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Venture Acceleration Networks Report Oct11


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  • 1. Nurturing Innovation: Venture Acceleration Networks Table of ContentsAcknowledgements _____________________________ 3Overview _____________________________________ 4Objective and Approach of the Study _______________ 9Part I: Drawing Lessons from Existing Models _______ 11 1. The Role of Venture Acceleration Networks ___________________ 12 2. Using Networks to Support Entrepreneurs ____________________ 18 3. Creating Strong Networks _________________________________ 23 4. Selecting Ventures _______________________________________ 32 5. Financing the Program____________________________________ 37 6. Choosing an Organizational Structure ________________________ 42 7. Adapting to the Innovation Ecosystem _______________________ 46 8. A Role for the Public Sector in Russia ________________________ 52Part II: Individual Program Descriptions ____________ 56 Virginia Biosciences Development Center ________________________ 57 TiE Bangalore ______________________________________________ 67 TechStars _________________________________________________ 75 SMART Innovation Center ____________________________________ 93 OCTANTIS ________________________________________________ 105 MIT Venture Mentoring Service _______________________________ 116 MaRS____________________________________________________ 130 Larta Institute _____________________________________________ 142 InnovateVMS _____________________________________________ 160 Innovation Network Corporation Japan _________________________ 166 IMP3rove _________________________________________________ 174 The IC2 Global Commercialization Group ________________________ 197 Endeavor_________________________________________________ 209 U-M Tech Transfer, the Catalyst Resource Network _______________ 221 Carbon Trust ______________________________________________ 234Appendix ___________________________________ 247 2
  • 2. Nurturing Innovation: Venture Acceleration NetworksAcknowledgementsThis report was prepared for the Russian VentureCompany by a World Bank team led by Jean-LouisRacine in collaboration with Alistair Brett, DoinaCebotari, Juan Julio Gutierrez, Naoto Kanehira,Lawrence Kay, Anthony Lambkin, Sebastián Melin,Florian Theus, Christina Tippmann, Alina Tourkova,and Yanina Yermakova.The team would like to thank Leonid Levkovitch-Masluk of Russian Venture Company who providedimportant guidance and shared his invaluableknowledge. The team is also grateful to SophieSirtaine (World Bank Sector Manager), Pedro Alba(World Bank Country Director), Alfred Watkins (WorldBank) and Bob Hodgson (Zernike UK) for commentsreceived on the draft. The team would like to thankYevgeny Kuznetsov (World Bank) for comments on thecase studies. Finally, the team is grateful to ZenaidaKalinger (World Bank) for her support in putting thereport together and Rodrigo de Castro (World Bank)for the cover design.The team would also like to thank all of the staffmembers, mentors, consultants, clients andbeneficiary entrepreneurs of the venture accelerationnetworks who generously gave offered their time forinterviews. In particular, the team would like to thankSidney Burback (IC2), Pete Peters (Innovate VMS),Dave Raval (Carbon Trust), Sayaka Iwase (INC Japan),Howard Califano (SMART Innovation Center), DonDuval (MaRS), Ravindranath. P (TiE Bangalore), DaveGeary (Endeavor), Carlos Gutierrez and Rohit Shukla(Larta Institute), Jerome Smith (MIT VMS), EvaDiedrichs and Sabine Brunswicker (IMP3rove), WesHufstetter (University of Michigan Catalyst ResourceNetwork), Jenny Boyd and Nicole Glaros (TechStars),and Richard Caro (Acceleration Coop). 3
  • 3. Nurturing Innovation: Venture Acceleration Networks management and technical talent from theOverview labor force with the appropriate businesses. They match service providers with potential new clients. And finally, they help create a culture of entrepreneurship by exposingRoles entrepreneurs to role models and by fostering the social capital that accelerates the exchangeVenture acceleration networks consist of of knowledge, ideas and deals in theexperienced, skilled and well-connected community.individuals who provide hands-on support toentrepreneurs. They help propel viable Common Threadsbusiness ideas to the market place byaccelerating the regeneration of ideas and Venture acceleration network programs haveconnecting entrepreneurs to the market. They several basic features in common. In theirachieve this by: current form they are all very recent, having Educating entrepreneurs through on-the- appeared only in the past decade, initially in job training on a broad range of practical the United States, although less structured skills related to the business growth. variations existed before. They are organized Connecting entrepreneurs to markets, around a professionally-staffed nucleus, capital, customers, partners, experts, typically supported by a core network of information and role models through mentors or brokers, and an extended network introductions, brokering and by creating of service providers and technical experts. bonds of trust and credibility. Often, they offer learning and networking events for the entrepreneurs and their Validating business ideas through strategic communities of mentors, brokers, service advice and direction, and by creating a providers and experts. They typically include supportive environment for business some level of screening, tied to the development experiments. Validation entrepreneur’s affiliation, the venture’s profile provides the critical value-added of or its potential for success. None of the venture acceleration networks. It builds on programs are financed to any significant extent the two other pillars, educating and through upfront user fees. connecting, to help ideas fail early, often and inexpensively. ApproachThe impact of venture acceleration networkprograms extends beyond the entrepreneurs Around this set of common features, venturethey serve directly to the wider community of acceleration networks experiment with a wideentrepreneurs, investors, and business service range of approaches to financing,providers. They provide investment-ready or management, network creation, selectivity,screened opportunities for potential investors. service delivery and structure. Three mainThey reduce public and private resources approaches emerge from this variety,invested in nonviable business ideas by although most of the programs do not fallaccelerating their path to failure through neatly into any single category. A firstmarket validation. They help match approach aims to commercialize technology 4
  • 4. Nurturing Innovation: Venture Acceleration Networksprojects for short-term payoffs (e.g. creating financials, and relatively open in structure andspin-offs). A second approach aims to build a timeline.local self-sustainable innovation ecosystemwith broad medium to long-term payoffs (e.g. Programs aiming to build innovation-relatedcreating linkages in the entrepreneurship consultancy markets do not aspire to pickcommunity). A third approach aims to foster a winners but to help businesses grow bymarket for innovation-related services by connecting them to qualified and vettedbuilding capacity, transparency and efficiency commercial sources of support. They follow ain the service provider market, and raising “hands-off” approach to supportingawareness among SMEs. entrepreneurs, creating analytical tools, and training qualification tools to supportPrograms aiming to foster short-term R&D innovation-related consultancy, and bycommercialization select technology projects marketing the network. Hence, they generallyon the basis of their (assumed) technical and operate with small teams. Their light-touchmarket potential. They often include funding approach means that their models are easilyfor feasibility testing. Some rely on full-time scalable, although they are also less rich inprofessional mentors and brokers to provide content.bare-bones project teams with rapid anddedicated support. Because they target Success Factorstechnologies that are not yet fully out of thelab, they also focus on team-building, bringing Experiments with venture accelerationin management talent from the outside to networks highlight many success factors.complement the technical talent of the project Critical factors include:team. These many roles make these programs The programs are managed by highly-relatively staff and resource-intensive. To networked “magnetic” individual who areminimize costs these programs are structured able to attract mentors, business servicesaround clear milestones and timelines. providers, experts and ventures by virtue of their position in the businessPrograms aiming to build innovation community. They are well-knownecosystems select projects on the basis of their overachiever entrepreneurs and businessventure teams, and their perceived capacity to leaders with significant convening power.benefit from the program and create high-impact ventures. Many have elements of self- The programs start with small “high-selection whereby unfit entrepreneurs are value” networks with very limitedmade to opt out of the programs. The numbers of high-quality entrepreneurialprograms focus on building the skills of the teams and mentors. High-quality networksventure team, recognizing this as a long-term can be self-perpetuating.investment for society. The programs also The programs select mentors who valuefocus on nurturing and leveraging external their participation in the networks beyondmentor and advisory networks to support the immediate financial reward. They areventures, rather than rely on in-house capacity. motivated by giving-back to theirThey are light-weight in terms of staffing and communities, networking with ventures and other mentors, potential investment 5
  • 5. Nurturing Innovation: Venture Acceleration Networkspositions in the ventures and potential Challengesmanagement positions. Mentors whoderive personal satisfaction from their Venture acceleration network experimentsinvolvements are “sticky” and stay highlight a multitude of challenges. Some faceconnected with the program and with the challenges linked to the environments whereventures. Giving flexibility to mentors and they operate. Where there is no local pipelineentrepreneurs to select each other creates of coachable ventures or of mentors with thelong-lasting relationships and thus expands right mix of skills, experience and connections,the size and sustainability of an programs do not succeed. Programs also faceentrepreneurship network. an uphill challenge where there is no local access to complementary forms of public andThe programs offer consulting services private support, financial and other.and match-making as a package withmentoring, not as standalone services. This Some venture acceleration networks alsoensures that the ventures seek relevant suffer from design issues. Common problemsconsulting services and are well-prepared are linked to top-down match-making ofbefore prospective meetings. Mentors act mentors and entrepreneurs, which typicallyas gateways or network hubs to other leads to a mismatch, poor screening offorms of support and as connectors. mentors and advisors, and building programsThe programs ensure that non-performing based on pure financial incentives for advisors.entrepreneurs are filtered out. This iseither done through extensive screening The Role of the Public Sectorprocesses or by admitting a wide pool ofventures and putting indirect pressure on Venture acceleration networks can address anon-performers to self-select out during number of market and system failures thatthe course of the program. hamper innovation and entrepreneurship. These market failures are linked to theThe programs actively manage trust. They transaction costs, search costs and informationachieve this by setting and enforcing clear asymmetries that lead to a less-than-optimalguidelines and expectations for amount of innovation-related services suppliedentrepreneurs and advisors. In addition, and sold on the market. They are also linked tothey leverage personal networks in tight- the positive externalities of investing in theknit entrepreneurial communities with skills of an investee, since part of those skillsabundant social capital, where ethical will be captured by future investors. Theviolations would cause reputational risk. system failures are linked to capabilitiesWhere there is no such community, they failures -i.e. inadequacies in entrepreneurs’use self-policing through mentor groups. abilities to act in their own best interest - andPrograms supporting ventures far from framework failures related to cultural andrelevant markets, sources of financing and social norms.specialized knowledge build bridges torelevant global networks. The public sector can help address these gaps by supporting venture acceleration network experiments. Venture acceleration network 6
  • 6. Nurturing Innovation: Venture Acceleration Networksprograms grow in different ways, requiredifferent institutional structures and servedifferent functions depending on the localcontext. Hence there is no single approach tobuilding these programs and only throughexperimentation can effective models beidentified.The public sector can ensure that it quicklyconverges to appropriate models bysupporting existing network initiatives andpartnering with regional stakeholders tocreate new ones. Support can come in theform of facilitating partnerships betweenrelevant stakeholders, providing financing on acompetitive basis, and creating mechanismsfor programs to adopt good practices and learnfrom one another. 7
  • 7. Nurturing Innovation: Venture Acceleration NetworksTable 1: Success factors of venture acceleration networks Beneficiaries Human Network Innovation Ecosystem Management Quality of the Network quality Some Mentors as Prerequisites team before size entrepreneurship gateways to Commitment to Connectedness culture and other support the venture to relevant community Screening Quality of the markets Critical mass of mentors idea/technology Connectedness deal flow Mentorship code Connectedness to the entrepreneurship to the Universities of conduct and community entrepreneurship Business trust community environment management Business Complementary Social capital of experience innovation support staff programs Entrepreneurship Screening and Existing filtering-out experience entrepreneurship beneficiaries Motives networks Staff profile Local market demand Dedication to the Complementary program Business partners services Industry sector expertise Venture funding Public-private- Private donor funding sources academic partnerships Public program funding sources Match-making of Quality of innovation advisors & management entrepreneurs consultants Activities that enhance the value of the network Program length and meeting periodicity Meeting coordination & facilitation Host institution brandEnablers Communication of success 8
  • 8. Nurturing Innovation: Venture Acceleration Networks Objective andApproach of the StudyThe objective of this report is to understand the role,operational models and identify good practices ofprograms that seek to accelerate innovativeentrepreneurship by managing, nurturing andleveraging social and business networks. This report isbased on 15 case studies of venture accelerationnetwork programs spanning 43 countries (Table 2).The general findings are presented in Part I while theindividual case studies can be found in Part II. Theconclusion suggests next steps for operationalizing aventure acceleration network in Russia.The basic selection criteria for the case studies werethat the programs rely on networks to helpentrepreneurs innovate. The 15 case studies wereselected so that as a whole, they representedprograms with: Sufficient track record to observe their output, understand their impact and draw lessons from the challenges they faced. A wide variety of business models. Distinct innovation ecosystems, in terms of their geography, enabling environment and supportive institutions. Serve ventures in a variety of sectors and growth stages. 9
  • 9. Nurturing Innovation: Venture Acceleration NetworksTable 2: Case study organizations, program and geographic coverage Shorthand name Metro Program Organizations Case study programs used in this Location population launch report (million) date Metropolitan Coverage MaRS Discovery Toronto, Advisory Services MaRS 5.1 2005 District Canada Singapore-MIT Alliance for Research and Technology Catalyst Program SMART Singapore 5.1 2009 (SMART) Innovation Center Santiago, Octantis Mentoring Program Octantis 7.2 2004 ChileUniversity of Michigan Catalyst Resource Ann Arbor, Catalyst RN 0.3 2007 Tech Transfer Networks USA Boulder*, TechStars TechStars TechStars 0.3 2007 USA MIT Venture MIT Venture MIT VMS Boston, USA 4.6 2000 Mentoring Service Mentoring Service Kitchen Cabinet Virginia Biosciences Richmond, Business Advisory VBDC 1.2 2003 Development Center USA Board St. Louis, Innovate VMS Innovate VMS Innovate VMS 2.8 2007 USA The Indus Entrepreneurship Bangalore, Entrepreneurs (TiE), Acceleration Program TiE EAP 6.6 2006 India Bangalore (EAP) National Coverage Entrepreneurship Fast United Carbon Trust Carbon Trust - 2001 Track Kingdom Innovation Network Open Innovation INC Japan Japan - 2010 Corporation Japan Platform DST-Lockheed Martin 2 2 IC India Innovation IC India India - 2007 Growth Multinational Coverage 3 3 European IMP rove All IMP rove - 2006 Union 11 emerging Endeavor All Endeavor - 1998 countries Commercialization USA + Larta Institute Larta - 2004 Assistance Program others*other locations include New York, Seattle and Boston.Source: US Census; Statistics Canada; Department of Statistics Singapore; 10
  • 10. Nurturing Innovation: Venture Acceleration Networks network members (MaRS). These internal network members can be mobilized quickly and intensively when a need arises, and are usually pro-active, acting as “project scouts” 1. The Role of Venture within a research institution. At the other extreme, one program, IMP3rove, adopts a Acceleration hands-off approach to network facilitation by Networks creating incentives to join a network in the form of standardization of service offerings, professional certifications and market visibility. In between those two extremes lie programsKey findings that draw individuals from existing networks – either from social networks (TechStars) or Venture acceleration networks address alumni networks (MIT VMS) – and formalize market gaps associated with skills, them into networks that serve their specific transaction costs, resource efficiency objectives. Where there are no such pre- and network externalities. existing networks to draw from, other programs assemble and manage new external networks. New networks are necessary inObjectives communities where the entrepreneurship community is not dense (Octantis), and whereThe venture acceleration networks in the case the networks need to span vast geographicstudies can be classified according to their areas (INC Japan nationally, and Endeavorobjectives (Figure 1). A first category of globally).programs helps accelerate thecommercialization of technology issued from Addressing Market and System FailuresR&D, often still at the pre-venture stage(Catalyst RN). A second category focuses on The programs in the case studies play theaccelerating the growth of early stage following four roles in promoting innovationventures, hence on “commercializing” and entrepreneurship:entrepreneurs rather than commercializing Improve entrepreneurial capacity throughR&D (TechStars). Yet, a third focuses on experiential learning.accelerating growth in revenue-generatingsmall and medium enterprises (SMEs) Reduce transaction costs and improve(IMP3rove). Many serve more than one of search efficiency between entrepreneursthese objectives. and the resources they need to succeed. Increase public and private resourcePrograms vary in their level of engagement efficiency by helping business ideas failwith network creation, coordination and early, often and At one extreme some programsfocus on building strong internal pools of Leverage network externalities byprofessionalized mentors, brokers and expanding and strengthening networks.advisors, who they complement with external 12
  • 11. Nurturing Innovation: Venture Acceleration NetworksFigure 1: Program objectives and business concrete entrepreneurial skills such as businessmodels planning, business plan development, business management, accounting and legal, marketing, Program objective financing, and hiring staff, but also more tacit skills such as negotiating with investors and commercialization acceleration SME growth approaching potential customers (Box 1). In Venture R&D the case of IMP3rove, capacity for innovative entrepreneurship is not built through learning as much as it is through building more effective internal business processes (Box 2). Several of Internalize the network the programs in the case studies have Catalyst RN & education as their primary objectives (MIT consolidate MaRS VMS). The educational role of all mentor informal 2 IC India networks has high externalities. It is not networks possible for any single investor to fully capture SMART the returns of mentoring an entrepreneur. Carbon Trust Most entrepreneurs fail several times before Larta building a successful business. Future investors OctantisIntensity of program engagement with network Create & will thus free-ride on any investment in skills manage new Innovate VMS acquired through mentoring during previous networks INC Japan ventures. This relates to the public good aspect VBDC of building entrepreneurial capacity. Endeavor MIT VMS Consolidate VV existing TiE EAP networks TechStars Facilitate new networks 3 IMP rove through standards & certificationBuilding capacity for innovativeentrepreneurship mostly translates toproviding business skills through experientiallearning and improving internal businessprocesses. Although some programs such asMaRS have classroom learning events andtraining workshops, most learning takes placethrough mentorship. Learning involves both 13
  • 12. Nurturing Innovation: Venture Acceleration NetworksBox 1: Building entrepreneurial capacity Box 2: Building innovative capacity throughthrough experiential learning. management consulting.Brendan McNaughton is the founder and chief Perficable is a metal-cutter and manufacturer oftechnical officer of Lifemagnetics, a biotechnology metal parts for cars, furniture and generalfirm spun out of his research at the University of appliances based in Spain. It was founded in 1999. 3Michigan with the help of Catalyst RN. The Before it approached IMP rove its objective was tocompany has five employees. It is currently become more innovative so that it could expandcommercializing technology for bacteria into new industries.identification and measurement of patientresponses to antibiotics, which will help doctors Perficable had several industry niches that it 3target treatments at patients more quickly. wanted to target and joined IMP rove for the help it could provide in improving its internal processesIn establishing Lifemagnetics Brendan required for encouraging and managing innovation. 3substantial help with starting and managing the IMP rove highlighted two areas for improvement:business, and then getting connected to people the creation of an innovation plan and the needwith the expertise and experience he needed to for collection and analysis of customer feedback ingrow the company. Catalyst RN helped with order to improve customer satisfaction. The first 3Brendan’s and Lifemagnetics’ development in both issue that IMP rove thus helped with was theof these areas. specification of problems that needed solving.While he was at the university Brendan was To try and improve Perficable’s processes in these 3guided by a mentor (who eventually became two areas, IMP rove helped the firm to develop anLifemagnetics’ CEO), and then a business start-up innovation plan that involved all the staff andspecialist who helped him to write a business plan explored the generation, development andand assess the potential market for his research. evaluation of innovative ideas. In order to improve 3He was then connected to consultants and other the flow of customer feedback, IMP rove helpedexperts who were central to the formation of the Perficable to both manage and analyze the clientbusiness and management of the technology. responses that they were receiving but previously not managing adequately.Catalyst RN also helped Brendan to find vitalsources of funding at each stage of the The innovation and feedback management planscommercialization process. At the start he are still being implemented but it is hoped thatreceived USD 150,000 through two funds at the they will have several important effects,University of Michigan that enabled the particularly in Perficable’s ability to encourage thetechnology to be prototyped. The network then creation, selection and marketization of innovativeconnected him to the Walter Coulter Foundation, ideas. It is also hoped that Perficable will soonwhich gave him a total grant of USD 350,000 over have customer satisfaction strategies in place thatthree years for support in growing the business. are based on customer feedback.Finally, the network introduced him to a venturecapitalist, which has invested in the firm. Source: Engel, K., Diedrichs, E. and Brunswicker, S. 3 (2010) IMP rove: A European Project with Impact: 50Source: Interview with Brendan McNaughton. Success Stories on Innovation Management, Europe INNOVA Paper No 14. 14
  • 13. Nurturing Innovation: Venture Acceleration NetworksReducing transaction costs implies connecting improve them or abandon them. They alsoentrepreneurs with relevant and trusted allow for entrepreneurs to quickly recognizeresources (e.g. lawyers, consultants, their own failure if they do not have theinvestors, business partners, potential required willingness or ability to take theiremployees, potential customers). Transaction ventures to the market. Importantly, they helpcosts can be deal-breakers between early- governments minimize the public resourcesstage ventures and the external resources they spent on supporting ventures and businessneed to succeed. Entrepreneurs with limited ideas that do not have a future in the market.experience do not know what types of A comprehensive study of new businessresources they need, how to formulate their development in the United States over a 50needs, and who to trust. The same may hold year period found that 3,000 ideas only lead totrue for SMEs in the area of innovation one market success.1 The role of the programmanagement. From their viewpoints the is hence to reduce the time and resourcesproviders of “resources” see early-stage spent on the 2,999 ideas that never make it toventures and SMEs as a very fragmented the market. They help business ideas fail early,market that requires prohibitive business often and inexpensively.development costs. Moreover, there areinformation asymmetries due to the lack of Market validation plays a particularlyefficient market signals: investors, business important role for young firms and newpartners and customers cannot easily markets. Young firms do not have the start-updistinguish promising opportunities from poor capital or time for careful market research (Boxopportunities. All programs include 3). And for disruptive innovation, classicalmechanisms to reduce transaction costs. Some approaches to market research are often notare passive (IMP3rove’s consultant database) very informative since the markets to bewhile others are active (IC2’s brokers). researched do not yet exist. Rather what isPrograms centering around mentors ensure needed is testing the idea quickly to havethat transaction costs are minimized on both market judgment from individuals with uniquethe supply and demand sides. For example, abilities to “interpret” the market. This maythey will only connect a venture to a trusted include talking to potential customers,investor if and when the venture is investment- investors, peers and experts at an early stage,ready. which can be accelerated by tapping into a mentor’s network to help identify potentialRapid market validation leads to increased customers and markets.public and private resource efficiency. Therole of the programs is to continuously connect Resource efficiency is best exemplified by theentrepreneurs to resources (experienced “sounding boards” in the program casesentrepreneurs, industry leaders, potential studies. These groups of individuals providecustomers, potential investors, technical earnest and rapid feedback to entrepreneurs.experts, consultants, etc.) that can provide These boards are different from the typicalthem with rapid feedback on their business advisory boards that individual companiesideas and on their ventures. The programs have.allow entrepreneurs to limit the time and 1 Stevens G and Burley J. (1997) 3,000 Raw Ideas = 1resources they spend on bad ideas, and commercial Success , Industrial Research Institute. 15
  • 14. Nurturing Innovation: Venture Acceleration Networks roles stated above on a sustained basis. SocialBox 3: Market validation versus marketresearch networks help entrepreneurs improve their skills, reduce their transaction costs and In a seminal study on the origin and evolution of validate their ideas. Mentors are the key the fastest growing businesses in the United States gateway to entrepreneurial networks. They Amar Bidhé found that they often employ fast- develop the trust relationships with their paced strategies of opportunistic adaptation based mentees that are required for network entry. on rapid market validation: “Entrepreneurs who As network members themselves, mentors start uncertain businesses with limited funds have epitomize the benefits of leveraging networks: little reason to devote much effort to prior planning and research. They cannot afford to they sometimes keep their roles as mentors spend much time or money on the research; the after the program, they sometimes invest in modest likely profits doesn’t merit much; and, the their mentees, they sometimes join their high uncertainty of the business limits its value. ventures as managers, and they sometimes help them broker relationships with investors, Sketchy planning and high uncertainty requires customers, business partners or service entrepreneurs to adapt to many unanticipated providers. In programs with mentors in problems and opportunities. One entrepreneur residence, such as the University of Michigan likens the process of starting a new business to Catalyst Resource Network, a mentor will jumping from rock to rock up a stream rather than frequently serve as the start-up company’s constructing the Golden Gate Bridge from a detailed blueprint. Often, to borrow from Elster’s “acting CEO”. discussion of biological evolution, entrepreneurs adapt to unexpected circumstances in an Impact “opportunistic fashion: their response derives from a spur of the moment calculation made with The rationale for venture acceleration the intention of maximizing immediate cash-flow. networks is grounded on market failures, and Capital-constrained entrepreneurs cannot afford studies on angel investing suggest that to sacrifice short term cash for long term profits. mentoring has a positive effect on investment They have to play rapid-fire pinball rather than a returns (Box 4), but there has yet to be a strategic game of chess.” rigorous evaluation of their economic impact. Source: Amar Bidhé (2000) The Origin and Evolution of Only a few of the programs in the case studies New Businesses. make any attempt to measure impact. Larta is the only program to publish its impactLeveraging networking externalities implies assessments. They suggest that the programsabsorbing entrepreneurs into high-value do make contributions to the progress of thenetworks. Social networks can be difficult to venture in several areas. These include formingpenetrate for newcomer entrepreneurs, even new partnerships and deals, raising investmentin dense and highly-connected clusters such as and raising revenue. Anecdotal evidence fromSilicon Valley.2 Connections to entrepreneurial the case studies suggests that many of thenetworks help to achieve the three program entrepreneurs benefited in similar ways from other programs.2 There are now numerous “bridging organizations” inSilicon Valley whose role is to connect outsiderentrepreneurs or inexperienced entrepreneurs torelevant networks. 16
  • 15. Nurturing Innovation: Venture Acceleration NetworksBox 4: The effect of mentoring on angel investment returnsAttracting investment is a key part of the growth of any startup, but so is the expertise that it can draw on.Entrepreneurs negotiating the stages of founding and developing a business can benefit substantially from theadvice of experienced investors, hence the potential effects of mentoring during angel funding and other early-stage investments. A recent study examined some of the effects of this mentoring on the performance of startupsthat had attracted angel investment in the United Kingdom.The study examined the activities of angels in 31 investment groups. It specifically looked at the exits they hadmade from their investments, mostly from the year 2000 onwards. There was substantial knowledge in the group,as the median level of experience of investing was five years while the median number of years spent with a largecompany was 13. In the sample there were just over 1,000 separate investments with 406 exits. The averageinvestment size per investor was £42,000 and the average number of investments was six. The median pre-investment valuation of the firms that received money was £875,000 while the mean was £1.7 million.Among the investors in the sample more entrepreneurial experience was significantly correlated with betterinvestment outcomes. In particular, those who had been involved in three or more ventures were less likely tolose money and were better able to make several-fold returns on their investments. Furthermore, angels whomade investments in areas in which they had already had prior involvement were also much less likely to seetheir investments fail. This suggests that acuity for spotting and then guiding the growth of a venture is importantto its success. In places where there are few entrepreneurs with much depth of expertise it thus makes sense forthe ones who do to provide much-needed mentoring.The study examined both the amount of due-diligence performed by the investors and the level of involvementthey took in their investments. The study found that investments where the investor had spent at least 20 hoursof due diligence were much less likely to fail (another study in the US found that investments that were subject tomore than 20 hours of due diligence showed an overall return of 5.9 times while those subject to less than 20hours showed an overall return of 1.1 times). Therefore, mentors, if given the time to properly work with aventure, can use their expertise to investigate its fundamentals and provide commensurately detailed and usefuladvice.The study also found some interesting results for investor involvement. It found that board membership, whereappropriate, had strong positive effects on outcomes, as did regular involvement with the venture. The 40% ofpassive investors in the sample experienced more failures than the active investors, and the more active aninvestor was in terms of frequency of interaction the more likely the investment was to have a positive outcome(in the US study, investors who interacted with the managers of a venture a few times a month recorded anoverall investment return multiple of 3.7 times; those who only interacted a few times a year produced an overallmultiple of 1.3 times).All of this evidence would suggest that more involvement is always better than less, if it were not for the resultswhere angels had taken management roles. However, in the UK study, the 13% of investments where this hadhappened enjoyed significantly poorer returns. Clearly, this would suggest that the involvement of anexperienced mentor can contribute substantially to the growth of a venture, but that the degree of involvementneeds to be managed appropriately.Source: Wiltbank RE, Siding with the Angels: Business Angel Investing – Promising Outcomes and Effective Strategies, NESTA,2009. Wiltbank R and Boeker W, Returns to Angel Investors in Groups, 2007. 17
  • 16. Nurturing Innovation: Venture Acceleration Networks roles but emphasize one over the others (Table 2. Using Networks to 4). Support Figure 2: Overlapping roles in venture Entrepreneurs acceleration networks Sounding boardsKey findings Service providers To manage trust and expectations, programs clearly differentiate mentors from service providers. Mentors Brokers are of limited efficacy unless complemented with mentoring roles. Mentors act as gateways to other forms of Brokers / Connectors support and as connectors. Mentors from the wider business Table 3: Relationships between advisor roles, community are more likely to sustain and profiles and incentives evolve their relationships with their mentees than full-time professional Role Typical profile Main incentives mentors. Sounding A variety of Giving-back, board industry entrepreneurial expertise excitement, keeping up with tech. trends,Individual Roles within the Networks investments, business opportunitiesThe case studies reveal the existence of the Service Specialized Business opportunities,four roles displayed in Figure 2: mentors, provider expert salary, feesbrokers, service providers and sounding Broker / Business Salary, fees,boards. As shown in the figure, although Connector development entrepreneurialnetwork members can serve several of these professional, excitement managementroles simultaneously or consecutively, this is consultant withnot the case of mentors and service providers. strong networksMentors do not serve as either current or Mentor Serial Giving-back,prospective service providers (i.e. receiving entrepreneur entrepreneurial with strong excitement, keeping upupfront payment for a service) for the networks with technology, angelcompanies. Table 3 summarizes the typical investing, managementprofile and incentives of the different roles in rolesthe networks. Most networks combine a mix of 18
  • 17. Nurturing Innovation: Venture Acceleration NetworksSounding boards validate or deny Table 4: Program network rolesassumptions made by the ventures and Network rolesprovide strategic insight. The role of soundingboards is played to at least some extent by providers Sounding Programs Mentors Brokers Service boardsmost advisors in the programs. A key functionof mentors is to act as sounding boards. Butthe relationship of a sounding board with an Carbon Trustentrepreneur need not be as deep and Catalyst RNsustained as with a mentor. Sounding boards Endeavor 2 IC Indiacan provide valuable business or technical 3 IMP rovefeedback while having limited interactions with INC Japanentrepreneurs. Many entrepreneurs in Larta’s Innovate VMSprograms consider the Industry Feedback LartaSession, which occurs only once during the MaRS MIT VMScourse of a program, the highlight of the Octantisprogram. During these sessions individuals SMARTfrom a wide range of backgrounds ranging TechStarsfrom IP lawyers to industry experts provide TiE EAP VBDCgroup feedback on the entrepreneur’s businessstrategy. VBDC’s Business Advisory Boards Network focus: ■ = primary, ■ = with the entrepreneurs for as little as sixtimes per year for 90 minutes. Throughout the Service providers provide a wide range ofTechStars program, ventures have services and have arm’s length relationshipsopportunities to setup meetings and network with companies. Two programs, IMP3rove andwith individuals who provide them with Carbon Trust, are entirely dedicated totargeted feedback on their business ideas. fostering relationships between serviceMost are successful entrepreneurs or providers and companies. Other servicerepresent companies in related sectors. providers span areas ranging from law to banking, technology validation, marketing and graphic design. In the case of MaRS and IC2, some of the business services providers are part of the program staff. The program staff and mentors often play a key role in connecting early stage ventures to trusted resources and helping them articulate their demands. Without proper references, inexperienced entrepreneurs can easily fall prey to disreputable service providers. The role of brokers (or connectors) is to orient and introduce the companies to individuals with relevant value added. In most case studies the program management staff play 19
  • 18. Nurturing Innovation: Venture Acceleration Networksthe role of brokers, by matching companies as management. Marketing, IPR, etc., throughwith appropriate mentors, service providers learning by doing, rather than form curricula.and investors. In the case of Carbon Trust, And their final closely related role issubcontracted consulting companies connect psychosocial support. This relates to valuethe ventures with trusted service providers systems, self-worth, personal advice and issueswhile the staff connect them to sources of of interpersonal relationships. In the city ofcapital. Brokers seldom appear in a pure form Austin in the United States, the IC2 mentorsin the case studies. Connections to relevant coach Mexican entrepreneurs of the techBA onindividuals often comes tied with coaching on the cultural side of doing business in the US.why and how to approach them. In the case of Many mentors report this as the largestthe IC2 India program, US-based brokers challenge for innovative ventures entering theprepare Indian entrepreneurs for meetings, US market. Finally, mentors act as role mentorattend the meetings with them and offer and help further a local culture offeedback after each meeting. Endeavor’s entrepreneurship.Mentor Capital Program is dedicated toconnecting middle-income country Some part-time mentors continue theirentrepreneurs to sources of capital but as its relationships with their mentees after thename indicates, includes a predominant course of the programs, through continuedmentoring component. The need for brokers mentoring, as angel investors or inalso depends on the accessibility of local management positions. Often, whenresources. InnovateVMS for example operates mentorship is not done as a full-timein a mid-sized town with a very strong tight occupation, such as in IC2 or MaRS, the interestknit networked community where everyone of the mentor in the venture goes beyond theknows everyone. Brokers, as a separate group, life of the program. Many keep an informalare not needed. relationship with the mentee, thus raising the value-for-money of the program. In the case ofMentors have the broadest roles, acting as TechStars, one of the mentors invested in atsounding boards and brokers, and bringing in least two companies over a few years. Someknowledge and psychosocial support. While mentors view the mentorship program as athey act as sounding boards by challenging the “very-long interview” for prospectiveentrepreneur’s assumptions, they do not judge investments. In other cases, the entrepreneurstheir business ideas but rather guide them realize the value-added of the mentors andthrough the idea validation process through invite them to join their companies inrepetitive interactions. As one mentored management positions. However, in none ofentrepreneurs stated “it’s good to bounce the case studies were any of these outcomesideas off experienced people.” As brokers, they explicit objectives of the programs. To thegenerally draw from their social networks to contrary, most programs made efforts not tomake appropriate introductions. This leads to a raise the expectations of the ventures as to thereputational stake in the quality of the future role of the mentors in their companies.entrepreneur. In this way mentors are much Ventures are often discouraged frommore than advisors or coaches. They are proactively seeking investments from theirtrusted collaborators. As educators, they help mentors in order to maintain a relationship ofbuild the mentee’s competencies in areas such trust. 20
