Amazon Accelerate

Empowering disruptive startups to think big and deliver results through a full-stack accelerator

The following report was submitted to a panel of judge’s from Amazon as part of an MBA case competition written in the typical Amazon 6-pager style. We placed 2nd. In the time after this was written, Amazon has launched AWS Startups.

Amazon Accelerate 101

We propose a formal, full-stack startup acceleration program, owned and operated by Amazon, known as Amazon Accelerate. This program is designed to leverage the “Amazon Suite” (Exhibit 1) of business tools, technical and otherwise, to empower early-stage startup companies with the resources needed to unlock business potential and hypergrowth as efficiently as possible. Amazon has made strong inroads with the entrepreneurial community - through Amazon’s Pro-Rata Program, AWS Lofts, and the Alexa Fund, among others - and the organic traction demonstrates that there is further value to be had by taking these programs to the next level of support and structure. Amazon Accelerate will (a) place bets on disruptive early-stage companies, then (b) surround them with both technical and business resources that Amazon is uniquely qualified to provide. Through this relentless obsession with customer success and developing the best, the framework is in place to ensure that Amazon is an integral part of the next generation(s) of transformational companies. 

Business Objective

The objective of Amazon Accelerate is to redefine what it means to support disruptive companies in their early stages of growth. The process by which startups are selected to, and participate in, traditional accelerator programs is outdated. The companies themselves may be forward-thinking, but the processes of their accelerators certainly are not. Amazon has the capacity to assist companies at every step of their journey to hypergrowth while also simplifying the process. This journey will first start with providing technical and operational infrastructure as well as Amazon’s expertise in strategic implementation. As these firms continue to scale, using Amazon Accelerate’s input as their roadmap, integrating Amazon’s performance-unlocking tools such as EC2, S3, and the rest of the Amazon Suite is optimized. The end result is a road to success for these companies that is higher-impact, lower-cost, and more sustainable than anything else in the market.

This formal end-to-end program takes what’s working with traditional accelerators and supercharges the process with Amazon’s technical mastery, strategic proficiency, and relentless “Day One” mindset. Amazon Accelerate will now be at the forefront of delivering value to innovative  B2B and B2C companies, enabling these firms to grow, frugally, while leveraging the Amazon Suite of tools.

Competitive Research 

There are three primary competitors for Amazon Accelerate: other corporate venture capital programs, traditional accelerators, and growing cloud-based SaaS providers (Exhibit 2). 

Corporate Venture Capital (CVC)

CVC as a category has continued to grow over recent years, with $52.95B of funding across 2,740 deals in 2018, an increase of 32% over 2017 and equal to 20% of overall venture capital investments. Google Ventures, Salesforce Ventures, and Intel lead with way with CVC investments into healthcare, mobile, and AI. Only 3% of corporate VC firms sell their portfolio companies to their parent company so the actual goal is to increase demand for parent company’s services. Amazon Accelerate can offer start-ups a close working relationship with Amazon, which allows them access to technology, industry operators and visionaries, giving them proprietary insights to which normal venture firms simply don’t have access. These proprietary insights give financially-focused corporate venture capital partners the ability to see the market and technology landscape in a different, more informed way.

Traditional Incubators/Accelerators

While traditional programs such as Y-Combinator and Techstars have partnered with Amazon to enhance their value, they will eventually become a direct competitor of Amazon Accelerate. Up to this point, Amazon’s role engaging with startups and entrepreneurs has been less informal than a traditional incubator/accelerator. But, as the value of Amazon Accelerate lies in the ability to work with disruptive startups in a more traditional sense, the “old guard” will eventually become direct competition.

Cloud-Based Services Market

The other cloud-based SaaS solutions, specifically Google’s Cloud Platform and Microsoft’s Azure, also serve as indirect competition for Amazon Accelerate. While Google Cloud or Azure don’t have direct substitutes for Amazon Accelerate, they do offer enough programs which may ultimately prevent customers from receiving value through the Amazon platform. Amazon Accelerate will be first major cloud-based provider to explicitly focus on solving the needs of this market segment. The other players are unable to as their level of engagement does not effectively recognize customers of this size or spend.

Why Amazon Accelerate is  Right for Amazon

From a strategic positioning lens, the Amazon Accelerate program has the ability to leverage the elements of Amazon that make the company uniquely qualified to launch this innovative program.  Amazon, and more specifically AWS, already has a relationship with the larger startup and entrepreneurial community. Amazon Accelerate is the opportunity to combine the infrastructure support of AWS Lofts and the Amazon Suite, the go-to-market support of Amazon’s retail/logistics arm, and the strategic guidance of Amazon human capital. These existing programs have demonstrated that there is value both for Amazon and the larger startup community in providing Amazon-led access to technology, networking opportunities, and business support (Exhibit 3).

Combining these elements into a systematic  program ensures that Amazon Accelerate is in the best possible strategic position to provide ongoing value for the next “unicorn” at every stage of its business’ lifecycle.  

Market Sizing

The Amazon Accelerate program is designed to provide value to any company that (a) is in the early stages of their growth (post-seed funding), (b) has the capacity to be a true market disruptor, and (c) is not engaged with a formal agreement with another accelerator. A 2018 report detailed the distribution of seed rounds amongst the top 21 most active angel and seed-stage investors - a total of 1,714 fundings (Exhibit 4). Assuming the top 21 angel/seed investors are responsible for 80% of all fundings, approximately 2,140 new companies per year that fall within the Amazon Accelerate criteria from a growth-stage perspective. 

