By Tyler Hale / Photo by Jamison Mosley
Startup programs boosting Arkansas economy, state profile
When deciding where to locate his growing company, Arkansas was never on Uday Akkaraju’s radar.
The founder and CEO of BOND.ai, a fintech company that provides banks with an artificial intelligence (AI) platform powered by an “empathy engine,” had lived and worked in the traditional technology hubs – Silicon Valley and New York – but was looking to grow his company by taking part in a fintech accelerator. Finding a dearth of programs that fit his needs, he landed on the FIS Fintech Accelerator, hosted by the Venture Center in Little Rock.
Akkaraju and BOND.AI got a spot in the second iteration of the accelerator and never looked back.
“We were looking to get into an accelerator focused on fintech which had banking relationships. There were hardly any in the world,” Akkaraju says. “I frankly had no idea about Little Rock or Arkansas before. But when I landed here, it was a surprise. I always say, especially for a fintech company, it’s an unexplored goldmine.”
It’s not just Little Rock that has proved to be a goldmine for companies coming into Arkansas. In recent years, accelerators like the FIS Fintech program have been attracting increasing numbers of companies to the Natural State, bringing them here for weeks at a stretch for development, training and networking. Some companies leave with valuable connections, having forged relationships with banks or suppliers. Some of them, like BOND.ai, stay put.
These accelerators have been an element of a concerted effort on the part of state officials and business leaders to drive economic development in Arkansas and bring outside companies into the state. According to Arkansas Secretary of Commerce Mike Preston, both public entities and the private sector have worked together to develop programs that can entice companies into Arkansas with the state government providing funding and support.
“We’re partnered with private businesses to start running these accelerator programs with the idea to try and bring companies into our state. We want to introduce companies from all over the world to Arkansas,” Preston says. “We want to let them know that this is the place where they can find capital, and they can find the guidance and relationships that they’re looking for.”
“Our objective in doing that and bringing in the outside companies is that hopefully that they’ll fall in love with Arkansas, the ease of doing business and our access to market and the capital, and want to stay here and locate their business.”
What are Accelerators?
At the most basic level, accelerators are programs designed to give startups and early-stage companies a boost by providing access to capital and networking opportunities. In her article, “What Do Accelerators Do? Insights from Incubators and Angels,” University of Georgia professor and accelerator expert Susan Cohen defines accelerators as programs that “help ventures define and build their initial products, identify promising customer segments and secure resources, including capital and employees.”
Accelerators run for a limited time, often for 12 to 16 weeks, bringing a cohort of companies to participate in the program. The short timeframe stands in contrast to incubators, another form of startup assistance that typically runs for an extended time while the companies develop.
During accelerators, the cohort participants meet with mentors and industry experts who provide deeper insight into their customer base, giving the startup founders advice on how their product could help in a given industry or how it could be pivoted to work better. In the Venture Center’s two fintech accelerators – the FIS Fintech Accelerator and the ICBA Fintech Accelerator – startup founders regularly meet with banking executives to learn more about the banks and their unique issues while receiving face-time with the executives. In comparison, participants in the first Fuel Accelerator would meet with supply chain executives at companies like Walmart and J.B. Hunt.
Meeting with industry stakeholders is a core element of the accelerators and their success, according to Brian Bauer, the Venture Center’s managing director of fintech accelerators. Having experts work with the startups and spend time with them is attractive for startup founders and helps drive product growth.
“I think we’re doing about 18 months worth of product development in 12 weeks here. That’s really when we’re talking about acceleration. It’s accelerating product development. It’s accelerating, go to market,” Bauer says.
After his meetings and one-on-one time with executives, Akkaraju was able to refine his product based on the feedback he received and the insights about what financial institutions – his prospective customers – really need.
“By the time we were at the FIS accelerator, we had a beautiful product consumers could use, but had little insight on the complexity from the financial institutions side, the technology systems and processes,” he says. “The time at the accelerator gave us first-hand understanding of that unknown dimension from FIS and its large network. That helped us complete the loop to design a singular product that consumers really want and also help financial institutions digitally transform.”
The History of Accelerators
Investing in startups and young companies is not a new phenomenon, but accelerators only emerged in the mid-2000s. Y Combinator, now based in Silicon Valley, is credited as the first significant accelerator for startups.
As the first accelerator, Y Combinator planted the seeds for future accelerators including those in Arkansas. Whether the accelerators hew closely to the template established by Y Combinator or not, the program has had a far-reaching impact on how companies throughout the world are accelerated.