  • 19. Nurturing Innovation: Venture Acceleration NetworksIn their networks, each program relies on a market relationships with the ventures theydifferent mix of sounding boards, service serve in the form of either service fees orproviders, brokers and mentors. Each of these equity stakes. The case studies show that thehas a different expected impact on the most effective mentor-mentee relationshipsentrepreneur (Table 5). are guided by social norms (Box 5), although mentors often have professional (i.e. non-Table 5: Program focus and expected impact social) motives. Members of the extended network are typically service providers or Expected impact relate to beneficiaries on the basis of market norms, i.e. they have or expect clear business Transaction Program Networks efficiency Resource Capacity focus opportunities with the beneficiaries. Sounding costs boards are in a more ambiguous situation, between the core and extended networks. Sounding boards Figure 3: Typical organization venture acceleration network Service providers Brokers Sounding boards Core Extended Program mentor network of Mentors management or service broker providersImpact: ■ = high, ■ = moderate. networkThe typical venture acceleration network isorganized around a professionally-staffed Relations Relations hips hipsnucleus, a core network of mentors or guided by guidedbrokers, and an extended network of service non- by market marketproviders and technical experts (Figure 3). norms normsMembers of the core network have directinstitutional, personal or contractual ties to theprogram management. Members of theextended network either have ties to the Beneficiaries, typically in theprogram management or to its core network. same geographical or virtual business communityIn most programs, the beneficiaries, early-stage ventures or small businesses, are in thesame community as the core and extendednetwork members. These are eithergeographic communities or communities byway of a common institution (e.g. universitygraduates). With exceptions, the mentors orbrokers in the core network do not have direct 21
  • 20. Nurturing Innovation: Venture Acceleration Networks and accelerate the failure of “bad” ideas andBox 5: Social norms versus market norms the regeneration of new ones.We live simultaneously in two different worlds –one where social norms prevail, and the other Some programs do not incorporatewhere market norms dictate behavior. Social standardized milestones but agree to them onnorms are those based on intangible costs or an individual basis with the venture. Thesebenefits such as a feeling, reputation and how we milestones typically relate to specific aspect ofthink of ourselves, while market norms revolve the ventures, such as fundraising, marketing,around more concrete costs and benefits such as strategic planning, etc. A few of the programswages, prices or rents. In communities based onsocial norms, people often contribute because of are completely open-ended and have no timetheir passion for the topic or devotion to a limits, such as MIT VMS, IMP3rove, MaRS andproduct, group or individual. They provide Endeavor. Regardless of program timeframesfeedback and ideas because they want to see the and milestones, in all cases where there is agroup or individual succeed. mentorship relationship, the mentor requests the venture to do some incrementalSource: Ariely, Dan. Predictably Irrational: The Hidden “homework” before the next meeting. TheForces that Shape our Decisions. Harper Collins. New mentor always expects something back fromYork NY. 2008. the company. Pressure to deliver this “homework” ensures that ventures that areProgram Processes not committed to the program opt out.Clear program milestones and timelines Minimum guidelines for meeting frequenciesinfuse performance pressure on the ventures. can ensure that programs not loseMost programs support entrepreneurs over momentum. These can vary from every weekpredetermined timeframes, from as little as (TechStars) to every six to eight weeks (VBDC).three months (TechStars) to 24 months Weekly meetings require more commitment(Catalyst RN). Some, of these programs have from the mentor, and therefore a stronginformal or formal pre-defined milestones that network. In the case of the Larta programs,entrepreneurs are expected to meet. The mentors are expected to meet for 22 hoursTechStars program is divided into a mentor over a 9 month program but they typicallymatch-making phase, a product development exceed this amount. In a few cases (MIT VMS)phase and a pitch phase, which ends with an the entrepreneurs and their mentors agree oninvestor pitching event. In Larta’s programs, the meeting frequency on their own.entrepreneurs are expected to work on semi-tailored strategic documents during the course Programs based on service providers tend toof the program and present their strategies in be open-ended in their objectives. In thosepre-scheduled industry feedback sessions. That programs, there is no engagement timeline orsaid, in both of those programs there is milestones for the venture. Rather, the ventureconsiderable leeway to tailor the mentorship is entitled to a certain number of hours ofor advice to entrepreneurs’ needs. Milestones service provider “credit” which they can use asare used to put pressure on the entrepreneur they see fit. This entitlement is either formally specified by the (Carbon Trust) or provided on 22
  • 21. Nurturing Innovation: Venture Acceleration Networksan ad-hoc basis by the program (TechStars,Larta).Matching entrepreneurs with several mentorscan offer a broader variety of perspectives 3. Creating Strongand connections than a single mentor, andcreates checks and balances on conflicts of Networksinterest. SMART Singapore assigns twomentors per venture, MIT VMS assigns three tofour while VBDC finds that eight to ten is an Key findingsoptimal number. In the case of TechStars thereis typically a lead mentor, who spends more Networks built around highly-networkedtime with the venture, and non-lead mentors, individuals and prestigious institutionswho only meet occasionally. MIT VMS and result in network member commitmentVBDC offer group mentoring sessions, whereby and in longer-lasting bonds.entrepreneurs meet with several mentors Networks built on financial compensationsimultaneously. This ensures that can be rapidly mobilized but their internalentrepreneurs benefit from discussions from bonds are ephemeral and trust can bementors who do not agree on certain points. lower.Some entrepreneurs expressed theirconfusions when faced with differing opinions Successful networks start small and high-among mentors, but also acknowledged the quality and progressively build attractingbenefits of different viewpoints. Importantly, power.meeting in groups can help protectentrepreneurs from conflicts of interest. Ingroups, mentors are subject to peer pressure Features of Attractive Networksand less likely to try to exploit their position forunethical gains, such as selling a service to the To be effective, programs need to creatementor or investing in a competing company. strong networks that are attractive to bothAssigning multiple mentors also increases the their members and the entrepreneurs theychances that ventures will be left with some serve. Networks need to have a high enoughmentorship if mentors are too busy to attend value proposition to attract high-qualitymany meetings. VBDC assigns eight to ten members and keep them engaged. The casementors per venture knowing that only 70 studies reveal a variety of strategies (Table 6):percent will likely attend any particularmeeting. But large groups can also introduce Remunerating network members: Mostrigidities in the program due to coordination examined programs do not remunerateproblems. For this reason VBDC schedules a their external network members, andminimum of only six mentor sessions per year. when they do it is for a fee that falls short of the actual value of their time. Larta and Octantis compensate their mentors. In the case of Larta, a possible reason is the tight time constraints under which programs 23
  • 22. Nurturing Innovation: Venture Acceleration Networksoperate under government contracts. As the ground up, programs that benefit fromsoon as they win a contract Larta must one can generally create a more attractiverapidly mobilize mentors to serve and hence selective network. For example,hundreds of firms and are accountable for being associated with the MIT brand offerstheir mentors vis-à-vis their government an attractive value proposition to mentors.clients. This is not the case for programs Over several decades TiE has built up ansuch as MIT VMS where mentors do not exclusive “by-invitation-only” brand. Incommit to specific hours spent with the new EU member states, consultants wereventures. Remuneration is also required also attracted to the “EU” branding thatfor service providers who are expected to they could leverage by participating in theconduct research or analytical work for the IMP3rove (Carbon Trust, Catalyst RN). It is Leveraging local social capital: Some of thealso used to quickly build up a network and networks that have the greatest attractiveits beneficiaries up to a critical mass. power have at their core highly-connectedDuring its startup phase, IMP3rove paid super-achiever “champions”, typically theconsultants to conduct assessments and founder or manager of the program. Theyshort consultations with enterprises. As for have social and business roles in theirfull-time mentors and brokers, they are communities that bestow upon themalways paid at market rates (MaRS, IC2). significant social capital and hence theSounding boards are never paid as their capacity to mobilize a network. They playstrength lies in being completely the roles of mentors, connectors, brokers,independent and representing potential sounding boards, business partners,business partners, customers and investors and sometimes even politiciansinvestors. in their local communities. TechStars andOffering networking opportunities: Many its four founders is a case in point.of the programs, specifically those that are Accumulating this type of social capital canrooted in local communities, attract their be easier in tight-knit entrepreneurialmembers by offering them networking communities such as Boulder, the home ofopportunities with other mentors and TechStars. To a lesser extent, most otherservice providers. MIT VMS hosts periodic mentor programs in the case studiesmeetings for all of the mentors. TiE hosts leverage an internal champion’s socialnetworking events for its members. Many capital. As social capital often diminishesof Endeavor’s local mentors are attracted with geographic distances, it is moreby the prospect of networking with its difficult to leverage beyond localglobal mentors who are global business community networks.leaders. The value of networking is highest Providing access to unique ventures:when the network is exclusive and Mentors tend to be more willing to workassociated with a prestigious brand name with promising ventures that have aor a network “champion”, which connects chance to succeed, i.e. ventures withto the next point. unique market or technological valueLeveraging a prestigious brand: Although a propositions. One reason is that mentorshigh-value brand is difficult to build from put their own reputation at stake by 24
  • 23. Nurturing Innovation: Venture Acceleration Networksconnecting their mentees within own Table 6: Strategies to build a mentor/advisorsocial networks. A second is that unique networkventures offer opportunities for learning Strategiesabout new markets and technologies. A Remunerationthird is that mentors derive more Social capital Networking Customers Programexcitement from the prospect of success. Ventures Learning BrandAnd a fourth is that some mentors areinterested in investing or taking upmanagement positions in high-potential Carbon Trust Catalyst RNventures. All of the programs hence have Endeavorsome amount of selectivity with their 2 IC Indiaventures. Sounding boards typically have 3 IMP rovesome of the same interests as mentors, for INC Japanexample finding new ventures to invest in. Innovate VMS LartaService providers may also have incentives MaRSto lock-in relationships with promising MIT VMSventures that will grow to become their Octantiscustomers in the future, which relates to SMART TechStarsthe next point. TiE EAPProviding access to customers: When VBDCservice providers are included in thenetwork, it is always the case that they are Market Relationships in Human Networksdrawn by potential customers. This is notthe case for mentors. Sounding board The case studies reveal that upfront financialmembers may also be in search of compensation is not sufficient to build strongcustomers, but this does not appear to mentor or sounding board networks. Mentorstypically be their primary intentions. who see value from networking within their entrepreneurial community do not needOffering learning opportunities: some of additional financial incentives. Moreover, thethe programs enhance the attractiveness introduction of financial compensations limitsof their networks by offering the sustainability of the mentor-menteeentrepreneurship or innovation-related relationship. When the mentor-menteelearning opportunities to their participants relationship is predominantly based on market-through short training courses and norms the relationship can weaken when thepresentations. This is the case of TiE and program comes to an end and financialIMP3rove. rewards are terminated. At the far end of the financial compensation spectrum are mentors and brokers who are employed by a program on a full-time basis. In such cases, the relationship with the firm seldom outlasts the program. In the case of MaRS, professional mentors occasionally left for other careers, 25
  • 24. Nurturing Innovation: Venture Acceleration Networksleaving the ventures “orphaned” during some reputational risk in the mentor’s or brokerstime. business networks. However, this bottom-up approach is not easily scalable in the short run.Sounding boards do not expect to commitmuch time –their marginal costs of Network Development Typologiesparticipation in the program are low - and donot expect fees. In fact, the most effective The case studies bring out three approaches tosounding boards have genuine interests in the developing venture acceleration they are advising as networking, “Personality-driven” networks: regional,learning and investment opportunities. bottom up, pro-bono program guided by social norms, often coupled withIn contrast, service providers expect to have professional motives.or to develop commercial relationships withthe companies. Developing a mentor network “Institution-driven” networks: regional,and a service provider network require very institution-based program guided by socialdifferent approaches. To services providers, norms, often coupled with professionalsmall businesses –and to an even greater motives.extent early stage ventures- represent a “Market-driven” networks: national andfragmented market that imposes high business transnational, top-down program guideddevelopment costs. For innovation by market consultants, the costs of Most programs use elements of each“educating” SME clients to stimulate demand approach.are prohibitive. Thus, service providers havehigh incentives to reduce their search costsand transaction costs by joining a network that Personality-driven networks have at theiroffers them ready access to clients. core highly-networked individuals who are champions for the programs. TheseBuilding an effective network of service champions have high-standing as businessproviders is easier to achieve although less leaders or successful entrepreneurs in their regional communities, inspire trust, and havescalable through trusted referrals than significant social capital (Box 6) to draw from.through standardization and certification.Demand for innovation management The exemplary “personality-driven” network isconsultant training and certification can be TechStars. The co-founders are prominent entrepreneurs and investors in the tight-knitweak without first building a critical mass of Boulder, USA business community. They drawdemand from enterprises. Conversely, openinga network to un-vetted service providers members of their mentor and service providerdecreases the overall attractiveness of the network from their close primary social network and trusted referrals from thatnetwork. The case studies suggest thatreferrals from trusted mentors and brokers are network (Figure 4). The network is sufficientlyeffective at connecting entrepreneurs to interconnected to be self-policing. Any violation of trust or unethical behavior via thetrusted service providers. They are more likelyto guide entrepreneurs towards service mentees will be socially sanctioned. Theproviders that match their needs and face a quantity and quality of the members and inter- 26
  • 25. Nurturing Innovation: Venture Acceleration Networkslinkages in the network, and the credibility of relationships are typically long-lasting,the network “champion” makes participation extending beyond the life of the venturein network activities such as mentoring and program. Unlike in fee-based marketadvising an attractive prospect. Hence, relationships, mentors invest themselves asrelationships between the mentors and partners of the in the program become networkrelationships and benefit from its high level ofembedded social capital. As such, these Box 6: Entrepreneurship and social capital Social capital is a concept that refers to the value derived from connections within and between social networks. These relationships are built on mutual belonging and trust. Benefits from social capital are derived through the goodwill that members of networks feel toward each other. The question of whether entrepreneurs are more likely to succeed if they have access to greater resources and information has been extensively studied – for the social capital field this has meant looking at the connections that entrepreneurs have to networks of people who have been in business, are party to knowledge on a sector that might be useful, or can provide connections to financiers. Studies have shown that the personal networks that entrepreneurs can draw on add “external resources” to the “internal resources” of ambition and ideas that they already have. One prominent theory divides the relationships that provide these extra resources into three types: structural, relational and cognitive. The structural aspect is essentially the ability that entrepreneurs have to access things through a network. The more access and the bigger or more extensive the network, the better it is. The relational aspect refers to the quality of the relationships in that network – how much mutual respect, trust and friendliness there is between the people involved. Finally, these networks are changed by the extent of shared norms and ideas – the cognitive aspect. A good example of this is the tolerance of entrepreneurial spirit and the risks attached to it. The more it is accepted the more a network is likely to be open to failure. Interestingly, some studies have found that these factors work together in certain ways and that some of them might benefit particular types of entrepreneurs more than others. For example, there is evidence to suggest that budding entrepreneurs need to first start using their ties, then to start contributing to the norms and views of their network, and by doing so develop bonds of trust with people who can provide valuable support. Furthermore, high-tech entrepreneurs have been found to gain substantially from relationships and networks that have strong, trusting connections which give them the access to information and knowledge that they need. Sources: Putnam, Robert. Bowling alone: Collapse and Revival of American Community. Simon & Schuster, New York NY. 2000. Ferragina, Emanuele, “A new concept generated from an old idea. Rethinking Social Capital in relation to income inequalities,” Barnett Papers in Social Research, University of Oxford, 2009. Ostgaard TA and Birley S, “Personal Networks and Firm Competitive Strategy: A Strategic or Coincidental Match,” Journal of Business Venturing, 9, pp 281-305, 1994. Nahapiet J and Ghoshal S, “Social Capital, Intellectual Capital and the Organizational Advantage,” Academy of Management Review, 23(2), pp 242-266, 1998. Liao J and Welsch H, “Roles of Social Capital in Venture Creation: Key Dimensions and Research Implications,” Journal of Small Business Management, 43 (4), pp 345-362, 2005. 27
  • 26. Nurturing Innovation: Venture Acceleration NetworksFigure 4: “Personality-driven” network mentees in the same communities they create sustained relationship (Figure 5). Secondary social network Figure 5: “Institution-driven” network Exclusive primary social network Exclusive formal business network Highly-networked with a clear value proposition “magnetic” created ex-ante champions Well-networked champions + brand name institution Deep & sustained relationships Ephemeral Sustained relationships relationships Ventures in the same business community Ventures in Ventures in the different business same business communities communityInstitution-driven networks have at their coreorganizations that confer a sense of socialprestige and a common identity among its Market-driven networks rely on directmembers. This is at the root of their attractive financial incentives to attract individuals andpower. Universities can create rallying points entice them to support entrepreneurs. Theyfor networks. Loyal alumni sometimes engage typically involve establishing contractualin activities such as offering personal relationships with disparate individuals basedrecommendations, participating in alumni on consultancy fees and salaries (Figure 6).functions and in some countries providing These networks become guided by market-financial support based on strong continuing norms rather than social norms and are morefeelings of association with the institution. ephemeral than the personality-driven andThis is the case of the MIT VMS program. It institution-driven networks. These networksattracts alumni who have a sense of virtual are useful for programs that need to mobilizecommunity and non-alumni who wish to be individuals who do not share a commonassociated with the university for a variety of geography or institutions, or highly-specializedreasons (prestige, culture, exclusive expertise. The Carbon Trust Catalyst Program isnetworking opportunities, etc.). TiE, the global an example of a market-driven network. TheSouth Asian entrepreneur organization, has program hires contractors who help guide andcreated a sense of exclusivity through its direct entrepreneurs to subcontracting serviceinvitation-only network, long before it providers nationwide.formalized its mentor program in Bangalore.When these networks pair mentors and 28
  • 27. Nurturing Innovation: Venture Acceleration NetworksFigure 6: “Market-driven” network in fields closely related to that of the entrepreneur. Business community When entrepreneurs have several mentors, they bring in complementary skill sets rather Contracted partners than specialized entrepreneurship experience. Several of the case study programs match entrepreneurs with groups of mentors. Under Administrators those circumstances it is common that only a few of the mentors have small business entrepreneurship experience. The rest bring in complementary skills that the entrepreneur Specialized & will need to draw on: technology expertise, ephemeral relationships regulatory knowledge, marketing experience, etc. This is the case of VBDC and MIT VMS. Ventures in various Mentors are typically drawn from the local business communities business community, but some programs incorporate long-distance mentoring. Mentoring is a predominantly local process for a variety of reasons. First, mentors leverageSelection of Network Members their personal networks to support their mentees. Personal networks tend to be mostlyWhile sounding boards, service providers and local since geographic proximity facilitatesbrokers have a wide variety of backgrounds, repeated interactions, information transfermentors typically have extensive backgrounds and reputational risk. Second, it is easier toin small business entrepreneurship. The case recruit local mentors. They may be specificallystudies highlight that what makes a mentor is interested in giving back to and networking innot an MBA or management consulting their community to accumulate more localizedexperience, but extensive experience with business knowledge or grow their personalentrepreneurship and running a business. Most networks, and they may also be interested inof the mentors in the case studies are finding investment or management becausethemselves serial entrepreneurs who have they wish to stay in their current location.succeeded and failed several times. Bothsuccess and failure are valued traits of a Nonetheless, a few programs offer long-mentor, since this combination of experience distance mentoring. This occurs because, theprovides the most complete insight on what program requires national coverage and it isworks and what does not. Mentors tend to not possible to have mentors in every singlehave at least a couple of decades of experience company location (Larta); or the programin entrepreneurship, although there are visible offers expertise that is not available in the localexceptions among mentors of web-based community (Larta, SMART, IC2 India). In theventures (particularly social media) in view of latter case, the expertise is unique because itthe sector’s short history. Mentors are typically offers mentorship from entrepreneurs with 29
  • 28. Nurturing Innovation: Venture Acceleration Networksextensive experience in a specific sector; or Successful programs start with small highmentorship by entrepreneurs who understand quality networks. There is a positivethe global market and have foothold in the reinforcing relationship between the quality ofright business networks. Innovative clusters act the network and the quality of theas “nodes” of access to dense localized sources entrepreneurs enrolling in the program. A low-of knowledge on global markets and privileged quality network will attract low-qualitybusiness networks that are connected globally. entrepreneurs, who will in turn make it difficultTwo examples are Silicon Valley and Boston. to attract high-quality network members. ForThe rapid connections they offer enable the this reason, programs start with a smallrapid validation of business ideas, the rapid handpicked network and a small number ofaccess to business partners and hence the ventures and scale up slowly over time. Smallability to accelerate ventures towards success programs such as TiE EAP and SMARTor failure. Larta’s long-distance mentoring Singapore struggle to find the right match ofprogram provides for an initial first face-to-face mentors for their ventures, but prefer to facecontact between the mentor and the company this struggle rather than to decrease theto establish a human relationship and the trust quality of the network. For the time being,that comes with it. Entrepreneurs and mentors TechStars has decided not to scale up itsreport being comfortable with long-distance program outside of its four existing locations ofmentoring over email or the telephone. In 40 companies per year, in order not tosome cases, when interactions with mentors is compromise its mentor network. Somelimited to a short program over the telephone programs build up their networks by firstand mentoring is performed across national attracting a few highly recognized individuals,borders, there can be difficulties in establishing making it easier to attract others.relationship of trust between the mentors andthe mentees. Program managers screen their network members through their social networks, withBeing a mentor is rarely a full-time position. mentors receiving the most scrutiny. All of theOne of the values that mentors bring is their programs use informal processes to identifycurrent knowledge of the marketplace and and invite sounding boards, brokers, servicetheir personal networks. To be updated and providers and mentors to their networks. Theuseful, both of these require that the mentor only program which incorporates a formalbe fully integrated and active in the screening process is IMP3rove, with a multi-marketplace. Mentors are active in a variety of level training and certification scheme forprofessions. Many still run ventures of their innovation management, but to date, noown, some are work as consultants, investors consultant has yet to be certified and theor lawyers. They typically spend only a small platform remains open to all consultantsfraction of their time mentoring one or a few having gone through IMP3rove’s brief trainingcompanies. Some programs such as TechStars program. Among the programs in the casediscourage mentors from working with more studies, mentors are screened the mostthan one company. In a few cases mentors are carefully. They are the centerpiece of mostfull time positions (e.g. MaRS which has 10 full- programs and their effectiveness relies on thetime advisors). trust they establish with the mentees. Some program managers typically only accept 30
  • 29. Nurturing Innovation: Venture Acceleration Networksmentees who they know personally or are independent party. As small firms, they do notrecommended by a trusted source (TechStars). often understand their needs or what types ofAt MIT VMS, new mentors are accepted by consultants are right for them. This match-invitation only from existing mentors, who put making role is played by the subcontractors intheir reputation at stake. At TiE EAP, mentors the Carbon Trust program.are selected from among the Charter Membersof the TiE network, which is by invitation of When well managed, larger networks areexisting Charter Members only. In mentor- more effective, but there is no optimal size.based programs, the mentors themselves Networks range from fewer than 10 peopletypically play a role in referring the (VBDC) to several hundreds (TechStars andentrepreneurs to their trusted personal IMP3rove) (Table 7). In general, the larger thenetwork of service providers. network-to-beneficiary ratio the easier it is to find a right match between a network memberMatch-making of mentors and mentees is and a company, a critical success factor forcritical to a program’s effectiveness and is mentor networks. Programs find it difficult tobest achieved through an iterative process. All grow a large network without compromisingmentor-based programs match mentors from on quality. Thus IMP3rove’s large networkwithin their networks with entrepreneurs on suffers from uneven consultant quality whilethe basis of their profiles. Mentors are typically TechStars cites growing the network to be aasked for their preferences first. In several barrier to scaling up its program.programs they are free to turn downcompanies they do not wish to work with Table 7: Size of network in each program(TechStars, VBDC). Several programs do not Number ofprovide many mentor options to Network/ben Program people in the eficiary ratioentrepreneurs and this is reflected by uneven networksatisfaction among mentees. Several programs Carbon Trust variable variableconsider mentor-matching to be the Catalyst RN variable variable Endeavor >2000 up to 4*centerpiece of their effectiveness. In effect, 2 IC India variable variablepersonal chemistry plays an important part of 3 IMP rove 501 0.18the productivity of the relationship. In both TiE INC Japan variable variableEAP and TechStars ventures meet with many Innovate VMS 140 2.4mentors for several weeks before establishing Larta 54** 0.15 MaRS 70 0.7a mutually-agreed relationship with a mentor. MIT VMS 140 0.64TechStars refers to this process as “mentor- Octantis 200 8dating”. SMART 20 2 TechStars 278* 6.95Small firms often need external match-making TiE EAP 40 10-20with consultants, due to a lack of VBDC 8 - 10 8 - 10 *varies by countryunderstanding of the market. Although the **core mentors onlyIMP3rove program allows firms to select fromwithin a descriptive database of consultants, Network to beneficiary ratios vary acrosssome small firms express the need to be programs, but this is partly due to networkactively matched to the right consultant by an utilization rates. While certain programs such 31
  • 30. Nurturing Innovation: Venture Acceleration Networksas TechStars and Octantis retain a continuouslarge pool of networks, from which some willbe much more engaged in the program thanothers at different times, other programsoperate on a just-in-time network basis. This is 4. Selecting Venturesthe case of VBDC and SMART, where mentorsare recruited from the local community asneeds arise. Some programs, such as Larta and Key findingsIMP3rove have very small annual network-to-beneficiary ratios (Table 7). This means that Many programs avoid picking winnersnetwork members need to be engaged with but include mechanisms to help non-more than one company throughout the year, performers self-select out.sometimes serving multiple companies at atime. In order to readily secure network For programs focusing on R&Dmembers for large numbers of companies commercialization, picking the “right”these programs need to include strong technology is as important as theincentives in their models. Both rely at least team. For programs involving early-partially on market norms. Larta’s mentors are stage ventures, picking the right teampaid and IMP3rove’s consultants expect is more important.immediate business opportunities from theirinvolvement in the program. The number of companies in a program varies considerably with the program’s business model. It varies from one per year to several hundreds per year (Table 8). “High touch” programs that involve a high degree of support and coordination from management staff tend to have fewer participants. This is the case of TechStars, where the program staff interacts with startups on a weekly basis, organizes networking and educational events, and monitors startups to ensure that they reach key milestones. The IC2 India program is also of limited size, as it involves heavy business development and coaching by program advisors. In contrast, many ventures enrolled in the MIT VMS have never met the management staff and schedule meetings with their mentors at their own pace. IMP3rove’s approach is to act as a network enabler rather than a network manager, it is hands-off and automated, and is hence able to scale up. 32
  • 31. Nurturing Innovation: Venture Acceleration NetworksLarta’s approach is more structured and Figure 7: affiliation, profile and potential forintensive than MIT’s VMS, but has been success.effectively scaled up through by leveragingjunior program management staff. Other Affiliation with an elite institution can helpprograms are typically only staffed by a duality attract high-quality mentors. Some programsof senior staff and administrative staff. are exclusive by nature and require that the venture be affiliated with an educationalTable 8: Average annual number of companies institution or with a region. Programs that areparticipating in each program affiliated with educational institutions, such as Participating MIT VMS and Catalyst RN, are open to Program students, alumni, faculty and researchers. companies Carbon Trust 40 Their aim is explicitly either focused on the Catalyst RN 10 commercialization of university R&D (Catalyst Endeavor 506 2 RN) or educational (MIT VMS). In the case of IC India 60 3 Imp rove 283 MIT VMS, where the goal of the program is one INC Japan 200+ of entrepreneurial education, keeping the Innovate VMS 58 network exclusive makes it possible to attract Larta 350+ in several programs high-quality mentors. This is particularly true MaRS 100 for attracting those mentors who are MIT MIT VMS 221 alumni and wish to give back to the institution. Octantis 25 SMART 10 TechStars 40 in 4 locations Programs that require regional affiliations TiE EAP 2 to 4 generally have in their mandates broader VBDC 1 economic development goals (MaRS) that go beyond R&D commercialization or education.While most programs screen beneficiaries, They are funded by regional governments andmany are careful not to “pick winners”. aim to create jobs and wealth in theirTogether, the programs in the case studies communities. Other programs are completelyserve a broad variety of beneficiaries. Some open and invite any ventures to applyare individuals who aspire to commercialize (TechStars).R&D, start a new company, or both; some aremedium-sized companies in traditional sectorsin search of new modes of growth; yet othersare early stage companies with no particularR&D expertise but new business ideas toconquer new markets. Although all have incommon a drive for entrepreneurship andinnovation, none of the case studies combineall of these groups into a single program. Insum, each program have elements ofbeneficiary selection, whether very loose orvery restrictive. Programs use three types ofcriteria to screen beneficiaries, as shown in 33
  • 32. Nurturing Innovation: Venture Acceleration NetworksFigure 7: Criteria used to screen beneficiaries focus is to prepare technology projects before they enter the market, rather than to help 1. Affiliation entrepreneurs face the brutal realities of the market. TechStars focuses on very early stage e.g. Regional (Innovate VMS), ventures, most of which do not yet have angel institutional (Catalyst RN), funding. Many TechStars ventures consist of a open (TechStars) team of aspiring entrepreneurs who have yet to even register their companies. In contrast to SMART and Catalyst RN, TechStars 2. Profile entrepreneurs are fully dedicated to their e.g. Pre-formation (SMART), ventures, and are hence fully “immersed” in biosciences (VBDC), revenue- the market. Still, other programs such as VBDC generating (Endeavor) are only open to revenue-generating companies. This is a requirement for paying for VBDC’s incubation services. Endeavor supports 3. Potential for success firms that have already proven that they are 2 “winners” with existing growth and revenue e.g. Technology (IC India), entrepreneur (TechStars) streams of more than USD 1 million per year. One program, MIT VMS, tends to be open to early stage ventures at a broader range of development stages. This is aligned with the program’s objective to serve the entire MITPrograms are generally tailored to specific community, and provides a broader reach tofirm profiles. All case study programs are MIT alumni who may one day help replenishdesigned for particular venture profiles. MIT’s endowment fund.IMP3rove stands out as being the only programthat addresses the needs of companies in their Among the programs addressing early stagelater phases of development only. The ventures, some focus on single sectors. In theprogram excludes companies that are less than case of VBDC and Carbon Trust, focus sectorstwo years old. This is linked to the different reflect the strategic priorities of theirnature of support required for early stage sponsoring national and regional governmentscompanies that are still validating their (biosciences and low-carbon technologies).business models and learning general VBDC’s focus on a single sector is also based onentrepreneurship skills from more mature its stakeholders’ aim to build a regionalcompanies that are searching for a growth innovation cluster. TechStars focuses on web-“algorithm” through strategic planning. based and software ventures, mostly due to the background of the program’s founders andMost programs addressing early stage ventures the incubation aspect of TechStars, whichare focused on a particular stage of their groups ventures under one roof with ampledevelopment. In the case of SMART and opportunities to interact. As a three-monthCatalyst RN, the technology at the core of the program, TechStars is also more suitable to thebusiness idea is still in the laboratory. Their fast pace of ventures that aim to create new markets from existing technologies (i.e. ICT) 34
  • 33. Nurturing Innovation: Venture Acceleration Networksthan the long development time and capital added. For programs that are funded byrequirements associated with the development investors (TechStars), only successfulof entirely new technologies. Web-based ventures will yield financial are also particularly well suited for a The second motivation is to attract highshort time to market since they do not rely on quality mentors and advisors in theira putting together complex supply chains. networks. In most programs, with theSeveral programs are specifically tailored to possible exception of IMP3rove, mentorsR&D-based ventures (Larta, IC2 India) and advisors are attracted to the programassociated with their R&D commercialization because of opportunities to work withroles. Others have a mix of R&D and non-R&D entrepreneurs who are highly motivated,ventures (Octantis). Programs that focus on are eager to learn, have business ideas thatspecific sectors are able to support their can help keep them keep abreast of latestventures with a smaller pool of mentors, since technology trends, and offer potentialthey do not need to span as broad a range of opportunities for a management orexpertise. investment position in a successful firm. These factors explain why many innovationThe beneficiaries of programs concerning early acceleration programs are eager to focusstage ventures tend to have a limited amount on potential winners.of entrepreneurial experience. They mostly donot have either the skills or network to start Programs have two focus points for activelyand grow successful ventures. Nonetheless, picking potential winners: the technology andeven entrepreneurs with several years of the team. Programs focused on R&Dexperience can benefit. One TechStars commercialization or “technology push”entrepreneur was starting his second venture (SMART, Larta, Carbon Trust, IC2 India)and yet attributed significant value to the examine first and foremost the technology andprogram. its market potential. Programs focused on creating new markets (TechStars, Endeavor)Most of the programs aim to support tend to put much more emphasis on thecompanies with the highest potential for entrepreneurial team. The business idea issuccess. Some of the programs are engaged in important, but secondary. Teams that show“picking winners”, others actively try to attract the ability to “interpret” the market andand retain winners through self-selection, execute their business strategies are selected.while others yet are open to all firms. Endeavor’s multi-stage interview process isPrograms have two motivations for supporting highly involved and can last up to a that will become successful. The first motivation is to secure the Some programs aim to attract ventures with reputation of the program from among its the highest prospects for success but do not financial sponsors and investors. For actively select them among applicants because programs that are funded through public of either a mandate to serve their constituents sources or private donations (MaRS, (MaRS) or, in addition to this, a belief that it is InnovateVMS) successful ventures can be impossible to pick winners (MIT VMS). MIT used as a reflection of the program’s value VMS accepts any venture that “is legal and 35
