Scaling the Entrepreneurial Ecosystem – Development Dialogue 2017

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I recently attended the 10th annual Development Dialogue, hosted by Deshpande Foundation, in Hubli, India. As always, there were invigorating discussions among an interesting mix of ecosystem developers, entrepreneurs from both for-profit and NGO sectors, funders, and investors. I participated in a panel discussion that focused on the challenges of scaling the entrepreneurial ecosystem in India (and emerging markets in general) via incubators and accelerators. Following is a summary of my views on this topic which came out over the course of the lively discussion.

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Background Perspective

We bring both a global and local perspective to the challenges and opportunities in scaling incubator and accelerator ecosystems. First, we operate the first global business accelerator for impact fund managers – Capria. And second, we operate the leading early-stage impact seed fund in India – Unitus Ventures. Combined with mine and my partners’ work in the entrepreneurial ecosystem in Seattle, we’ve been deeply engaged with incubators and accelerators for many years. Last year, sponsored by a grant from the Global Development Lab of USAID, we completed a Global Best Practices Survey of Incubators and Accelerators and launched a program called Speed2Seed which have been instrumental in informing our thinking.

Five Inhibitors to Scale

We see five key issues impacting scalability of all, but the very best incubators and accelerators in emerging markets:

  1. Access to capital for their startups
  2. Severe knowledge gaps among entrepreneurs
  3. Comparably-challenging knowledge gaps among incubator managers
  4. Lack of sufficient mentoring capacity
  5. Unsustainable business models

We’re looking to do something tangible about all 5 of those problems, and we’re looking for partners both in India and globally to work with us directly, as well as with Capria’s growing network of impact fund managers.

#1 – Access to Capital

money-bags1The number one thing any entrepreneur will tell you is that they can’t find sufficient capital for their business. In Silicon Valley, that’s not the case – any really good entrepreneur can find more than enough capital. But, in all but a few pockets in emerging markets, finding capital is hit or miss at best. Through our work at Capria, we’ve connected to over 250 aspiring impact fund managers from more than sixty countries across all but one continent. These managers tell us the same thing – there is a dearth of early stage and early-growth capital.

We’ve found that more than one third of the global fund managers we’ve surveyed are closely affiliated with an incubator or accelerator in order to create deal flow, and to create opportunity for existing / planned portfolio companies. However, there are very few sustainable models of impact investing funds attached to accelerators today. We see more on the way, fuelled by larger funds’ management fees and local ecosystem development assistance from governments and foundations.

Capria is partnering with and investing in the best local impact fund managers we find, every 6 months. We are looking to partner with and advance at least 15 fund managers, many of whom will be affiliated with local incubators and accelerators over the next 3 years.

#2 – Severe Knowledge Gap – Entrepreneurs

Outcomes of incubators and accelerators are always limited by the quality and capabilities of the entrepreneurs they accept. Enthusiasm for entrepreneurship often masks severe gaps of basic knowledge in those joining the ever-growing multitudes of incubators and accelerators around the world. Managers report that entrepreneurs are making the same mistakes over and over, especially around competitive differentiation, customer need analysis, price discovery, product-market-fit, and a fundamental understanding of unit economics.  This knowledge gap puts a heavy demand on incubator/accelerator staff and mentors who have to help with these same basics, over and over. And as a result, many organizations are burning out their volunteer mentors as they address too many fundamentals and not enough of the truly interesting and challenging problems.

#3 – More Knowledge Gaps – Center Managers

gap-bizAll but the very best (meaning top decile) incubator / accelerator center mangers are typically staffed by enthusiastic non-practitioners – they have never started or even worked in a startup; they are often very academic, maybe never having worked in a commercial entity. This leads to three fundamental inhibitors to scale: (a) they don’t know enough to coach their entrepreneurs well and frequently give bad advice, (b) they don’t know the fundamentals of running a world-class incubator or accelerator operations, and (c) they rely heavily on mentors who end up getting burned out and/or are not the right people to give good advice either. Compounding the issue, since center managers are not particularly well paid, they often change jobs after a year or two, resulting in the need to retrain new staff all too often.  A number of organizations have attempted to provide training / support materials for incubators and accelerators, including the Global Accelerator Network (GAN). Unfortunately, much of the training and content available from organizations like GAN is not targeted or priced to fit the unique challenges of incubators and accelerators in emerging markets.

#4 – The Mentor Gap

Volunteer mentors are critical to scaling any incubator or accelerator. A few organizations like Villgro attempt to increase the accountability and quality of mentors by paying them, but most, including the leaders in Silicon Valley and Bangalore, rely entirely on volunteers who are “giving back to the greater good of entrepreneurship”. Mentors serve another important purpose: entrepreneurs need role models as well as advice. But not all mentors are capable of doing either well; often they have corporate rather than entrepreneurial perspective, and some capable ones are simply not good at playing the role of mentor vs. CEO. And as noted above, even the best of them get burned out by the workload.

My colleague Alex discussed this problem in more detail in her recent post, “Wherefore Art Thou, Mentors”.

#5 – Unsustainable Business Models

In India, a large and rapidly-growing number of incubators are government funded. The funds typically cover physical plant and minimal staffing for 3-5 years. Often these government-funded organizations are given the wrong incentives – to focus on quantity of entrepreneurs vs. quality of outcomes and ultimate sustainability of graduating companies.

Anyone who has done the math knows it’s very hard to make economics of an incubator or accelerator work without a sustainable source of grant or government funding, or alignment with a large fund (and its management fees) or a consulting operation, or all of the above. We know – we depend on grant funding from UK AID and Small Foundation and others who support the Capria Accelerator that we run in Seattle. We’ve also looked at the economics of dozens of incubators and accelerators that are affiliated with fund managers who have applied to Capria.

Capria’s and Unitus’ Solutions

capria-logo-vertical-300x300First, via Capria, we’re helping to establish more investment funds around the world. One priority is to target funds with sufficient capital and economics to allow deep engagement with or direct support to incubators or accelerators. Entrepreneurial ecosystems do not work in isolation. We see this collaboration as vital to delivering strong startup businesses that our fund managers can invest in.

Second, via Unitus, we’ve been developing a new scalable program called VentureBasecamp that supports and enables both incubator managers and their startups to build the fundamentals of strong, scalable startups.  We’ve built a scalable learning management system based on our unique startup methodology developed by veteran entrepreneurs who have been there and done that. VentureBasecamp takes an incubator’s entrepreneur, assesses their capabilities and delivers support and content where it’s needed most. The program includes a Head Sherpa Program which is specifically developed to upskill and support incubator managers as they work with startups––an incredibly important part of the program with incubators who have high manager churn rates. VentureBasecamp also supports mentors by reducing mentor burnout through ensuring entrepreneurs already grasp the fundamental concepts of startups so mentors/entrepreneurs can tackle more nuanced problems together.

Our work is ambitious, but crucial to our mission of supporting the world’s rising impact entrepreneurs who are solving significant problems. We’re looking for funding and implementation partners for both Capria and Unitus efforts. Interested in collaborating? Please reach out to us.

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