Venture Incubators + Social Entrepeneurship = Development?
By Karan Singh
The last few years (and particularly the last six months) have brought news of incubator-like groups starting across the US — Y-Combinator (SF Bay Area), TechStars (Colorado, Seattle), The Founder Institute (New York, DC), and Excelerate Labs (Chicago) to name a few. If you aren’t familiar with the model, check out this brief trailer from The Founders Institute.
In many ways, these groups are financial innovators. They enable business activity through seed capital (generally less than $20,000) and mentorship. They bring together successful (and often serial) entrepreneurs and investors with an interest in providing guidance and support.
Traveling through Cambodia and Indonesia this week, I imagine these groups could be a powerful force to foster social entrepreneurs and economic development abroad. Having grown up, gone to school, and worked in Silicon Valley, I’ve seen how powerful an ecosystem system can be in connecting the right players and promoting best practices in innovation (experimentation, iteration, data-driven decision making, etc.). Before business school, I worked to create a corporate incubator to promote “intra-preneurship” and am a firm believer in the power of creating intentional clusters to create a value around and support for innovation.
While still early, this model has proven to be a powerful force in the US. I see real challenges, however, in applying the model as it exists now to the developing world context. A few that come to mind:
First, the three month runway for most programs may be enough for an internet-based product or service that can prove success quickly, but not enough time for other sectors. It can often take more than three months just to set up the infrastructure of a program or business in the developing world (the World Bank’s Doing Business In reports nicely illustrate this process across a number of geographies).
Second, incubators create and promote founders, often placing them on a pedestal at the expense of middle management. New ventures may struggle to scale as they search for management to attract the right talent and build out the team. We’ve heard from a number of CEOs and country directors this week in Cambodia that they struggle with finding talent for middle management roles in the labor marketplace.
And finally, third, the stakes are high. While we expect one out of ten businesses to fail in the US, there isn’t the same expectation in the developing world — there just isn’t the same capacity to absorb risk. If a new restaurant fails in San Francisco, the owners lose out, some customers are disappointed, but the entrepreneur can shift resources and try again. In places like Phnom Penh or Port-au-Prince, if an entrepreneur fails, not only is that individual much more devastated, the clients he is trying to serve often don’t have other options from which to receive that product or service. This reality may call for more “responsible innovation” — though it’s not clear what that looks like.
I am interested in exploring the topic further. I think the model can be adapted to emerging markets, but some key questions will need to be considered and worked through:
- When the stakes are high and one is working in development at the BOP, what does “responsible innovation” look like?
- How does one decrease risk in an inherently risky space?
- How does one groom talent not only at the top, but also at the middle and bottom?
- Are there ways to form more community-based or group-based innovation incubators?
