Since 2015, Pi Labs has run proptech accelerator programmes, finding small startups with big ideas that it can help mould and develop. It launched its ninth accelerator last week, but despite being fully remote this year due to a pandemic, the programme continues to put Pi Labs at the heart of the next generation of innovation in the industry.
PlaceTech spoke to Boyan Burov, programme manager at Pi Labs, shortly before the launch of the programme for an insight into why and how the VC firm continues to run accelerators for proptech. Given that the vast majority of startups fail, why should Pi Labs – or anyone else – risk investing in not just one but a whole group of them – most at early stages of development? And when can it finally expect to see a return on that investment?
For Burov – who, due to the pandemic, is at his parents’ house in Bulgaria instead of with his team in London – the benefits clearly outweigh the risks: “It’s still a very important aspect for us because it acts as a testbed for our wider investment strategy.”
The first Pi Labs accelerator, back in 2015, was launched as a way to build the proptech ecosystem because there was not yet much of a community in the industry. That’s now changed, but Pi Labs continues to run accelerators and aims to source 60% of the companies in its portfolio from those programmes.
If done properly, accelerators can actually lower the risk involved in investment. In its accelerator programmes, Pi Labs either injects £100,000 of equity for 7.5% of the company, or if the company isn’t yet at a suitable size, it makes a warrant agreement. That gives a company access to the programme while giving Pi Labs the right to invest up to 7.5% in the startup’s next fundraising round at a 20% discount.
“It allows us to flex a bit more in terms of our investment thesis, in terms of where operate and also the types of companies we invest in,” Burov says. Rather than invest £250,000 to £500,000, as Pi Labs might do with a company outside its accelerator, it can be a little more adventurous with the companies it backs and the regions it enters through a smaller investment and more hands-on support.
This year, for example, the programme accepted its first startups from outside Europe – one from Israel and one from Canada. It dips its toes into those markets without having to make a splash.
You can never be too prepared
The trick to making accelerators successful is countless hours of due diligence. “The [selection] process actually takes longer than the programme itself,” Burov says. Pi Labs gets piles of applications anyway, but it also spends at least three months actively scouting, assessing more than 1,000 companies, their teams and what traction they’ve had so far in the market.
Because these startups vary in their size, goals – some still need to deliver a product while others might have already launched theirs in local markets – and purpose, Pi Labs works closely with them at the start of the programme to identify targets and KPIs. It matches them with relevant mentors and sets them off on the programme, which includes a catch-up and one or two workshops a week.
While the first part of the programme focuses on strategy, the second is about preparing the startup for their next round of fundraising. Pi Labs will introduce the startups to relevant customers in the market and then, eventually, to investors that are right for a specific participant. It guides them through pitching, identifying how much they need to fundraise and from whom and certain technical aspects like putting together investment documents.
How hands-on or hands-off Pi Labs is depends on the startup, Burov says. “We make it clear that [the programme] aims to support and fast-track the development of the business model and what’s remaining of the product. So ultimately, it’s the team’s decision, and it’s as little or as much as they want.”
The long game
Measuring the success of accelerators is notoriously difficult because 16 weeks is not long enough to gauge whether you have a dud or a unicorn on your hands. “We appreciate that it is an inherent risk with the business we operate,” Burov says, though he adds that he is “quite happy” that 80% of companies in their accelerators so far have managed to raise capital within 36 months of the programme. About 88% are operational to date.
In other words, it takes years to measure their success. If someone were to launch an annual accelerator, by the time they got to their second one they would still have little idea how successful the first one was in the long run. “That goes for a lot of accelerators. In the first couple of years, it is difficult to justify,” Burov says, though he missed out on those early jitters, having joined Pi Labs in 2019.
As an early stage investor, Pi Labs expects that it will take three or four years for a company to mature and reach Series B or C rounds of funding. For context, the median deal size in Series B funding – the third round of funding after seed and Series A – in Europe was about $20m in 2020, according to KPMG. But whether or not an accelerator reaches Series B funding in four years is not necessarily indicative of success – some companies, Burov says, will need the cash more quickly and get there sooner, while others simply don’t.
That’s why those initial KPIs are important: they are the first indication of success. Accelerators will track a startup’s progress on their identified goals, while taking account of feedback from internal and external parties. And then it becomes a case of tracking long-term progress.
Having run accelerators since 2015, Pi Labs is only now looking at next steps for some of its portfolio startups. After all, funds often span a 10-year period. “We’re now starting to do some interesting exits from some teams that we’ve engaged with already, but it’s a long game,” says Burov.
Of the companies listed on Pi Labs’ portfolio website, just three companies have reached Series B funding – Plentific (launched in 2012), LandTech (launched in 2011) and Trussle (launched in 2015). Most are still at the pre-seed or seed stage, and scaling will take years. As Pi Labs starts guiding a new cohort, taking five new startups under its wing, its long game continues.