Amazon Accelerate Launch & Implementation

The launch and implementation roadmap for Amazon Accelerate can be broken down into four stages: setup, selection, onboarding & execution, and graduation

Stage One: Foundation 

The foundation  stage is the only step that does not repeat itself as the program evolves, and involves  establishing physical working space (by leveraging AWS lofts), scoping operational and logistical frameworks, and recruiting internal Amazonians to serve as business and technical mentors. 

Stage Two: Selection

The next stage of the program is to find and attract the right types of businesses for Amazon Accelerate to apply for the program by tapping into  existing Amazon programs that have relationships with the startup and entrepreneurship community (Exhibit 3). This group of companies will serve as the initial target list for an inaugural class of 200 companies, while we can also leverage signals (e.g.,opt-in emails and data-aggregation systems) from the Amazon ecosystem to identify potential targets. We expect to build our program to include 400 companies annually, on par with comparative accelerators and CVC programs. As we continue to build on this model, a rigorous selection process will take place to ensure that these differentiated services and resources are provided to the best and the brightest. The end goal of ≈400 companies moving through the program annually should be accomplished within 3-5 years. 

Stage Three: Onboarding & Execution

Stage three involves  conducting a deep-dive into each company’s goals and existing resources, both strategic and technical, with a member of the Amazon Accelerate team (someone who may come from the vast pool of MBA talent already employed as Amazonians). From there, it will be possible to design a bespoke onboarding and implementation process that will provide access to the right selection of the Amazon Suite at the right time. A collection of business and technical mentors will set S.M.A.R.T. goals with the companies, ensure resources are in place, then conduct check-ins every eight weeks to ensure companies are meeting key business milestones. On-demand technical support will be available in the physical working space to accelerate the growth and proper onboarding to Amazon Suite.  

Stage Four: Graduation

The final stage, graduation, will vary by company company depending on their predefined business’ unique challenges, adherence to key milestones, and progress towards hypergrowth. When/if the company has become 100% integrated with the tools of Amazon Suite necessary for their business, and are utilizing them to meet their milestones, that will be the key signal to suggest a company is ready to graduate.  

Monetization 

Selected companies will not be charged to join this program. In trade for participation in the program, Amazon will take up to 5% equity take in all companies, which is a lower threshold relative to traditional accelerators. While companies will not be charged for their AWS use during the length of the program, upon graduation all companies will begin paying normal AWS usage rates on a payment schedule that ramps them up to 100%. The equity stake aligns our interests with those of the participating companies - generating material returns upon a successful exit. Exhibit 5 provides projection of financial returns for Amazon Accelerate companies who reach scale and/or successfully exit.  

The primary goal of this program is to generate annual recurring revenue from these companies upon graduation. As these companies scale up both during and after the program, their AWS usage will also scale, thus generating more revenue after they graduate. By assisting these companies through their growth phase, they will view AWS platform and services as integral to their business and will be more likely to remain loyal customers throughout their lifecycle. The big picture goal is to get these companies to eventually generate revenue for AWS on the scale of Netflix or Apple, thus dwarfing the upfront cost of putting them through this program. 

Future Growth 

As Amazon Accelerate gains traction and proves that the program can be a full-stack resource in bringing disruptive companies from early stage to hypergrowth, the first major growth opportunity will be with the optimization of Amazon Accelerate alumni. As these alumni continue to grow, their business needs will surely expand beyond the scope of the original plan, creating an avenue for Amazon to provide and gain additional value, whether through more sophisticated AWS tools/services or through M&A. 

The next major growth avenue will be the expansion of the program’s reach to the virtual ecosystem  where an Amazon Accelerate office space is not physically present. While there is inherent value in having these disruptive companies co-located in one office space, there is a large, untapped market to capture if and when Amazon Accelerate can provide the same high-quality program through a virtual medium.

Risks & Mitigation 

The largest risk associated with the program would be the scenario in which Amazon Accelerate alumni do not see enough value in continuing to partner with Amazon and the Amazon Suite post-graduation. The time and resources dedicated to participants are substantial, and operates on the hypothesis that when a company in the early stages of growth builds their implementation strategy with the Amazon Suite as the centerpiece, there is a clear line of sight to maximum value and minimal costs by continuing to work with Amazon through all stages of growth. One clear way to mitigate this risk is to be clear about companies meeting 100% of their graduation criteria before moving to the “alumni” stage. By ensuring every member of the Amazon Accelerate program has the chance to implement and experience the value that comes with reaching scale through the Amazon ecosystem, the value provided will  be maximized, thus minimizing the possibility of customers changing systems at a later date.

The other major risk is having competitors, specifically Google and Microsoft, adopt a similar accelerator model. The accelerator space relies heavily on word-of-mouth, and therefore has a strategic reason to capitalize on the first-mover advantage. Just as AWS was first to market and continues to maintain approximately 33% of the space (thanks to the “Day One” mindset), Amazon Accelerate can, and should, see a similar strategic moat develop.

In Conclusion

Amazon Accelerate is in a unique position to leverage the products, people, and processes that differentiate Amazon to reshape a business accelerator market ripe for disruption. By providing physical space, computing power, and human/digital capital to early-stage disruptive startups via a structured program, Amazon Accelerate unifies previously fragmented business segments and helps businesses realize hypergrowth faster than any available solution. This is how Amazon can continue unlocking the best in people and empowering them to think big, take action, and deliver results.

Appendix

Exhibit 1

Exhibit 2: Competitive Matrix

Exhibit 3: Existing Amazon Programs

Exhibit 4: 2018 Seed Round Activity

Exhibit 5: Projected Amazon Accelerate Financial Returns