  • 34. Nurturing Innovation: Venture Acceleration Networksdoes not defy the laws of physics”. Horizon 3 opportunities includeNonetheless, MIT VMS already has an technologies or markets that have not yetimportant quality screening filter in the form of been institutional affiliation with MIT. MaRSaccepts all ventures but their mentors apply Figure 8: Opportunity horizons of the“tough love” from the very beginning of the programsprogram, assigning demanding tasks to New marketventures between mentor meetings. Ventures TechStarsthat are unable or unwilling to complete this“homework” generally do not see a point in TiE EAP, INC Japan,remaining in the program and opt-out on their SMART, Octantis, Knowledge of market Catalystown. If needed, mentors can discuss this with VBDC, RN, Existing market notventures and advise them to discontinue the MIT VMS, Larta. served by the Innovate VMS, Carbon enterpriseprogram. Nonetheless, these programs still MaRS Trusthave minimum filters. Ventures that have not Endeavor IC2 Indiademonstrated a minimum level of prior effortin establishing a business concept are turned Existing market 3 IMP rove served by thedown. enterpriseIn the case of IMP3rove, there is no attempt toscreen firms. The program’s value is enhanced Horizon: 1 2 3with the number of firms taking the innovation Existing Existing Newmanagement assessment, since this increases technology used technology not technology by the used by thethe benchmarking database and creates a enterprise enterpriselarger pool of demand that can attract Knowledge of technologyconsultants to the platform. All of the programs are uniquely tailored toSo how should program beneficiaries be ventures tackling horizon 3 opportunities, withscreened? The answer depends on the the exception of IMP3rove, which serves aobjectives of the program. The opportunity broader set of enterprises (Figure 8). Aspace for innovation can be divided into three fundamental difference between IMP3rove andhorizons: other programs is that while IMP3rove is Horizon 1 opportunities include focused on helping companies with internal technologies already used by the processes to create a favorable environment enterprise and markets already served by for innovation, the other programs focus on that enterprise. external processes to accelerate the validation of new market and technology ideas. This Horizon 2 opportunities include second group of programs focus on companies technologies not yet used by the that do not yet have many, or any, internal enterprise and markets not yet served by processes to improve. They help ideas fail that enterprise. early, quickly and inexpensively. The case studies reveal that the quickest way to accelerate market validation is by focusing on 36
  • 35. Nurturing Innovation: Venture Acceleration Networksventures that emphasize creating new marketsrather than new technologies (TechStars).When programs are dedicated tocommercializing new technologies, the 5. Financing thepotential payoffs can be higher due to highermarket entry barriers, but the process takes Programlonger and ventures do not have the flexibilityto completely reinvent themselves since theyare wedded to a technology (SMART, Carbon Key findingsTrust). Most programs operate somewhere inthe middle, promoting ventures that seek Program costs can be very low foropportunities in either new markets or new minimalist programs.technologies. It is not clear that programs can become financially-sustainable on theThe case studies show that network programs basis of returns from equity stakes ofcan accommodate a broad range of sectors. beneficiaries.When programs screen for specific sectors, thisis typically related to a higher-level objective Most programs, even privaterelated to strategic priorities. The TechStars programs, rely heavily on publicmodel shows that mentor programs are subsidies, private donations andparticularly well-suited for fast-paced sectors corporate sponsorships.such as ICT with limited supply chains, lowcapital requirements and that rely on creatingnew markets. Program CostsThe case studies also show that screening Program costs vary highly, from a fewbeneficiaries can help attract higher quality thousand to tens of thousands USD per yearmentors, and hence enhance the value of the (Table 9). Costs vary mainly on the basis of theprogram for beneficiaries and stakeholders. amount of required program managementThis can be done by requiring an affiliation attention. “High touch” programs such aswith a prestigious university, by selecting TechStars tend to be much more expensiveventures on the basis of their technology (a than “light touch” programs such as Larta orrisky approach), by selecting ventures on the than “hands-off” programs such as IMP3rove.basis of the entrepreneurial team, or byallowing ventures to self-select. Publicly- IMP3rove differentiates itself from othermanaged programs do not have a history of models in its low marginal costs perbeing successful at picking winners. For these participating company. The vast majority ofprograms institutional affiliation and self- costs are fixed costs related to the initialselection are more suitable options. In all development of the online platform and thecases, recruiting ventures that are local –at initial population of the benchmarkingleast for the duration of the program- can database. The marketing of the program andfacilitate the creation of stronger networks. training of consultants are the only variable 37
  • 36. Nurturing Innovation: Venture Acceleration Networkscosts. Once it is able to reach a critical mass Participation fees are rarely a financingand stir up demand from SMEs and option. In very few of the case studies areconsultants, IMP3rove can be expected to run early stage ventures asked to pay programat a rather low annual cost. participation fees, and when they are, these are very low and reimbursed by public supportTable 9: Program cost estimates measures. Ventures, even those recognizing Program Average cost per the high value added of the programs, venture (USD 1000’s) generally expressed their reluctance for paying Carbon Trust 115 program fees for two reasons: the first being Endeavor 32* that early stage ventures do not typically have 2 IC India 23-100 3 the revenues or access to credit to pay for such IMP rove ~3** Larta 4 to 13 programs; and the second being that for many MIT VMS 2 ventures the precise value added of mentoring Octantis 2.4 is that it was not based on pure market TechStars 40-60 relationships but on social norms and trust. VBDC 2 Some ventures expressed discomfort with the*varies by country**marginal costs are estimated to be much lower prospect of paying for a mentor program, or paying mentors directly, on the premise that itSources of Funding would reduce the transparency of the relationship with mentors by introducingThe case studies show that financial self- doubts onto their and the program’s ulteriorsustainability for a standalone venture motives (i.e. moral hazard). While venturesacceleration network program is not a trivial showed reluctance to pay for the programs, intask. Almost all programs rely on some form of some cases, they were willing to incur out-of-financial or in-kind subsidies or support from pocket costs associated with the program, suchor from their parent institution (Catalyst RN). as travel.Principal sources of funding include: Subsidies from, or contracts with, public In contrast to early stage venture programs, sources (Larta, IMP3rove), from partnering the only network program for mature universities (Octantis) and donations from companies among the case studies, IMP3rove, philanthropists (MIT VMS, Endeavor). requires that participating firms pay consultants. Yet, the program recognizes that Sponsorships from (typically private) willingness to pay for innovation management organizations in return for brand visibility consulting is very low among SMEs and or privileged role in the program (VBDC). institutes various incentives such as free Cross-subsidies from other activities innovation assessments to lure in companies. performed by the host organization (MIT Participating consultants also recognize this VMS). low market demand and generally offer SMEs a Returns from equity investments in free initial working session following the ventures (TechStars). innovation assessment. In order to attract sufficient demand for the program in its initial External investors (TechStars). development stage, IMP3rove also subsidized consulting sessions. IMP3rove has also found it 38
  • 37. Nurturing Innovation: Venture Acceleration Networksdifficult to raise revenue through training and Corporate sponsorships can also be usedcertification services and remains dependent creatively to complement operationalon EU subsidies to date. budgets. Sponsorships differ from donations in that sponsors typically expect to something inSubsidies and donations account for the lion’s return. Sponsors include private individuals asshare of most program budgets. All of the well as organizations such as companies.programs associated with universities received Several programs offer an array of sponsorshipat least in-kind subsidies from the host schemes, ranging from several thousand USDinstitution (free rent for MIT VMS) and in some to several tens of thousands of USD (TechStars,cases outright financial subsidies (Catalyst RN). VBDC). Sponsors typically benefit from addedIn some cases, programs receive subsidies visibility (e.g. logos on the website) and accessfrom universities with which they collaborate to ventures during social and networking(Octantis). Regional programs such as VBDC events. In the case of VBDC, sponsorsand MaRS received most of their funding from participate in the governance of the programpublic subsidies. Endeavor raises significant and in selection committees. Both TechStarsfunding from private donations and from their and VBDC accept in-kind sponsorships throughboard member contributions. Both MIT VMS business services. In the program case studies,and MaRS were launched with seed capital sponsors only covered a small share of totalfrom private individuals. costs.Cross subsidies from other activities can be Returns from equity investments in venturesuseful supplements. Some programs are able are an option rejected by some programs andto draw from revenues generated from non- embraced by others. Several programs andmentoring activities. A notable example is TiE ventures made moral hazard arguments withEAP which receives no public subsidies and regards to equity stakes in ventures. In effect,functions autonomously, although a pool of in many cases, an investor’s profit-maximizingangel investors and venture capitalists have strategies are not aligned with the investee’spledged support to EAP. Its revenues are (Box 7). Hence, many of the programs (MITlargely covered through monthly membership VMS, Larta) prohibit mentors from takingfees. Members, who include seasoned equity in the firms during the course of theentrepreneurs, have access to a wide range of program. Their aim is to protect inexperiencedentrepreneurship training, networking and ventures from predatory investors wishing tomentoring opportunities which they are willing exploit their trusted mentorship positions toto pay for. Because TiE membership is by their individual benefit. However, no programinvitation only, the network’s exclusivity prevents mentors from investing in theincreases its value. In contrast to the other ventures if they recuse themselves fromprograms, TiE’s formal mentoring program in mentoring the venture or once the venture hasBangalore, TiE EAP, grew out of the TiE exited the program. Only one program, TiEnetwork, and not vice versa. Both MIT VMS EAP, is based on mentor equity stakes in theand MaRS also draw revenues from consulting ventures. This program is still relatively newservices when they support the development and in its second year experienced difficultiesof other mentoring programs. in matching mentors and ventures, so it is unclear whether this is a viable business 39
  • 38. Nurturing Innovation: Venture Acceleration Networksmodel. In another program, TechStars, regions with existing strong communities ofalthough mentors are prohibited from entrepreneurship such as Boulder, the home ofinvesting in the ventures, the program itself TechStars.took 6 percent of common stock equity stakesin participating ventures. TechStars has at least Box 7: Investor motives and venture growthbroken-even on its 2007 program throughinvestment returns from. Subsequent years There are scenarios where angel investors mayhave not generated as many exits but this advise their invested companies to take decisionscould be largely a function of the global that will not favor the company in the long crisis which imploded the US angel Consider the case of an angel investor advising anand venture capital (VC) markets. investee on seeking additional capital at time tcapital. The angel investor may believe that additional capital will allow the company to grow faster andExternal investors can help raise financing improve its chances of exit (line b in the chart) butwhen the program takes venture equity may still advise against it to maximize his or herstakes. TechStars’ equity stakes in its ventures individual profit at a greater risk (line a in theopens up a source of funding that is chart). If the investor advises the company againstunavailable to other program: private capital. seeking additional capital at time tcapital, his or herTechStars raises funding for each of its equity will be worth v 1 investor at time texit. If instead,programs from private investors. The founders the investor advises the company to seekof TechStars invest in the program using their additional capital and a new investor dilutes thepersonal wealth, but funding is also raised angel’s equity share in half, the angel’s equity at time texit will be worth ½ v 2 investors which is less thanfrom external investors. These investors are v 1 investor.not disclosed to the public. InvestorShould a venture network aim for self- value b. Growth withfinancing without donations or subsidies? capital from 2Most of the programs in the case studies V2 investors investorswhere not financially self-sustainable. 3IMP rove, in spite of very low marginal costs is V1 investorstill not self-sustainable after more than four ½ V2 investors a. Growth withyears of operations. TechStars was at least capital from 1 investorprofitable for one of its first four years, but thefinancial crisis and the typical holding time for tcapital texitangel investments obscures whether this will Timebe so in the long run. TiE EAP’s self-sustainability relies on being embedded in aunique and highly successful global Whether the program’s aim is to be financiallyentrepreneurship network. It is also a very self-sustainable - i.e. free of in-kind or financialsmall program so the network can absorb its subsidies or cross-subsidies - should be acosts. In sum, there is no overwhelming reflection of both its objectives and theevidence that any standalone venture innovation ecosystem in which it operates.acceleration network programs can be self-sustainable, let alone outside of innovative 40
  • 39. Nurturing Innovation: Venture Acceleration NetworksSeveral program objectives are not compatible is limited social capital or trust within thewith self-sustainability: business community. One place to look for hints on types of returns to expect from equity The more upstream a program operates in stakes are angel groups, although not all angel the innovation process the lower the share groups have structured mentoring processes of private returns with respect to social and they often invest in ventures that are at returns, due to the well-known later stages than some of the men programs in externalities associated with innovation. the case studies. Data from studies of angel Hence, it is likely that on average, network groups in the US and the UK show that more programs aiming to commercialize R&D than half of the investments result in a loss. from research institutions cannot be Only a small share of exits result in structured to turn a profit. considerable returns, and only after a long Programs that are open and serve an holding period (Box 8). Hence, venture educational function are unlikely to reach acceleration networks hoping to rely on equity self-sustainability. Although MIT VMS is the revenues to self-finance should have large most explicit about serving an educational investment portfolios and patient capital. function, most of the other programs Nonetheless, it is too early to judge whether inherently do so and hence generate this is a viable strategy. And in most countries, substantial learning externalities that investment returns to angel investing are likely cannot be captured by the investor. to be much lower than in the US and UK. Entrepreneurs participating in mentor programs will have acquired stronger entrepreneurship skills and stronger networks that will ultimately benefit investors in any subsequent ventures they decide to launch, without passing on these learning and networking costs to those investors.If a program aims to be financially self-sustainable without grants or donations, equitystakes appears to be the only option toexplore. The case studies suggest that raisingfunding from participation fees is not realisticand that commercial sponsorships can onlycover a small fraction of costs.The case studies also suggest that someprograms and entrepreneurs are uneasy aboutequity stakes, so equity stakes could result inlower demand for the program and hence alower quality of participants. This may beparticularly true in environments where there 41
  • 40. Nurturing Innovation: Venture Acceleration NetworksBox 8: Returns from angel investingTwo recent studies on returns to early-stage(angel) investments, one on the UK and theother on the US, found that investors often lose 6. Choosing anall of their capital but some make large returns.Both studies collated data by using surveys of Organizationalthe exits from investments in the 2000s madeby angel investors in groups. The emergence of Structurethese groups has been an important change tothe industries in both countries, allowingindividual investors to pool expertise, capital Key findingsand opportunities. In the UK 50 percent of theinvestments in the study were made before the There is no “right” programfirm had shown any revenue. In the US study 34 organizational structure. It dependspercent of investments were made prior to the on the program’s objective and theventure generating any revenue. local context.In both studies exits from investments showed Program can be operated with verya skewed distribution in returns. Fifty-two lean staff and flexible structures.percent of the exits in the US study returned aloss to the investor while seven percent of theexits gave returns of more than 10 times theoriginal investment. The top 10 percent of exitsgenerated 75 percent of all the returns across Program Delivery Modelthe study group. In the UK 56 percent of theexits returned a loss and 36 percent gave The case studies illustrate five programreturns of between 1 time and 5 times the delivery business models: 1. in-house, 2.original investment. The US study found thedistribution of the US exits to be similar to the partially outsourced, 3. outsourced, 4.returns on investments made by US venture consortium, and 5. franchise. The case studiescapitalists. do not reveal any particular program delivery model trend in relation to the type ofThe average length of an investment hold in the organization (public, private, academic, NGO)US study was 3.5 years, and the length of an that founded or seeded the program (Tableinvestment hold was positively correlated with 10).returns. In the UK the average length of aninvestment hold was 3.6 years, with theaverage length of an exit at a loss taking 3.2years while exits with a 10 times return tookaround 8 years.Source: Wiltbank R and Boeker W, Returns to AngelInvestors in Groups, 2009. Wiltbank RE, Siding withthe Angels: Business Angel Investing – Promisingoutcomes and Effective Strategies, NESTA, 2009. 42
  • 41. Nurturing Innovation: Venture Acceleration NetworksTable 10: Program delivery models This allows TechStars to tap into investors and sponsors with ties to particular cities and run Delivery Instigator Program the programs as investment funds. On the Model government side, INC Japan, a publicly-owned Non-profit MaRS, TiE EAP VC fund, operates its own innovation network MIT VMS, Catalyst RN, University program. The program has had difficulty SMARTIn-house obtaining buy-in from the investment are of For-profit TechStars INC Japan who are responsible for more Government mainstream activities. INC Japan enterprisePartially Government Outsourcing specific program components can Carbon Trustoutsourced enterprise provide access to specialized external capacityFully 3 but program fragmentation can also reduce Government IMP rove, Lartaoutsourced effectiveness. The Carbon Trust operates a 2 Octantis, IC India, mentoring, brokering and advisory serviceConsortium Mix VBDC, Innovate VMS program through its own staff as well asFranchise Non-profit Endeavor through contractors and subcontractors. This enables it to draw on the experience of severalIn-house programs are run by all types of organizations throughout the UK withorganizations. As non-profit organizations, extensive experience in the R&DMaRS was founded and launched by commercialization, as well as of privatephilanthropic business leaders, and TiE by consultants. This partial outsourcing modelentrepreneurs. Both operate as flexible results in a fragmentation of the brokering andorganizations governed mostly by private mentoring components of the program. Othersector representatives. Two universities, MIT programs demonstrate that both functions areand University of Michigan, operate their best done in synergy.programs as integral units of the universities.MIT under the Provost’s Office, the highest Full outsourcing provides governments withpossible management structure, in order flexible ways to experiment with and deliverwiden its reach to fragmented stakeholders programs, but do not always shield programs(e.g. engineering school vs. business school). from bureaucratic constraints. SeveralThe University of Michigan mentoring program government agencies in the US and abroadis operated out of its U-M Tech Transfer office, outsource their mentoring programs to integral unit of the university. This provides This creates economies of learning andit with the ability of integrating mentoring economies of scale since Larta relies on a singlefunctions as part of other technology transfer pool of staff, mentors and advisors. IMP3rove,service such as licensing, and offer full-package operated through a consortium contracted bysolutions to university researchers. TechStars, the EU, also relies on a single pool ofthe only private sector program in the case consultants and on benchmarking data thatstudies, is established as a limited liability spans the EU and beyond. Those examples alsocompany. In each city, it establishes separate show that in some cases, government clientstime-limited companies that raise their own prescribe contractual conditions that favorfunding for one or more cohorts of startups. short-term measurable outputs (e.g. strategic 43
  • 42. Nurturing Innovation: Venture Acceleration Networksplans delivered; size of the consultant Program Managementnetworks) over long-term outcomes (e.g.investment raised by companies over five Venture acceleration networks can beyears; sustainability of the consultant operated with very lean staffing Larta serves several hundred companies per year with a dozen staff. IMP3rove serves moreImplementing network programs via consortia than two thousand with roughly the sameof public, private and academic sectors helps number of staff (Table 11). These programsmobilize a wide range of complementary have over the years standardized many of theirassets and ensures that the stakeholder processes. Programs with smaller venture-to-incentives are aligned with the program’s staff ratios either carry out some of theobjectives. VBDC was founded as a non-profit mentoring and advisory work in-house (MaRS,organization by such a consortium. Octantis Carbon Trust) or are have yet to benefit fromand InnovateVMS were founded as non-profits economies of learning, and economies of scaleby private sector associations and academic (SMART, Endeavor’s new country offices).sector organizations. All of these programs Programs that offer broad arrays of servicessource some of their ventures and mentors also require more staff (MaRS, Endeavor).from local universities and private sector Finally selectivity has a price. Programs that areassociations while aiming to benefit overall pro-active in searching for high-potentialprivate sector development in the region. entrepreneurs and employ a thorough screening process require more managementA local franchise model can help with program staff (Endeavor).scalability and ensure that there is sufficientlocal demand for the program. Endeavor’s Table 11: Program staffapproach is to launch mentoring programs in Venture todifferent countries through licensing Number of Program full-time staff full-time staffagreements with local franchises. The ratiofranchises benefit from technical support, good Carbon Trust 5 8practices, global services and global mentors Catalyst RN 1 10 Endeavor 166 3from the Endeavor headquarters. Although 3 IMP rove 10 283Endeavor plays a role in coordinating the Innovate VMS 2 29creation of the franchises, they are Larta 12 29independently governed and funded. The MaRS 51 2franchises can benefit from Endeavor’s global MIT VMS 3.5 63 Octantis 18 1.4experience while tailoring their programs to SMART 2 13the local environment. The TechStars TiE EAP 1 2-4experience suggests that it might be morechallenging to expand geographically through Program management staff have advisorysubsidiaries. roles too, and for this they need relevant profiles. In the vast majority of case studies, staff provides some level of guidance, direction or mentorship to companies. The TechStars 44
  • 43. Nurturing Innovation: Venture Acceleration Networksmanagement spends significant amounts of mentoring sessions. “Personality-driven”time providing feedback to companies on their programs, where mentors and servicebusiness ideas and pitch. Larta’s senior providers come from the trusted primary andmanagement staff act as mentors to some of secondary networks of program “champions”the ventures in their programs. In some also reduce unethical behavior because ofprograms, staff act as facilitators during the reputational risks. Programs where mentoringmentoring sessions (VBDC, Octantis). These is done virtually found it beneficial to at leastroles require some level of experience with have initial meetings between mentor andentrepreneurship and business. Typically, the mentees conducted face-to-face. Finally, whenhead of the program is an experienced former these instruments are not available someserial entrepreneur, investor or business organizations manage risk through non-leader. Like the mentors, few of the staff have compete agreements and non-disclosureformal educational backgrounds in agreements.entrepreneurship. They gain their knowhowthrough experiential learning.An important function of programmanagement is to manage trust withmentors. The success of a mentor program islargely related to the “chemistry” establishedbetween mentors and their venture mentees.In one case, a Russian entrepreneur mentoredover the telephone from another country wassuspicious that the mentor wanted to “steal”his technology because the mentor wasadvising on foreign licensing arrangementsover foreign direct investment as a marketentry strategy. Inexperienced entrepreneursare particularly prone to manipulation byunscrupulous service providers (e.g. lawyers)and mentors and are also more likely todisclose little about their company, even whenthis could generate useful feedback. Programmanagers and mentors report that it isimportant to establish clear rules that setexpectations between mentors and menteesstraight. The MIT VMS Guiding Principles, forexample, prevent mentors from actively sellingservices to ventures. Careful match-makingprocesses in which both the mentors andmentees play a role also creates more trustfulrelationships. Some programs such as VBDCand MIT create self-policing through group 45
  • 44. Nurturing Innovation: Venture Acceleration Networks indicators hide regional variations. One TechStars entrepreneur believed that one factor behind his success was the type of support he gained from Boulder’s 7. Adapting to the entrepreneurial community. In his city of origin, Chicago, he would have been Innovation encouraged to work for a large established Ecosystem company instead. Figure 9: Global Entrepreneurship and Development Sub-IndicesKey findings Entrepreneurial Activities 1 Venture acceleration network programs cannot function effectively 0.5 without a number of complementary local factors. 0 Creating networks that act as bridges to relevant markets can help overcome certain local innovation ecosystem gaps. Entrepreneurial Attitude 1 0.5Entrepreneurship Culture 0The culture of high-impact entrepreneurshipvaries widely across countries and regions. Aculture of high-impact entrepreneurship is Entrepreneurial Aspirationsrevealed by high growth potential start-up 1.0activity, a population’s favorable attitude toentrepreneurship, and entrepreneurial 0.5aspirations of growth, innovativeness and 0.0internalization.3 Entrepreneurship activity,attitude and aspiration indicators are shownfor several countries associated with the casestudies as well as for Russia in Figure 9. These Source: Acs, Z. J. and Szerb, L. (2010) The Global Entrepreneurship and Development Index (GEDI), Paper presented at the DRUID Summer Conference 2010.3 Donna J. Kelley, Niels Bosma, José Ernesto Amorós(2011) Global Entrepreneurship Monitor – 2010 Global Venture acceleration networks are easier toReport. launch where there is an existing culture ofAcs, Z. J. and Szerb, L. (2010) The Global Entrepreneurshipand Development Index (GEDI), Paper presented at the entrepreneurship. High entrepreneurialDRUID Summer Conference 2010. 46
  • 45. Nurturing Innovation: Venture Acceleration Networksaspirations and a supportive community can to apply in the future. The case of MaRS showshelp generate the deal flow required for a that complementing mentor and ventureventure network program. Similarly, an existing network programs with large educationalcommunity of entrepreneurs makes it easy to components is essential to serve nascentrecruit mentors and advisors. Where there is entrepreneurs. This can be done in partnershipthriving entrepreneurship, informal networks with universities. As illustrated by SMART,already exist and need not be created from grants for feasibility studies can also be used toscratch, simply consolidated. stimulate deal flow from research institutions. To stimulate demand for innovationWhere there is a limited culture of management services, IMP3rove conductedentrepreneurship, programs need to put more extensive marketing campaigns and providedeffort into creating and nurturing networks. free benchmarking and consultancy services toTiE Bangalore spent many years developing its businesses.entrepreneurial network before it formalizedits EAP mentoring program. It did so by hosting Managing Trustevents where entrepreneurs could interact,learn from one another other and obtain To be effective, venture networks need tospecialized training. INC Japan is just at the cultivate trust between network members,beginning of creating an attractive network which can be a challenging in some contexts.through its Open Innovation Lab. Hence, many Entrepreneurs will not be interested in joiningprograms operating in regions of low venture networks if they do not trust theentrepreneurship culture start with program’s management and the networkconsolidating open-ended networks of members who interact with them. The lack ofpotential mentors and advisors before trust can be directed at either technicallaunching a structured program. Once created, credibility or partiality. On one hand, credibilitythese networks will require continued is questioned when an entrepreneur doubtsnurturing by keeping them engaged in the value added, on a technical basis, of theactivities that go beyond the ventures they advice, training and connections of networkmentor. members. For example, the IMP3rove case study shows that most European SMEs do notWhere there is limited entrepreneurship perceive that innovation managementculture venture networks need to start small consultants can offer them value that is worthand be complemented by other support paying for. On the other hand, partiality ismeasures to stimulate a deal flow of questioned when entrepreneurs do not believeventures. Programs need to attract high- that network members have their best interestquality ventures from the very beginning or in mind. Trust issues are not as common inthey will not meet the expectations of the dense and tight-knit entrepreneurialmentors and advisors who will leave the communities such as Boulder, USA, home tonetwork. If sufficient deal flow is not available TechStars. Where such communities do notthe program will need to start very small. It will exist and where unethical behavior is rampantneed to ensure that the ventures enrolled in in the business community it is more difficultthe program garner sufficient attention in the to attract to stimulate more entrepreneurs 47
  • 46. Nurturing Innovation: Venture Acceleration NetworksIn communities where trust is limited, learn and share ideas than companies whoprograms can use a combination of formal almost by definition have profit-and informal trust management mechanisms: maximizing objectives. Start small. Building trust relationships is Use many-on-one mentoring. Group easier to foster when groups are small. mentoring, whereby several mentors have Information disseminates faster and at group meetings with one entrepreneur higher levels in small groups – including facilitates self-policing for breach of trust information about breach of trust. among mentors, especially if the program also encourages networking among Screen network participants through mentors (VBDC). Involving program staff in personal social networks. Program mentoring sessions can also have the same managers and staff members can start by effect. drawing from their close social networks for mentors and advisors. However, Generate user and peer feedback. Several although program staff may have higher programs ask entrepreneurs to evaluate trust in network members, additional steps their mentors and service providers. A will be needed to ensure that program different approach is used by Acceleration beneficiaries develop the same perception Coop, a company not covered in the case of trust. studies, which has formalized selection criteria and a peer-review process for Actively and patiently build relationships: mentors and experts in its network (Box 9). Programs can create spaces of trust by organizing networking events where Develop a code-of-conduct. Guidelines on network members and beneficiaries can what type of behavior is and is not interact on an informal basis. TechStars acceptable by the mentor and organizes networking dinners for example. entrepreneur are a useful starting point in Building relationships takes time and establishing a comfort level of trust. cannot be done over a single meeting. Non-disclosure agreements. NDAs are Give entrepreneurs a say in who they used by some of the programs. Although wish to work with. Entrepreneurs are less NDAs are legally binding their value may be likely to be apprehensive when they more symbolic than practical in the case of participate in the selection of their small entrepreneurs. Startups may not mentors or consultants. TechStars gives have the time or resources to successfully them a month to get to know different engage in legal pursuits. mentors before they select a lead mentor. Training and certification. Several Carbon Trust works with entrepreneurs to programs have very basic training to select appropriate consultants. ensure that mentors abide to a minimum Link people and not firms. Entrepreneurs standard of quality. One program, cannot build personal relationships with IMP3rove has more in-depth training for firms, only with people. Networks can consultants. Consultant certification is also hence maximize trust by involving theoretically possible, and widely used in individuals rather than “impersonal” other management domains such as companies. People may be more willing to quality system management, although 48
  • 47. Nurturing Innovation: Venture Acceleration Networks significant marketing of the certification is Cautiously experiment with mentor required to reach a critical mass of brand equity shares and mentor payment. The recognition. effect of equity shares and payment on trust may vary by culture. In several of the Clearly differentiate mentors from service US programs mentors are prohibited to providers. In all cases mentors were hold equity to ensure that they placed the discouraged from attempting to sell entrepreneur’s interest before their own. “additional” services to entrepreneurs. In India, the Bangalore TiE program follows the opposite strategy, although its success is difficult to measure.Box 9: Building trust through structured peer and user review mechanisms.The Acceleration Co-op is a mix between the mentor and advisor models used by startup organizations,the consulting approach used by typical management consulting companies, and an agency-basedmethod of matching clients to the right advisors. The Acceleration Co-op selects its experts through“crowd” assessment, which means that knowledgeable people from certain fields have their expertise andachievements judged by other experts. This use of peer recognition is designed to inculcate greater trustfrom clients in the Co-op advisors that they work with. Clients are also allowed to gradually select theexperts they want through narrowing down from all of the experts on offer.The Acceleration Co-op accepts self-certified experts. However, to make sure it gets the right people, theCo-op filters the experts in several stages. A prospective expert must first have a publicly availablebiography that outlines his or her background. He or she can then be assigned to different quality levels,depending on the strength of recognition for their achievements from their peers. The highest levelexperts are certified as having the experience and knowledge to be a part of a company board. TheAcceleration Co-op views this approach as both increasing the quality of advice on offer and in inculcatingtrust among clients that their potential advisors have been selected against the standards that prevail ingiven sectors.The “crowd” approach is also used in client selection of experts. Clients can start a “dialog with experts”through the web-based platform when they want to discuss the broad aspects of a project. In doing sothey can start their consultation by drawing on the input of all the Co-op experts in a relevant area, butalso by starting with the general idea of the project clients avoid having to give away an uncomfortablelevel of detail too soon. After this group consultation clients can then select the experts they want to workwith and through several rounds of interaction gradually select those they most trust and who have theright knowledge. The Acceleration Co-op sees this as central to both the right matching of expertise withclients, and development of trust among clients that they are working with appropriately knowledgeablepeople.Source: and interview with the founder. 49
  • 48. Nurturing Innovation: Venture Acceleration NetworksComplementary Assets Without the right complementary assets a venture acceleration network is not a panaceaAn established local base of R&D-oriented for regional economic development. Someuniversities can help facilitate the growth of useful complementary assets include anventure acceleration networks. They can enabling business environment attractive to VCcontribute on the support side through their funding (Table 12), universities and localalumni networks and educational resources, market demand for innovation. And whileand through the demand side through alumni, venture acceleration networks are regional,R&D projects, students and researchers. At their spillovers are more widespread. The caseboth MIT VMS and Catalyst RN, university of TechStars suggests that even in a city with aalumni play the roles of both mentors and well-established entrepreneurship culture suchbeneficiaries of the mentoring services. Both as Boulder, USA, half of the program graduatesuniversities have strong alumni networks that had moved away to other locations offeringthe programs can draw from. And although more financing or business opportunities. Themany ventures do not rely on university R&D same behavior can be expected of successfulbut on recombining existing technologies (e.g. companies from “second market” cities inmost TechStars and Endeavor ventures), middle-income countries, who will gravitateuniversity R&D is a source of ventures in most towards more globally-connected innovationof the case studies. Regions with more R&D are hubs.likely to benefit (Figure 10). Table 12: Global Venture Capital and PrivateFigure 10: R&D expenditures as a share of Equity Country Attractiveness Index 2011gross regional or domestic products Ranking Country Ranking Massachusetts United States 1 Michigan St. Petersburg United Kingdom 2 Japan Canada 3 Colorado Singapore 4 Singapore Japan 6 Virginia Germany 10 Ontario Chile 29 Moscow United Kingdom India 30 Missouri Poland 36 Texas Russia 41 Russia Source: Groh, A., Liechtenstein, H. and Lieser, K. (2011) India Global Venture Capital and Private Equity Country Chile Attractiveness Index 2011 Ranking, IESE Business School, University of Navarra. 0 2 4 6 8 % GDP Regions that lack complementary assets can still benefit from venture accelerationSource: UNESCO Statistics; Statistics Canada; US NationalScience Foundation; US Census Bureau; Russian Federal networks by building bridges with otherState Statistics Service. Data is for 2004-2008. markets, through, for example, global mentor and broker networks (IC2 India). The case 50
