The Operator-Start-up Connection — Informilo

By James Silver
Contributing Writer

With their beanbags, primary-color decor and the obligatory table-football areas, tech start-up workplaces have long become something of a self-parody. Nevertheless Wayra’s London incubator for “digital talent” is particularly impressive. It’s located in an expansive open-plan warehouse three stories above Tottenham Court Road in central London. Yes, there are beanbags and a table-football (plus a bright red replica London phone box), but this is no school for slackers. There’s an intensity and industriousness about the place; everywhere you turn there are hushed conversations, huddled conference calls and coders pecking away at laptops.

If the 19 digital start-ups that currently share this piece of prime real estate seem in a hurry, that’s because they are. The teams have just six months in Wayra’s flagship incubator before they pack their personal effects and step back into the ‘real world’ — hopefully with follow-on funding.

Inspired by the success of Silicon Valley-based Y Combinator, which launched in 2005, and Tech Stars, which was founded in Boulder, Colorado a year later, different spins on the incubator/accelerator model have now become a fixture in the wider tech eco-system. There are estimated to be more than 50 such programs in Europe alone. An increasingly popular take on this talent hot-housing model is the mobile operator-backed incubator. Just a year after Vodafone xone arrived in Silicon Valley, for example, it had already nurtured a dozen tech companies. There are currently thought to be more than 25 operator-backed incubators in Silicon Valley, including those financed by Sprint, AT&T, Verizon, China Telecom and Korea’s SK Telecom. Deutsche Telekom, which also has a presence in the Bay Area, launched hub:raum, an incubator program based in Berlin, last year.

Telefonica’s Wayra is thought to be the biggest in terms of global footprint: it now supports 181 start-ups across 13 academies. (The latest to open is in Prague.) The start-ups dream of being acquired or at the very least getting the chance to distribute their wares to the operators’ massive customer bases. For the operators the goals are less clear-cut. It’s getting close to the start-up ecosystem that is important.

Just two of the current Wayra London teams’ ideas are mobile apps — the rest are a mix of digital businesses. The reasoning behind this portfolio approach is that Telefonica doesn’t want simply to sell products to its existing customer base; it also wants to investigate new revenue streams, says Ann Parker, Wayra Europe’s London-based head of operations. The phone operator does not want to just buy start-ups and plug them into Telefonica, she says; it wants to get a feel for what is happening in the market. “We saw most of the innovation in the telco space wasn’t happening in telcos: it was being done on the edges by smaller companies,” says Parker. “We recognized that if we wanted to be part of the action we needed to be part of it from the ground upwards. Our second objective was that because most of the best coding and programming talent from Latin America and Central and Eastern Europe was just deciding to go to the Valley, we wanted to create a reason for them to stay in their home markets.”

The current crop of start-ups are Wayra London’s first. Sixteen teams were selected last spring, with another three following in the summer. (Wayra’s London operation has space for 20 teams, making it by far the largest of the group’s academies, which are scattered around Europe and Latin America.) Chosen start-ups are offered €40,000 on a convertible loan note by Telefonica, Wayra’s owner. Equity (typically 5%-10%) is only taken once the team secures external investment. “Demo Day,” in which the start-ups had 10 minutes each to pitch their businesses to an audience of 150, including investors, was held at the end of January. Two teams have secured next-stage funding so far.

To retain a sense of momentum, the start-ups are shuffled around the space at regular intervals, says Parker. “Some pods [desk areas] are in better locations than others in terms of natural light,” she explains. “But we also want to remind them that they’re not here forever. This is all about creating businesses that can exist by themselves. We don’t want teams that come to rely on us so much that when we kick them out of the door, they cry ‘Help!’.”

From the start-ups’ point of view, Wayra creates its own mini-entrepreneurial ecosystem, says Josh Davidson, CEO of Night Zookeeper, a children’s storytelling mobile and iPad app.(see photo of the team on Informilo’s home page) “The ‘we are all in it together’ attitude definitely breeds collaboration — and maybe a bit of rivalry,” he says. According to another of the current crop, Cloud 66 — a company that describes itself as offering “application stack management as a service” — says sharing a space with 18 other start-ups means instantaneous and no-holds-barred feedback. “It also gives us an immediate market in which we can test our products,” says CEO Khash Sajadi.

But staying in their home markets over the longer term might not be possible. Indeed, Cloud 66’s Sajadi — who jokes his goal is to exit for $10 billion and buy a yacht — says the immediate plan for his company is “to have a physical presence in West Coast, America, where most of our revenue comes from.” So how concerned is Parker that a proportion of the start-ups, though incubated in Europe, will be drawn to the Valley anyway because that’s simply where they have to be? “I don’t mind where people go,” she says, perhaps a touch uneasily. “Ultimately who are we to say what’s right for any of these businesses?”

First published on Informilo.com on 28th February 2013