruptors need to know much more about the marine sector, and the sector needs to deeply interact with digital disruptors.
Having touched both of these areas along my career, I see two huge needs: digital disruptors need to know much more about the marine sector, and the sector needs to deeply interact with digital disruptors. Too often accelerators act just as scouting agencies for the industry they are targeting - any industry, not specifically Maritime - looking for the best startups out there which have a relevant product for the industry. That’s fine and certainly needed, although it misses opportunities to identify startups which could focus their technology on the sector and are not doing it just because they don’t know the sector. This is particularly true of Maritime, so important in the global economy and so little known. As Lena Göthberg of the Shipping Podcast says, “someone needs to take responsibility for the maritime industry to be recognised outside our own bubble.” And we want to take our part by getting digital disruptors in touch with our sector.
The Maritime sector is very complex, sitting at the intersection of logistics, finance and macroeconomics. It’s not just about delivering goods and commodities, it’s about financing and chartering the vessels that do the job, while market demand for goods and commodities fluctuates heavily in response to macroeconomic and geopolitical pressures. It’s an extremely interesting and challenging sector which can stimulate the brains of the sharpest minds in disruptive digital technologies. And conversely, the maritime sector needs to know what is out there and be able to leverage the most disruptive technologies for its own good
KNect365 Maritime: Will your Startup Accelerator work like PortXL’s where they provide – just as an example from their website - €15.000, office space for 6 months, access to over 150 mentors and over 20 investors. In one of their deal forms they ask for 8% equity.
Leonardo Zangrando: This is the current prevailing model of Accelerators, an investment in the 15k to 50k range against 5-8% equity shares. The interest for startups is that it’s capital in cash, which is what most startups are obviously short of. The equity might seem too much and implying a very low valuation of around 500k, but in reality the value startups receive is much higher and comes from the program itself, the mentoring and the exposure to VCs and to the industry. The equivalent valuation from the sponsors perspective is much higher since they might pay a total of 100k and more per startup for the program and mentoring, at a corresponding valuation in excess of 2m. We plan to twist the model a bit, by selecting the startups progressing along the program and assigning tiered investment of up to 200k to the most promising startup. As I said, Accelerators are still in Lean Startup mode themselves and experimenting with the best models to deliver the best results.
KNect365 Maritime: PortXL scouted between 500 to 1000 startups and ended up with 20 which they narrowed down to around 10. Will you be looking at the same numbers? Why or why not?
Leonardo Zangrando: Again this is a typical figure. You need to scout many startups to find those that fit all the requirements of the programme. Among these are state of development, proof of concept, quality of the team, funds raised, quality of advisors, foreseen feasibility, relevance to the industry and so on. Just to clarify a misunderstanding of many inexperienced budding entrepreneurs, accelerators, investors and in lesser measure also incubators are not there to help them make their idea, any idea, come true. They do not help improbable ideas flourish, ideas which will not flourish if they are not “the right idea.” The work of incubators, accelerators and investors is to help entrepreneurs in the path to see whether their idea has merit, and develop it (also as in “change it”) till it becomes a viable business, or drop it.
KNect365 Maritime: Why London?
Leonardo Zangrando: This is easy! London is the financial capital of Europe and it’s home to the world market for vessel trading, chartering, financing and insuring. It is also the largest tech hub in Europe, with top scientists and digital developers plus dozens of specialised digital tech VCs.
KNect365 Maritime: What are you looking for in a maritime startup?
Leonardo Zangrando: Startup Wharf focuses on Digital-enabled Maritime and I expect to develop in all stakeholders involved the ability to understand the Maritime sector as well as Digital. The accelerator is going to build this bridge by educating both sides about what they can expect from and uncover what they can bring to the other side. Many startups originate from within the sector thus lacking the in-depth knowledge of the technology that will help implement their idea. Many other are outsiders with a great technology who might enter the sector with huge disruption opportunities. In both cases, they might miss the ability to razor-sharp focus their efforts with a lean startup mindset. Delivering on the latter is the traditional added value of an Accelerator. We want to deliver also on the former two aspects.
KNect365 Maritime: For a startup accelerator – how much budget do you realistically need to start with? How many investors? What do these backers get out of it?
Leonardo Zangrando: A ballpark figure to run an accelerator programme for one 3 months cohort is $1m, but the range varies of course depending on what you want to accomplish. As I mentioned before the accelerator business model is constantly evolving. One big thing now is the corporate accelerator, which is entirely funded by a large corporation and run by specialist accelerator providers. In this case startups might be better off in that they get some money and they don’t have to give up equity, since owning small startup equity for a large corporation is a nightmare and not worth the effort. The upside for the sponsor is access to a pool of accelerated startups to choose from should they want to invest big money for growth. From the corporate sponsor perspective, the accelerator is a way to select and acquire innovation at early stage. In the case of sponsored accelerators where many sponsors contribute to financing, the value for sponsors is the same as in the corporate accelerator case, but with a much smaller cost, say 100k with 10 sponsors.