  • 49. Nurturing Innovation: Venture Acceleration Networksstudies show that social capital is more easily Box 10: Building bridges to the US market forgenerated at the local level and that it is hence an Indian biomedical entrepreneureasier to create and nurture networks locally.Thus, most programs operate at the regional Dr. Jairaj Kumar is the founder and Managinglevel. The example of SMART in Singapore Director of CGN Research Labs, a company thatillustrates that even in a global hub of manufactures medical devices which use infra-red technology to image inflammatory pain andtechnology and business finding mentors, with diagnose early stage cancer.relevant knowledge and connections for highlyspecialized R&D locally, can be difficult. For Dr. Kumar was a university researcher and thethis reason, SMART pairs venture teams with program helped him to quickly understand how toboth local and foreign mentors. Octantis in run a business. After winning an award for hisChile draws some of its mentors from existing medical invention in 2009 he was approached bydiaspora networks. Larta, Endeavor and IC2 Philips but did not know how to respond. Heconnect ventures with mentors and brokers in joined the India Innovation Growth Program 2the US, where there is high demand for supported by IC in 2010.innovative products and expertise to draw 2 IC gave Dr. Kumar a two-week entrepreneurshipfrom (Box 10). The benefits of these “global training workshop which schooled him in thebridges” goes beyond finding business partners basics of running a business, including attractingand finance. They are largely about connecting investment and product commercialization. Dr.individuals who are deeply embedded in the Kumar’s technology was also assessed using IC ’s 2relevant innovation networks and can provide proprietary Quicklook method, which analyzed thethe rapid market validation that would be commercial potential of his research. The programdifficult to obtain elsewhere. Nonetheless, also allocated Dr. Kumar a US-based broker whothese networks are much more difficult to coached him through his meetings with experts,maintain than local networks since network financiers and potential customers in the US.members do not interact with one another The program connected Dr. Kumar with marketsoutside their program functions. and expertise that he would never have been able to reach otherwise. Through these connections and the assistance of a broker he was able to convert his university research into a marketable product and a viable business. CGN now employs 50 people in India and has annual revenues of USD 10 million. Source: Interview with Jairaj Kumar. 51
  • 50. Nurturing Innovation: Venture Acceleration Networks and self-sustainable networks throughout the country. There is a rationale for public sector 8. A Role for the Public intervention to support venture acceleration network experiments in Russia. Russia already Sector in Russia has incipient informal and formal mentoring and advisory initiatives, the challenge is to take them to the point where they can have demonstration effects and catalyze new ones.Key findings Y-Combinator, the US-based pioneer venture accelerator, launched in 2005 and now In spite of existing private sector imitated throughout the US, is a case in point. venture acceleration network efforts Some examples in Russia include StartupPoint in Russia, there is still a clear rationale founded in 2008, Glavstart founded in 2010, for state support in their further and Runet Labs which will launch is launching development. its first program in 2011. All of these initiatives are led by private entrepreneurs. These The first step to structuring a state budding initiatives raise questions about the support program for venture rationale for public sector intervention in the accelerating network is to clarify its creation of venture acceleration networks. objectives: short-term R&D There are three points to consider to address commercialization, sustainable this issue: entrepreneurship networks, or market for innovation-related services. In view of the public spillovers of building entrepreneurial skills, fostering network linkages in entrepreneurial communities, and creating an entrepreneurial culture,Venture acceleration networks can help fill the private sector will under-invest inimportant entrepreneurship gaps in Russia’s Russia, as they will in other countries.innovation ecosystem. Russia has a large poolof high-skilled labor, large base of universities Private sector venture accelerationand research institutions, and a government initiatives in Russia and other countries arecommitted to innovation, as demonstrated by mainly in the ICT sector. As illustrated byits support of initiatives such as Skolkovo, RVC the TechStars case study, the ICT sectorand RusNano. High-impact knowledge-driven benefits from fast product turnaroundentrepreneurship is largely missing from the times, which can be incubated faster thanmix. Venture acceleration networks can biotech for example, low capital intensity,address the entrepreneurial capacity, which requires lower upfront early-stageconnection –national and global – and market investments, and simple supply chains invalidation challenges that remain barriers to the case of web-based technologies. All ofentrepreneurship. Surmounting these barriers these factors also provide ventures tocan help spur a culture of entrepreneurship more easily reinvent themselves during the market validation process. In Russia, web- 52
  • 51. Nurturing Innovation: Venture Acceleration Networks based ventures benefit from a large range of local private sector and university Russian-speaking internet market. Public stakeholders. One question for the public sector support in Russia is likely to be sector to address will be whether to support needed in sectors that do not share these in-house university programs such as Catalyst characteristics of the ICT sector. RN, or support those that serve a critical mass of universities such as Innovate VMS and While mentor networks exist, the market MaRS. In an environment of limited deal flow, for specialized innovation management the latter approach may be more suitable. One consultants and experts is still fragmented challenge to R&D commercialization programs and underdeveloped. Demand is low and will be their global nature. Any mentor, the quality of service providers is uneven. advisor, broker or sounding board will need to Helping increase transparency in the be plugged into the global innovation networks market can drive up quality, decrease to be effective. Here, one option is to search costs and stimulate demand. These outsource the global networking aspects of the are public goods. program (Larta, IC2).The exact role of the public sector in To foster sustainable entrepreneurshipsupporting venture acceleration networks networks, the role of the public sector is todepends on its strategic objectives. If the facilitate existing experiments and incite thepublic sector’s objective is to spur the creation of new ones. Given the nature of self-commercialization of R&D in the short run, its sustaining networks, a “light” touch of therole is to create a comprehensive set of public sector will be warranted. In the casesupport measures around the selected studies, only the Carbon Trust and INC Japan’stechnology projects. If its objective is to build a networks are created and managed by centralstrong innovation ecosystem for the long run governments. Neither of these has shown anyits role is to support entrepreneurial capacity evidence of spurring self-sustainable networks.and the creation of self-sustainable networks. The Carbon Trust is based on contracting andIf its objective is to develop markets for sub-contracting relationships between networkinnovation-related consultancy, its role is to members, hence does not foster the type ofbuild and help differentiate service provider social capital observed in successful networkscapacity and stimulate demand in the market where support and interactions occur withoutplace. financial compensation. The INC Japan initiative was launched only one year ago. TheTo foster the short term commercialization of case studies suggest that an effective role ofR&D the government can supporting existing the government can be to support bottom-upefforts, launch new efforts through consortia private sector or academic initiatives ratheror outsource their implementation. MaRS is than to create and manage a network. Thisan example of regional and federal could be achieved using two strategies:governments providing financial support to aprivate-sector initiative without playing a role Creating networks of existing programs toin its governance. VBDC operates as a non- foster learning and diffusion of goodprofit launched by regional and municipal practices (the TechStars Network model).governments and its board includes a broader 53
  • 52. Nurturing Innovation: Venture Acceleration Networks Spurring new program initiatives by - External support measures. facilitating coordination between potential Select target market and its needs. program champions (Endeavor’s franchise model). Examine options for nurturing a network.In both cases, creating linkages with global Assess feasibility of different fundingmarkets will be required. models and organizational structures. Identify program output and outcomeTo foster markets for innovation-related indicators and establish monitoringconsultancy and advisory services the system.government can leverage existing personnel Create a business and certification systems (IMP3roveand others) and stimulate demand for While careful planning can enhance a networkinnovation among SMEs. Leveraging existing program’s chances of success, there are stillschemes will require partnerships with the risks to be mitigated (Figure 11). Many oforganizations managing those schemes. these risks can be mitigated by drawing onSchemes can be appropriately adapted to lessons learned from the case studies. Table 1different segments of the Russian market. at the beginning of the report suggests someInternational experience (e.g. US and UK prerequisites for building venture accelerationtechnology extension programs) shows that networks and possible enablers of success,stimulating demand for innovation among which are detailed in the report. Since everySMEs will require tackling information and innovation ecosystem is different it is notknowledge gaps first, before financial gaps. To possible to predict - even with good planning –be effective any market-demand program must the likelihood of success of a venture networkinclude pro-active awareness-raising, program. Programs will need to retain thedemonstration, benchmarking, and service flexibility to experiment with these successsampling schemes. factors.For local players intending to launch ventureacceleration networks, the following stepscan be used: Determine program objective. Identify and assess program champions (individuals and institutions) and explore consortium approach. Evaluate feasibility of building program around existing initiatives. Identify and understand market demand. Examine innovation ecosystem gaps and requirements for complementary - Program services. 54
  • 53. Nurturing Innovation: Venture Acceleration NetworksFigure 11: Possible risks of building venture accelerator networks 55
  • 54. Nurturing Innovation: Venture Acceleration Networks Virginia Biosciences Development Center Industry Advisory Boards Quick Facts Indicator ValueNumber of advisors 8 to 10 per companyNumber of beneficiaries 1 per year on average (>10 since 2003)Number of staff 2Financial arrangement with beneficiaries noneTypical program duration 1 yearProgram annual budget ~$2,000 per companyProgram start year 2003 57
  • 55. Nurturing Innovation: Venture Acceleration NetworksSpecial Features of the Program Companies are mentored by eight to ten advisors with complementary skills, in group meetings. The program director plays a role in facilitating the group mentorship sessions. The mentors are allowed to engage in business relationships with the companies during the course of the program. Corporate sponsors of the incubation program have privileged access to mentorship positions. Corporate sponsors of the incubation program have representatives in its Board of directors and its tenant selection committee.Lessons Learned Mentorship by a group is useful as it offers different and often complementary viewpoints. Mentors in unrelated sectors can play a useful role by introducing a fresh viewpoint and asking difficult questions. Mentorship programs can still be effective without confidentiality agreements. Being well-connected in the local community can facilitate the recruitment of mentors. It is more effective to recruit mentors that will attend meetings rather than high-profile mentors. 58
  • 56. Nurturing Innovation: Venture Acceleration Networks1. Business Model consent on a final list of Advisors from the company.The objective of the Virginia Biosciences 3. The incubator director invites the selectedDevelopment Center (VBDC) Business Advisory individuals to join the company’s BusinessBoards4 program is to offer start-ups strategic Advisory Board.advice and help them expand their businessnetworks. Business Advisory Boards consist of 4. During the first Business Advisory Boardgroups of 8 to 10 subject matter experts and meeting, the Advisors and the companyentrepreneurs who meet with and advise familiarize themselves with one anotherearly-stage companies on a periodic basis. and the incubator director introducesBoard participants receive no remuneration them to the program.and have no future special obligations or 5. During the second meeting, two to threerights. weeks later, the Advisors develop an action plan of issues to address during allThe VBDC is a private non-profit business following meetings.incubator for early-stage companies fundedthrough public and private sources. It is based 6. Subsequent meetings are timed at six toin the city of Richmond, on the East Coast of eight week intervals.the United States. The VBDC was founded in The typical duration of Business Advisory1995, together with the Virginia BioTechnology Boards is one year. They rarely last more thanResearch Park, where it is located. The VBDC one year. The VBDC considers that at thatlaunched the Business Advisory Boards point the company does not require such aprogram in 2003. Apart from the Business large group of advisors.Advisory Boards, the VBDC offers its tenantsother forms of business assistance. Theseinclude educational programs, professional 2. Financial Modelservices, consulting, business interns andnetworking events. There are currently 14 Total Program Implementation Costscompanies in the incubator who lease officeand laboratory facilities. It is difficult to disaggregate the cost of running the Business Advisory Boards from the overallThe Operational Model of the BusinessAdvisory Boards operational costs of the VBDC. In its 2008 fiscal year, the state (region) of Virginia incurredThere are six steps involved in starting up and expenses of roughly $200,000 to support therunning a Business Advisory Board: VBDC’s operations.5 The Business Advisory Boards’ main costs are the staff time of the1. The incubator director identifies the incubator director and of the administrative startup company’s needs. assistant. The annual costs of managing the2. The incubator director identifies potential program can be estimated as approximately Board members, within his personal network and beyond, and obtains the 5 Auditor of Public Accounts, Commonwealth of Virginia4 These are also referred to as “Kitchen Cabinet Advisory (2008) Virginia BioTechnology Research Park AuthorityBoards” Report on Audit for the Year End, June 30, 2008. 59
  • 57. Nurturing Innovation: Venture Acceleration Networks$2,000 per company.6 This does not include Brand visibility through the research parkthe cost of unrelated activities that help to and incubators’ websites, press releasesrecruit advisors, such as networking events and and networking events.the marketing of the incubator. Major sponsors receive preferential access to network with VBDC tenant companies.The incubator uses a sponsorship program toraise additional non-rent resources and offer Up to five one-year director positions, outdiscounted professional services to incubator of a total of seven, are appointed to thetenants. Sponsors agree to provide financing VBDC board from among the majorand/or a pre-specified amount of discounted sponsors.professional services to the incubator tenants. Up to five positions on the IncubatorSponsorship schemes range from $1,000 to Tenant Selection Committee are allocated$20,000 in cash or in equivalent discounted to major per year. Discounts cover 30 percentof services hours offered by the sponsors to Participant Financingthe incubator companies. As of March 2011the incubator had raised more than $100,000 Their Business Advisor Boards program doesthrough annual sponsorship contracts. The not require any financial transactions betweentypes of services offered by sponsors include the incubator, the companies and the counsel, patent counsel, accounting and Advisors offer their services pro-bono andaudit, advertising, business consulting, banking companies do not pay a fee to participate inand financial services, as well as other the program. Companies pay only the feesspecialties.7 related to their tenancy in the incubator. No equity is taken in the companies. Nonetheless,In exchange for their contributions, sponsors client companies are free to buy services fromreceive a number of benefits: Business Advisory Board members outside of Preferential access to the incubator the Advisor’s Board duties. This can include, for tenants: the incubator recommends the example, attorney fees. sponsors to its tenant companies, although these are free to select unsubsidized services from other firms. Preferential opportunities to participate in VBDC programs such as the Business Advisory Boards and educational events.6 Assumptions are as follows: the incubator directorspends 2 hours per business advisory meeting and spends16 hours recruiting advisors for each company, theadministrative assistant spends 6 hours scheduling eachmeeting, there are 8 meetings per company annually,there is 1 company participating in the program annually,the salary of the incubator director is $40 per hour, andthe salary of the administrative assistant is $15 per hour.7 accessed on March 15, 2011 60
  • 58. Nurturing Innovation: Venture Acceleration NetworksTable 13: Major sponsorships provided to the VBDCSponsorship Number of Sponsor examples Total funding level sponsors $20,000 3 Law firms $60,000 $10,000 4 Accounting, law and business consulting firms $40,000 $1,000- Business and engineering consulting, law and $7,000- 7 5,000 business services firms 35,000 $107,000- TOTAL 135,000Source:, accessed March 15,2011. participates in the program.8 Generally, these3. Beneficiaries companies are in their first year in the incubator. The program is less relevant toRecruitment and Selection of Participants experienced entrepreneurs. Nonetheless, the incubator tenants are all generally revenue-Participation in the Business Advisory Boards generating companies or have investors sinceprogram is only open to companies that are they are required to pay their incubator lease.admitted in the VBDC incubator. Incubator Some are very early stage while others havecompany selection is based on a rolling been established for several years. Three ofapplication process. The prospective tenant the 14 were already in the incubator as farprovides a written application and makes a back as 2003.9formal presentation at a bi-monthly TenantSelection Committee Meeting. Applications are All companies participating in the program areselected on the basis of space requirements, in the biosciences sector. Most offer scientificdetailed company information, business plan, services and customized solutions and a fewfinancial statements, future revenue streams, are conducting and commercializing R&D.projected milestones and required servicesfrom the VBDC. The VBDC gives preference to Program Impacthigh-growth companies in the healthcaremarketplace. Applicants are notified of their It is not possible to disaggregate the impact ofacceptance to the program within one week of the Business Advisory Boards from that of thetheir presentation. incubator altogether. Moreover, the type and depth of support offered by the incubatorParticipating Company Profile 8 More than 10 in total since 2003.Only VBDC companies with limited biosciences-development-center/business-advisory-entrepreneurial experience participate in the boards/ accessed March 17, 2010. 9Business Advisory Boards program. On,, only one company per year p:// nies.html 61
  • 59. Nurturing Innovation: Venture Acceleration Networksvaries with the needs of the tenant companies. The agenda of the first two Board meetings areMost do not participate in the Business predetermined in the program, while agendaAdvisory Boards program. So far, the 68 for the following meetings depend on thecurrent and past VBDC companies have more specific needs of the companies. The firstcollectively raised more than $170 million in meeting includes an icebreaker for all of thegrants and capital, and three are now publicly participants to meet each other, as well as antraded. introduction to the program and program guidelines by the incubator director. The meeting also includes a business plan4. Human Network presentation by the founders of the startup company. Advisors do not yet provide anyScope of Advice feedback on the business plan. During the second meeting, typically two three weeksBusiness Advisory Boards offer companies the later, the company discusses its progress sincetype of advice that boards of directors would the last meeting, and the Board providesoffer in large companies. This includes solving feedback on the business plan. Each Advisor isissues that are strategic for the company (e.g. asked to provide one positive aspect of thehow to commercialize a technology). They help business plan, as well as an area of concerncompanies develop action plans to work (e.g. the company is pursuing the wrongthrough their challenges. They also help market). From this discussion, two to four keycompanies network. The Business Advisory issues are identified and become the topic ofBoards make introductions and help connect the next meetings.the companies to relevant business contacts. Advisor Profiles10Delivery of Advice Each Business Advisory Board includes a mix ofAn individual Business Advisory Board is skills that are likely to be relevant to a specificassembled for each company. Meetings are company. A Board is typically constituted oftypically attended by three-quarters of the eight to ten people with the followingBoard members. Advisors are asked to commit profiles:11to attending at least six meetings per year. The Service providersincubator director, with the consent of the - An, appoints a chair for each Board wholeads the meetings, while the incubator - An investment banker or venturedirector himself facilitates the meetings. capitalist. - An investment consultantThe eight to ten members of a BusinessAdvisory Board meet with the company they Managersare advising as a group for 90 minutes every six - An experienced eight weeks. The frequency of the meetingsis established according to the needs of the 10 Creating and Managing a Client-Mentoring Programcompany. The time and place of each meeting (2007) NBIA Webinar, David Lohr. 11 Creating and Managing a Client-Mentoring Programis determined by the Board. (2007) NBIA Webinar, David Lohr. 62
  • 60. Nurturing Innovation: Venture Acceleration Networks - The CEO of a high-technology based broader community. When the Business company. Advisory Boards were first launched in 2003, the incubator director relied mainly on - The CEO of a manufacturing company. recruiting Advisors from his personal network, Others the network of the research park director and - A reimbursement expert from the from among the VBDC’s sponsors. Only pharmaceutical industry, if relevant. individuals within this close network were invited. Since then, the director has recruited - A dean from the Engineering school. Advisors from a much broader network. Some prospective Advisors hear about the programIn addition, each Business Advisory Board through word of mouth, and approach theincludes a “strategic thinker” who is not in a director to participate. Some are recruited byrelevant industry sector and does not offer any approaching large companies in the region, asparticular expertise but can contribute a fresh well as higher education institutions. Thepoint of view. These individuals are more likely incubator director serves on a number ofto ask difficult or creative question and prevent organizations’ boards in the community,“silo thinking” in the group. including businesses, and uses these organizations to promote the BusinessThe level of involvement of the Advisors with Advisory Boards. In other cases, the Advisorsthe VBDC varies but they generally serve on no are recommended by members of a Businessmore than one Business Advisory Board. In Advisory Board who feel that they are missingsome cases they serve on different Boards year a skill set. Another source of Advisors are jobafter year. Advisors are permitted to invest in seekers who approach the incubator for careerthe companies they advise as well as to engage opportunities and are redirected to thein commercial activities with them outside of Business Advisory Boards.the scope of their work in the Boards. Advisorsare free to withdraw from the Board at any The incubator director recruits from among thetime. prospective Advisors through individual meetings where he presents them with shortIn general, the constitution of the Business documents on Business Advisory Boards.Advisory Boards is not made available to the Advisors must commit to attending at least sixpublic by the tenant companies. This is Board meetings per year. Advisors that arediscouraged by the incubator since the more likely to attend meetings are givenAdvisors are volunteers. However, most preference over high-profile advisors who mayincubator companies use this information in not attend many meetings. The director alsotheir fundraising pitches. discusses the company to be mentored with the prospective Advisor to understand the fitRecruitment and Selection of Advisors12 and level of interest. Typically, 80 to 90 percent of invitations to serve in a Business AdvisoryAdvisors are recruited from the incubator Board are accepted.director’s personal network as well as from the12 The incubator director initiates and Creating and Managing a Client-Mentoring Program(2007) NBIA Webinar, David Lohr. coordinates the assignment of Advisors to the 63
  • 61. Nurturing Innovation: Venture Acceleration NetworksBusiness Advisory Board. As a first step, the Partnership Authority (who is also thedirector identifies a tenant company’s needs. Research Park’s President and CEO), andThis is done on the basis of the entrance includes representatives from the university,application form, of the entrance interview and corporate sponsors and venture capital.of an orientation meeting when the companyjoins the incubator. During this process the The VBDC and its Business Advisory Boarddirector also identifies skill sets that are lacking program are operated with a very lean the company. As a second step, the The staff consists of the incubator director andincubator director discusses the required skill an administrative assistant. The VBDC directorset of the Business Advisory Board with the has a scientific educational background incompany. After reaching an agreement with addition to an MBA, and has worked inthe company on the required skill sets, the industry for most of his career, including inincubator director identifies a list of 10 to 12 leadership positions. He is also on the board ofpeople who could serve on the Business directors of several local companies.Advisory Board. As a third step, the companyreviews the director’s recommendations and There are no financial or confidentiality legalagrees on who to invite. Once 8 to 10 members implications for participating companies andagree to serve on the Business Advisory Board Advisors (Figure 12). The Advisors work on anthe incubator director selects a chair, with the entirely pro-bono basis. Discussions are heldapproval of the company. with the companies and Advisors to explain that the entrepreneurs have the ultimate responsibility for any decision, that Advisors5. Organizational Model have no liability exposure and do not negotiate directly on behalf of the company. There areThe VBDC is a private non-profit organization no confidentiality agreements, which the VBDCwhose mandate is to provide administrative consider as introducing unnecessarysupport to start-up biotechnology companies. complexity and administrative burdens.14 TheIt was founded by the Virginia BioTechnology incubator director verbally requests theResearch Park, where it resides. The Virginia Advisors to keep all information discussedBiotechnology Research Park itself is a non- during the meetings confidential. The onlyprofit organization founded by the Virginia contract between the various parties is thestate (regional) government, the city of tenancy contract between the companies andRichmond and the Virginia Commonwealth the incubator, which specifies the tenantUniversity. The Virginia BioTechnology company’s incubation activities.Research Partnership Authority is agovernment agency tasked with financing the 6. Innovation Ecosystemconstruction of the Park and contracting goods The VBDC is located in the Virginiaand services.13 The Board of Directors of the BioTechnology Research Park in the city ofVBDC is chaired by the Executive Director of Richmond, a small city of 204,000 peoplethe Virginia BioTechnology Research roughly 150km South of Washington D.C. The13 Auditor of Public Accounts, Commonwealth of Virginia 14(2008) Virginia BioTechnology Research Park Authority Creating and Managing a Client-Mentoring ProgramReport on Audit for the Year End, June 30, 2008. (2007) NBIA Webinar, David Lohr. 64
  • 62. Nurturing Innovation: Venture Acceleration NetworksPark harbors more than 60 life sciencecompanies, research institutes andstate/federal labs, employing over 2,000scientists, engineers and researchers. The Parkis adjacent to a medical campus of VirginiaCommonwealth University, one of thecountry’s largest university-affiliated teachinghospitals. The University is a major researchcenter, with more than $200 million ofsponsored research annually. There are twoother technology parks nearby with largercompanies.15Nonetheless, Richmond is not among thecountry’s leading biosciences cluster orinnovation cluster. There are no top tieruniversities within the metropolitan area. Thecity is classified within the “Shrinking pool”area of the McKinsey innovation cluster map.15 65
  • 63. Nurturing Innovation: Venture Acceleration NetworksFigure 12: Organizational structure of the VBDC VBDC Board of Directors (government + sponsors + research park + university representatives) Executive Director + Executive Administrator Sponsorship contracts Tailored Sponsors incubator Business tenant Advisory contract Boards Subsidized and Mentorship non-subsidized Early-stage business services companies 66
  • 64. Nurturing Innovation: Venture Acceleration Networks TiE Bangalore Entrepreneurship Acceleration Program Quick Facts Indicator ValueNumber of advisor 40 active mentors (total pool of 100)Number of beneficiaries 2-4 selected per yearNumber of staff 1Financial arrangement with beneficiaries Mentors take 1-5% equity on case-by-case basisTypical program duration 12-24 monthsProgram start year 2006 67
  • 65. Nurturing Innovation: Venture Acceleration NetworksSpecial Features of the Program Leverages an existing network of members. Provides a structured approach to pairing entrepreneurs with mentors. Mentors are compensated with equity in company. Companies which mentors have invested in have high success rates. Most mentor-mentee relationships are continued beyond program duration. TiE Bangalore is part of an international network.Lessons Learned Young entrepreneurs need more than capital – they need experience and advice. This is especially the case in India where cultures vary in village-to-village and therefore experience in understanding India’s diverse market is crucial. Mentorship increases the success of the entrepreneur but the mentor-mentee relationship must have the right chemistry. Finding the right match is difficult. Some entrepreneurs have taken months to find the right mentor and in some cases, have failed to secure a suitable mentor. To understand expectations and roles and to avoid possible conflicts of interest, a memorandum of understanding (MoU) is negotiated and signed between mentor and mentee before mentoring begins. Given each situation is unique, the MoU is designed on a case-by-case basis. The provision of equity ownership in companies helps motivate mentors to become more actively involved in companies however the relationship is more than monetary. Mentors give their time as they are eager to impart their experience to the entrepreneurial community. However this means they also have their own reputations to uphold which is more valuable than the small equity stake they take in the company. The success of the program is based on the quality of the “innovation ecosystem” in Bangalore, including entrepreneurs, mentors and investors. As the TiE network grows, so does the pool of available mentors and entrepreneurs which in turn contributes to the success of the EAP. 68
  • 66. Nurturing Innovation: Venture Acceleration Networks Operational Model of the EAP1. Business modelProgram Background TiE leverages its network of charter members consisting of experienced entrepreneurs andThe Indus Entrepreneurs (TiE) is a global not- senior management professionals, and pairsfor-profit organization which aims to promote them with promising high-growth businessentrepreneurship through advice, networking ideas. The entrepreneurs behind theseand mentoring. It provides a platform to businesses are often young and lack thesupport an ecosystem for entrepreneurship by experience to transform their ideas intofacilitating linkages between entrepreneurs, scalable businesses. The EAP is designed toinvestors, mentors and professionals. The accelerate the growth of these ideas byBangalore, India chapter was founded in the ensuring high-potential entrepreneurs andyear 2000 and is part of a wider network of matched with the required mentoringover 15,000 members in 53 cities (15 of which expertise. This is achieved by the followingare in India). TiE Bangalore offers a number of process (Figure 13):services, in addition mentoring, including TiE advertises the EAP program both withinconferences, networking events, training and and outside its network via its website,education. TiE also supports targeted programs newsletters, conferences and other events.for specific groups as women entrepreneurs The application process is held annuallyand clean technologies. with entrepreneurs invited to present theirProgram Overview ideas in a “Business Plan Executive Summary” involving eight key questionsBuilding on the success of TiE in India and the (See Annex).emergence of a flourishing technology sector The TiE board reviews the applications andin Bangalore, in 2006, TiE created the creates a long-list of candidates who areEntrepreneurship Acceleration Program (EAP). invited to prepare a full business plan.The motivation behind the EAP was toformalize the less structured approach to TiE The pool of applicants is further reducedBangalore’s existing mentoring program. by the board based on the full businessSharing similarities with Toronto’s TiEQuest plan submissions and short-listedprogram, the EAP is a systematic vetting candidates are invited to prepare 30process to match aspiring entrepreneurs with minute presentations for a face-to-faceseasoned mentors. TiE acts as a facilitator by pitch with a panel of judges and anidentifying the most promising entrepreneur, audience of mentors, angel investors andpairing them with an appropriate mentor VCs.within its network. The result is the Judges then select the final entrepreneursestablishment of a more formalized and active who are chosen as EAP beneficiaries.relationship between mentor and mentee, Mentors at the event have the opportunitywhich translates into a higher success rate for of meeting with the selectedbusinesses seeking to secure follow-on funding entrepreneurs directly.from qualified investors. 69
  • 67. Nurturing Innovation: Venture Acceleration NetworksFigure 13: Typical process of the EAP Call for Beneficiaries Mentorship applications: Short-list: 30 Mentor 12-24 months Follow-on Long-list: Full identified and continues Business plan minute identified and of formal funding business plan introduced to beyond exec presentation MOU signed mentoring secured mentors program summary of the company and therefore its ability to The list of winners is circulated to the raise follow-on funding from investors wider community of charter members and including mentors, angels, VCs and other mentors by email and at events. TiE also institutions. The program’s success is also uses its database to identify mentors with defined by: specific sectoral experience. Entrepreneurs arrange meetings with a number of Number of quality applications received mentors until the best match is identified. Time taken to find mentor match Typically it takes 2 to 3 meetings with a mentor for an agreement to be reached. Growth in memberships, network and broader entrepreneurial community A memorandum of understanding (MOU) is then signed between mentor and mentee outlining the roles, expectations and responsibilities and any financial 2. Financial Model arrangement between the two parties. Program Costs Mentors and mentees meet at least once a month and once every quarter with the TiE It is difficult to disaggregate the cost of running board. The formal mentoring process the TiE EAP program from the rest of the usually takes between 12-24 months or Bangalore TiE budget. Although a major cost of until follow-on funding is secured by the TiE consists of the salary of the staff member business, however most mentor managing the program, TiE EAP’s effectiveness relationships continue beyond the scope of relies on “externalities” generated by the many the program. activities organized by the TiE network in Bangalore.Program Success Participant FinancingThe success of the program is measuredprimarily by a) the successful pairing of an TiE sustains its operations via membershipentrepreneur and mentor and b) by the growth fees. There are two membership structures: 70
  • 68. Nurturing Innovation: Venture Acceleration Networks a) Regular membership: Consisting of Capability of team to execute the business entrepreneurs and junior professionals plan. at approximately USD 100 per year. Fitment towards known criteria of angel b) Charter members: Consisting of investors (tech area of focus, geographic experiences/seasoned entrepreneurs focus, etc.). and senior level professions at Probability of exciting a VC to invest in 18- approximately USD 300 per year. 24 months.Participating in the EAP is free for In 2010, 80 companies applied for the EAP byentrepreneurs however mentors are provided submitting a business plan executive summary.with equity ownership in the entrepreneurs’ About half of these were asked to provide a fullbusiness in exchange for their time and advice. plan with 22 being selected to prepare aThis typically ranges from 1-5% depending on presentation in front of TiE judges. Of these,the type of business and the level of four were selected for the program. In thisengagement offered by the mentor. The way, the EAP acts as an attrition process forpercentage equity is negotiated and outlined in entrepreneurs so that mentors are presentedthe MOU signed between the mentor and with the best and most promising ideas. Thementee. Mentors also sometimes invest in the selection of the mentor is facilitated by TiEcompanies they advise for an additional equity however it is the responsibility of thestake. However this is not expected by the entrepreneur and mentor to find the bestentrepreneur as an outcome of participating in match and agree on the terms of thethe EAP. This financing typically ranges from relationship.USD 100-250k. Follow-on investment in EAPcompanies by angels and VCs is upward of USD Participating Company Profile1m. Potential beneficiaries of the EAP are entrepreneurs at various levels of sophistication and scale. Some have only ideas3. Beneficiaries that are at the pre-company stage, while others already have operating businesses. TheSelection of Participants selection process forces entrepreneurs to refine and narrow their thinking on the type ofBeneficiary entrepreneurs of the EAP are mentoring and thus mentor that would bestselected via a competitive application process. suit their idea, growth plans and personality.The criteria for final EAP selection are as Program Impactfollows: Quality of the entrepreneurial team. Limited information is available on impact Magnitude of the opportunity being results. As mentioned above, the criteria for addressed. success for the program includes a) the successful matching of mentors and mentees Uniqueness and maturity of the idea. and b) the ability of the company to grow and secure further funding support. These two are 71
  • 69. Nurturing Innovation: Venture Acceleration Networksoften inextricably linked given that in many account for the cultural disparities betweencases the mentors act as the angels who India’s many villages.financially support the company. Delivery of AdviceThe model for the EAP has proved successful ina number of cases. Of the 15 companies that While TiE recommends that mentors meethave qualified for the EAP over the last four with entrepreneurs at least once a monthyears, about half survived and three to four many mentors meet with entrepreneurs on ahave grown significantly. However the overall more regular basis. Given that TiE Bangalore’sresults have been mixed. In some cases, member base is local, this facilitates the abilityentrepreneurs were not successful in finding of mentors to meet with mentees face-to-face.right mentor match. In other cases However the specific expectations andentrepreneurs were not able to secure follow- guidelines on the delivery of advice areon funding while others failed because negotiated between entrepreneur and mentorpartners parted ways or the business simply on a case-by-case basis and outlined in thedid not gain significant traction in the market. MoU. These clear expectations and guidelinesMany of these factors however are outside the of the relationship also help avoid any conflictscontrol of TiE who maintains that the EAP of interest given mentors have an equityfacilitates linkages to increase and/or ownership in the companies they advise. Inaccelerate the growth of a company, but this one situation, the entrepreneur’s businessdoes not translate into success on all operated in a similar market to the mentor’soccasions. own company. While this provided the opportunity for creating synergies between the two companies, the MoU helped define the4. Human Network operating relationship to avoid any potential future conflicts of interest. The TiE board alsoScope of Advice maintains oversight throughout the EAP by meeting with the entrepreneur and mentorThere is no limit to the scope of the services every quarter. Mentors are also encouraged toprovided by mentors however TiE aims to link keep TiE informed of key progress andentrepreneurs’ needs with the sectoral milestones via email.background and skills of the mentor. Anexample of services provided by mentors can Advisor Profilesinclude anything from market research,business strategy, human resourcing, to more As previously mentioned, mentors are charterhands-on roles such as active management, members of TiE Bangalore who are typicallyseed funding and in some cases, sharing seasoned entrepreneurs or senioroverheads such as administrative support and professionals (Box 11). They are invited by TiEoffice space. Mentors also assist young to be charter members and potential mentors.entrepreneurs in navigating the contextual Mentors are often accomplished businesschallenges in India including understanding people who wish to spend their time andhow to structure delivery models that can resources giving back to the community. Although they negotiate a small equity stake in 72
