By Elizabeth Rigby

Europe's start-up scene is like a courting ritual. The matchmakers set you up, the accelerators really get you going and then the incubators gestate the seed, giving birth to the next generation of bright young things. But like first love, most of the matchmakers, accelerators and incubators are not going to last.

Enablers are a mercurial bunch, occupying a nascent and ill-defined space somewhere between the venture capitalists and the entrepreneurs. But they do have a common core, they all want a cut of the deal. Some will take a chunk of equity from the start-up, others will retain co-investment rights with the venture capitalists.

"I have heard anecdotal talk about incubator owners and managers running about the world looking for people to buy them out because the recent correction in technology stock prices has damaged their business models," says Andrew Parker, an associate at Forrester Research.

"Six months ago European retailers and institutional investors were hungry for internet equity. That supply demand imbalance was pushing the prices of many of these incubators - which really didn't have a portfolio at all - to very high levels," says Saba Nazar, vice-president within the Goldman Sach's high-technology group.

"What they will have to do is look for additional sources of funding and that can be through alliances with strategic partners or amongst themselves. A great example is NewMediaSpark, which bought Cell Ventures and Softechnet. This consolidation is going to be important."

And the winners are beginning to come to the fore. Venture capitalists, their waste paper bins stuffed to the brim with business plans, see quality incubators as a means of securing good deal flow.

Links with venture capitalists is key to becoming a hothouse rather than a has-been. "I think now, more then ever before, the relationship between the incubator and the venture capitalists is going to become critical," says Ms Nazar.

So is having seasoned entrepreneurs on board. "One of the benefits is that they know what needs to be done when and have got relationships with business partners...That network is just as important as their direct expertise", argues Mr Parker.

Speed Ventures, a Scandinavian-based incubator, has an A-list group of entrepreneurs and venture capitalists behind it. Most notable is Johan von Holstein who co-founded both Icon Medialab, the renowned Stockholm-based new media consultancy, and Letsbuyit.com, the e-retailer.

Speed's lead investors are Schroder Ventures, an UK-based fund that recently raised E3bn ($2.7bn), Charterhouse, an investment fund managing E1.67bn ($1.6bn) and Soros Private Equity Partners which boasts an E2.92bn fund. Henrik Barck, managing director of Speed UK, would not disclose how much its lead investors put into Speed's E70m ($67m) fund, but said it would use the funds to incubate between 10 and 15 companies over the coming year.
"Speed is like a mix between a venture catalyst and a very operational venture capital company", says Simon Reinius, chief visionary officer.

"Amongst the raft of incubators currently setting up in Europe, Speed Ventures really stands out. It has a quality management team...It is by far the most impressive incubator we have seen established to date," according to Richard Sanders of Schroder Ventures.

Jerome Mol, founder of the GorillaPark, the Dutch incubator, has raised his personal profile to meteoric heights over the past year. "Jerome Mol is a great guy and has shown a lot of vision in Europe. And although one could never say someone is responsible for kick-starting the European internet scene he has certainly tried very hard," says Jamie Mitchell, co-founder of E-start, a UK-based enabler.

r Mol set up Tornado-Insider.com, an online magazine for "high-growth Europe" and then spun off Upstart Europe, a conference where he holds court for anyone who's anyone in Europe's venture capital scene.

The publicity has paid off. "We have invested in them", says Christopher Spray of Atlas Ventures, "Jerome Mol is an interesting innovator and we think very highly of him".

So do other leader investors. GorillaPark, which was launched in October last year, raised E13.5m ($13m) from backers including Crescendo Ventures, NeSBIC, ABN AMRO Corporate Investments, Deutsche Bank, and Goldman Sachs.

GorillaPark is also respected because it doesn't rob entrepreneurs of equity, according to Mr Mitchell. It tends to take a fixed stake of around 25 per cent, while Speed will take of cut of between 30 and 40 per cent, others may take 50 per cent or more. In return for equity the incubator provides a range of services and gives the embryonic company in-house office space.

Antfactory, a UK based incubator founded in September 1999, has more financial clout than the majority of venture capitalists. It has a fund of E365.7m (£350m), put up by J.H. Whitney, a US venture capitalist, CVC Capital Partners, a European firm, and Citicorp Venture Capital, the private equity arm of Citigroup.
It has ambitious expansion plans and has already employed over 150 people and set up offices across Europe and in India. Geoff Crossley, European director, says Antfactory plans to "do Los Angeles".

"Antfactory got funding and is playing in multiple national markets, but may be in danger of spreading resources too thin. But if they get main markets started, it's pretty attractive", says Mr Parker.

As incubators stamp their mark across Europe, other enablers are coming forward with ideas to secure deal flow for venture capitalists. "Anybody who goes into an incubator, I always ask why...the smart entrepreneur just wants a marketplace that works," says one veteran on the enabler scene.

E-start, a start-up "launch-pad", is building a pan-European network of venture capitalists, partners who provide services, and entrepreneurs. For the venture capitalists, it offers, "uniquely sourced and qualified deal flow" and for the entrepreneurs it "packages...your proposition and takes it to the top tier of VCs", says Mr Mitchell, chief executive.

The biggest difference between a launchpad and an incubator is the amount of time they spend with entrepreneurs. E-start will get the entrepreneur ready to meet VCs in between two and six weeks, an incubator will spend between six months to a year beefing up the business.

Revenue streams are far more similar. E-start reserves the right to co-invest up to 25 per cent in deals it feeds through Vesta Capital, E-start's venture capital arm. "It is a business model which completely aligns us with both the venture capitalists - we are trying to invest in businesses for the long term".

E-start is eyeing the future. Vesta Capital has a current fund of between £40m and £50m, and if, as Mr Mitchell says, the company is co-investing in some of Europe's brightest start-ups, future funds could be much bigger. "I would not be able to say at this point what E-start will be in five years time, let alone three years time".

If E-start is a feeder for eight European venture capitalists, then Garage, a US venture capital marketplace, is Sand Hill Road's bun fight. Garage in the US has a network of over 2000 investors that all bundle into 'heaven', a restricted part of Garage.com, to find promising entrepreneurs.

Garage is trying to launch in Europe and is bringing its famous Bootcamps, designed to knock entrepreneurs into shape, to London in September. 'What we are looking for are European companies who want to expand globally because what we can do is...set up a US beat for them,'' says Katia Verresen, Europe's managing director. It plans to recruit five people in London by the end of the year, going head -on with E-start.

It has linked with Start-up Factory, a Scandinavian incubator specialising in wireless companies, which was co-founded Sven-Christern Nilsson, former CEO of the Ericsson Group.

Staffan Helgesson, chief executive of Start-up Factory's Swedish office, sees the arrangement as strategic: "All or most American players have a big challenge coming to Europe. The same with Europeans, we have a huge challenge coming to Sand Hill Road".

Such enablers are "really trying to build something", thinks Ms Nazar of Goldman Sachs. "But it is early days yet, I think capturing the middle market is going to be even more challenging, because if you think of incubation at one end and the public market at the other, it is going to be interesting to try and come into the middle and capture something".

Between incubator consolidation and matchmaking land-grabs, the scramble is on, and there is little love lost between the plethora of set-ups that want to play cupid.

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