Now a major draw for startups, Y Combinator has humble origins — a talk that Y Combinator co-founder Paul Graham gave to an undergraduate computer club at Harvard. During a walk from Harvard Square, Graham and his now-wife and Y Combinator co-founder Jessica Livingston laid the groundwork for the accelerator by deciding to start investing in startups.
“Between Harvard Square and my house the idea gelled. We’d start our own investment firm, and Jessica could work for that instead,” Graham wrote in a 2012 blog post on the seventh anniversary of Y Combinator’s launch.
Graham, Livingston and their team set about assembling the first cohort as well as putting up the funding for the program. The first program was held in the summer, and they decided to fund all the startups simultaneously – an innovation that he says he didn’t fully understand its significance. To Graham, having all the startups together was the fastest way to invest in them.
“He did start a program for student entrepreneurs. He gave them a little bit of money…what they would have earned as a stipend if they were working as a graduate research assistant,” Cohen says. “And he ended up just having Tuesday night dinners over the summer in order to help that group of budding entrepreneurs get off the ground.”
The first accelerator proved to be a success with Graham and Livingston coining the phrase “the Y Combinator effect,” which Graham defines as the moment that the participants and advisers realized that “YC was not totally lame.”
For the second cohort, Y Combinator moved to the West Coast to take advantage of the burgeoning startup scene around Silicon Valley. The accelerator program has stayed in California since that time and has helped accelerate more than 2,000 companies, including major companies such as Airbnb, DoorDash and more.
The success that Y Combinator experienced has led to a growth in the number of accelerators. One of the most notable examples is TechStars, which has created a worldwide network of accelerators that has launched roughly 1,900 companies.
All of this development has reached Arkansas, and now accelerators are catching fire across the state.
Accelerators in Arkansas
During the kickoff for the fifth cohort of the ICBA Fintech Accelerator, Little Rock Mayor Frank Scott Jr. extolled the “entrepreneurial bloodline” that courses through Arkansas’ veins. The state, he says, has a rich tradition of entrepreneurism from Sam Walton to John Tyson and beyond. Accelerators are helping to continue that bloodline by fostering talent both within the state and by bringing others to the state.
“When you really think about fintech and accelerators and innovation, our entire goal is to invest in this city through partnerships,” Scott says. “Not only to invest but to connect one another because through those connections and those partnerships, [it] will create more companies.”
In addition to the Venture Center’s fintech accelerators, other accelerators are working to create the connections that Scott discussed. Entrepreneur support organizations like Startup Junkie, the Venture Center and the Conductor are capitalizing on existing infrastructure within Arkansas to create more opportunities for startups and to help them grow.
These connections are building on the businesses that are already present in Arkansas. Making connections between the local/state economies and startups is crucial for the success of both the startups and the accelerators, according to Cohen. Without the necessary support from a business ecosystem, accelerators could fail.
“The ecosystem needs to have a foundation of resources, talent, financial capital, etc.,” Cohen says. “Matching startups with industries that are already thriving in the local district is going to provide a better chance of survival and success.”
That’s why Little Rock was a natural fit for a fintech accelerator, in Little Rock Regional Chamber of Commerce President Jay Chesshir’s opinion. As the birthplace of Systematics Inc., the company that would become FIS, Little Rock has a long tradition as a fintech hub. Chesshir wanted to take advantage of that and reached out to FIS CEO Gary Norcross about a fintech accelerator.
For Chesshir, the accelerator was a no-brainer. Not only would new companies be coming into Little Rock – a benefit for the city and the state – but they would benefit FIS by providing a pipeline for innovative solutions and products.
Northwest Arkansas has similarly used its unique business ecosystem in the accelerator space. Both the first Fuel Accelerator and the Plug and Play accelerator have focused on supply chain and logistics – a natural fit given the close proximity of J.B. Hunt, Walmart, Tyson Foods and other major companies that live and die by the demands of the supply chain.
Now, the Fuel Accelerator is tapping into a new sector with growing roots in Northwest Arkansas: artificial intelligence and machine learning. Shifting the program to AI and machine learning keeps the accelerator from being “siloed” into a single industry, Startup Junkie consultant Taylor Hasley says. Now, the startup companies can be more diverse and have a wider impact on businesses in the state because of the new direction for the accelerator.
“It really opens more doors for more companies. And that’s what we really wanted was to be able to make a bigger impact in Northwest Arkansas and the state. And we think that artificial intelligence and machine-learning focus will do that,” he says.