  • 70. Nurturing Innovation: Venture Acceleration Networksthe companies, the relationship with the Box 11: Mentor profile: Mukientrepreneurs is more than economical. By Regunathan, Founder and CEO, Peppersharing in the success of the companies they Squareadvise, mentors also build their own Muki Regunathan founded several companiesreputation and are often asked to coach or since 2001 including Pepper Square, a fullpartake in events beyond TiE and the EAP. service digital media and design company based in India. He has a passion for assistingRecruitment of Advisors other entrepreneurs and has a vision of helping create 1,000,000 entrepreneurs inTiE uses its network of charter members to India: “There is a need for small and mediumconnect successful EAP entrepreneurs with enterprises (SMEs) in India to bridge the gap between small and large industries asmentors. This is done both formally via the EAP creativeness in larger companies is limited.”pitch event and informally through other TiE Via the EAP, Muki Regunathan has mentorednetworking events, emails and personal creative design platform start-up, Jadeconnections. TiE’s database of charter Magnet, whose entpreneurs, Sitashwa andmembers also organizes potential mentors by Manik are very appreciative of his guidance:area of experience and interest so that a better “Muki has given very hands-on and activematch can be made with entrepreneurs. mentoring. We attend meetings with him regulalry to not only understand the industry better, but also how he does business.” Muki Regunathan has also invested his own money5. Organizational Model in Jade Magnet and continues to mentor Sitashwa and Manik beyond the EAP.TiE has a global structure that feeds down intothe specific TiE chapters around the world. Atthe very top there is a Board of Trustees, under The Bangalore chapter of TiE is organizedwhich there are five Global Committees each through three layers: an overall managementheaded by someone from the Board. These team, a group of directors and managers, and adeal with the central functions of the handful of committees. The management teamorganization, such as governance, finance, consists of the President, the Secretary and thechapter support and new initiatives. Treasurer. Below them are the six directors and managers, some of whom have directFor the day-to-day running of the organization responsibility for issues such as membershipthere is a Global Management level which and finance. There is then a Membershipconsists of a CEO; Directors of chapter support Committee, a Programs Committee, aand “Global Systems”; managers with Mentoring Committee, a Communicationresponsibilities for finance and administration, Committee and a Sponsorship Committee.and communications and chapter support; and Most of these are headed by people notan administrator. already involved with the management of the chapter. The TiE EAP program has a single staff member. 73
  • 71. Nurturing Innovation: Venture Acceleration Networks6. Innovation Ecosytem cases, EAP beneficiaries have contacted TiE members in other countries to facilitateThe Bangalore TiE chapter works in activities abroad including advice on marketcooperation with other chapters across the entry opportunities. TiE also acts as a platformworld. TiE’s members actively participate in for the sharing of best practice. Therefore theregional and international conferences and EAP program has benefited from theworkshops and are encouraged to connect experiences of similar programs globally suchwith members in other chapters. In some as Toronto’s TiEQuest. 74
  • 72. Nurturing Innovation: Venture Acceleration Networks TechStars Quick Facts Indicator ValueNumber of advisors 278 mentors + 28 advisors (in 4 cities)Number of beneficiaries 30 in 2010 (68 since 2007)Number of staff 8 core part-time staff + approximately 16 contractual short-term staff in all 4 citiesFinancial arrangement with beneficiaries TechStars receives 6% equity and startups up to $18,000Typical program duration 3 monthsProgram annual budget $400,000 to $600,000Program start year 2007Note: Data as of March 2011. 75
  • 73. Nurturing Innovation: Venture Acceleration NetworksSpecial Features of the Program The program takes equity in startups in return for mentorship, seed funding, and facilities. The program is highly structured. Startup entrepreneurs interact with a large number of mentors and advisors over a short amount of time (three months). The focus of the program is on networking as much as it is on mentorship. The program includes a practical educational component. Highly competitive startup selective process. The program’s management plays a key role in the delivery of advice. The program leverages networking among its participants and with program alumni. 76
  • 74. Nurturing Innovation: Venture Acceleration NetworksLessons Learned The quality of the mentors drives the quality of the entrepreneurs and vice versa. Effective mentors have experience in both starting businesses and angel investing. The reputation and network of a startup accelerator’s founder plays a significant role in the success of the program. It is not clear that a venture accelerator mentorship program can be scaled-up without comprising its quality. The success of a mentorship program relies on a strong sense of community among entrepreneurs. It is possible to run a successful and tight mentorship program without contractual or confidentiality agreements between the host organization, mentors and beneficiary companies. A successful venture accelerator can have a positive effect on the local culture of entrepreneurship. There is no formula for identifying high-potential startups but the profile of the startup team plays a greater role than the idea of technology on which the business is based. Selecting startups is both science and art and relies on the experience of a mentor program’s manager. Establishing early success through exits can lead to a strong brand for the mentor program, which in turn attracts better mentors and entrepreneurs. A startup accelerator mentorship program needs to be long enough for founders to develop demo products and pitch it by the end of the program. Matching companies with appropriate mentors is a long and iterative process. 77
  • 75. Nurturing Innovation: Venture Acceleration Networks1. Business model for early stage businesses with limited resources.Program Overview To its founders and investors, the mainTechStars is a for-profit “startup accelerator”16 business value of TechStars is to providethat aims to invest in and accelerate the support to startups in batches for efficiencydevelopment of very early stage companies to and to leverage the local and national businessa point where they can secure angel or venture communities. In contrast, angel investors andcapital financing, be acquired or grow to seed funds need to provide mentoring andprofitability. To achieve this, TechStars offers networking support to their companies on anstartups mentorship, an extensive network of individual basis. TechStars also provides itsbusiness contacts and an opportunity to pitch founders and investors with an opportunity totheir business ideas to investors. It offers source a high-quality deal flow for theireducational sessions, some basic business personal angel investing or as part of theirservices, a small grant to cover living expenses venture capital firms. They are able to interactand working space. TechStars offers this closely with and review a number of startupssupport over three-month programs each year during the course of the program. TechStarsin several cities in the United States. Ten founders also gain satisfaction from the non-startups are selected in each location through financial rewards of “giving-back” to thea very competitive process. In each city, community and improving the localTechStars relies on a network of more than 50 entrepreneurial ecosystem. The success ofmentors to provide support to the startups. TechStars has increased the local and nationalTechStars is an intensive experience and visibility of its founders in business and politicalrequires a significant amount of personal effort communities.17from the startup founders to meet theprogram’s milestones. Background of TechStarsTo entrepreneurs, the value added of TechStars was launched in 2006 and ran itsTechStars is to provide ready access to an first program in the small city of Boulder,extended community of key individuals during Colorado in 2007.18 Since then, it has launcheda very limited timeframe. These individuals programs in Boston, Seattle and New York. Theoffer “know-who”, “know-what” and “know- TechStars founders include its current CEO andhow”. Importantly, they offer sounding boards three other serial entrepreneurs/early-stageto startups, helping them continuously refine investors from the Boulder area. The fourand even reinvent their business ideas. New founders are highly successful and well knownentrepreneurs do not often have access to in the Boulder area and even nationally.these individuals through their existing socialand business network. The time associated In January 2011, TechStars launched thewith identifying, connecting and leveraging TechStars Network, a global network ofrelevant individuals can be an important cost independently owned and operated 17 This need not imply that this was their initial intention16 18 Also known as a “venture accelerator” or “seed The greater Boulder metropolitan area has slightly lessaccelerator” than 300,000 residents. 78
  • 76. Nurturing Innovation: Venture Acceleration Networksorganizations that operate startup accelerators They are often for-profit.along the same line as TechStars.19 Its purpose Their program timeline is much shorteris to provide networking, training and support with clear milestones.opportunities to startup accelerators. Twentymember accelerators have jointed theTechStars Network. The Operational Model of TechStarsAt the time TechStars was launched, there was TechStars offers free facilities and businessonly a handful of startup accelerators in the services to its startups in city centers of its fourUnited States functioning along the intensive- locations. The facilities provide the startupsmentorship seed fund model, notwithstanding with common office space, meeting space,university venture accelerators which have a lounge space, and utilities. The startups aregreater focus on technology transfer. There are nonetheless free to work from home or fromnow more than 60 venture accelerators and coffee shops if they wish. Through its sponsors,this number is growing continuously. Y- TechStars also offers startups a number of freeCombinator, launched in Silicon Valley in 2005, services, including webhosting, media publicis arguably the pioneer of the startup relations and legal council.21accelerator approach espoused by TechStarsand others in the United States and beyond. Y- TechStars operates according to a fairly wellCombinator operates in continuous three- structured model when compared to othermonth program cycles and has funded more mentorship programs. A few months before athan 250 startups to date. Unlike TechStars, it program starts, TechStars accepts applicationsdoes not offer companies office space.20 from entrepreneurs. Early applicants areTechStars and has now become one of the invited to spend a day interacting withmost developed startup accelerator programs TechStars staff, mentors and alumni in theoutside of Y-Combinator. TechStars premises. Finalists are accepted to the three-month program. TechStars facilitatesStartup accelerators differ from traditional mentorship and networking through threebusiness incubation programs in that: channels: social events with speakers (a few times a week), educational presentations on Their primary focus is on intensive specific topics, and meetings with mentors. mentoring and networking. The three-month programs can be divided into They do not charge rent or fees. mentor-matching, product development and pitch phases (Figure 14): They do not always offer work space. Mentor-matching: during the first month They provide small grants to cover living an important focus of the program is on expenses. matching startups with appropriate They take a small amount of equity. mentors and offering them continuous feedback on their business ideas through19 networking. The first month, startups Jed D. Christiansen (2009) Copying Y-Combinator: Aframework for developing Seed Accelerator Programmes,MBA Dissertation / Individual Project, Judge Business 21School & Jesus College, Cambridge University of accessed oin MarchCambridge, August 2009. 17, 2010 79
  • 77. Nurturing Innovation: Venture Acceleration Networksinteract with as many as 30 to 40 refine the five minute pitch that eachdifferent individuals, with whom they startup will have to give on Investor andcan discuss their business ideas and Demo Day. Both the mentors andreceive feedback. These individuals TechStars staff help the startups refineincluding TechStars mentors, TechStars their pitch. Investor and Demo Day is thealumni, local investors, as well as people culmination of the program, wherefrom outside the local business startups pitch to groups of investorscommunity, executives from large from all over the country over a half-daytechnology-based companies (e.g. event. Roughly half of the investors areGoogle, Facebook and Yahoo) and angels and the other half VCs. This groupmentors from other TechStars locations. is equally divided between local and non-During half-hour meetings with mentors, local investors. In 2010, over 400startup teams pitch their ideas (the first investors attended the TechStarsmonth this is typically a 30 second pitch), Investor and Demo Days, 22 of which 260receive feedback and discuss ways in in Boulder alone.23which the mentors could help them.During the first month, startup founders Throughout the program, the TechStarscan have two such meetings per day. Managing Directors and CEO have weekly half-These meetings provide opportunities hour meetings with each startup to follow upfor the startup founders and the mentors on their progress and ensure their needs areto get acquainted. Startup teams then met. They encourage the startups to keep upidentify which mentors they would like with the milestones of the program. There isto work with during the rest of the no daily schedule to follow apart fromprogram. If these one to two individuals, attending the educational and networkingthey become the “lead mentors”. events. Companies can work on their productsTechStars Managing Directors follow-up or on other activities from wherever andclosely on which mentors the startups whenever they wish, but the programhave met and plan to meet and match milestones impose significant pressure tostartups with more mentors if necessary. demonstrate progress.Getting the product ready: During thesecond month, TechStars continues tooffer the same activities as in the firstmonth, but the focus of the programshifts to getting the product ready fordemonstration. This entails a lot ofsoftware programming work for thestartup teams, but the teams continue tohave networking and mentor meetings.The Managing Directors monitor thestartups’ progress and provide feedback. 22 accessed in MarchRefining the pitch: During the third 12, 2011. 23month, the focus of the program is to accessed in March 14, 2011. 80
  • 78. Nurturing Innovation: Venture Acceleration NetworksFigure 14: Typical TechStars timeline January February March May June July Early Applications Early -TechStars Mentor Getting the Refining the August open application for a Day matching product pitch Investor deadline -Application ready Demo Day deadline - Finalists Applications: >2000 notified 3-month program: 40 startupsNote: data estimates are shown for the entire TechStars is a for-profit company and financesprogram for 2011. its operations through investors and sponsors. Investors include the TechStars founders26 as well as external parties. There is a different mix2. Financial Model of investors in each of TechStars’ four locations (New York, Boston, Seattle and Boulder). TheseTotal Program Implementation Costs include angel investors, some of which are CEOs of publicly listed technology-basedA TechStars program is estimated to cost companies, as well as VC funds.27 In 2010, itsbetween $400,000 and $600,000 per year to second year of operation, TechStars Bostonrun in each city. This includes renting facilities raised $450,000.28 It has raised $2 million forfor the program, hosting events, officesupplies, utilities, part-time staff andmanagement costs, and startup grants. Thisamounts to $40,000 to $60,000 per company.This amount is much smaller than the average Financing,” University of Maryland working paper, 2008,angel investment of USD 174,000 in the United p9 26States, let alone the average VC deal of USD million.24 25 with-david-cohen-techstars/2447 27 55-Techstars-Boston-adds-450K-outlines-incubator-24 National Venture Capital Association, Yearbook 2011, progress.html accessed March 11, 2011 28National Venture Capital Association, 2011, p2425 Goldfarb B, Hoberg G, Kirsch D and Triantis A, “Does Participation Matter? An Analysis of Early Venture 48694510000002/xslFormDX01/primary_doc.xml 81
  • 79. Nurturing Innovation: Venture Acceleration Networksthe 2011-2014 period, or $500,000 for each relocate to TechStars and fully focus on theiryear.29 startup during the three months of the program and is not correlated to 6 percent ofSponsorship (i.e. donations) from outside the assessed value of the company. The grantorganizations and individuals can range from covers their living expenses. This minimal grantless than one thousand dollars to tens ofthousands of dollars (Table 14). In return for ensures that only entrepreneurs who reallyfinancial support, sponsors benefit from value the non-financial value of the programdifferent schemes, including having their logo will be attracted, while others will self-selecton the TechStars website, being recognized at out. Table 14: Major sponsorships provided to TechStars Sponsorship Number of Sponsor examples Total funding level sponsors $30,000 5 American Express, Microsoft $150,000 $7,500 6 Law firms $45,000 $3,000 3 Law firms $9,000 TOTAL $204,000 Source:, accessed March 7,, and attending selected TechStars TechStars itself does not provide follow-onevents. Sponsors gain brand visibility and get funding to companies that exit the programacquainted with future potential clients among but acts as a broker between startups and thethe startups. Most of the graduates of theBoulder 2010 program are now in business early-stage investor community. This is donerelationships with some of the sponsors. through the mentors’ personal contacts and through Investor and Demo Day. After the endParticipant Financing of the three-month program, TechStars continues to help its companies raise fundingTechStars takes equity in the startup from investors and takes a group to Siliconcompanies and makes a return through exits. Valley once a year.For each company TechStars takes a standardshare of 6 percent of equity. This is common TechStars Founders and mentors sometimesstock, not preferred stock. Common stock also invest in startups on a personal level.provides companies with more freedom than According to TechStars, this does not have apreferred stock since it does not imply a board negative impact on follow-on funding ofseat or any special decision making rights. TechStars companies that do not receive investments from the founders or their beingA grant of USD 6,000 per founder, up to USD labeled as “second-tier”.30 This can be18,000, is provided to each company. Thegrant is intended to help TechStars company 30 Jed D. Christiansen (2009) Copying Y-Combinator: A framework for developing Seed Accelerator Programmes,29 MBA Dissertation / Individual Project, Judge Business School & Jesus College, Cambridge University of411000001/xslFormDX01/primary_doc.xml Cambridge, August 2009. 82
  • 80. Nurturing Innovation: Venture Acceleration Networksattributed to the investor community’s investment to expect. The average length of anunderstanding of the limited resources and investment hold by US angel groups is 3.5specific investment profile requirements of years and exits with superior returns tend toangel investors. In contrast, a VC-backed seed be held longer (eight years for ten timesfund would have more trouble securing follow- returns),33 so it is too early to draw conclusionson funding for portfolio companies not from the return on investment of TechStarsinvested by its VC parent. Lack of follow-on which started with a small sample of 10investment by a VC parent with significant companies barely four years ago. As of Mayresources would create a stronger negative 2010, TechStars retained equity in at least 27signal in the investor community. companies that still have the potential to produce phenomenal returns or no returns atProgram Return-on-Investment all. Moreover, the significant implosion of the VC market in the United States during theIn the short term, TechStars appears to have current global financial crisis obfuscates thebeen turning a profit. As of May 201031, five of full potential profitability of TechStars duringthe ten companies from the first, 2007 round periods of macroeconomic stability.of the program had been acquired, two wereotherwise still operating, one had producedanother venture and two had failed outright. 3. BeneficiariesFour of the five companies have been acquiredfor more than USD 2 million. There is very little Selection of Participantspublic information on how much the acquiredcompanies were bought for and thus what Joining the TechStars program is veryTechStars’ equity in each of them would have competitive. The selection process starts withbeen valued at, but according to the TechStars an online application. The online applicationCEO the 2007 and 2008 rounds had turned a requires basic information on the company,profit by September 2010.32 In effect, the including its function - supported by a video ofworst case scenario assumption would be that the entrepreneur - why it is unique,four TechStars companies were acquired for competitors, its business model and on thebarely more than USD 2 million, yielding a total founders (see Appendix for the fullacquisition volume of slightly more than USD 8 questionnaire). The application process doesmillion. TechStars’ six percent equity share in not require a business plan. More than 2,000each would hence be valued at USD 480,000 teams have applied for 2011 and 40 will bewhich would enable the 2007 program to selected (ten per TechStars program location)break even. or a 2 percent yield rate. This yield rate lies between that of angel investors (between 3There is no rationale for extrapolating the and 5 percent) and that of the VC sector (1existing returns of 2007 to subsequent years. percent) in the United States.34 35 TechStarsTechStars is relatively young so it is still tooearly to make firm conclusions on returns on 33 Wiltbank R and Boeker W, Returns to Angel Investors in Groups, 200731 34 MIT Entrepreneurship Center, Venture Support Systems32 Project: Angel Investors, MIT Entrepreneurship Center,david-cohen/ 2000, p 35 83
  • 81. Nurturing Innovation: Venture Acceleration Networksreceives an increasing number of applications in itself is not the main focus of the selectioneach year. Applications are accepted over a six process but rather the thinking and effort thatweek period a few months before the start of lies behind. In some cases, TechStars startupsthe program. Figure 14 above displays a typical completely rethink their business idea duringapplication timeline for the Boulder program. the program.The TechStars selection process has several Participating Company Profilestages. Applications are first reviewed andshortlisted by the TechStars management team The vast majority of TechStars companies areand by TechStars’ investors. Shortlisted centered around web-based or softwareapplicants that meet an “early-application” applications. Many are social mediadeadline are invited to take part in an event companies. The program’s sectoral focusheld at each TechStars location and entitled broadly reflects the entrepreneurial“TechStars For A Day”. There, applicants take backgrounds of the four TechStars founders aspart in various activities and network with well as the growing market for webTechStars mentors, staff and alumni. They applications. The program’s focus on webattend information sessions, lectures, discuss applications and software offers severaltheir applications and obtain feedback on their advantages:business ideas. TechStars For A Day is an These are not capital intensive sectors andopportunity for TechStars staff to observe the do not require important resources atapplicants in a typical TechStars setting and launch.interview them informally. After this event,TechStars Managing Directors continue to Supply chains are simple, with companiescommunicate with top applicants over email to often interacting directly with customersgain a better understanding of their potential through a web entrepreneurs and their ability to leverage Prototypes can be developed over a shortthe program (e.g. willingness to learn and period, which keeps the program short andassimilate feedback constructively). In some limits the time demand on mentors.cases, TechStars staff will hold an additional TechStars companies originate from differentshort meeting with the applicants before the locations around the United States but eachfinal selection. TechStars location tends to draw more applicants from their region. About half of theStartups are principally selected on the basis of funded companies are local to the TechStarsthe startup team, and to a lesser extent by program.their market and their business idea. Teamsmust have the potential to launch a business Most TechStars companies are still at verywith national or global reach. TechStars early stages of development when they enterfocuses on the team’s dedication, mix of the program. They are generally still in stagesbusiness, technical and other skills, and the of generating, validating and revising businessreadiness of the prototype. The business idea ideas and have not yet secured angel financing or hired staff. They typically consist of two or35 three co-founders working on their first or National Venture Capital Association, Yearbook 2011,National Venture Capital Association, 2011, p7 second company. Many enter the program 84
  • 82. Nurturing Innovation: Venture Acceleration Networkswithout a product prototype. In some cases Although it is too early to determine howthe entrepreneurs have not yet officially TechStars will perform in the longer run, itsregistered a company when they enter the first batch of graduates have fared at least asprogram. Many have at least a few years of well as the holdings of traditional angel-entrepreneurial experience and at least one of groups. After three years, TechStars graduatesthe co-founders has a technical background. exhibited similar failure rates as angel groupTheir age range is 25 to 40 years old. holdings. One important difference when comparing the two groups is the much higherProgram Impact level of companies that were bought from the TechStars sample compared to the angel groupTechStars has an exceptional track record, average (Figure 17). This could be due towhen compared to other early-stage seed TechStars superior ability to prepare itsfunds or incubator programs. Of the 39 companies and connect them to investors, orcompanies in the 2007 to 2009 cohorts, 34 (or to the faster lifecycle of web-based startups87 percent) were still active by mid 2010, an compared to the average angel-investedexceptional track record for startups. Sixty startup. In some cases, TechStars mentors playpercent of TechStars graduates were able to a financing or management role in theraise external investor funding. Another five companies after they graduate. One mentorwere profitable without external funding. Of invested in three of his mentees after thethose cohorts, six (or 15 percent) had been program. Many mentors continue to adviseacquired by mid-2010, in one case by AOL company on an informal basis after the(Figure 15 and Figure 16). program. Some become the company’s CEO.Figure 15: Number of TechStars graduate Figure 16: Number of TechStars graduates bycompanies by acquisition status, as of May 20, external funding size as of May 20, 20102010 $2M or more Other Failed No $1M to < external $2M funding Acquired $500K to Active < $1M 0 to < $500KSource:, accessed March 7, 2011. Source:, accessed March 7, 2011. 36 Note: funding includes angel and VC funding and acquisitions outside of family and friends.36 Source:, accessed March 7, 2011. 85
  • 83. Nurturing Innovation: Venture Acceleration NetworksFigure 17: Outcome after three years of holding investments in TechStars and angel group-investedcompanies in the United States 50 40 % portfolio 30 20 TechStars 10 Angel-funded 0Source: Angel Investment Performance Project at the Kauffman Foundation, 2009; impact of TechStars is shared between thelocal community and for the wider national 4. Human Networkeconomy. By mid 2010, approximately half ofthe Boulder TechStars graduates remained in Scope of Advicethat city, while others had returned to theircities of origin or to other locations. Limited TechStars mentors play three roles with theevidence from the Boston program suggests startups:that the company retention rate is higher than They provide basic business advice toin Boulder. This can be presumably attributed companies (e.g. with the pitch, theto the fact that Boston is a high-tech cluster business model, dealing with proprietarywith a very developed VC market while technology, finding financing).Boulder is much smaller and with a minimal VC They introduce them to potential sourcesmarket. Companies that originate from of knowledge, business partners, clientsanother city and end up staying in the and investors.TechStars program’s city often do so aftercreating rich business networks and have They act as sounding boards for theraised investments in that city. From a policy startups, allowing them to continuouslyperspective, any community sponsoring a redefine their business through rapidTechStars-type program outside of an existing feedback, particularly during the firstleading high-tech cluster cannot expect to reap month of the program.the full benefits. There are extra-regionalspillovers. 86
  • 84. Nurturing Innovation: Venture Acceleration NetworksWith feedback from the mentors, startups are day. Mentors are discouraged from becomingable to deliver strong pitches on Investor and the lead mentor of more than one company atDemo Day. The pitches include personal a time. Companies also continue to meet otherstories, are visual and engaging, include a mentors during the rest of the program, asstrong product demonstration to walk the required, in an ad-hoc way.audience through the problem and solutionsand a well articulated and clear structure. Mentoring sessions do not follow a prescribed structure. During these sessions, startupsStartups also receive more targeted and update mentors on their progress, mentorsspecialized advice from mentors and business provide them with feedback and withleaders through educational sessions and recommendations for next steps.informal networking events. Topics range fromlegal issues, investor financing, public relations, Educational sessions are conducted quitemarketing, pricing strategy, hiring and many informally, often over dinner. Presentersothers. In some cases, TechStars helps include entrepreneurs, investors, legal expertscompanies create and submit company or local startups. Some sessions are conductedformation documents and investor documents. in the premises of local technology-basedThis can help protect first-time entrepreneurs companies. The sessions take place in the earlyfrom making early mistakes that will have evening and include time for the startups tocostly repercussions in the future. interact with the various mentors, advisors and speakers.Delivery of Advice Advisor ProfilesAs discussed above in Section 1, startup teamsare matched with mentors in an iterative way Almost all of TechStars’ 278 listed mentors (60during the first month of the program. Initial for the Boulder program) are highly-meetings are facilitated by the TechStars experienced and successful serialManaging Directors, on the basis of the startup entrepreneurs, typically of web-based orand mentor’s profiles. However, the vast software companies. Many are also partners inmajority of companies do not end up working VC funds or early-stage venture funds.with these initial mentors. Ultimately, startups TechStars also has a list of 28 Advisors withfounders will select mentors on the basis of the similar profiles, and in some cases backgrounds“chemistry” between the two parties. Mentors in large companies such as Google. Most ofare also free to express their preferences for these mentors and advisors are highlycertain companies and to refuse to work with successful and well-known in their businessparticular companies. By the end of the first communities. They have a diverse mix ofmonth of “mentor-dating” TechStars formally educational backgrounds that reflects theassigns one or two “lead mentors” to each makeup of software entrepreneurs in thecompany. They will meet with the companies United States, some with degrees in liberalfor about one hour per week for the remainder arts, others in physical sciences, others inof the program. Some lead mentors will put in computer science and law degrees. In addition,more time with the company. In one case a many have MBAs.mentor met with a company practically every 87
  • 85. Nurturing Innovation: Venture Acceleration NetworksApart from the mentors, TechStars brings in an the TechStars startups and of some of theentire community of human resources during other mentors serving in the program.the course of the program. These includegraphic designers, lawyers and accountants.Throughout the program they give 5. Organizational Modelpresentations, after which they are alsoaccessible to startups for questions. In contrast TechStars is established as a limited liabilityto the mentors, their interest is more in finding company.37 In each city, the vehicle for thenew clients. program is a limited liability company that raises its own funding for one or more cohortsApart from external mentors and advisors, the of startups. In some cases fundraising is doneTechStars management, including its CEO, on an annual basis, in which case a newprovides a lot of advice to companies TechStars company is registered as a one-yearthroughout the program. vehicle. In others cases, a TechStars location raises funding for a multi-year period (e.g. fourRecruitment and Selection of Advisors years). Each location’s program is run independently with its own managementThe TechStars Managing Directors and structures, has fine-tuned its own model andfounders recruit mentors from their social has its own network of TechStars mentors. Thenetworks through informal processes. three-month programs of each location areTypically, the Managing Directors either spaced out over the year so as to limit theiralready know the mentor directly or they are overlap.referred to by a trusted source in their socialnetworks. The typical selection process is quite Considering its scale, media visibility andinformal, consisting of a short discussion with impact, TechStars has a very lean staffingthe mentor and due diligence through the structure. There are eight continuous staffinternet and references. Mentors are selected members: the CEO, the CFO, four Managingfor their extensive entrepreneurial experience. Directors (one for each city), an accountant, aAcademic credentials do not play an important bookkeeper, the TechStars Network Director.role in the selection of mentors. TechStars also In addition, each TechStars location is staffedselects mentors on the basis of whether their by a temporary Program Manager andinterests are aligned with TechStars’. TechStars approximately three interns during the courseprefers mentors who are motivated by giving of the program (Figure 18). Interns are unpaidback to their community, deal-flow evaluation, and are typically graduate students in MBA orlooking for new entrepreneurship Law programs. Their tasks range fromopportunities, staying abreast of technology, organizing events, meetings, taking notes, andand networking with other mentors and helping companies with different tasks.startups. Mentors looking to developrelationships with companies in view of selling The management and founders of TechStarstheir services are not accepted. In view of have backgrounds as startup entrepreneursTechStars’ growing popularity TechStars now and most of them are also early-stagereceives hundreds of mentor requests.Mentors are attracted by the high-quality of 37 TechStars Central LLC 88
  • 86. Nurturing Innovation: Venture Acceleration Networksinvestors. Most have founded several execution” over “ideas”. Moreover, TechStarscompanies and mentored many startups. Their staff and mentors would run a highbackgrounds contribute to the success of the reputational risk if they were to disclose anyprogram, since they need to be able to identify information acquired from the startuptalented founders, guide them throughout the companies, given that they all operate in tightprogram and connect them with appropriate regional entrepreneurship and investorindividuals. communities.With the possible exception of the TechStarsCEO and the TechStars Network Director, other 6. Innovation Ecosystemmanagers and staff members do not work on afull time basis year-round. Most of TechStars’ The four TechStars programs operate in citiesmanagement is also engaged in managing with relatively well-developedother early-stage venture funds or in angel entrepreneurship environments and culturesinvesting and work with TechStars on a full- but still considered as “second markets” fortime basis for five to six months of the year. startups when compared to Silicon Valley,This includes the three months of the summer which concentrates half of the country’s VCprogram and two to three months before the investments. New York, Boston and Seattleprogram, selecting companies and mentors, hold the bulk of the US VC market outside offinding sponsors and planning the program. At California. Boulder stands out from the rest inthe end of the program, they typically spend a that it only harbors a single early stage VC firm,few hours a week over one or two months is a small-sized city and does not have as manyhelping graduate companies raise funding. industrial and academic technology-basedThey do not receive salaries, but equity.38 assets. It is home to a good public university, but not an MIT or Columbia University.The relationships between TechStars, thestartups and the mentors are kept simple. In spite of Boulder’s small size and “second-There are no contracts, MoUs or NDAs market” status, it offers entrepreneurs abetween TechStars and the mentors or supportive entrepreneurial culture thatbetween the mentors and the companies. contributes to TechStars success. At the centerThere are no contractual agreements, MoUs or of this entrepreneurial culture is a strongNDAs between the startups and TechStars community of software entrepreneurs andeither. There are only verbal commitments investors, which creates the requiredbetween the different parties to participate in framework for a broad and solid mentorthe three-month TechStars program. TechStars network. Boulder’s recent startupdoes not encourage its startups to disclose its phenomenon can be attributed to severaltrade secrets but the effectiveness of the factors. Importantly, it has the highest numberprogram relies on sharing a fair amount of of software engineers per capita in the Unitedinformation on the business idea. This is part of States and a substantial proportion of itsthe TechStars approach of valuing “idea workforce is involved in technology38 89
  • 87. Nurturing Innovation: Venture Acceleration Networks Figure 18: Organizational structure of TechStars TechStars TechStars Central LLC CEO, CFO, TechStars Network Director, Accountant, Bookkeeper Regional and Annual TechStars LLCs Managing Directors, Temporary Regional staff (Program Manager, approx. 3 interns) Equity ↑ ↓ Funding Mentors TechStars Industry companies advisors Information Mentorship & adviceenterprises.39 The initial growth in technology 2010 11 tech start-ups in Colorado raised aexpertise in the city is attributed to the total of USD 57 million.41University of Colorado and the fact that severalnational research laboratories are in the city.40 TechStars has no immediate plans to expandOn top of that, budding entrepreneurs have its program to more than ten startups and tobeen attracted by the lifestyle on offer in four cities. This may be due to the centralBoulder. These factors have combined with the contributions made by the TechStars CEO topresence of available capital and the the implementation of the different programs.entrepreneurial culture to create what is cited However, as mentioned in Section1, TechStarsas a confluence of expertise, entrepreneurial has been spearheading the development of averve and support. In the first three months of global network of startup accelerators through the TechStars Networks.39 Wadhwa V, “Why Boulder is America’s Best Town forStartups,” Bloomberg Businessweek, April 201040 41 Wadhwa V, “Why Boulder is America’s Best Town for Miller CC, “Boulder, Colorado, a Magnet for High-Tech thStartups,” Bloomberg Businessweek, April 2010 Start-Ups,” The New York Times, May 13 2010 90
  • 88. Nurturing Innovation: Venture Acceleration Networks Appendix to the TechStars Case StudyThe TechStars Application ProcessSource:, accessed on March 9, 2011PROGRAMWhich program(s) would you like us to consider you for? * - New York City - Boston - Boulder - SeattlePERSONAL INFOWhats your name? *Whats your email address? *Specify only oneWhats your phone number? *YOUR COMPANYWhere is your team based, geographically? *Please enter a zip code if in the US, otherwise enter a city and country name.What will the name of your company be? *If you have a web site or demo/prototype, whats the URL? *URL only.Describe what your company does in 140 characters or less(dont worry, we wont tweet it)In more detail, what will your company do or make? *Its strongly encouraged but not required that you send a 3-5 minute video explaining your company. You may also include aURL here.Whats new, interesting, or different about what your company will do? * 91
