Lars Hinrichs, the founder of LinkedIn’s European equivalent, Xing, is shutting down his startup incubator and pre-seed investment fund HackFwd. The incubator will not accept any new startups for its next programme. Instead, Hinrichs will focus on his later-stage investment company Cinco Capital and a real estate project in Hamburg.
It’s the end for a unique incubator in Europe. Geeks are the “artists of the 21st century”, Hinrichs once said – for him, coding is an extremely creative process. Reflecting this belief, HackFwd aimed to attract programmers and geeks, rather than business people, and help them grow their companies. Shareholdings could be found on the HackFwd website and deals were standardised, with every startup giving 27 per cent to the incubator and three per cent to mentors of their choice. Some of the prominent startups in the incubator include Infogr.am, Yieldkit and Cobook.
Today, after three years of programmes, over 3,000 applications and around €8m worth of investments in its 16 portfolio companies, Hinrichs published a blog post giving five reasons the Hamburg-based incubator didn’t succeed:
An incubator boom – “literally thousands of accelerators”
When HackFwd launched three years ago, incubators were few and far between. Today, the landscape is very different. Hinrichs wrote there are now “literally thousands of accelerators; so many that I often wonder if there are more accelerators than angels and more angels than there are entrepreneurs”. The new funding environment made it hard for HackFwd to compete – why would entrepreneurs give up 30 per cent of their shares when incubators like You Is Now provide €25,000 capital and ask for none?
No exits in sight
Hinrichs also admitted he’d expected exits to come faster: “Within the first couple of years, we realised that, on average, any exit required between five and seven years to be worthwhile, longer than the average time we’d hoped and planned for. This stands in sharp contrast to the US, where exits commonly happen within a year due to talent acquisition hires. Even when we had a US company eager to buy one of our star HackBoxes, the deal ultimately fell through because of US visa restrictions.”
Too slow to pull the plug on certain startups
HackFwd was too slow to pull the plug on businesses that didn’t work so well, Hinrichs admitted. The incubator had a policy of supporting each team for at least a year – a mistake when companies were not getting enough traction. He also found it difficult to balance nurturing new, young startups, and continuing to help established startups scale.
Building pan-European startups proved difficult. “Each European country has its own (unnecessarily complex) rules and regulations for setting up a company.” He’s now pushing for a European standard for establishing limited companies.
Spreading focus too thin
After founding a company himself, Hinrichs said he found it hard to jump from startup to startup without getting too involved. “It was difficult to constantly switch focus between challenges without feeling like I was short-changing people… Investing is like taking a shower but not truly getting wet – I must confess that I missed the days of diving headfirst into a challenge, all the way.”