How does METRO help digital companies?

In the third article of his analysis column, digital analyst Joel Kaczmarek considers the deal terms of the METRO Accelerator and tries to measure what services the participating startups receive and whether these make sense from a business point of view.

A view on the deal terms

Considering the market situation in the food and hospitality market and Metro’s corresponding strategy, it becomes possible to get a clear idea of how METRO intends to digitize the market in the areas of food and hospitality. From the perspective of the startups participating in the accelerator program, the question now arises as to what extent their interests are compatible with this strategy and which countervalues are mediated at what price.

The deal terms of the METRO Accelerator are quickly explained: for the participation in the program the METRO and Techstars place an obligatory investment of €20,000 and receive 6 percent of the company. In addition, a convertible note of €100,000 is offered to each company prior to the commencement of the program. A convertible note is a debt that can be transformed into shares. Companies can – but do not have to – accept the note. Historically, around nine out of ten companies participating in a Techstars program have accepted such a note.

What the startups receive from the accelerator

But what do the startups receive in exchange for these conditions? At content level, intensive, long-term mentoring takes place with the different experts of the METRO network. And the concentrated, intensive exchange with the other startups is also likely to help tailor their business model more precisely to the needs of the customer. At the bottom line, METRO helps the participants of their program to ensure the market fit of their product, adding to this a strategic network expansion with industrial partners, knowledge providers, customers and investors.

To achieve this goal and create real results, the METRO implements two types of trainings in addition to the mentoring:

• Understand: The market research institute Rheingold helps the participating startups understand what they sell by working with them to elaborate the functional principles and impact mechanisms of their markets and target groups. Many of the startups seem to have a B2C perspective, which is why this type of analysis seems to be appropriate to start thinking more from the perspective of a restaurant owner – the actual customer of the companies.
• Sell: However, since market understanding without the ability to sell does not go far enough, the Maschmeyer Group trains the individual startups in various sales and marketing techniques. This way, the young companies are sensitized to help solve problems rather than just selling solutions.

These services around obtaining a suitable market fit with an associated ability to sell, certainly represent the real value of the accelerator. In addition, the METRO obviously strategically aims at providing the young companies with its own sales power and contacts (“Platform instead of ownership? METRO’s strategy to support digital food start-ups”) in order to advance the digitization of the industry and strengthen its customers.

Is this a fair deal for the startups?

Many companies that consider taking part in the accelerator program will probably be discussing the terms of the program. However, the monetary component appears to be largely secondary. Considering solely the amount of capital and the transferred shares to condense a valuation would very likely lead to dissatisfaction if the content aspect was overseen.

The conditions of the accelerator program are market-typical in their design, but the actual asset is, in fact, the content support to enhance business model finding, including network access and sales training as well as sales via the METRO as a platform. Few companies in Europe are likely to have such a business entry in the food sector, which is why the program is likely to provide a very good deal for many startups, especially in view of their often young age.

Some of the program’s participants still seem to lack a sufficient market readiness, so that one might ask whether METRO should be more selective here and whether the startup quality and the deal flow generated this way are sufficient to implement the group’s strategy.

The thin line of acceleration without control

Nevertheless, startups must take great care to ensure that they do not bind themselves too intensively to a relevant strategist. A constellation that can quickly be a disadvantage in the further financing process or during cooperation with other suppliers. However, this is a challenge in which the METRO itself should also have a profound interest.

Especially as the group’s stated goal is to promote foreign investments into the segment (and the accelerator startups) in order to promote the digitalization of the industry, the METRO must avoid becoming the dominant sales channel of its startups. It is about speeding up the young companies and not owning them backwards – for venture capitalists, this would be a bad signaling and the METRO would suddenly have to fund or buy the corresponding companies.

The strategic awareness of the METRO should be correspondingly high. And, in addition to the prevention of such a constellation, it will also have to expand the deal flow as a whole to win more mature startups for the accelerator.

In his next column contribution, Joel Kaczmarek takes a look at the outcome of the last METRO Accelerator badge and tries to deduct how well designed the concept of the accelerator is and what progress it has made since then.