  • 89. Nurturing Innovation: Venture Acceleration NetworksPlease provide information on current or likely competitors. Include key differentiators.*Explain how the company will make money.*Tell us about each founder *(include their role, skills, education level, schools, past companies, past projects/URLs, etc)What are some things that the team (or its members) have built on the web? *Please provide URLs and brief descriptions.Can each of the founders attend the entirety of the program, or do some of you have otherobligations during the timeframe of the program. *Please elaborateHave you already taken any outside investment? *Please describe if so.Why should we choose your company? *Where did you hear about TechStars? 92
  • 90. Nurturing Innovation: Venture Acceleration Networks SMART Innovation Center Catalyst Program Quick Facts Indicator ValueNumber of advisors 26Number of beneficiaries 26 projectsNumber of staff 2Financial arrangement with beneficiaries Up to USD 202,000 grantsTypical program duration Up to 18 monthsProgram annual budget N.A.Program start year 2009 93
  • 91. Nurturing Innovation: Venture Acceleration NetworksSpecial Features of the Program Research teams are mentored by 1-2 advisors with complementary skills, in face-to-face meetings or via video or teleconference calls. Research teams benefit from partnerships with INSEAD and Chicago Business Schools for the development of go-to-market strategies. Research teams benefit from the alliance with MIT through exposure to US entrepreneurs and venture capitalists. The program director plays an important role in facilitating group mentoring sessions. The program plays an active role in recruiting CEOs to lead newly-formed companies. Business mentors help researchers prepare grant proposals.Lessons Learned Mentorship is useful even at a distance, as long as the mentors and the mentees are able to communicate on an as-needed basis. Creation of partnerships with strong research and innovation centers as well as venture capital communities from abroad, particularly in the US, can be a powerful catalyst for the development of the local innovation ecosystem. Mentors can be recruited as volunteers even from abroad if a clear structure for the engagement is created and opportunities for networking offered. Alignment between catalysts, the research team and the Center Director with regards to project milestones and project monitoring are essential for a successful incubation and commercialization project. 94
  • 92. Nurturing Innovation: Venture Acceleration Networks Deshpande Center for Technological1. Business Model Innovation at MIT. Its main aim is to helpThe objective of the Catalyst Program offered researchers and their post-docs and graduateby the Singapore MIT Alliance for Research students commercialize their technology byand Technology (SMART) Innovation Center is licensing it to an existing company or spinningto help research teams accelerate their out a new company. The Innovation Center’stechnologies’ migration from the laboratory key activities in this regard can beto the marketplace. The Catalyst Program summarized as select, direct and connect:achieves this objective by pairing research Select: identify potentially game-changingprojects with volunteer business experts from technologies and researchers and developthe same field over a period of 18 months on initial go-to-market strategies.average and by making available funding of up Direct: provide additional researchto $202,000. The range of technologies funding in order to adjust research effortsincludes primarily, though it is not limited to, towards commercially better-suitablebiotechnology, biomedical devices, direction.information technology, new materials,nanotechnology and energy innovations Connect: immerse the researchers into the network of venture capitalists andThe government of Singapore has spent the entrepreneurs and enable the realizationlast 10 years to build up a research base “from of opportunities.scratch,” by dedicating $6 billion42 to researchfunding through the National Research Similar to the Deshpande Center, the SMARTFoundation (NRF) and establishing the Innovation Center has several programs,A*STAR research facility. In order to further which facilitate the implementation of thesepromote research and encourage science- activities:industry collaboration, building onSingapore’s successful research, the NRF a. Grant Programpartnered with MIT and established SMART in2007. SMART is the first entity in the Campus The Grant Program offers three types offor Research Excellence and Technological funding to SMART researchers and also toEnterprise (CREATE) being developed by NRF. faculty at all Singapore Universities andIt is also MIT’s first and only research center Research Institutes, namely: Innovation,outside the United States. SMART was an Ignition and Explorer grants. Since inception,outcome the Singapore government’s effort the SMART Innovation Center has financed 26to position the country at the forefront of projects.technological innovation and facilitate the (i) Explorer Grants (up to $40,500)43 aretransition towards a knowledge economy. envisaged to assist individual studentsIn 2009, SMART created its own Innovation or student groups, with their facultyCenter, which is modeled after the mentor, explore further development and commercialization of innovative42 The Government of Singapore has invested to work originated by the student(s) for adate between SGD 6 and 8 billion into developing 43its research capabilities. Explorer Grants amount to SGD 50,000 per project. 95
  • 93. Nurturing Innovation: Venture Acceleration Networks period of 6-12 months. So far, they have might be assigned to project teams later in been offered to develop only web- the project cycle, depending on the team’s based applications. readiness and needs. The Innovation Center currently has a roster of 60 catalysts in (ii) Ignition Grants (up to $40,500)44 are Singapore and five at MIT. offered for faculty-initiated research for very early proof-of-principal work. c. Educational Program (iii) Innovation Grants (up to $202,000)45 are designed to de-risk the technology The Educational Program offers short courses by developing prototypes or conducting on entrepreneurship and innovation proof-of-concept experiments and to leadership. A “Bootcamp” was launched in determine a go-to-market strategy for April 2011 and it will become mandatory for the products or services being all project teams who benefit from SMART developed. The innovation grants are Innovation Center Ignition or Innovation offered to faculty (principal grants. investigators) and their research teams, which include post-docs and sometimes Furthermore, the SMART Innovation Center graduate students. The end product of offers recipients of Ignition and Innovation the innovation grant is a well-defined grants the opportunity to work closely with business opportunity conducive to start- business school students. In collaboration up company formation or to licensing to with INSEAD and Chicago GSB (both global a commercial firm. The funding is top-ranked business schools with campuses in offered for a period of 18 months. Singapore), the SMART Innovation Center has developed an “i-Teams” project, wherebyb. Catalyst Program business school students are partnered with SMART Innovation Center-funded projectsThe Catalyst Program aims to provide and work together on developing go-to-mentoring services to the young market strategies. The end product of the i-entrepreneurs. “Catalysts” are volunteers Teams is a PowerPoint presentation thateither from Singapore or from the Boston summarizes one of three types ofentrepreneurial community who help assess recommendations: company formation,ideas, identify the most effective paths to licensing and modification in researchcommercialization and assist the research priorities (or even “give up” in some cases).teams in setting direction. They are involved SMART Innovation Center-funded projectsin one or at most two grant-funded projects have benefited already from the support of 10and interact with each research team on a i-Teams since 2009. The business schoolregular basis to help establish a go-to-market students have been primarily from INSEAD,strategy. Each team that receives funding Singapore Management University andfrom the SMART Innovation Center is National University of Singapore.expected to work with a Catalyst. Catalysts The Center also promotes networking with44 Ignition Grants amount to SGD 50,000 per project. relevant enterprises from the Cambridge,45 Innovation Grants amount to SGD 250,000 perproject. Massachusetts area, which includes 96
  • 94. Nurturing Innovation: Venture Acceleration Networkspresentations at the Deshpande “IdeaStream” the Grant Program, described above. Theevent or participation in discussions at the Center accepts proposals for funding twice aMIT Enterprise Forum. The MIT Enterprise year, and receives 15 applications per year,Forum, part of the MIT Alumni Association, is from which only 5-6 projects are selected. Thea platform for connecting technology type of grant that is awarded, whetherentrepreneurs and the communities in which Innovation or Explorer, depends on the stagethey reside. It offers over 400 educational and of development of the research project. Thenetworking events across its 28 chapters grant is used to pay for the salaries of post-globally. doc and graduate students and external experts or consultants. Although the grant isThe SMART Innovation Center “Flow of meant to direct researchers to anProject Development” is depicted in Figure entrepreneurial phase, the Innovation Center19. Projects that are selected through a maintains it as an academic grant (as opposedcompetitive process (the selection process is to a commercial investment) to create a safedescribed in Section 3), are managed by the environment for researchers. It is difficult toresearch teams with the help of the assigned disaggregate the costs of the CatalystCatalysts. Projects are supervised by the Program since it is managed by the same staffCenter Director to ensure that the teams and in the same premises as the othermeet milestones established in the Grant program components.approval process to de-risk the technology,produce prototypes, conduct proof-of-concept experiments and formulate a go-to- 3. Beneficiariesmarket technology. The end goal of theSMART Innovation Center is to accelerate During the last 3 years since inception, theresearch projects to the stage of maturity SMART Innovation Center has reviewed overwhere a company can be formed or a license 70 proposals and has funded 26 projects.identified. Company formation will be Usually, applications come from localachieved by identifying VC in Singapore or universities, such as National University ofBoston, and by bringing in a CEO. Singapore, Nanyang Technological University, the local Polytechnics, Singapore Institute of Management, Singapore Management University, Singapore University of2. Financial Model Technology and Design, SMART as well as from MIT, when faculty members conductThe SMART Innovation Center is granted joint research with Singapore. The MIT$1.62 million46 per year from SMART, which Deshpande Center on which SMART is baseditself receives funding from the National has evaluated over 500 proposals to dateResearch Foundation of Singapore. These since creation and funded over 85 proposals.funds cover the costs of funding and running Of the proposals that received funding, 23 resulted in new companies being formed and46 The SMART Innovation Center has received SGD 10 in raising successfully venture capital.million for the period 2009-2014, which amounts to SGD2 million per year for its various programs and theadministration of the Center. 97
  • 95. Nurturing Innovation: Venture Acceleration NetworksFigure 19: SMART’s 18-month project cycle Selection of i-Teams Deshpande MIT Enterprise Form company project and IdeaStream Forum (identification of principal VC and CEO) investigator Mentoring by Catalysts or licence VC NetworkingSelectivity is a key principle of the programs and does not last more than 4 months (Figureboth in Singapore and at MIT.47 20). The application process consists of several stages:Application Process 1. Widely disseminated general call for proposals twice a year, which provideThe application process for a SMART information about the types of researchInnovation Center grant is straightforward that it supports, who is eligible to apply47 and the amount of funding available. The SMART Innovation Center through its activitiesand programs targets the commercialization of 2. Collection of Preliminary Proposals, ortechnology produced by its four interdisciplinary groups: SMART Center Technological Innovation  Biosystems and Micromechanics, which aims to establish Singapore as the center of Grant Pre-Proposal. The Preliminary innovation for healthcare technologies of the Proposals use the Deshpande application future by merging diverse engineering and bioscience disciplines. template and represent a 2-3-page  Environmental Sensing and Modeling, which summary of the proposed project. The aspires to create a model of the natural and Pre-Proposal includes a brief description built environment of Singapore to be used as an invaluable tool for urban planning, of the opportunity, the proposed environmental forecasting and environment approach, the commercialization plan, the impact assessment.  Infectious Diseases, which strives to develop a deliverables, the team composition and better understanding of the pathogen-host the required resources. interactions of infectious diseases such as respiratory syncytial virus, influenza, 3. Review of Preliminary Proposals by the tuberculosis, malaria and dengue.  Future Urban Mobility, which endeavors to Selection Committee, with a “Yes” or crate a new paradigm for the planning, design “No” decision made for each proposal. and operation of future urban passenger and freight transportation systems that enhance 4. For approved proposals, a Full Proposal is sustainability and societal well-being. requested and can be drafted with the 98
  • 96. Nurturing Innovation: Venture Acceleration Networks help of a Catalyst. The Full Proposal Director, several Catalysts and faculty involves scoping the critical proof-of- members from MIT and SMART as well as concept development and outlining the a few government officials, followed by a go-to-market strategy. The Deshpande Q&A. Center’s application template is used as a 7. Decision of the Selection Committee to: basis for the SMART Center Technological approve, approve with revisions, ask the Innovation Grant Full Proposal. project team to resubmit during the next5. Peer review of the Full Proposal at MIT or grant cycle with proposed revisions, or SMART by independent investigators as reject the proposal. well as by a team of Catalysts who come 8. Final Clearance of background from the industry. Intellectual Property (IP) and preparation6. Presentation by the research team and of an annual budget and milestones for the faculty member to the Selection final administrative approval by the Committee, which includes the Center Center Director. 99
  • 97. Nurturing Innovation: Venture Acceleration NetworksFigure 20: SMART Grant Application and Award ProcessSource: SMART Innovation Center Whitepaper 100
  • 98. Nurturing Innovation: Venture Acceleration NetworksProject Team Assistance As the SMART Innovation Center was launched only in 2009, no research projectsA typical project team consists of the have gone through the entire program yet.following members: (i) A principal investigator About 10 projects are nearing the end of theirwho is a faculty member; (ii) 2-3 post-docs or funding and it is expected that 3 companiesgraduate students with no prior business will come be created as a result.experience; (iii) 1 Catalyst) and (iv) 1 i-team or2-3 MBA students per semester. Projectsnormally last 18 months. 4. Human NetworkDuring the life of the project, the project team Catalysts’ Responsibilitiesbenefits not only from financial resources butalso from professional guidance from the Mentorship is a key component of the SMARTfaculty, mentors, business students (i-Teams) Innovation Center experience. In order toand the Center Director. The latter has been ensure that project teams are able to achieveinstrumental in getting teams up to speed on their milestones, the Center offers therunning a start up. The teams meet with the possibility for Project Teams to receiveCenter Director weekly and have a lot of guidance from Catalysts, who are frominteraction via email as well. The Center volunteer business experts from Singapore orDirector also joins important meetings with i- from the MIT-Cambridge area in the UnitedTeam members and contractors for the States. There is no difference betweenprojects. Catalysts based in Singapore and the ones based in the US aside from the format of theirThe SMART Innovation Center and INSEAD interaction with the project team, whether ithave recently (April 2011) launched a is in person or virtual.“Bootcamp” entrepreneurship course forproject teams that receive funding. The Catalysts fulfill a series of responsibilities:Bootcamp consists of an intensive weekend ofclasses and workshops where the research Review proposals for funding from SMARTgroups are taught about the milestones in and MIT for small business researchcreating a business, the type of professionals initiatives.or assistance to seek at the outset and how togo about raising more funds. Guide the research teams that were successful in securing funding through theProgram Impact technology commercialization process and help them bridge the gap betweenBased on MIT’s experience it is estimated that the research and the market the best case scenario 25% of the projectsthat receive support from SMART could result Tap their own networks in academia,in the creation of a new company. Some industry and finance to find the extraresearch projects are also likely to result in expertise needed for SMART-financedthe technology being licensed to a company. projects. 101
  • 99. Nurturing Innovation: Venture Acceleration Networks Provide feedback to i-Teams on their Professionals get involved with the SMART presentations with the pitch to the Innovation Center as Catalysts primarily finance community for start up funding. because they are interested in learning about the technology pipeline. Should technologiesIdeally, teams would be offered two Catalysts. become commercially viable, many of themHowever, in reality, some teams receive one, would give up their roles as Catalysts andothers two, others none at all, depending on would get involved in the new venture asthe technology at hand and the current roster either partners or investors. The SMARTof Catalysts. To date, it has proved more Innovation Center also provides gooddifficult to identify Catalysts in Singapore than opportunities to Catalysts for networking andin the US, because of the small size of the meeting professionals from an array ofmarket and the novelty of the role. industries.Research teams normally interact with their The matching between the research groupsCatalysts every two to four weeks, depending and the Catalysts is done on the basis of theon the needs of the project. The location of project needs and the technical expertise ofthe Catalyst is not considered important by the Catalysts. It is typically the SMARTthe project teams or by SMART management. Innovation Center, and namely the CenterThe distance with the US can be overcome Director, that does the pairing. There isthrough conference calls or Skype chats. Also, flexibility built into the system, should theUS-based Catalysts travel to Singapore twice initial matching not work out.per year for a period of 2 weeks at a time tomeet with the teams in person. On averageCatalysts spend between 10 and 20 hours per 5. Organizational Modelmonth per project. The SMART Innovation Center is an operatingCatalyst Profiles and Selection Process unit within SMART, both of which are based in Singapore. SMART itself is a not-for-profitThe professionals who play the role of Limited Corporation, owned by a singleCatalysts are usually serial entrepreneurs, or shareholder, which is MIT. The Innovationpeople who have had extensive experience in Center is run with a very lean staff. The staffa specific industry or in venture capital. They consists of the Center Director and antend to come from the Singapore or Administrative Assistant. The Director followsCambridge chapters of the MIT Enterprise closely the progress of each project andForum (about 1,000 MIT alumni between the provides advice and connections to thetwo chapters) as well as from the TiE (Indian project teams. The SMART Innovation CenterEntrepreneurs’ organization), which has a has an Advisory Board, which includes a mixlarge chapter in Singapore, although no of venture capitalists, entrepreneurs,formal agreement with SMART. Catalysts are academics and government representativesusually identified at venture community and helps select and oversee projects (Figuremeetings or through references from current 21).members of the SMART network. There is alsoan online application process for Catalysts. 102
  • 100. Nurturing Innovation: Venture Acceleration NetworksFigure 21: Organizational chart of the SMART Innovation Center SMART Governing Board Office of the VP for (representatives from MIT & Research (MIT) Singaporean universities) Office of the Director Innovation Center Headquar Interdisci ters plinary Center Director Research Advisory Board / Groups + Administrative Selection Committee Assistant Non-disclosure & conflict of interest agreements ↓ Grants Catalysts R&D projects i-Teams & principal investigators Mentorship Go-to-market strategiesSource: adapted from Director of the Center is a former coupled with this willingness to learn andacademic as well as an experienced adjust quickly.entrepreneur. He used to be the AssistantDean at Johns Hopkins University Medical Professionals who take up the role ofSchool and continues to be the CEO of a life Catalysts are required to sign an agreementscience start-up. He is passionate about with the SMART Innovation Center. Thetechnology commercialization and fluent in agreement covers two important areas: onboth the researchers’ and businessmen’s non-disclosure and on conflict of interest.language and attitude to technology The non-disclosure clauses are meant toinnovation and commercialization. He has protect intellectual property. The articles onstrong interpersonal skills, which enable him conflict of interest stipulate clearly thatto constantly maintain and expand networks, Catalysts are not to take any financial or business interest in the project while playing 103
  • 101. Nurturing Innovation: Venture Acceleration Networksthis role. Should they be interested to pursuea different type of engagement with theproject, they would have to step down asCatalysts.6. Innovation EcosystemSingapore has created an environmentconducive to fostering innovation and toattracting entrepreneurs. The regulatoryenvironment is supportive of businesscreation, with Singapore ranking 4th (out of183 countries) on the World Bank’s Starting aBusiness Indicator.48 There are also many taxbenefits for start-ups, among the mostnotable ones being 0% corporate income taxfor start-ups and a low 17% individual incometax. It also provides state of the art facilitiesfor technology start-ups.There is abundant funding for later stagecompanies. Temasek, a state-ownedinvestment company, provides annually USD 1billion49 into the venture capital industry.However, there is a funding gap for projectsafter the angel stage, which the SMARTInnovation Center is trying to fill in byconnecting project teams with the Boston-based VC community.The main challenges to the technologyinnovation community are presented by theshortage of professional management talentfor early-stage companies and also by theabsence of an entrepreneurial community inthe Singaporean academia.48 S$1.5billlion 104
  • 102. Nurturing Innovation: Venture Acceleration Networks OCTANTIS Mentoring Program Quick Facts Indicator ValueNumber of advisors 200Number of beneficiaries 25 / yearNumber of staff 18 FT / 2 PTFinancial arrangement with beneficiaries 10% equity option + venture pays a USD 2,400 service feeTypical program duration 8 –10 monthsProgram annual budget USD 2,400 / ventureProgram start year 2004 105
  • 103. Nurturing Innovation: Venture Acceleration NetworksSpecial Features of the Program The program has reached out to Chilean executives and entrepreneurs around the world and incorporated Chilean diaspora in the Mentoring Program. It offers a two-stage support process in which ventures who successfully go through a first business planning phase supported by mentoring, are then eligible for further support through an implementation phase. The program charges entrepreneurs a small participation fee, takes equity warrant, but makes grant funding available to entrepreneurs on a competitive basis. OCTANTIS is an initiative of academic and private sector organizations, and receives some public support from the government. Each program participant is assigned a program staff member who facilitates their support activities and participates in mentorship meetings with entrepreneurs and external mentors.Lessons Learned Prestigious academic and private sector partners can boost the credibility of a mentoring program within the business community and help attract high value mentors. Communicating success cases early on in the program can attract deal flow and generate credibility. Creating effective mentoring relationships based on trust and mutual benefit rely on the mentor and mentee’s consent to work together, as well as on monitoring their relationship. In a country with a highly stratified social economic structure, where access to high-level executives is difficult for most aspiring entrepreneurs, mentors play an important role in helping entrepreneurs reach their full potential through social networks. Selecting ¨coachable¨ entrepreneurs who take advice constructively is key to the success of a mentoring program. 106
  • 104. Nurturing Innovation: Venture Acceleration Networks1. Business Model Operational ModelProgram Overview The Business Design phase of OCTANTISThe OCTANTIS Mentoring Program forms part includes two sub phases, Discovery andof an 8 to 10 month Business Design phase to Opportunity50, and Deepening Opportunity51 ,support early-stage ventures. The program throughout which the following support ishelps entrepreneurs improve their business provided (Figure 22):ideas and develop their business plans which Hands-on support: Generates evidence tothey subsequently implement in a follow-up validate business ideas and decreaseAcceleration program. levels of uncertainty around segmentation of clients, client needs, andThe Program’s supports entrepreneurs value of the innovation in the consumerthrough external mentors who act as role context.models and help validate business ideas byasking relevant and difficult questions. Discussion panels: Group or individualMentors. They bring support through meetings with potential clients andconnections with their own networks, people from industry as well as potentialstrategic direction, and credibility. The partners with the objective of initiatingMentoring Program has been designed to conversations that will allow the businessoperate in the Chilean business ecosystem, to develop. At the end of these meetingswhere creating and developing a high growth the entrepreneur will have enoughbusiness requires connections to exclusive feedback to decide the next steps of thesocial networks. venture. Peer-to-Peer (P2P) activities: TheBackground on the OCTANTIS objective is for entrepreneurs to interact among each other and stimulate theirThree stakeholders founded the OCTANTIS reciprocal support in the developmentBusiness Accelerator in 2003: Universidad and use of business networks.Adolfo Ibanez, IGT (a consultancy firm) and Workshops: These are practical sessionsCEO (a non-profit organization composed of oriented towards establishing a commonentrepreneurs in the ICT and biotechnology business language betweenindustries). OCTANTIS, provides value added entrepreneurial teams and OCTANTIS,to entrepreneurs on a networking model related to the design of the businessbasis, but the incubator does not offer any model, construction of the strategy andphysical space. Participating entrepreneurs, start-up phase (prototype, evidence,who are selected for their innovative businessideas and high growth potential, are givenaccess to customers, partners, smart money 50 The main focus of the Discovery sub-phase is on(angel investors), mentoring, serial collecting evidence to show that there is a promising business opportunity.entrepreneurs, peer-entrepreneurs, 51 The main focus of the Deepening Opportunity sub-government grants, venture capital, and other phase is to develop a business plan that is aligned with the market and can be implemented in the Accelerationnecessary resources to grow their business. phase. 107
  • 105. Nurturing Innovation: Venture Acceleration NetworksFigure 22: The OCTANTIS 8 to 10 month Business Design phase Selection Discovery and Opportunity Deepening Opportunity Selection of of ventures for ventures Workshops and P2P activities: prototype, evidence, opportunity, strategy, Acceleration for phase Business financial, etc. Design phase Hands-on activities: interviews, meetings and research Mentorship Program: 6 sessions who facilitates the mentoring process and opportunity, strategy, financial and other services provided to the venture. When others). a start-up is first accepted to the OCTANTIS Evaluation panels: Consist of formal program, the entrepreneurial trainer is presentations of the state of progress of responsible for making a short list of possible the business before the OCTANTIS board mentors who fit the needs of the start-up and team. During the Business Design with the help of the rest of the OCTANTIS phase there are two presentations. The team. The entrepreneurial trainer runs this list first during the second month includes by the entrepreneur for feedback and selects the opportunity as well as evidence and an order in which the mentors will be prototype. The second during the fifth contacted. The entrepreneurial trainer then month includes key aspects of the contacts the possible mentor, provides basic business plan (e.g. business model, information on the start-up and invites them business strategy, marketing plan, and to participate in the program. If the mentor financials). has not participated in the program before, Mentoring Program: Support by a mentor, he/she receives a general description of the typically during six sessions throughout program and the role and main the Business Design phase. responsibilities of a mentor. As a next step, a meeting is organizedAt the beginning of the business design phase between the mentor and the entrepreneurialeach entrepreneurial team is assigned an team, in which both parties get to know eachentrepreneurial “trainer”, a staff member other and decide whether they wish to work 108
  • 106. Nurturing Innovation: Venture Acceleration Networkstogether. The meeting involves the mentor, mentor and mentee are encouraged tomentee, entrepreneurial trainer and an agree on their future businessOCTANTIS staff member close to the mentor. relationship, this may take the form of anIf the mentor and mentee decide not to work advisory board member, investor,together after their initial meeting, the mentor, or other.entrepreneurial trainer reaches out to thenext mentor in the list and repeats the initial After completion of the Business Designprocess. phase, the most promising entrepreneurs are selected to move onto the OCTANTIS Acceleration phase, which provides furtherWhen both mentor and mentee have decided support. Very few entrepreneurs enter theto work together they agree on approximately Acceleration phase directly. Entrepreneurssix meetings (typically on a monthly basis), that already have a business plan can enter aeach of 1.5 to 2 hours long. The fast track Business Design program and in oneentrepreneurial trainer accompanies the to three months move onto the Accelerationmentor and mentee in these meetings. phase. The Mentoring Program is only offered at the Business Design phase. In theDuring these six meetings the mentor places a Acceleration phase OCTANTIS continues tostrong focus on clients and action, networking provide strategic guidance and connections toand business relations and emotional aspects the venture through advisory boards. Boards(motivation, optimism and ambition). The role meet monthly and board members areof the mentor consists of guidance in the awarded a one percent equity warrant fordesign of the business plan of the their participation. Board members are oftenentrepreneurs. mentors or other individuals with relevant industry experience.OCTANTIS provides the following generalguidelines for the Mentoring Program: In case the mentor has a conflict of 2. Financial Model interest associated with the entrepreneurs or the business, this Program Implementation Costs situation must be cleared up during the first session. The operational costs of the Business Design phase are approximately USD 2,40052 per Each mentor should not work with more venture. This also include the costs of than one entrepreneur at a time. meeting rooms booked at OCTANTIS partner Mentor and mentee/entrepreneur must institution Universidad Adolfo Ibáñez, agree mutually to work together. although these are provided as an in-kind The entrepreneur is responsible for taking contribution by the University as part of their notes at each session and submitting partnership arrangements with OCTANTIS. In these to the mentor and also OCTANTIS. addition, within the Business Design phase, If a positive relationship develops during the course of the mentoring sessions, the 52 CLP 1,200,000 109
  • 107. Nurturing Innovation: Venture Acceleration NetworksOCTANTIS pays mentors a symbolic amount of Innova Chile has developed a Seed CapitalUSD 10053 (CLP 50,000) per session. Fund to provide grants to innovative companies. OCTANTIS, as one of theThe “fixed” costs of the Mentoring Program organizations contracted to administer thisare mainly related to the time associated to fund, identifies grantees from amongnetworking and reaching out to business companies in its Business Design phase.networks and contacts from partners to raise Financial support is implemented in twoawareness about the program and also set up phases: USD 10,000 as a first stage, to carryinformational meetings about the program. out market studies, validation of businessThese activities are embedded in the ideas, client prospecting, basically theeveryday work of the staff. business plan development (this stage coincides with the Business Design phase ofParticipant Financing OCTANTIS). This grant funding may be used to cover the mentor’s costs. A second phase ofOCTANTIS requires a service fee and an equity seed capital of USD 80,000 covers thewarrant from entrepreneurs. The full cost of implementation of the business plan over a 12the Business Design phase (USD 2,400) is paid month period.for as a program fee by the entrepreneursthemselves. Roughly 20 percent of If the entrepreneur does not receive fundingentrepreneurs have been able to secure from the Innova Chile Seed Capital Fund,grants from different government (CORFO, payments must be made through otherMinistry of Economics, others) or multilateral funding/grant options (CONICYT56, CORFO,organizations (Inter-American Development Ministry of Economics, others) or directly outBank, Corporacion Andina de Fomento54, of the entrepreneur’s pocket.World Bank/infoDev, others) to cover theirservice fees. OCTANTIS offers flexible OCTANTIS has reached a point where it canpayment options, such as 1, 6, 8 or 10 cover its costs on an annual basis. Revenuesinstallments. On top of the service fee, are distributed in the following manner: 1/3OCTANTIS takes equity warrants of 10 seed capital grant funding from Innova Chile,percent. To date OCTANTIS has not received 1/3 service fees and 1/3 special projects.57revenues from this stream.Ventures participating in the Business Designphase are eligible to apply for a public seedfunding grant program administered byOCTANTIS on behalf of the government. TheChilean Economic Development Agency55(CORFO) runs the Innova Chile initiative,which aims to finance and supportentrepreneurship and innovation in Chile. 56 57 CLP 50,000 Special projects include grants and funds related to54 entrepreneurship from organizations such as infoDev,55 CORFO, CAF and others. 110
  • 108. Nurturing Innovation: Venture Acceleration NetworksFigure 23: Annual dealflow of entrepreneurs in OCTANTIS3. Beneficiaries where they present their business ideas to the OCTANTIS Board and management, who thenSelection of Participants selects the teams that are invited to participate in the Business Design phase. TheOne of the main challenges faced by selected teams agreeing with the terms andOCTANTIS is to attract a high-quality deal flow conditions of the Business Design phase andof entrepreneurs. The organization receives participate in the Mentoring Program.applications for 800 to 1000 business ideas The main selection criteria are the following:annually on average. Around five percent areselected for the Business Design phase and 50 Ideas that have a sales potential of atpercent of those are selected for the least USD 100,000 during their first year inAcceleration phase as well (Figure 23). the market (typically during the Acceleration phase), and growth rates ofEntrepreneurs submit their applications 35% The main areas of the applications are A highly innovative, technology, service,the following: or business model. Description of project/idea. Business that is friendly with the Description of the team. environment. Progress made in project. Ambitious entrepreneurial team, with a preference for those with previous What is needed to generate sales. business experience. Required support from OCTANTIS. Participating Company ProfileOCTANTIS staff provide each applicant withfeedback, and each month those selected in a Most of these entrepreneurs join the programfirst round are invited to a selection panel as a small team (2-3 people) with a business 111
  • 109. Nurturing Innovation: Venture Acceleration Networksidea, no established business entity and in On average approximately 25 entrepreneursneed of funds. They are mainly professionals are supported each year through OCTANTISfrom Santiago over 35 years old. Very few Mentoring Program in the past 6 operatinghave past entrepreneurial experience. years. These start-ups go through the different early stages of their ventureWhen OCTANTIS was first launched it did not operations while creating their own networkfocus on any industrial sector in particular due that will be the key tool to use to develop andto a lack of critical mass of enterprises to grow their business. Impact is generallygenerate sufficient deal flow. After a few measured through revenues and investmentyears of operation, some trends have figures of the participant start-ups.emerged and IT and biosciences have becomemore prominent among supported projects. Although results have been positive, effortsThe IT sector already had a critical mass of should be made to have a more organizedstartups in Santiago, and the OCTANTIS Board control and monitoring of the businessmade a deliberate decision to support mentors, also to have periodical gatherings tobiosciences due to its high-growth maintain them engaged with the accelerator,expectations. Other examples of sectors because at any given time there are not moreinclude food technology and design. than 25-30 mentors working at the same time.Program ImpactSince 2003, OCTANTIS has achieved the 4. Human Networkfollowing results: Scope of Advice More than 5,000 business ideas evaluated. Mentors are asked to develop the following Supported more than 300 projects. business practices among entrepreneurs: 80 new companies created. Develop an offer: the ability to listen, offer, sell and satisfy clients. 60 active entrepreneurial initiatives in our portfolio. Anticipate and adapt to change: anticipate and transform the economic, 12 international patents in process. technological and cultural changes of Around USD 30 million in aggregate sales clients, competitors and the environment of OCTANTIS companies. into opportunities. USD 4.3 million in seed capital (Innova Create relations: integrate social networks Chile public funding) and angel for opportunities that strengthen the investment (private funding) for entrepreneur’s capacity in diverse areas OCTANTIS companies. (commercial, financial, productive, International network of contacts that innovation and branding). includes collaboration efforts and Produce efficacy and quality: create alliances with Latin America, Spain, commitment networks that assure the Australia, United States, among others. fulfillment of commitments with a 112
  • 110. Nurturing Innovation: Venture Acceleration Networks standard of quality and profitability that Mentors from the diaspora are successful will maintain the entrepreneur in the Chilean businessmen/women who often hope market. to become involved in business relationships when they return to Chile. The new Cultivate emotional strength: cultivate entrepreneurs supported by OCTANTIS may emotional predispositions that assure bring new business opportunities to the effective action in positive and negative diaspora members who bring to the new situations, avoiding the smoothness of entrepreneurs an international perspective success and the resentment of failure. from the early stages of their business.Delivery of Advice Mentors usually have over 10 years executiveOnce the entrepreneur is in the Business experience in a specific industry and/orDesign phase, the mentor and mentee agree similar experience building and shaping newto meet typically on a monthly basis. These start-ups.meetings are scheduled by OCTANTIS andhave a duration of 1.5 to 2 hrs. When mentors Recruitment of Advisorsare finished with a specific team they areencouraged to become more involved with When a new startup requires a mentor,the start-up under future terms that are out OCTANTIS first attempts to identify one in itsof the scope of the Mentoring Program. existing pool of 200 mentors. If there is not aMentors remain in the OCTANTIS business good fit, it searches outside of its network,network and if interested may be called upon thereby further expanding its network.for further opportunities with otherentrepreneurial teams. The main partners of OCTANTIS played a critical role in the initial recruitment ofAdvisor Profiles mentors. Their prestige opened many doors. CEO is an organization of entrepreneurs in ICTOCTANTIS has a pool of approximately 200 and biotechnology who are committed tomentors. These are alumni from Universidad supporting other entrepreneurs, throughAdolfo Ibanez, members from the CEO activities such as mentoring. Universidad(partner of OCTANTIS) group of entrepreneurs Adolfo Ibanez is a leading business school,mentioned previously, general networks from and its alumni are high-level executives in thethe OCTANTIS staff and members of the most important companies in Chile.Chilean diaspora. In its early stages, OCTANTISmainly recruited mentors from its three OCTANTIS has also reached out tostakeholder organizations (University, IGT and Outplacement organizations for experiencedCEO). Over time the pool of mentors has executives that are looking to get involved inexpanded, mainly through staff contacts from business through diverse paths (mentoring,events, conferences and others, investing, others). An important step towardsrecommendations of current mentors, and reaching out to the Chilean diaspora has beengeneral networks that have been formed by working with ChileGlobal58 an organization forthe OCTANTIS. 58 113