Another Arkansas accelerator is taking a different approach to its program. Instead of focusing on a specific industry, the Conductor’s 10X Accelerator is aimed squarely at Arkansas startups. It casts its net for high-growth Arkansas companies that meet a revenue bracket of $100,000 to $10 million a year.
According to 10x Accelerator Director Glenn Crockett, the objective for the companies is to realign Arkansas founders’ thinking when it comes to their business. Instead of taking traditional approaches to business growth, the accelerator is aimed at boosting their revenue by a factor of 10 and instilling a business model that supports that growth.
“The goal – it’s pretty obvious – is to get companies thinking about 10x growth versus a more traditional 10 percent or 20 percent. What we’re trying to get them to say is, ‘How can I make my company 10 times larger?’”
Other accelerators are taking an industry-specific approach to their programs. These include the HealthTech Arkansas Startup Accelerator, which focuses on healthcare technologies; the Momentum Accelerator, a program run by the Arkansas Women’s Business Center that focuses on minority women-owned businesses; the Lab2Launcher Accelerator, run by the the Arkansas Small Business and Technology Development Center (ASBTDC) and more.
What made Uday Akkaraju think Arkansas is a goldmine for startups? What led him to plant roots in the state instead of heading back to New York?
This is a central problem for accelerators – how to keep the companies that they’ve nurtured. There’s no clear cut answer on what keeps most companies in a single place, according to Cohen, because there are so many variables to the equation. It could be the effect of being a big fish in a small pond or the ready access to a specific industry.
The decision to stay was simple for Akkaraju, and it boiled down to one thing: community. Once he arrived in Little Rock, he felt that the community exerted a positive influence on him in a way that New York and Silicon Valley hadn’t.
“The power of community is very strong and the social dynamics are so different. We also found the three key things required for us to thrive: capital, talent and most importantly, quality of life. It was a magic combination, at least for us,” he says.
Paraphrasing the 1972 film classic The Godfather, Venture Center Executive Director Wayne Miller believes in Arkansas. Once companies are invited into accelerators, it’s up to the program facilitators to help sell the state to them, but he says it’s not a hard sell. For the Venture Center’s programs, Miller and his team ensure that the cohort gets an overview of the entire state and gets to experience it “from northwest to southeast.”
“We believe in Arkansas and that it is a great place to start a business. The cost of living is better and the quality of life is better than most places. We always quote one of our participants who said, ‘What I love about Arkansas is, it’s anti-dilutive. I can get a longer runway out of my buck here, so I don’t have to raise capital as much and give as much of my money away.’”
It does not hurt that the state has been generous in its help for startup accelerators. After all, the programs are more tools in the state’s economic development toolkit. For Preston, if the accelerators can identify and keep a growing company, that company could develop into a major player in Arkansas’ economy.
“We’re looking for the next Walmart, the next Tyson or Acxiom company that’s going to employ new people in our state. It’s very helpful to us in economic development. It gives us a new platform, a new way to engage small startup companies,” Preston says. “This is really helping Arkansas be on the forefront of economic development.”
To date, Arkansas has managed to keep a number of accelerator companies in state. In addition to Akkaraju, it has retained Oculogx, a virtual-reality company that was part of the Fuel Accelerator. Oculogx founder Charu Thomas picked up and moved her headquarters from Georgia to Northwest Arkansas. Another prominent example of a company that decided to stay is Gas POS, which started in Alabama but stayed after graduating from the 2018 FIS Fintech Accelerator.
The Future of Accelerators
At the global level, there are only so many accelerators that can be supported. Due to limited resources and a limited number of startups, there can logically be a limited number of accelerators. Cohen believes that the process of leveling off for accelerators will happen soon – if it hasn’t already.
“Most industries have what’s called a carrying capacity, which is the number of firms in that particular industry that can be supported by the surrounding industries. And so if we look at accelerators, you need startups and you need funding,” Cohen says. “So, there’s only so many programs that can be supported. There’s only so many startups. And so, we’ll see. I think we’ll see the number of programs level off, and it’s probably starting to level off or has leveled off already.”
However, in Arkansas, accelerators seem to be hitting their stride. Recent months have seen the launch of ASBTDC’s Lab2Launch Accelerator, which is designed to help early-stage Arkansas companies access the Small Business Innovation Research (SBIR) funding program, and the Momentum Accelerator.
In January, the ICBA Fintech Accelerator and the second Fuel Accelerator launched new cohorts. At the Venture Center, the team already is preparing for the next FIS Fintech Accelerator, which is accepting applications until March.
It’s a brave new world for accelerators in Arkansas, and the future belongs to the most innovative startups.