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Monday, March 11, 2013

Startup Wise Guys : A Failure

Our Take

Our prediction is that Startup Wise Guys (SWG), an Estonian startup accelerator, will fail. It will probably fail by the end of 2013.

Analyzing the Numbers

We're data-driven, so let's first look at this from a strictly numbers perspective. One good way to measure is to benchmark against others. Let's look at Techstars, which is considered one of the top accelerators, for comparison. It's a good comparison to make, because it just so happens that a founder of SWG also oversaw the merger of another accelerator he oversees, with Techstars.

Techstars conveniently posts detailed statistics on their success rate. Looking at the Boston Winter 2012 group of companies (so that's about a year ago), we see the following:
  • Total Companies: 13
  • Funded: 10 (77%)
  • Failed: 0 (0%)

Now let's look at the same cohort from SWG. They don't post statistics in such an easy format, but we've managed to figure some of it out on our own:
  • Total Companies: 8
  • Funded: 1 (13%)
  • Failed: 2 (25%)
The only funded company was Vitalfields (formerly WeatherMe) for 250k EUR, compared with total funding of over $12 million for the same cohort of companies at Techstars, who started at around the same time. Of the SWG companies still alive, most of them are not past the beta stage and ready to take on paying customers, including Monolith, Epiclist (formerly Faver), and Pondera (formerly Wellbeing). Of the 8 companies in their portfolio, we only think Vitalfields has a strong chance of surival. WappZapp might do OK if manufacturers don't just build the same functionality into set-top boxes. Like a Local Guide will probably survive, but it's also not a million-dollar business.

Reading the Tea Leaves

We think Startup Wise Guys is facing a cash crunch, and the founders know it. Initial funding for SWG was 78k EUR from the Estonian Development Fund.

We were quite surprised to read about the lean startup workshop they offered in January. What surprised us is that they invited startups who weren't part of their incubator to join them, for this free event. An optimist would say that SWG was just being nice, but we're not optimists. Read their post carefully, and you'll notice this key text: "The weekend will be entirely free, including transportation to Lahemaa. All the details will be taken care of by Startup Wise Guys and EAS!" (emphasis ours).

We think that SWG got paid by Enterprise Estonia (EAS) to host the workshop. But since the money was coming from that source, it couldn't be limited to just SWG companies, so they had to open it up to a few other companies in order to make it more legitimate. So why would SWG host such an event? Our theory is they are running short of cash.

Maybe the founders know this too. One of the key members, Elise Sass, left SWG to move to Microsoft:

Now why would one of the main people behind SWG leave right as the latest batch of companies just started? What does she know that we don't?

Lacking a Long-Term Strategy

Does Startup Wise Guys have what it takes to survive? We don't think so. If you view the LinkedIn profiles of the team that runs SWG, there are few people on the team who have actually run successful startup companies. The mentor list is similar -- few people who really stand out as having experience in startup companies that were successful (compare it to the Techstars Boston mentor list). The departure of one of the founders is an ominous sign as well.

So what are we left with? An organization with few success stories, short on cash, lack of talent, and with management departing. They're going to fail.


  1. I love the comparison with TechStars, one of the most successful program, who has been for years in US market. Next let's do side-by-side comparison of this blog with, say, TechCrunch. I smell another big Estonian failure coming :)

  2. Just to be correct - i am really sceptical financial return. I dont see how could SWG do any return. BUT - could you please measure, how much VALUE this accelerator will add to local COMMUNITY? I am pretty sure, that they have done it already. So - how could then it be failure? And it is pretty stupid to compare Techstar US - what has already long history - with SWG first year. Who is based in Europe. In Estonia. I can't take you seriously. Sorry. And i am not just random guy from country side.

    1. https://www.youtube.com/watch?v=1KPwj2v1sco&t=0m12s

    2. Hilarious ! Exactly

  3. Accelerators on the road to failure are usually marked by:

    1. Weak management with little to no experience starting companies that are successfully acquired or IPO. Wiseguys team seems to be made up of C level talent at best with no notable founder-startup experience.

    2. No track record. Everyone has to start somewhere but their 1st year cohort performance does not impress.

    3. Spray and pray strategy hoping for a miracle. This is essentially what it seems like. Yet another accelerator with no competitive advantage, hoping to luck onto a start-up based on graduating as many companies as possible.

    As for the comparing apples and oranges argument, one could point to several 1st year accelerators that have had tremendous success -- assuming you measure success as completing Series A venture capital rounds with reputable firms.