  • 111. Nurturing Innovation: Venture Acceleration NetworksChilean diaspora - mainly in the US. The OCTANTIS staff is multidisciplinary andChileGlobal has established networks to includes 18 people from diverse professionalidentify Chileans interested in supporting backgrounds. This enables the program tostart-ups in Chile. deal with growth entrepreneurs come from a wide scope of industries and backgrounds.Recruitment is done by staff with individuals The CEO of OCTANTIS has an industrialthat have the potential of participating as a engineering background, with diplomas inmentor in the Mentoring Program, OCTANTIS coaching and human resources. Theoccasionally receives requests to participate leadership style is horizontal and based onin the program as a mentor and these are personal responsibilities and delegationattended individually. schemes. The board of directors is composed of six members, two from each partner organization (CEO, Universidad Adolfo Ibanez5. Organizational Model and Consulting firm IGT).OCTANTIS is legally part of the Universidad Entrepreneurs who enter the OCTANTISAdolfo Ibanez, which is the legal entity. program sign a proposal and a contract thatOCTANTIS intends to form a separate non- contains the terms and conditions of theprofit corporation in the future. It is divided Business Design phase as well as paymentinto four major organizational areas: arrangements and intention of equity warrant yield. There are no non-disclosure or conflict 1) Business Design: works with the of interest agreements. entrepreneurs to design a consistent growth vision and develop a world- class business plan. 6. Innovation Ecosystem 2) Business Acceleration: provides entrepreneurs with more support to Chile has a population of approximately 17 achieve business growth (advisory million inhabitants, with six million boards, strengthened entrepreneurial concentrated in the metropolitan area of teams, access to potential investors, Santiago where OCTANTIS is located. GDP has etc.) and implement their business made rapid progress in its economic plans. development in the past few decades, and 3) Operations & Finance. had a growth rate of 5.3 percent in 2010. The Chilean economy ranks 30th out of 132 nations 4) International linkages, which works in the Global Competitiveness Index 2010- closely with 1) and 2) in order to 2011. Chile has a very efficient goods and assure that every entrepreneur labor markets (28th and 44th, respectively) and develops an international scope as a relatively sophisticated financial markets well as to insert innovative companies (41st). The country also has solid into foreign business environments to macroeconomic policies (27th for accelerate their growths. macroeconomic stability) and transparent institutions (28th). On the downside, Chile needs improvement in its innovation 114
  • 112. Nurturing Innovation: Venture Acceleration Networkspotential, an important component for this isthe countries quality of educational system(ranked 101st for primary education and 45thfor higher education).As far as Starting a Business in Chile,according to the Doing Business Report 2011it takes 8 procedures, 22 days and represents6,8% of income per capita as opposed toAustralia where it takes 2 procedures, 2 daysand represents 0.7% of income per capita.Efforts in reducing times for starting up abusiness as well as closing them are necessaryto give more dynamism to the entrepreneurialculture.According to Global EntrepreneurshipMonitor59 (GEM) about 16.8% of the adultpopulation is involved directly or indirectly ininitial stages of entrepreneurial activities.Most opportunities are based ondifferentiation and less so on innovation. Also,most entrepreneurs are looking for nationallycentered businesses, which have lowerpotential of growth. A main challenge forOCTANTIS has been to attract high growthpotential entrepreneurship. Moreover,contrary to high-income economies, less thanhalf of the country’s R&D is performed in theprivate sector.59 115
  • 113. Nurturing Innovation: Venture Acceleration Networks MIT Venture Mentoring Service Quick Facts Indicator ValueNumber of advisors 140 mentorsNumber of beneficiaries 900+ entrepreneur groups, 80+ start-upsNumber of staff 3.5 FT (paid), several PT volunteer staffFinancial arrangement with beneficiaries Mentoring service is provided to beneficiaries for freeTypical program duration Mentoring period varies; up to 7 years so farProgram annual budget Estimated at USD 500,000 or USD 2,000/ventureProgram start year 2000 116
  • 114. Nurturing Innovation: Venture Acceleration NetworksSpecial Features of the Program Voluntary, free mentoring services with lean, low-cost management structure. Accessible to ventures at any stage of development, in any types of activities. Long-term engagement and flexible format adapted to the evolving needs of ventures. Focus on educating entrepreneurs, not on immediate wealth creation. Internal guidelines and peer pressure mechanisms to minimize mentors’ conflict of interests. Referral-based, “prestigious” mentor network, autonomously attracting high profile mentors.Lessons Learned It is possible to run a mentoring program with some level of success without picking winners. Low cost, self-sustainability, scalability can be achieved by cultivating and attracting mentors to a prestigious network. The success of VMS depends on the presence of MIT and the Boston innovation cluster. VMS cannot thrive in a vacuum but MIT can thrive without a formal mentoring program. It is difficult to assess the impact of a mentor program with an educational objective since most of the skills acquired by the entrepreneurs are tacit and difficult to measure. A flexible program structure and format can help address the needs of different types of mentors. 117
  • 115. Nurturing Innovation: Venture Acceleration Networks1. Business Model Background on MIT VMS MIT VMS was initially proposed in 1997, andProgram Overview launched in 2000 after a few years ofMIT VMS (Venture Mentoring Service) is a contemplation and adjustment by an MITvoluntary-based, education-oriented, non- alum and an MIT professor.60 It formalized aselective mentoring program with more than practice of informally matching prospective10 years of history in operation. VMS’s entrepreneurs with communities ofmission statement is as follows: experienced professionals that had existed long before at MIT. The VMS network started “MIT VMS is an educational program, with a founding group of seven mentors. In based on the belief that a fledgling 2000, VMS enrolled 20 venture teams and business is far more likely to thrive provided advice through 21 mentors. It has when an entrepreneur with an idea since then rapidly expanded, but appears to can draw on the advice and guidance be approaching steady state since the past of a group of mentors with proven couple of years (Figure 24, Figure 25). skill and experience. Through active Programs in many universities and support of entrepreneurs, MIT VMS municipalities (e.g. MaRS, InnovateVMS) contributes to the entrepreneurship consider MIT VMS to be a model of best education of the MIT Community, practices and have tried to adopt its design strengthens MIT’s role as a leader in principles. innovation, and helps to broaden MIT’s base of potential financial support.”The VMS program is administratively flexiblewhile philosophically strict – while guidingprinciples are imposed and potential breachesare actively monitored, the relationshipsbetween mentors and ventures is not rigidlystructured in terms of the number of mentorsassigned to each venture, the frequency andformat of meetings, the type of the adviceprovided, and so on. These evolve over timeand the mentors are assigned to ventures aslong as ventures wish. 60 In 1997 Former MIT provost Robert Brown suggested a meeting between Alec Dingee, an MIT Sloan School of Management alum, and MIT Professor David H. Staelin, the two who later became the co-founders of MIT VMS. While an initial proposal was made to establish VMS as a joint venture between MIT Sloan School and Engineering schools, with the MIT Entrepreneurship Center expected to be its host, it took until 2000 to decide key people and funding, and VMS’s formal structure directly under MIT office of provost. ( 118
  • 116. Nurturing Innovation: Venture Acceleration NetworksFigure 24: Number of MIT VMS mentors Figure 25: Number of Ventures Enrolled and Launched 150 300 number of mentors 250 100 200 number of ventures 150 50 100 50 0 0 2000 2004 2008 2000 2005 2010 year year Ventures EnrolledSource: MIT VMS presentation. Launched/Executing Ventures Source: MIT VMS presentation.VMS’ growth is largely on “auto-pilot”. It Ventures do not pay or surrender equity torelies exclusively on references and word of participate in MIT VMS. Operational costs aremouth for recruitment of volunteer mentors financed through the founders’ seed funds,and participating ventures, and on mentors’ donations, sponsorships and consultingself-discipline, culture of “giving back” and activities. Mentors offer advice to venturesnon-financial incentives (e.g. reputations for free.among peer mentors, opportunities ofsatisfactory engagements with ventures) for MIT VMS attracts mentors through thetheir involvement in the program. “prestige value” of being affiliated with its exclusive network. New mentors are recruitedOperational Model of MIT VMS only through referrals of existing mentors. This is designed to ensure the quality ofMIT VMS’s approach to mentoring services mentors since referring mentors puts theirfollows four principles: own reputations at stake. The services are free and have no strings MIT VMS gives mentoring relationships attached. particular flexibility. Mentoring relationships The advice is unbiased and mentors must can continue for several years, as long as the follow clear guidelines. venture wishes, offering different type of The advice is educational and about advice depending on the developmental guiding entrepreneurs rather than stages of the business. directing them. Strict guidelines for mentors MIT VMS does not exist to pick winners. The features that managers of the VMSFree Services program consider critical to its success is the trust relationship between ventures and 119
  • 117. Nurturing Innovation: Venture Acceleration Networksmentors. “Guiding Principles,” drafted by the often at a stage where they have only veryfounders, discussed with the deans and preliminary start-up ideas, and through thefaculty members and approved by MIT’s mentoring process, they may decide to giveGeneral Counsel, are designed to ensure up the idea rather than rush to establish arelationships of trust. new company. MIT VMS treats this as a part of an educational process, which is why the Mentors and entrepreneurs are subject to guideline asks “students shall be encouraged MIT rules and regulations. to stay in school”. Student entrepreneurs are encouraged to finish their studies. Not picking winners Mentors are prohibited from investing in ventures that they are also advising. MIT VMS does not either focus on specific sectors or set targets in promoting specific Further consulting roles for the mentors thematic areas. The enrolled ventures span must only arise through solicitation from across a broad range of activities, not limited the venture. to research-oriented, technology-driven start- MIT VMS and mentors must respect the ups but also including retail services and not- sensitivity of proprietary information and for-profit or social enterprises. maintain its confidentiality. Mentors must be vigilant towards Consulting services potential conflicts of interest. Since 2007, in addition to mentoring of MIT-These principles aim to eliminate any affiliated ventures, MIT VMS also providespotential conflict of interests, keeping fee-based advisory services, called “Outreachmentors from associating any of their advice Services”, to organizations that intend towith their commercial or personal career establish similar mentoring programs. Itsinterests. service menu includes: 3-days workshop (USD 20,000 for up to 5Educational participants, who must include the key individuals responsible individuals forAs clarified in its Mission Statement, MIT VMS operating the new mentoring service).aims to advance MIT’s mission inentrepreneurship education. VMS managers A half-day workshop (USD 1,500 persee the focus of mentoring as being on person)“developing entrepreneurial leaders, not Customized on-site support by VMSdeveloping enterprises.” The underlying professionals (fee varies).premise is that by having the opportunity touse the skills and knowledge of a business Examples of countries that have designedmentor, an entrepreneur with a good idea will mentoring services with VMS’s help include:be better able to navigate the often daunting Canada, Chile, Colombia, the Netherlands andprospects of competition, financial planning Switzerland.and the like that are all part of starting abusiness. Ventures entering the programs are 120
  • 118. Nurturing Innovation: Venture Acceleration Networks and their access to the network of peer2. Financial Model mentors, “taking care of the mentors” is one of the critical elements for the program’sProgram Implementation Costs sustainability. Food, drinks and parking, incurred from monthly mentor meetings, areVMS management estimate the three largest therefore non-negligible cost components.program cost components to be: MIT VMS draws revenues from: Staff costs. Founders’ seed funds. Food and drinks for the mentors meetings. Donations / Sponsorships, mostly from wealthy individuals from MIT’s alumni Parking for mentors meetings. network.Rough estimates61 indicate that MIT VMS’s Consulting services (the Outreachoperating budget is at most USD 500,000 or Program).USD 2,000 per venture per year. Participant FinancingMost of the staff works on the managementof the program on a voluntary basis. Staff The beneficiary ventures do not incur anycosts cover 3.5 full-time equivalent costs for participating in the program.(Operations Manager, Office Manager, Entrepreneurs’ response to the questionVenture Advisor x1.5). The office is housed “have you paid for VMS service if it were notwithin MIT’s administrative buildings, and free?” during a focus group were nuanced.provided at no cost by the university. MIT The group mostly agreed that they would notVMS also enjoys non-financial benefits from pay for mentoring. Some suggested thatbeing under MIT’s Provost Office: monthly interactions with paid mentors would involvementor meetings take place in what is totally different mindset, with a much higherconsidered to be one of the most prestigious commitment level. Others believed thatconference rooms in MIT, directly under MIT’s paying a mentor would negatively affect trustfamous “dome,” imparting on the program by turning a social relationship into a marketand its affiliated mentors a definite sense of relationship.high stature.Because mentors’ incentives to participate 3. Beneficiarieslargely rest on the quality of their experiences Selection of Participants61 While MIT VMS budget is not disclosed, MIT disclosessalary bands of administrative staff The only requirement to the applicants is that( Assuming that the Venture Advisors, with 25 and 35 at least one member of the team should be anyears of experience respectively, are at a high grade MIT affiliate (e.g. student, faculty, staff,while Operations Manager and Office Manager are at amiddle level, 3.5 FTE can be estimated to be between alumni). As clarified in the guiding principleUSD 300,000 to USD 400,000. Food, drinks and parking “do not pick winners” no criteria is applied infor monthly meeting with 80+ attendants are estimatedto cost $800 to $1,000 per month. terms of the type of venture’s activities, as 121
  • 119. Nurturing Innovation: Venture Acceleration Networkslong as the proposed idea “is legal and does VMS for several years. Ed Roberts, an MITnot deny the law of physics.” The application professor and the founder of MITcan be turned down if “the idea is not well Entrepreneurship Center, a separate program,defined yet,” but the interviewed manager describes this dynamics as follows:indicated that the screening is not necessarilyrigorous. During recent years, VMS has “Prospective entrepreneurs oftenaccepted 10 to 15 venture teams per month. come to VMS at very early stages in their idea process—usually beforeProgram candidates follow the steps there is a business plan, a strategydescribed below: and revenue model, a team, or any funding. Complete and submit a questionnaire62 to provide basic information about the team The VMS staff and volunteers don’t and the venture or the idea the team is screen to pick winners; rather, VMS’s pursuing. mission is to use any plausible idea as The program’s “intake specialist” contacts the focus for education on the the entrepreneur and conducts a phone venture creation process. The process interview. of forming a viable company can take Once accepted, the entrepreneur signs a anywhere from a few months to as form agreeing to abide by the VMS rules much as five years. Eighty-eight new and principles. companies, or more than 17 percent of the ventures that have signed up as A team of mentors is assigned to the VMS “clients,” already had formed entrepreneur, and the first mentoring operating companies by mid-2007. session is scheduled. Ultimately, many of the prospectiveParticipating Venture Profile entrepreneurs find their ideas are not practical as ventures, but they haveParticipating companies or teams vary both in learned much about beingterms of their nature of business and their entrepreneurs and forming ventures.stage of development. Many are located Some of them return with anotheraround MIT, and 40 percent of the teams are venture concept that does turn into acomprised of MIT students. As of the end of company. The ventures served during2010, more than 70 ventures are launched the first seven years of VMS haveand executed among the 220 ventures raised total funding that significantlyenrolled in the program. This means two- exceeds $350 million. This includesthirds of the enrolled firms could be expected venture capital and angelto establish a company in the future. investments, grants, and other seed capital.” 63Many teams participate with immature ideas,some just give up, and others go on toestablish companies and continue to engage 63 /Entrepreneurial_Impact_The_Role_of_MIT.pdf 122
  • 120. Nurturing Innovation: Venture Acceleration NetworksProgram Impact that were important for them to launch start- up companies. The study suggests that VMS’sEvaluating the impact of MIT VMS is not influence on the entrepreneurs’ start-upstraightforward. One may argue that the decisions have been almost negligible (Tablemore than 70 companies established and the 15). VMS was only established in 2000 and theUSD 350 million of funds raised by ventures in survey was conducted in 2003, so a visiblethe program attest to the program’s impact. influence of MIT VMS can be expected. ThisHowever, there is no counterfactual to isolate might or might not be a valid argument. As athe impact of the program. There is no way of comparison, influences of other keyknowing to what extent in Cambridge’s components of MIT’s innovation ecosystemthriving VC, angel investing, technology and are shown in Table 16.entrepreneurial community the sameentrepreneurs would not have established the MIT Enterprise Forum started its key activitysame companies and raised the same amount called “Startup Clinic” in 1982, the Technologyof funding without mentoring 64 Licensing Office was established in 1985, the Business Plan Competition in 1990 (as a USDA more modest question would concern the 10K Business Plan Competition; expanded toeducational effect of the program rather than USD 50K in 1996, and to USD 100Kits impact on the entrepreneur’s start-up afterwards), and the Entrepreneurship Centerdecision and its connection to relevant in 1996. These programs and institutions havementors: i.e. did the mentoring through VMS affected not only current MIT students buthelp entrepreneurs make better informed also alumni who had graduated decadesdecisions, or even more broadly, learn about earlier to make start-up decisions.entrepreneurial processes, as VMS states inits mission? While participating entrepreneurs The single strongest source of influence onand other stakeholders indicate that the start-up decisions has been MIT’sbeneficiaries’ appreciation of their mentors Entrepreneurial Network, which is createsvary, this in itself is also not a determining connection among MIT affiliates. Onefactor of the program’s quality. VMS casts a hypothesis is that entrepreneurs have foundwide net and is not selective of its ventures, mentors through MIT’s network even withoutand some of the prospective entrepreneurs in formal arrangement for mentor matching.the program may simply not be willing or ableto accept the mentors’ advice constructively.Start-up decision and mentor link-up effectsIn a report on the entrepreneurial impact ofMIT, Ed Roberts conducted a survey of MITalumni entrepreneurs, regarding the factors64 Directly addressing this question usually involverandomizing both recipients (treatment group) and non-recipient (control group) with comparable attributes andconducting econometric analysis, which this report doesnot intend to describe. 123
  • 121. Nurturing Innovation: Venture Acceleration NetworksTable 15: VMSs influence on start-up decisionsProportion Rating University Factors as Important in Venture FoundingGraduation Decade 1950s 1960s 1970s 1980s 1990s (N=73) (N=111) (N=147) (N=144) (N=145)Venture Mentoring Service 0% 1% 0% 0% 1%Source: Robert, E. and Eesley, C. (2009) Entrepreneurial Impact: The Role of MIT.Table 16: Other programs influence on start-up decisionsProportion Rating University and Alumni Factors as Important in Venture Founding (%)Graduation Decade 1950s 1960s 1970s 1980s 1990s (N=73) (N=111) (N=147) (N=144) (N=145)Alumni Regional Clubs 5% 5% 3% 12% 3%MIT Enterprise Forum 7% 16% 15% 22% 9%Technology Licensing Office 1% 0% 2% 4% 11%MIT Business Plan Competition 0% 1% 0% 3% 30%MIT Entrepreneurship Center 3% 1% 2% 1% 12%MIT’s Entrepreneurial Network 26% 25% 32% 40% 50%Source: Robert, E. and Eesley, C. (2009) Entrepreneurial Impact: The Role of MIT.Educational effects survive the immediate 1-2 months challenges.VMS entrepreneurs expressed mixed views on “Homework” that mentors give addsthe program’s actual benefits. Positive views certain external pressure to the team andincluded: helps impose discipline. Mentors’ opinions are invaluable for Mentors connect us to additional “reality check” of the ideas. mentors, potential deals, investors. Mentors serve as “sounding board,” giving chances to practice “how do I Negative or reserved views included: convince her?” The quality of the mentors varies – among The “tactical” advice is useful, based on our five mentors, two are now critical for mentors’ rich experiences, on how to our company, but the other three add little value. 124
  • 122. Nurturing Innovation: Venture Acceleration Networks Frequent disagreements among the access to a network of peer mentors. VMS mentors confuse us. makes every effort to “feed and entertain mentors” by hosting monthly meetings, Connections, advice, homework seem to disseminating information updates on come at random. ventures, and bringing in new mentors on board.4. Human Network VMS does not proactively reach out to alumni pool or other mentor candidates. TheAdvisor Profiles program expects current mentors’ positive experiences to attract new mentors throughAmong the more than 140 mentors in the word of mouth. Mentors describe theirmentor pool, around on hundred are actively motivations to join as follows:engaged as part of mentoring team(s). Around80 mentors participate in the monthly mentor Invited by a friend, attracted to getting tomeeting organized by VMS. know interesting MIT start-ups. Enriching and educational experience byThe professional backgrounds of the mentors helping the younger generation.span many technical and sectoral domains.Many mentors are not experienced serial Connecting to talented people as peerentrepreneurs but have, or had, management mentors.positions in industry. Some have legalbackgrounds and one is a retired business Once recommended by an existing member ofjournalist. The two most senior mentors –the the mentor network, mentor candidates aretwo Co-Directors –both have corporate interviewed to make sure that theirbackground: one has 37 years of experience in motivations are not to look for new jobs or forDuPont and other chemical companies, and new investment project. VMS reports that itthe other has 35 years of experience in does not often turn down consulting. Although the ageand gender mix of mentors is diverse, there is Once admitted, new mentors go through briefa bias towards older individuals. MIT training activities (e.g. guiding principles,affiliation is not required although many of introduction to the VMS intranet system,the mentors are MIT alumni. coaching techniques, etc.) and are asked to subscribe, in writing, to the VMS GuidingRecruitment of Advisors Principles. Particular emphasis is placed on minimizing potential conflict of interests andOne of the key roles of VMS is to foster a protecting entrepreneurs’ interests, in ordermentor community. Recruitment of the to provide objective, third-party advice freementors is done only through referrals, to from any personal agenda. Potentialgive the network a status of exclusivity. investments by mentors need to go throughMotivation for joining is not only to enjoy pre-defined procedures. As stated in theinteractions with interesting ventures and guiding principle, “any initiative pertaining to“give back to the community,” but also to gain an operational or consulting role for a mentor must come from the venture.” The mentors 125
  • 123. Nurturing Innovation: Venture Acceleration Networksare not allowed to approach ventures with mentors two weeks before theany interests other than helping and advising. monthly meeting 2. 10-15 new ventures are enrolled perBecause mentoring is done in teams of month, and the mentors selectmentors, VMS expects that “self policing” ventures they are interested inthrough peer pressure will help avoid conflicts mentoring. Typically, 3-4 mentorsof interest. In a few cases, proper procedures form a team for one venture, but thewere followed and mentors formally stepped actual number of mentors vary (e.g.out of their mentoring relationship before 20 self-nomination when “Clocky65”taking board or management positions in the came out)companies that they initially mentored. 3. Typically, entrepreneurs present theirMentors are matched to ventures by idea or business plan to the mentorsexpressing their preferences to the VMS during their first meeting, and theprogram. In some cases, the composition of mentors help them define a roadmapthe venture team changes as the venture and immediate prioritiesgrows and faces different types of challenges 4. Mentors set some “homework,” to bethat require different types of expertise. completed by the entrepreneur by the next meeting. The contents of theDelivery of Advice homework and advice also vary, and typically evolve depending on theThe scope and contents of the mentoring stage of the development of venturessessions are flexible, left to the mutual (e.g. dealing with intellectual propertyagreement between mentors and ventures, issues, marketing products, forming aand change with the changing needs of the company, financing, forming aventures. Mentoring sessions can cover management team, identifyingbrushing up or “reality test” of business plans, potential leads, etcmaking connection to potential customers, 5. The frequency of the meetings ismanaging the team, or any other needs that based on the entrepreneurs’ needsthe venture may face. Mentor meeting and the mentors’ availability.)schedules with ventures range from every twoweeks to twice a year for older ventures. 6. Mentors stay with the venture as longMentors are mostly based in the Cambridge as the venture wishes. LongestMassachusetts area where MIT is located, and mentoring relationship by now is 7mentoring sessions take place face to face. years. 7. One mentor plays the role of leadThe steps involved in the mentoring process mentor to make sure the mentorsare as follows: team best serve the needs of the 1. The VMS office compiles updates of entrepreneur and reconfigure mentor all ventures every month, and team when needed disseminate this information to all 65 An alarm clock that hides away to force the user to wake up; 126
  • 124. Nurturing Innovation: Venture Acceleration Networks The five staff levels, Director, Co-Director, Operations Manager, Office Manager and5. Organizational Model Venture Advisor are a combination of full- and part-time positions.66 The Director is part-timeVMS is not an independent legal entity but is and is responsible for presenting VMS to MITa unit of the university, situated directly and outside bodies; assignment of mentors;under MIT’s Provost Office, the highest level assessment of new mentors; developmentof MIT’s management, and is governed and projects; and the chairing of staff meetings,managed through two layers of committees, the operations committee and the monthlywhich include an Operations Committee, an review sessions. The Co-Directors can act asExecutive Committee. It has a lean substitutes for the Director. The Co-Directororganizational structure, with two full-time positions are part-time and filled bystaff members and several former mentors, volunteers, appointed by the Director. Theirvolunteer and part-time staff. Figure 26 function is to give mentors with unusual orshows the organizational structure of the particularly valuable skills and knowledge aprogram. more elevated position that allows them to lead ad-hoc developments at VMS. They areThe Operations Committee is responsible for also tasked with managing VMS’ relationshipsrepresenting the interests of MIT and meets with early-stage investors, and to direct theon behalf of the Provost whenever it needs to VMS Outreach Project.discuss VMS’ overall operations. It consists ofthe VMS Director; the Deans of the School of The Operations Manager is equivalent to aEngineering, School of Science and Sloan Chief Operating Officer and must possessSchool of Management; the MIT Associate administrative skills and the ability to manageProvost; the Vice President for Research; the people. Core tasks include assessment ofMIT Treasurer; the VMS Co-Founders; and, as entrepreneurs applying for services;an ex-officio member, the VMS Operations organization of contact between mentors,Manager. entrepreneurs and staff; management of venture reviews; financial management; andThe Executive Committee meets on a periodic support of the mentor network. He isbasis to discuss VMS’ activities, direction and supported by a full-time, paid Office Managerfinancing. It consists of the VMS Chairman, who is responsible for directing day-to-daythe VMS Co-Founders, the Director, the Co- office procedures; maintaining VMS’ data andDirectors and the Operations Manager. VMS records on mentors and ventures; plusstaff – the Director, the Co-Directors, the arrangements for the monthly reviewOperations Manager, the Office Manager and meetings, networking events and mentoringthe Venture Advisors – meet every week to meetings.consider VMS’ day-to-day operations and itsmonthly review agenda. Once a month, thestaff use one of these meeting to review all ofthe ventures. 66 The professional backgrounds of the current staff members are fully described in MIT VMS’s website: 127
  • 125. Nurturing Innovation: Venture Acceleration NetworksFigure 26: Organizational structure of VMS MIT MIT Office of the Provost VMS Operations Committee VMS Director + MIT representatives VMS Executive Committee Chairman VMS Co-Founder + Management VMS Staff 1 PT volunteer Director 2 PT volunteer Co-Directors 1 FT paid Operations Manager 2 FT paid Venture Advisors 1 FT paid Office Manager Mentor-mentee coordination Signed forms agreeing to rules and principles Mentors Venture teams MentorshipNote: FT = full-time, PT = part-time.Venture Advisors are paid staff and provide needs of the Operations Manager and Officethe first point of contact between Manager. Venture Advisors have extensiveentrepreneurs and VMS. They have specific entrepreneurial experience.duties pertaining to this, such as theintroduction of applicants to VMS operationsand assessment of their needs and suitability; 6. Innovation Ecosystemcreating reports on new ventures andpresenting them at the monthly review VMS benefits from the surrounding MITsessions; organizing mentors for new projects environment, its entrepreneurial culture, VCswhile playing the role of an interim mentor concentrated in the neighborhood, anduntil a suitable mentor is found; and several other MIT institutions supportingsupporting the technical and administrative innovative entrepreneurs. Other mutually 128
  • 126. Nurturing Innovation: Venture Acceleration Networkscomplementary programs at MIT (e.g.Deshpande Center, MIT Enterprise Forum,Entrepreneurship Center, etc) are described ina recently published report.67Interviews with MIT’s internal stakeholdersand the managers of these programsindicated that these institutions host theirown mentoring programs. For example,Deshpande Center, a technologycommercialization and incubation facilityunder the School of Engineering, providesgrants to MIT’s research projects close to acommercialization stage, and offersmentoring programs to the recipients ofgrants. While MIT VMS does not “pickwinners” but provides mentoring to anyventure teams in need, Deshpande Center’smentoring is naturally selective. Theexperiences that mentors bring are almostexclusively from technology start-ups, whilethe backgrounds of VMS’s mentors are morediverse (e.g. corporate executives).These other mentoring programs maycompete with MIT VMS when going afterpotential funding sources, attractingpromising venture ideas, or recruitingmentors. According to an observer heavilyinvolved in the MIT entrepreneurialcommunity, this type of competition benefitsentrepreneurs. Entrepreneurs have diverseneeds for mentoring, depending on the stageof ventures’ development, field of business,or level of technological differentiation.Facing competition, programs attempt todifferentiate, and entrepreneurs self-select toenroll in the programs that appear mostsuitable and beneficial.67 Entrepreneurial Impact: The Role of MIT, Edward B.Roberts and Charles Eesley (2009)( 129
  • 127. Nurturing Innovation: Venture Acceleration Networks MaRS Quick Facts Indicator ValueNumber of advisors 10 full time + 60 part time volunteersNumber of beneficiaries 640 (100 active)Number of staff 51Financial arrangement with beneficiaries Up to USD 50,000 grantTypical program duration Not defined / continuousProgram annual budget USD 29 million (including other programs)Program start year 2005 130
  • 128. Nurturing Innovation: Venture Acceleration NetworksSpecial Features of the Program Staffed with full time and part-time advisors, research experts and other staff members offering full-fledged, integrated services (mentorship, well equipped incubation facilities, market intelligence and consulting, educational programs, commercialization grant, talent management). High level of public funding requirements for supporting services (USD 130 million from the official launch in 2005 to 2008).Lessons Learned The organization’s launch by a well respected group of champions from the local business community and its ties with local universities were instrumental in its exceptional mobilization of public resources and support. Nascent entrepreneurs need educational programs in addition to advisory support. Full-time staff advisors do not develop the long-lasting informal relationships with ventures that external mentors do. It can be difficult to extend the reach of an entrepreneurship mentorship and advisory support program beyond a wider municipal area. 131
  • 129. Nurturing Innovation: Venture Acceleration Networks1. Business Model purchase an old hospital building. MaRS has a large 70,000 square meter facility at theProgram Overview center of Toronto, close to the country’s leading teaching hospitals and three majorThe Advisory Services are at the core of MaRS’ universities, and just minutes from Canada’sservice offerings. They constitute the first financial center and provincial governmentpoint of entry for any client wishing to access districts. The renovated building that used toother offered services. Ventures that join the be a hospital now functions as an incubationMaRS program are assigned an group of center, provides office and laboratory space,advisors who guide them as they grow their and hosts a wide range of services includingcompanies and direct them to the relevant advisory services through mentors.MaRS research, educational and financingprograms. Advisors are a combination of The tenants collocating in the MaRS facilityinternal full-time staff, part time staff, and include more than 60 companies, rangingvolunteers. MaRS has 650 clients in its from information technology, life science andportfolio, of which 100 are active clients of its health care, advanced materials, clean tech toAdvisory Services. social innovation. Tenants include a mix of start-up and well-established R&D-intensiveAdvisors meet with ventures in group of three companies such as GE and GlaxoSmithKline,to four, including one lead advisor. Meeting as well as a dozen retail outlets. Apart from itsfrequencies are based on the needs of the advisory services MaRS provides its tenantcompany but typically occur once a month. and off-site clients research, education,Advisory services are offered as a part of an capital, and talent management services:integrated program. For novice entrepreneursthese includes class-type seminars 1. Research(Entrepreneurship 101), more intense and MaRS Market Intelligence provides itsintimate series of lectures once a week, over clients access to various external market10 weeks addressing the business and research resources and services at noentrepreneurship cycle, and one-on-one cost. The resources accessible include:relationships with advisors. There is no - News archives and company databasesprogram graduation timeline and companies (e.g. Factiva, Thomson, Datamonitor).can benefit from the program as long as theywish. - Industry and technology trend reports (e.g. Frost & Sullivan, IDC, LuxBackground on MaRS Research). - Surveys and forecasts (e.g. Forrester,MaRS is a not-for-profit entity located in Profound).Toronto, Canada, whose mission is to “help - Patent databases (e.g. Innography,create successful global business from TotalPatents).Canada’s science, technology and socialinnovation.” It was founded in the year 2000 - Deal flow databases (e.g. Ventureby a group of prominent Canadian Source, MedTrack).businessmen who pooled resources to 132
  • 130. Nurturing Innovation: Venture Acceleration Networks Information specialists, eight staff types of specific funding instruments members with industry expertise (e.g. IT, include: software, telecom, pharmaceuticals, - Project funding: up to USD 20,00071 healthcare, biotech, clean tech) at MaRS for intellectual property strategy, help clients take advantage of these validation of primary market research. research sources to study market, identify customers, focus R&D efforts. - Investment Accelerator Fund: up to USD 50,00072 for early stage technology MaRS also publishes proprietary industry development and commercialization. reports68 tailored to Ontario entrepreneurs. The mandate of these seed funds is not to make a financial return but to fill the gap in funding and encourage private2. Education matching funds. Although funding MaRS Learning Programs provide commitment by private investors is not a educational services with online and pre-condition for these public funds, classroom courses69 designed to MaRS maintains relationships with angels, encourage innovation, collaboration and venture capitalists and private equity knowledge. Examples of courses include: organizations in Canada, and advises the - Entrepreneurship 101: teaching clients to raise funds from these sources. essential knowledge for entrepreneurs, covering starting and growing a 4. Talent Management company, finance, marketing, MaRS is now piloting talent management intellectual property, etc. services to help client companies find - Best practices series: Industry specialists CEOs, marketing specialists, etc. present cases and lessons on strategy and operations of start-up firms. MaRS also operates the Innovation Consulting Group, codifying and conveying lessons - Emerging technology series: experts learned and advising other entities attempting present new technological trends and to establish a similar incubation center. Two business applications. to three MaRS staff work with interested Some courses have 300 to 400 institutional clients and provide fee-based participants per week. services.73 Given its high visibility, delegations from China, India and other countries often3. Capital visit the MaRS facility. MaRS administers a public seed funding of approximately USD 10 million70 per year, financed by the Province of Ontario. Two68 71 CAD 20,000 72reports/ CAD 50,00069 73 To the inquiry of additional interviews to mentors andmars/education/ beneficiaries, the interviewed VP of advisory suggested70 CAD 10 million to set up a project in this scheme 133
  • 131. Nurturing Innovation: Venture Acceleration Networks2. Financial Model A breakdown of the MaRS 2009 revenues – totaling USD 24 million76 suggests thatMaRS generates most of its operating revenue operational costs are less reliant onby renting office, lab and meeting space to government subsidies than the initial capitalcompanies. Facilities also absorb an important investments, but provincial subsidies stillshare of the organization’s costs. Substantial account for 40 percent of income (.b). Rentalupfront capital investment was required to income is the main income category,acquire and renovate the facility. In addition accounting for slightly more than half ofto the costs of facilities, MaRS incurs large revenues. Most advisory, research andcosts for running its “high-touch” labor- educational programs are provided tointensive advisory, research, educational and entrepreneurs at no cost and hence do notcapital programs. generate much income (Figure 27b).Revenues ExpendituresSince its foundation, MaRS has covered most MaRS expenditures amounted to USD 29of its costs through public subsidies. Two- million in 2009. The largest share of operatingthirds have come from the federal and expenses was covered by center and programprovincial governments, and the rest mostly costs, as well as occupancy costs (Figure 28).from rental income and private donations Operating costs include salaries of managers,(Figure 27a). MaRS was initiated through of internal advisors, of market intelligenceprivate donations that leveraged a significant information specialists, market researchamount of public co-financing. The databases, full or part-time lecturers for theorganization was founded by 12 businessmen educational services, in addition towho pooled funding to purchase an old educational materials, events and gatherings,hospital building. Public sources then maintenance of the facilities, utilities andcontributed approximately USD 69 million74. administrative expenses. The organization hasMajor public contributors of start-up funding 51 professional staff – mostly highly-skilledincluded:75 and full-time – paid at highly competitive market rates (Table 17). Staff salaries add up The Federal Government. to USD 4.3 million. 77 The (provincial) Ontario Government. The “Capital” fund of USD 10 million78 per The Ontario Innovation Trust. year, is not included in MaRS’ institutional The Toronto Biotechnology budget. The Fund is a separate entity, Commercialization Centre (a business managed by MaRS but delivered by ONE incubator). (Ontario Network of Excellence), a The City of Toronto (in kind). collaborative network of organizations across The University of Toronto. 76 CAD 24 million74 77 CAD 100 million in the year 2000 http://www.cra-arc.gc.ca75 78 CAD 10 million 134
