When are incubators and accelerators effective? Hint: We may not know yet

Social entrepreneurs are often looking for a way to improve their businesses, scale and grow but when they look at the growing sea of incubators and accelerators designed to help them, it can be difficult to decipher which to choose and whether it will help the business reach its objectives.

Meant to provide technical assistance to burgeoning businesses, these incubators and accelerators have cropped up as the social entrepreneurship field grows and evolves. But the question of whether these incubators or accelerators are effective, and what makes them so, is one that leaves many questions.

Certainly some incubators have helped launch successful companies — take the famous example of Y Combinator in the technology sector as an example. But developing world entrepreneurs may well have a different set of needs.

“We all have a great feeling that incubators and accelerators work but we don’t have any good data to show it does,” said Rob Schneider, a senior partnerships adviser at the U.S. Agency for International Development’s Global Development Lab. The lack of data has been a problem for several years and USAID is helping support the Global Accelerator Learning Initiative, launched this summer, in part so that five years from now these same questions don’t persist.

The GALI project aims to collect data that will help determine what types of programs and which elements generate the greatest impact — which not only will benefit entrepreneurs, but will also allow donors, funders and investors to direct their funds to the most proven programs and get the most value for their money.

And it’s a lot of money. An estimated $800 million a year or more is spent on accelerators and incubators — and it should be spent well, said Mike Kubzansky, a partner at the Omidyar Network.

The Omidyar Network does a lot of early stage funding of companies with scalable social impact and has seen some of the gaps in the market and the rise of accelerators and incubators to tackle those issues.

“On one level it’s heartening but it creates the question of which are good bets, which are good approaches and will accelerate companies,” Kubzansky said.

What we know now

While there is a lot of choice for entrepreneurs, there appear to be a number of factors or characteristics of incubators or accelerators that lead to stronger businesses and more well-equipped entrepreneurs.

One of an entrepreneur's greatest assets is, of course, his or her time. Getting sucked into doing a number of accelerator or incubator programs that produce varying results can mean setting back the company’s progress. And with roughly 1,000 to 2,000 accelerators around the world, according to Emory University, there are a lot of options.

Minhaj Chowdhury, CEO and co-founder of the social enterprise Drinkwell, for example, has participated in about 10 different incubator or accelerator programs. He wouldn’t do them all again.

While there were certainly a few that had a significant impact — particularly one focused on the water sector — there were definitely a few that were not worth the time, he said.

“I think that every entrepreneur support program has great intentions,” said Ross Baird, executive director of Village Capital, which both runs an accelerator and has a seed fund for social entrepreneurs. “[But] I think any organization that is starting a program to help entrepreneurs needs to be specific about what problem you are trying to solve.”

Intentionality in program design seems to be critical for accelerators to be successful — and if one is not intentional it can waste an entrepreneur's time. If the accelerator is recruiting mentors, it should ask why. The best accelerators, Baird said, can say exactly what purpose a mentor will serve — be it to increase sales in the renewable energy industry, help companies build financial models that investors will take seriously or help companies figure out how to hire people.

“I’ve seen really, really wonderful programs, I’ve seen programs that have honestly done more harm than good. I think the biggest difference is the best programs can answer very specifically what problems we’re trying to solve,” he said.

Most of the incubation programs USAID supports through its Partnering to Accelerate Entrepreneurship Initiative have a common set of ingredients — in the form of financing, mentorship and technical assistance, business plan or business development services, among others — that seem to be part of successful models.

Early data and research by Emory’s entrepreneurship database program indicate that entrepreneurs in accelerators have faster revenue growth and a greater number of employees than their nonaccelerated counterparts, program director Sean Peters said. But the current data set only covers a couple of years and is a relatively small sample, he added.

There are a few trends today aimed at addressing the issue that different models are necessary and that what works for that Silicon Valley tech startup may not work for a company working to provide access to water or improve smallholder farmer livelihoods. One of the current trends has been the emergence of sector or issue-based accelerator programs as well as some that focus on particular geographies.

And that, at least qualitatively, seems to be important, said Randall Kempner, the executive director of the Aspen Network of Development Entrepreneurs. The linkages that incubators and accelerators have not only with global networks but also with local or issue-specific networks seem to be very important, he said. Further, access to local venture capitalists and banks is more important than access to global networks, Kempner added.

In addition to those factors, mentorship can be critically important — or at least that’s often thought to be true.

Many accelerators don’t do a good job of tracking data over time — relatively few can tell you how many companies are still operating after five years or how many received additional funding or showed revenue growth, Kempner said.

A new body of knowledge

To test some of those theories and identify best practices to build a more effective system to support entrepreneurs, a group of organizations — ANDE, Emory University, USAID, the Omidyar Network, the Lemelson Foundation and the Argidius Foundation — are partnering on the GALI project to provide some answers.

This new data should allow entrepreneurs to eventually ask questions about comparative performance as they seek to determine what will work best for their needs.

“This is the capacity development format or structure that is presently, at least, the most popular,” Kempner said, adding that it is imperative to understand what makes them more effective to help raise the game of accelerators globally.

For Kempner, it’s less about the success of the individual accelerator but more about improving a social entrepreneur’s chances of being successful and better serving the poor, he said.

While it is a multiyear project and the data will take time to collect, ANDE will be sharing findings along the way. The database that emerges will not rank accelerators or incubators and the data will be anonymized, but it should help arm entrepreneurs with knowledge about how to determine success and find the right fit.

One of the reasons they won’t be creating a ranking system is that it only tells a fraction of a larger more nuanced story and the data needs to be contextualized — an early stage incubator can’t quite be compared with a growth accelerator, Peters from Emory said.

The database will collect data on accelerators all over the world by surveying all applicants in the intake process and resurveying the same entrepreneurs every six months regardless of their acceptance into the program. The anonymized research database will be public and updated on a yearly basis.

This research is the first of its kind, particularly in emerging markets, and with many types of accelerators with divergent business models, the work will hopefully shed light on which ones work and which ones do not, Kubzansky said.

“Our main goal for this — both from a field-building point of view and as a funder that gets asked to support accelerators is for what design circumstances, entrepreneur types [and] businesses are these most successful,” he said.

While the five-year GALI project should help answer the question, entrepreneurs shouldn’t sit back and wait. The data may not all be there but they should still be asking incubators or accelerators tough questions.

They should ask the leaders: “What will you do that I can’t do by myself?” They should also talk to alumni and focus on outcomes, not inputs — like the number of mentors or hours of consulting or the pitch day they may offer, Baird said.

“Entrepreneurs should ask where will that consulting get me, where will those mentors get me, what will that demo day do for me, who’s raised money, who’s got customers and what has the community done,” he said.

To learn more about social entrepreneurship, check out our series the #SocEnt Revolution: How entrepreneurship is changing global development, which explores the entrepreneurship ecosystem, from the roles of different actors to donor support, financing and incubators, in an effort to examine what needs to be done to maximize the impact of entrepreneurship in the post-2015 era of development.