    1. Exactly ! These are all spray and pray strategies, but since Estonians are not religious. It's just a pure Spray, and Spray some more. It's known from the beginning that all these companies will be a pump and dump to squeeze as much of the EU funding as possible. It's fun when the EU pays for your travel costs, and events. They will pay speakers great money to come and talk, and this is why you see a ton of events exploding. It's easy to justify this from the EU funds.

      What do you guys think about Game Founders? Did anyone notice it has many of the same players on the site from WiseGuys.

      Remember, here in Estonia Success is measured by press releases and awards, not revenue.

  4. Re: incubators. While Wise Guys aren't the best executed program the same logic applies to most other programs, esp. in Europe. Financially, I mean.

    Great teams would only go to one of handful top programs. Buying lottery tickets must be a better business than fundjng yet another accelerator program.

    But they are probably valuable to a community as a whole. Think community college. Free education, essentially.

    Max (Monday52 founder, SWG 1st batch)

    // I think you're reading too much into a workshop. there are other, simpler signs ;-)

    1. What warnings signs did you see during your program at Wiseguys beyond the obvious?

      The biggest one I can see from afar is that their entire staff is unqualified to run one start-up, much less accelerate an entire cohort.

      Where's the entrepreneur who bootstrapped his own company, went through multiple rounds of venture funding, took the company public, and now has deep expertise and contacts through the industry?

      Completely missing from their roster.

      Instead, all I can see are a bunch of guys running around wearing hats.

    2. I'd rather not to. I don't see a value focusing on the past. I am back in Kiev and I've got a new business to build.

      PS: Ukrainian team got into current TechStars Boston batch (CheckIO), we'll see how it goes.

    3. Congratulations to the Ukrainian team.

      Are you going to be a part of that team as well?

    4. No, not me. I am busy with my own stuff. ;-)

      PS: story from ukrainian YC alumni (Acunote),
      http://dou.ua/lenta/articles/ukrainian-yc-guide/ (in Russian)

  5. What about interviewing the teams who have succeeded and not the teams who have failed? Incubators can do only so much for the startups and they have to pull it through themselves.
    A bit biased stuff here....

    1. Which have succeeded? None that I can see.

  6. How about simply put the money into the hands of very few competent, and let them lead, vs giving the money to the incompetent. If you can't find one here, hire a guy from overseas, and you will make your money back within the first month.

    Breeding a culture that rewards the incompetent over and over again, seems to be the most damaging thing you can do to this startup scene. You're basically lying to your new entrepreneurs and guiding them into failure. Never take advice from someone that makes less money than you.

    I think you will find many many examples of foreigners running very successful estonian companies. But rarely will you see an Estonian that enters a foreign company and runs their employees. It actually has nothing to do with Estonians, but rather international startup experience.

    Success should be measured mostly in revenue, and why I find this blog very healthy for the community. Reality is much better than fiction.

    I think the best investment the startup scene could make is to get a few pros and pay them to do the job right.

    1. Estonian men don't want to be led by a foreigner.

  7. ALthough since dawn began, they have been...

  8. This excerpt applies perfectly to the Start-Up Wiseguys "staff":

    "Building things that are different, inventing the future and creating a real business is a long and often very lonely slog. But you don’t hear about that. Instead what you get is a lot of babble about startups from so-called mentors, advisors and startup gurus. Peel away their sharkskin and you find they have never started a company, and they continue to live in the reflective glory of the company that once employed them. Others are the creation of social media, having struck a pose. And some are born consultants. They find willing listeners among a growing army of entrepreneurs who like enterprenuership as a lifestyle. Sorry guys, entrepreneurship isn’t a lifestyle, it is life."

  9. Many startups fail as a result of within the early stages of the business they were underfunded within the development stages. Others fail shortly once launch despite the fact that they need a tremendous product, however they ran out of funds to plug the corporate and gain the essential mass required to sustain operations.

    Funding Available for Startup Company

  10. I would love to see what folks from this batch of Startup Wiseguys are doing? My last assessment of the startups in current batch only 3 of them have some product to show, and only one of those 3 has a real potential to grow big, Startup Wiseguys might get lucky with them on board, but they seems to be an Indian, Srilankan team with little interest in Estonian market. Rest of them are still ideating. I wonder why an accelerator brings in companies which has not started with their product? Shouldn't they be a part of incubator, if all we care?