Also in this respect we are going to be different in that we will use a Lean approach to get the sponsors used to it. Initially sponsors will be in for a much smaller investment and will be able to experience first hand how a Lean process works, so that they will understand better what the accelerator will ask the participant startups.
I think this is a key aspect to get industry sponsors and investors comfortable with the Lean Startup. Incumbents have been in business for long and have developed tried and tested practices and processes to run the business. Planning and executing is in the genes of any company. That’s what “management” is all about. And it works great in a relatively stable business environment. Not so much for innovation. It’s very difficult to “plan” innovation. Sure you can manage R&D as always, but innovation is not about “just” R&D anymore. It’s not just about technical innovation, as much as about business model innovation. How is this technical innovation going to change my business? And conversely what is the tech implementation that allows me to adopt this new business model?
Tech has become an enabler of business model innovation much more than what it has ever been. And the most successful approach to innovating a business has shown to be the Lean Startup. Which does not apply only to startups in spite of the name. It’s a new mindset which focuses on finding the best fitted response to a rapidly changing business environment. We could say that contemporary startups are the business evolutionary response to the rapidly changing market environment we are living in. So it is essential for incumbents to learn the new mindset in order to support it in the startups rather than asking them to be - quoting Steve Blank - small versions of large companies. And develop internal acceptance for this new mindset. When you are in Lean Startup mode, “we are not ready to launch” is always true, yet it shouldn’t stop you from launching the experiment anyways. And learn from its outcomes rather than waiting forever to be ready and then end up being late or plain wrong.
So in a sentence, backers get access to de-risked innovation with some kind of right of first refusal on the innovation developed by the startups, and in the process learn first-hand what the corporation’s adaptive mindset of tomorrow will be.
KNect365 Maritime: You got your MSc in Naval Architect and MBA and were working in the shipping industry for several years. For the past 7 years or so you’ve been heavily involved in startups, either in the C-Suite or as a mentor or lecturer. What set off the interest in startups?
How odd, I thought, I am doing everything by the books. Thing is, the books were wrong!
Leonardo Zangrando: I was engaged in a few innovation firsts during my time in shipbuilding, mostly related to the interplay of hydrodynamic performance and cost reduction in hull construction, but the startup bug caught me and I wanted to do something of my own. Which I tried several times after getting my MBA, yet did not succeed. How odd, I thought, I am doing everything by the books. Thing is, the books were wrong! So I wanted to learn what made a successful startup successful and I came by the Lean Startup concept that was developing in Silicon Valley in the late 2000s by the hand of Steve Blank and Eric Ries. Steve had this intuition which he corroborated with hundreds of interviews with successful startups in Silicon Valley. Successful startups don’t go by the books as I was doing. They are much more experimental in nature since they are building something that doesn’t exist yet. As an engineer you can design the most intricate structures and know how they will behave because you have all the information to predict their behaviour. Conversely when you build an innovative business, you don’t know the “rules” that will shape the business, you don’t know how the market will react, you just have a hunch, an idea.
So what Steve discovered, or rather uncovered, is that successful startups interact with the market early on, way before their product is ready. Doing so they validate the assumptions they make about the fit between the product and the market. And they change the product or the market they target according to what they have learned. I like to think of it as a white-coat scientist in the lab. I run an experiment to validate or invalidate an hypothesis. And the I build on the learning.
I got profoundly interested in getting this message across. First to startups and later also to large innovative companies. I helped companies like the BBC, Tesco, FremantleMedia and also *the* Google. And here I am now with Startup Wharf for the Maritime sector!
There is great interest and no one wants to be left out.
KNect365 Maritime: What is it like to be a startup in Maritime compared to other industries? 90% of startups fail. I wonder if it’s higher or lower for Maritime. Might be a good research study to write once you’ve started working with them!
Leonardo Zangrando: Absolutely! The percentage varies, but it’s in that range. Reason being that what we think will work not necessarily does, for all we said before. So the merit of the Lean Startup approach is that you discover much earlier if your big idea is flawed and do not waste energy, resources, time and money on something that will not fly. Better save these for the next innovation that you will think about!
KNect365 Maritime: Do you have anyone you can announce on board yet with you?
Leonardo Zangrando: Not at the moment. We are in talks with several industry players as sponsors. There is great interest and no one wants to be left out. When we have all the stakeholders aligned we will be ready to announce the sponsors of the Accelerator.
The Startup Wharf Accelerator will be launched in a few months at our Maritime Master Minds event where industry leaders from various disciplines will meet with digital disruptors in Smart Ships, Artificial Intelligence/Big Data/Machine Learning, Blockchain, Internet of Things, Augmented Reality/Virtual Reality, and Drones. The Accelerator will naturally build on the Maritime Master Minds and the challenges identified, inviting startups ready to take these challenges.
KNect365 Maritime: Interested industry players, potential sponsors and startups can get in touch with Startup Wharf at their website www.startupwharf.com. For more information on Lean Startups check out these sites: Steve Blank and Eric Ries - Lean Startup.