  • 132. Nurturing Innovation: Venture Acceleration NetworksFigure 27: MaRS revenue sources a. 2002 to 2009 b. 2009 Sale of Sale of goods and goods and servicesRental services Donations 3% income Donations 2% 8% 23% 2% Provincial and Povincial federal Rental governme income governme nt nts 55% 41% 66%Source: http://www.cra-arc.gc.caFigure 28: MaRS operational costs in 2009 Amortization of Office supplies and Interest and bank capitalized assets expenses charges 3% 3% 4% Travel and vehicle expenses 1% Professional and Centre costs and consulting fees program costs 10% 39% Salaries & compensation 15% Occupancy costs 25%Source: http://www.cra-arc.gc.caOntario, designed to help commercialize 3. Beneficiariesideas.79 80 Selection of Participants The Advisory Services selection process is simple, entailing only a one-page application form with fairly informal follow-up discussion with a representative from MaRS. The79 selection process includes three steps:80 135
  • 133. Nurturing Innovation: Venture Acceleration NetworksTable 17: MaRS Discovery District management compensations Position Salary (CAD$) Chief Executive Officer 436,625 Chief Financial Officer 215,000 Vice President, Community Investment 251,720 Vice President, Real Estate 195,000 Vice President, Partner Programs 160,881 Vice President, Advisory Services 149,907 Managing Director, Market Readiness Program 182,474 Director, Collaboration Centre 166,600 Director, Communications 133,315 Director, Market Intelligence 115,441 Director, Operations 110,725 Director, Partner Programs 101,050 Practice Lead, Advisory Services 177,390 Practice Lead, Advisory Services 167,500 Practice Lead, Advisory Services 103,126 Senior Advisor, Advisory Services 162,740Note: on December 31, 2010, 1 CAD = USD 0.9999Source: discovery meetings entrepreneur are Step 1: The venture completes the MaRS asked to do some “homework” before the Discovery Document. This is an online next session. Entrepreneurs who are not form which provides general information willing or able to complete the tasks, drop on the company, team, finances and out after this first meeting. market, and the kind of help required by Step 3: The ventures enter an on-going the venture. Eligibility criteria for engagement with MaRS, whereby it is participating in the Advisory Services connected with a team of advisors, include being: provided market intelligence, guided to a - An early-stage science and technology learning program, etc. or innovative social purpose venture. - Based and wholly owned and Participating Company Profile operational in Ontario. There are approximately 640 companies in Step 2: During a Discovery Meeting an the client portfolio of MaRS Advisory Services, assigned advisor meets the team to out of which 100 are currently active clients. review business plan and goals, develop a Two-thirds of the companies are from the plan and offer resources to move forward. greater Toronto community, and the rest is Step 2 is used as a “triage” process from within three to four hours of distance. through which the applying firms are The vast majority ( >90%) are not tenants in filtered through self-selection. During the MaRS facility. 136
  • 134. Nurturing Innovation: Venture Acceleration NetworksFigure 29: MaRS Participating Company Profile Materials and advanced Life sciences and manufacturing healthcare 3% 17% ICT 44% Cleantech 18% Social purpose 18%Source: MaRS – An Overview, July 2010The level of entrepreneurship experience entrepreneurs.81 The full results of theamong beneficiaries is fairly limited. Most of feedback survey are not published so it is alsothe entrepreneurs are from the private sector, difficult to understand these metrics inbut some are also professors, researchers or context.graduate students from neighboringuniversities. Many have recently graduated Anecdotal evidence from MaRS entrepreneursfrom engineering masters or doctoral suggests that at least some have found theprogram and have developed interesting program to be extremely beneficial at theapplications they would like to commercialize. onset of their company’s growth. MaRS provided vision support, business know-how,Client ventures are segmented by practices and strategic discussions to shape(Figure 29). MaRS clients vary from teams of entrepreneurs’ understanding of the marketentrepreneurs which have not yet formally and the potential of their product or service inregistered their companies to start-ups with that market space. After this initial formationseveral years of history. stage, however, some commented that MaRS’ support was no longer sufficient to provideProgram Impact additional growth.The impact of MaRS is unknown because itpublishes very few relevant performance 4. External Advisor Networkmetrics. A 2009 client feedback surveyawarded MaRS an average score of 4 out of 5 Scope and Delivery of Advicein the metrics “understands my challenges”,“helped move my business forward” and The underlying philosophy of MaRS service“provided valuable advice”. In that survey, 90 offerings is that, advisory services are notpercent of MaRS clients indicated they would enough for nascent entrepreneurs who alsorecommend MaRS services to other 81 MaRS – An Overview, July 2010 137
  • 135. Nurturing Innovation: Venture Acceleration Networksneed educational programs. MaRS provides leave MaRS if serious abuse of the system isadvisory, research and educational services. found.These are combined with other resourcessuch as peer-to-peer sessions and CEO MaRS advisors typically meet with companiesbreakfasts to help early-stage entrepreneurs at least once a month. In 2009, 550 clientsacquire the skills, information, connections, received on average 14 hours of advice, ormotivation and confidence it takes to grow a about slightly more than one hour perbusiness. month.82 However, averages are misleading since companies vary in their utilization of theMaRS entrepreneurs are assigned advisors program. One company reported schedulingwho meets with them regularly to guide them five meetings with their advisor over a two-through the MaRS programs and to growing week period at one point. The first meetingstheir businesses. Advisory teams consist of are initiated by the lead advisor, butone lead advisor and two to three supporting subsequent ones can be by the companiesadvisors who are identified and selected by themselves. Meetings are based on need.the lead advisor based on the needs of the Meetings between advisors and beneficiariesventure. Companies reported that throughout are driven by need rather than a structuredtheir interactions with MaRS they schedule. Often can be more formal with theaccumulated additional advisors, either by beneficiaries and the supporting advisors, orinformally meeting them at networking can be over drinks with just the lead.sessions in MaRS and presenting/pitching Meetings take place more often in thetheir ideas, or by formally requesting advice in beginning of the beneficiary’s journey.a specific area (such as fundraising). Some There is no set program duration. Somecompanies reported working with five to eight entrepreneurs still receive support from theadvisors at a time, at full or part-time basis. Advisory Services program after three years into their engagement with MaRS.Advice spans every aspect of growing anearly-stage business, including business There is no mandatory reporting to MaRSplanning, sales and marketing, financing and from the advisors regarding the progress ofpitch presentations, human resources, IP, the beneficiaries. Several attempts have beenfinancial management, etc. MaRS advisors made to formalize it, but it is viewed as analso help companies apply for government additional layer of bureaucracy. There aregrants, and connect them with potential informal channels of reporting, but theyinvestors and hires. Beneficiaries are given remain optional and are via the new intranet.regular “homework” assignments by theadvisor, which they are expected to complete, MaRS Research Services provide marketand follow-up meetings are often begun with intelligence on a variety of topics such asdiscussing progress of this assignment. industry, competitors, market, potentialAdvisors can either decide not to work with investors and partners, intellectual propertythe beneficiary due to lack of seriousness and best business practices. MaRS is able tofrom beneficiary or incongruence, or even deliver these services by leveraging its accessrecommend that the company be asked to 82 MaRS – An Overview, July 2010 138
  • 136. Nurturing Innovation: Venture Acceleration Networksto 18 business publication and database tools,covering topics such as industry research, The volunteer advisors are often retiredpatents, deal flows and management practice. entrepreneurs. Some of their motives to participating in the program include personalIn 2009 and 2010, MaRS responded to 530 gratification, professional networking, andrequests from clients. MaRS also provides further personal learning and understandingthese research services to the Ontario of the entrepreneurship process.Commercialization Network, a federally-supported program.83 Ventures are distributed among the four different “practices” of the MaRS AdvisoryEducational programs, the third component of Services according to their sector:MaRS’ non-financial services, includes a Advanced materials and engineering /combination of classroom lectures, online Cleantech.learning courses, online information,conferences and working groups covering Information technology, communicationsmany aspects of early-stage and entertainment.entrepreneurship. In 2009, MaRS Life sciences and health care.programmed or delivered 73entrepreneurship educational events with a Social innovation.cumulative attendance of 7,800 people. 84 The four MaRS staff who heads theseOne course, Entrepreneurship 101, has 1,800 practices, the “Practice Leads”, also take thestudents registered. roles of advisors for some of the client companies. These four Practice Leads have aMaRS also organizes “angel breakfasts” where mix of backgrounds, although mostly with anventures can practice their pitch. They allow engineering education and have held topthe companies to showcase themselves, positions in firms and other organizations.practice their pitch, as well as expand their Two have founded their own companies. Allnetwork, which may help with securing internal and external volunteer advisors havefunding down the line. Nonetheless, they either functional or industry expertise. Typicalrarely lead to direct investment by the angels backgrounds of the advisors include:into the companies. Leadership roles in established technologyAdvisor Profiles companies, in finance, operations, strategy.The Advisory Services are delivered through a Performing management functions ofpool of mentors in the following three corporate R&D.different categories: Professional consulting working with 10 full time advisors particular industry sectors or functional 8-10 part-time advisors areas. 50 part-time volunteer advisors. Series of entrepreneurial experiences. There are regular monthly practice area8384 MaRS – An Overview, July 2010 sessions that are three hours long where all MaRS – An Overview, July 2010 139
  • 137. Nurturing Innovation: Venture Acceleration Networksadvisors of a particular practice group get the organization, and the four Vice Presidentstogether and discuss current as well as future (VP of Business Services, VP of Talent, VP ofcases, or approaches, there is no formal Real Estate, and VP of Partner Programs)training program for advisors. The learning is oversee the work of Directors and Practicedone on-the-job. Leads in specific areas (Cleantech, Social Innovation, Market Intelligence, etc). AdvisorsRecruitment of Advisors are distributed under these practices and have NDAs with MaRS, as do the beneficiariesAdvisers are only recruited through referrals. (Figure 30).The external advisors undergo a screeningprocess, usually in a form of an interview withfive to six program staff from MaRS. Their 6. Innovation Ecosystempast entrepreneurship experience isevaluated and assessed. Toronto is Canadas largest city and home to a population of about 2.6 million people.Match-making of advisors and ventures is Toronto ranked 12 in among the top cities tomade on the basis of the information in the live, work and play in the Innovation Citiescompany’s application form. Because a Top 100 Index. The greater Toronto area isnumber of the advisors are paid staff and not Canada’s centre for ICT research anddoing it as a side-occupation, there is a certain development, and that the sector is enjoyinglevel of turnover of advisors at MaRS when sustained growth and high employment. 85 Inthe staff leaves MaRS for private sector jobs. McKinsey’s innovation cluster map (seeThis can lead to a company “changing hands” Appendix), Toronto is described as a “Silentand being left without an advisor for a period Lake”, with a moderately diverse pool ofof a time. patents and moderately-low growth in patenting, only slightly above Moscow’s growth, but starting from a large number of5. Organizational Model patents. Toronto’s “Discovery District”, where MaRS is located, is a research-orientedMaRS Discovery District is a not-for-profit neighborhood, with R&D activities worth USDcorporation. It is governed by a Board of 1.5 billion per year within a 5 minutes walk.Directors of mostly CEOs and Presidents of The commercial outcome of R&D in Toronto,leading private sector representatives in the however, has been limited. The city’s R&DToronto area, as well as university managers. only generates $30-40 million per year inFor example, the Chair of the Board is the CEO revenues according to MaRS.and President of RBC, the largest bank inCanada. The Vice Chair is on the board of In terms of business support, Toronto enjoys aseveral companies and held the positions of wide array of programs geared to support theDeputy Prime Minister and Minister in development of certain sector, includingprevious federal administrations. The CEO of innovative sectors such as BiomedicalMaRS has previous experience managing an Operations, Creative Industries, Informationearly stage venture capital fund and foundingseveral companies. The CEO and CFO head 85 140
  • 138. Nurturing Innovation: Venture Acceleration Networksand Communications technology,Manufacturing, and Tourism Attractions.Figure 30: MaRS Organizational Structure MaRS Board of Directors CEO and CFO 4 VPs 4 Practice 8 Directors Leads Staff Staff advisors Coordination NDAs Advice & & NDAs connections MaRS Volunteer companies advisors Research, information & education Advice & connectionsNote: In some cases multiple positions are assigned to a single individual. NDA = non-disclosure agreement. 141
  • 139. Nurturing Innovation: Venture Acceleration Networks Larta Institute Commercialization Assistance Program and Global Bridge Program Quick Facts Indicator ValueNumber of advisors 54 Principal AdvisorsNumber of beneficiaries Currently more than 350 in CAPs + more in Global BridgeNumber of staff 15 FTFinancial arrangement with beneficiaries CAP participants are all funded by SBIR/STTR innovation grants. Firms pay for CAP travel costs.Typical program duration CAP = 7-10 monthsProgram annual budget NIH-CAP budget: $1 millionProgram start year First CAP initiatives started in 2004 142
  • 140. Nurturing Innovation: Venture Acceleration NetworksSpecial Features of the Program Tailored Industry Advisory Boards across a variety of sectors that provide market-based feedback and new contacts to companies. Highly structured mentoring process with market-relevant deliverables, yet tailored based on company maturity level. Sector-specific approach for some programs Formalized categories of mentors, advisors and partners. Mentors and expert advisors are remunerated by the program. Custom-built program tracking portal to provide insight into progress of each entrepreneur, updates on the mentor-company exchanges, and address entrepreneur needs in real-time. Post-program company tracking system, with established metrics to measure quantitative and qualitative commercialization activities and outcomes. Cross-border mentoring for US market entry. 143
  • 141. Nurturing Innovation: Venture Acceleration NetworksLessons Learned Companies appear to derive significant value from the networking opportunities provided by the program. The success of a venture advisory program is highly dependent on the breadth and depth of the program’s network. This includes both informal and formal networks that take years to develop. The programs’ alumni companies can also contribute to the growth of the network. Company feedback sessions with Larta’s Industry Advisory Board provide a fresh perspective on the companies’ business strategies and allows them to network with representatives from leading companies. They allow companies to get the undivided attention of industry experts with relevant backgrounds. These exchanges, together with personal introductions from the company mentors, have proven much more useful to companies than venture forums and traditional modular training. Technology-based startups need advisors with top-notch expertise, most of which is acquired through decades of experience. A critical mass of mentoring hours is required to provide value added advice to companies. Remunerating mentors enables programs to rapidly mobilize them for government programs running under tight time constraints, and to commit mentors to specific deliverables. However, incentives to emphasize on formal deliverables to the sponsoring agency should not take the mentor’s focus away from the participating companies’ needs. Tracking of program participants after the program enables government agencies to provide evidence on the program’s impact and continuously fine-tune the program. 144
  • 142. Nurturing Innovation: Venture Acceleration Networks1. Business Model number of CAP participants are firms that have been awarded a second round of SBIR funding (Phase II) covering R&D that is pastProgram Overview the technical and commercial feasibility stage.Larta has developed and manages two main However, some CAP programs cover SBIR’stypes of mentorship-based programs for Phase I of funding, which supports feasibilitytechnology commercialization and innovation studies. Each year, more than 350 companiesfor various government clients: participate in Larta’s National Institutes of Health (NIH), US Department of Agriculture The Commercialization Assistance (USDA) and National Science Foundation Program (CAP) in the US. (NSF) CAPs.87 Larta’s first CAP dates from Global BridgeTM programs in other 2004. countries. Larta has also managed several mentor-basedThe objectives of both programs are to Global Bridge programs outside of the US,advance the market-readiness and investment including in Russia, Malaysia, New Zealand,profile of early-stage entrepreneurs in R&D- Korea, Hong Kong, and Canada. The Globalbased ventures. The programs aim to turn Bridge programs are similar to the CAPconcepts and early stage-IP with unclear programs, customized to the particularmarket potential to commercial ready country and firm profile, but an addedbusinesses, with validated IP and clear market objective typically includes connectingpotential. Support is offered in the form of participating companies to the US market.customized mentoring, training seminars,industry introductions, showcase events and In 2007, Larta in collaboration with The U.S.industry research. At the center of Larta’s Industry Coalition (USIC) and the Foundationapproach are the connections that are for Russian American Economic Cooperationestablished between the emerging companies (FRAEC), designed a Russia Global Bridgeand relevant people, capital and resources. program, an abbreviated two-month mentorship program designed for emergingCAPs are typically offered to firms receiving companies from Russia who were trained tosupport from the US Small Business present at a Larta-produced event in theInnovation Research (SBIR)86 program. A large U.S.—the Venture Forum. This brief program was funded by the Global Initiatives for Proliferation Prevention Program (GIPP) of86 The Small Business Innovation research (SBIR) the U.S. Department of Energys Nationalprogram is a set-aside program (2.5% of an agencys Nuclear Security Administration.extramural budget) for domestic small businessconcerns to engage in research and development thathas the potential for commercialization. Currently,eleven Federal agencies participate in the SBIR program:the Departments of Health and Human Services (DHHS),Agriculture (USDA), Commerce (DOC), Defense (DOD),Education (DoED), Energy (DOE), Homeland Security(DHS), and Transportation (DOT); the Environmental Agency (EPA), the National Aeronautics and htm). 87Space Administration (NASA), and the National Science Other Larta CAPs include the Defense AdvancedFoundation (NSF).( Research Project Agency 145
  • 143. Nurturing Innovation: Venture Acceleration NetworksBackground on Larta Some CAPs, such as those offered by NIH,Larta was founded in 1993 as a private non- offer two program tracks adapted to differentprofit organization in the United States. Its types of firms. The standard track88 applies tomission is to improve the transition of most of the eligible SBIR Phase II companiesscientific and technological breakthroughs and spans 10 months. Some SBIR Phase IIfrom the laboratory to the marketplace. Its CAPs offer an accelerated track89 tailored to aactivities are focused on developing and select group of seasoned companies whodeploying commercialization programs. Larta have considerable business orhas also organized periodic venture forums commercialization experience. It is shorter,for the investment community and only 2 to 3 months long, and focuses on moreentrepreneurs. Larta is a networked targeted barriers to commercialization. Theorganization, meaning that it has a small core standard CAP system has been formalizedof full time staff but leverages extensive over time to include several distinct phases,formal and informal networks of partners who as shown in Figure their activities. These include The application process for CAP varies.entrepreneurs, universities, industry While in some programs it is open to allexecutives, experts and investors, mostly in SBIR Phase II companies (e.g. USDA) inthe United States, but also in other countries. others there is a selective applicationLarta’s clients mostly include government process for a limited number of slots (e.g.agencies in the US and abroad. Organizations NIH).that have managed other programs for the USgovernment include Foresight Science and Companies that are selected for theTechnology, and Dawnbreaker, two US program are then assigned to individualcompanies. Principal Advisors (i.e. mentors) by Larta staff on the basis of the Principal Advisor’sOperational Model of the Commercialization expertise and background and the rankingAssistance Program (CAP) of companies they would prefer to mentor.Larta’s CAPs have the following core Companies and their Principal Advisorselements, all of which provide participants have preliminary remote mentoringwith exposure to potential partners and sessions, over the phone, to discuss theinvestors: issues the company would like to work on. Training through workshops and On the basis of these discussions and of interactive webinars. the company application form, the Principal Advisors complete an One-on-one mentorship with an assigned assessment of the company. The “Principal Advisor.” assessment describes company needs, Access to just-in-time industry experts. gaps and deficiencies, and commercialization strategy goals. Feedback from “Advisory Boards”, comprised of innovation experts, industry representatives and entrepreneurs. 88 The Commercialization Training Track 89 The Accelerated Commercialization Track 146
  • 144. Nurturing Innovation: Venture Acceleration Networks Within a month of program start, directions to consider. The Feedback companies attend a two-day Sessions also provide companies with Commercialization Training Workshop, opportunities to network with well- offered by Larta. This workshop offers connected industry experts. Advisory interactive seminars led by Larta advisors Board members in the company Feedback and experts from the legal, investment, Sessions are individually tailored to each and industry communities. Topics include company and include Industry Advisory an introduction to the CAP program, Board members, who typically serve in financing issues, partnering and Feedback Sessions of various companies, investment, IP, branding and marketing, depending on their interests. The number barriers to market entry and regulatory of industry advisors in each Feedback issues. During the workshop, companies Session varies, and can range from four to have face-to-face meetings with their ten. Principal Advisors for one hour, focused Following the Feedback Sessions, on identifying the challenges, objectives companies continue to work with their and work plan. Principal Advisors through remote In the following months, the companies teleconferences and refine their business attend periodic remote mentoring and strategic plans, and presentations. sessions with the Principal Advisors to They may also be offered more training work on business and strategic planning. webinars. During this period, companies are also The final CAP event is a Close-out Web offered interactive training webinars.90 Meeting, consisting of a 30 minute web- Webinars are given by Larta staff and conference with the company, Larta staff, experts from Larta’s network. Webinars the Principal Advisor and the CAP are approximately one hour long and program manager from the public agency include additional time for questions and sponsor. The company presents the answers. There are typically three to four feedback received from the Feedback webinars throughout the CAP. Sessions, key accomplishments since Slightly after the mid-point of the then, and an 18-month action plan. program, companies attend face-to-face Upon completion of the program, Feedback Sessions with members of companies provide their feedback on the Larta’s Industry Advisory Board. During program to the public agency sponsor. the Feedback Sessions, companies and Larta also collects commercialization their Principal Advisors pitch their tracking information over an 18-month companies and commercialization plans period in three intervals: immediately to a group of experts from industry for upon completion of the program, nine two hours. Companies then receive months after completion, and 18 months critique and constructive feedback on the after completion. company’s commercialization opportunity and strategy and suggestions for new90 147
  • 145. Nurturing Innovation: Venture Acceleration NetworksFigure 31: Typical timeline of an SBIR Phase II CAP Month 1: Month 2: Months 2-4: Months 4-5: Months 5-9: Month 9: During 18 months after SBIR Remote Commerciali Remote Industry Remote Close-out program: companies mentoring zation mentoring Advisory mentoring + web- ends apply for begins to Training + training Board training conference CAP and are develop Workshop webinars Feedback webinars assigned to Company Sessions Feedback Principal Assessment and tracking Advisors FormsOperational Model of the Global Bridge worked with Russian companies onPrograms preparing their business presentation.Many of Larta’s Global Bridge programs Two webinars provided to participants toclosely follow the approach of the CAPs familiarize them with issues ofalthough they typically have fewer importance to commercialization,participants and a slightly shorter duration in including one focused on building aits pilot phase. Global Bridge programs are market-ready presentation tailored totailored to the objectives and budget of the specific audiences relevant to thesponsoring agency, and to the specific needs companies.of the participating companies. Support in networking with US partners. Participation in Larta’s Venture Forum inThe objectives of an abbreviated 2007 Russia the US, where companies presented toGlobal Bridge program were to increase the investors, industry leaders and potentialcapacity of the supported institutions and customers.businesses to penetrate the US market. Thiswas achieved through: The program included 6 companies selected Initial assessments of the Russian from among 34 applicant companies in a companies to identify capacity building broad range of sectors including software for needs. modeling physical and chemical processes and Remote group training and short-term materials, analytical platform for in vitro individualized mentoring sessions, where diagnostics, biochips for medical diagnostics, US-based experts and Principal Advisors development of bulk nanostructured materials, technologies and equipment for 148
  • 146. Nurturing Innovation: Venture Acceleration Networkshigh-rate electron-beam evaporation and from the agency’s administrative budget fordeposition, the SBIR program. Larta’s program management costs per company allocated byProgram Assessments SBIR CAP agencies can vary from $4,000 per company for a light-weight 6-month Phase IThe success of the program is measured by a programs to US$13,000 for 9-month Phase IIpositive change along the following programs,92 and to up to USD 20,000 perdimensions:91 company in other CAP programs,93 not excluding travel and other direct costs. The Partnership and deal related activities cost depends on the level of intensity of the Revenue program and amount of effort involved. In Funding via equity investment, banking or 2009, the case of the NIH SBIR program, this other/alternative financing CAP program management, excluding agency staff costs, amounted to 0.6 percent of SBIR Growth in employment Phase II awards.94 Since these budgets, Acquisitions number of participants and timelines are determined by the agency, Larta’s CAPProgram outcome is monitored by Larta programs must be individually designed. Forduring the course of post-program tracking Global Bridge Programs, Larta’s modelphase through questionnaires to former includes cost coverage for Larta consultingprogram participants. Questionnaires assess with key stakeholders on the currentboth actual changes along the above innovation ecosystem, aligning a CAP effortdimensions and the respondents’ perception with long-term economic development/policyof the impact of CAP on these changes. objectives, and outreach to secureTracking reports are prepared by Larta using participating entrepreneurs in a CAP. Lartathe data collected by the questionnaires Principal Advisors are paid for a fixed numberduring the 18-month period. In view of the of consulting hours.long-cycles involved in commercializing R&D,there is general agreement among program Participant Financingstakeholders that the program’s impactassessment could be improved by making Participating CAP companies are SBIR Phase IIadditional resources available for longer and Phase I grant awardees. Phase I providestracking periods. 92 In 2009, Larta was awarded a contract of US$404,000 for approximately 100 firms participating in the NSF Phase I CAP over 6 months. In 2007, Larta was awarded2. Financial Model a contract of US$900,000 for 71 firms participating in the NIH Phase II CAP over 9 months (,Program Implementation Costs institute-wins-national-science-foundation-nsf-contract, NIH-CAP 2007-2008 Baseline Tracking Report for theLarta is generally provided a flat management period September 1, 2007 to June 30, 2008) 93 Based on information obtained from Larta.fee for CAPs from sponsor agencies, drawn 94 In 2009, Larta was award a contract of US$960,000 for the NIH-CAP. NIH SBIR Phase II awards amounted to US$91 NIH-CAP 2007-2008 Baseline Tracking Report for the 158.3 million (,Period September 30, 2007 to June 30, 2008. 149
  • 147. Nurturing Innovation: Venture Acceleration Networkscompanies with up to US$ 150,000 over six The selection process of SBIR firms formonths and Phase II with up to US$1 million participation in CAP varies with each federalover two years. agency. In some cases, there is a formal application. For example, the NIH selectsCompanies can enroll in the program free of proposals based on the ability of thecharge. However, companies are responsible companies to identify their key areas offor travel and lodging expenses associated support in their applications. In recent years,with the Commercialization Training of the approximately 250 NIH SBIR Phase IIWorkshop and Feedback Sessions, which are companies, roughly 80 have participated ineligible expenses under their SBIR awards. the CAP annually. In other federal agencies, such as NSF, enrollment is open to all willing SBIRs in the relevant Phase of the SBIR program. Yet, in other agencies, such as the3. Beneficiaries USDA, enrollment in the CAP has been made mandatory for all Phase II awardees sinceSelection of Participants 2009. Given that CAP is limited to a closed group of participants none of the federalCompanies participating in CAP are selected agencies need to market the programthrough the rigorous evaluation process extensively. The CAP is advertised to SBIRassociated with SBIR. SBIR awards are made awardees through small US businesses that demonstrate theirability to perform innovative R&D that Participating Company Profileresponds to the needs of a sponsoring Federalagency and which has commercial potential. CAPs include a broad scope of SBIR firms, inCAPs were designed for SBIR grant awardees, different growth stages, although most aremostly Phase II awardees and in some early stage firms with limited entrepreneurialagencies Phase I awardees. Hence, at experience and no products or IP in theminimum, CAP firms have gone through the market. In the 2007 program, roughly onePhase I process, which in 2009 selected 18 third of NIH-CAP participants had no revenuepercent of proposals from companies.95 Most from sales of products and services during theCAP participants are Phase II awardees and 9-month program period. Only one-fifth hadmust go through another round of selection, sales revenues exceeding US$ 1 million. Thehaving demonstrated the feasibility of their largest sources of total revenue of NIH-CAPproject in Phase I. In the case of the NIH SBIR participants were R&D grants and contracts,program, only one-third of applicant accounting for 69% of total revenue.97 Sincecompanies who completed Phase I were no equity data is available for companiesselected for follow-up Phase II funding and entering the CAP, information on equitywere thus eligible to participate in CAP.96 raised by companies over the course of a CAP program must be used as an imperfect proxy for their growth stage (Figure 32).Data from the 2007 NIH-CAP suggests that at least a95 97 NIH-CAP 2007-2008 Baseline Tracking Report for the Period September 30, 2007 to June 30, 2008. 150
  • 148. Nurturing Innovation: Venture Acceleration Networksquarter of companies are early stage (seed Figure 33: Share of companies in the NIH-CAPstage) companies, receiving investments from 2006-2007 seeking partnerships or financingfriends, family and angels, and at least aquarter have received funding from VCs orstrategic investors and are hence in later Seekingstages of business and well into product neither Seekingdevelopment. 18% partnershi psFigure 32: Equity raised by participating 27% Seeking Seekingcompanies seeking equity during the 2007 both financingNIH-CAP 51% 4% Friends and Angels Source: NIH-CAP 2006-2007 Baseline Tracking Report family 6% for the Period September 1, 2006 to June 30, 2007. 17% No VCs equity Strategic 3% The 2010 NIH CAP divided participants into 56% investors two tracks to take differences between early 18% stage and later stage businesses:98 The standard track99 is designed for emerging companies who are makingSource: NIH-CAP 2007-2008 Baseline Tracking their first foray into the commercialReport for the Period September 30, 2007 to June30, 2008. marketplace. Most SBIR Phase II companies fit in that category.CAP tracking data suggests that while the vast The accelerated track100 is tailored to amajority of companies are at a stage where select group of SBIR Phase II seasonedthey are seeking partnerships, only companies who have considerableapproximately half are seeking financing business or commercialization(Figure 33). experience. These companies have successfully commercialized products or services, generated revenue, established partnerships or otherwise achieved a level of market development. They may still have needs in specific areas such as a regulatory plan, an IP strategy or a term sheet for investors for continued growth. 98 htm 99 The Commercialization Training Track 100 The Accelerated Commercialization Track 151
  • 149. Nurturing Innovation: Venture Acceleration NetworksWhile CAP participants come from a variety of impact. Tracking data suggests that in thesectors, including life sciences, energy and short term CAP benefits companies inagriculture, each program is typically tailored partnerships and deals, raising equity and into suit particular sector needs since most generating revenue. Of the firms that reportprogram (except for NSF’s) are organized by new partnerships and deals during thefederal agencies with specific mandates (e.g. program and for the 18 months following thehealth, agriculture). This is particularly true program, the vast majority attributes some offor the training workshops and webinars, these partnerships to the program (Figure 34).which are oriented at sector specific topics. Partnerships and deals are defined to includeThe recent development of an accelerated contacts, meetings and negotiations withCAP track suggests that (1) some of the investors and partners, confidentialitysupport offered by a standardized CAP disclosure agreements, initial proposals andprogram, such as the training, may not be term sheets as well as deals. Companies thatrelevant for more mature companies and (2) raised equity during or slightly after the CAPthe CAP approach can be adapted to various also attribute some of this success to thelevels of maturity and different desired program (Figure 35). Finally, roughly half ofoutcomes. The accelerated CAP track was companies attribute some of their revenuesproposed by Larta Institute to the sponsoring during and in the 18 months following theagency (in this case, NIH) and designed by the program to CAP (Figure 36).Larta to accommodate this population ofcompanies, based on observations and theexperience of managing previous CAPs.Program ImpactAlthough there is no rigorous impactevaluation (with control groups) of thevarious CAPs, 18-month tracking data fromthe NIH-CAP suggest that the program makespositive contributions to firm progress inseveral areas. Moreover, in view of therelatively short tracking timespan comparedto the long commercialization cycle, thetracking data is likely to underestimate CAP 152
  • 150. Nurturing Innovation: Venture Acceleration NetworksFigure 34: Impact of NIH-CAP of companies that made new partnerships or deals during or afterthe programs 120 100 Number of companies 80 60 No impact 40 Some impact Major impact 20 0 During program Within 9 months Within 10-18 later months laterSource: NIH-CAP 2005-2006 Baseline Tracking Report for the Period September 1, 2005-June 30, 2006; NIH-CAP 2005-2006First Interval Tracking Report for the Period July 1 2006 to March 31 2007; NIH-CAP 2005-2006 Second Interval TrackingReport for the Period April 1, 2007-December 31, 2007; NIH-CAP 2006-2007 Baseline Tracking Report for the PeriodSeptember 1, 2006 to June 30, 2007; NIH-CAP 2006-2007 First Interval Tracking Report for the Period July 1 2007 to March31 2008; NIH-CAP 2006-2007 Second Interval Tracking Report for the Period April 1, 2008 - December 30, 2008.Note: Data is aggregate for 2005-2006 and 2006-2007 programs.Figure 35: Impact of NIH-CAP on companies seeking and raising equity during and after theprograms. 20 Number of companies 15 Number of Companies without CAP impact 10 Number of Companies with CAP impact 5 NA (no response to question) 0 During program Within 9 months laterSource: NIH-CAP 2005-2006 Baseline Tracking Report for the Period September 1, 2005-June 30, 2006; NIH-CAP 2005-2006First Interval Tracking Report for the Period July 1 2006 to March 31 2007; NIH-CAP 2006-2007 Baseline Tracking Report forthe Period September 1, 2006 to June 30, 2007; NIH-CAP 2006-2007 First Interval Tracking Report for the Period July 1 2007to March 31 2008.Note: Data is aggregate for 2005-2006 and 2006-2007 programs. 153
  • 151. Nurturing Innovation: Venture Acceleration NetworksFigure 36: Impact of NIH-CAP on revenues of companies that stated some revenue during or afterthe programs 70 60 Number of companies 50 40 NA (no response to question) 30 No impact 20 Some impact 10 Major impact 0 During program Within 9 months Within 10-18 later months laterSource: NIH-CAP 2005-2006 Baseline Tracking Report for the Period September 1, 2005-June 30, 2006; NIH-CAP 2005-2006First Interval Tracking Report for the Period July 1 2006 to March 31 2007; NIH-CAP 2005-2006 Second Interval TrackingReport for the Period April 1, 2007-December 31, 2007; NIH-CAP 2006-2007 Baseline Tracking Report for the PeriodSeptember 1, 2006 to June 30, 2006; NIH-CAP 2006-2007 First Interval Tracking Report for the Period July 1 2007 to March31 2008; NIH-CAP 2006-2007 Second Interval Tracking Report for the Period April 1, 2008 - December 30, 2008.Note: Data is aggregate for 2005-2006 and 2006-2007 programs.4. Human Network An “18-Month Action Plan” which includes a list of strategies, tasks andScope of Advice milestones with a timeline.The CAP mentoring process has been A quad chart to promote the company’sformalized over time yet retains some level of technology assets.flexibility. The work program of the Principal These deliverables – all of which are ratherAdvisor and the company is guided by the comprehensive in scope - provide theCompany Assessment Form developed at Principal Advisors and the company with aprogram onset, which identifies the basic platform to address both general issuescompany’s goals, and by the Feedback Session (e.g. fundamental approach to doing business,milestone. At program onset, the company understanding various market segments,and Principal Advisor select final deliverables commercializing the technology) and focus onfrom among a “Management Toolkit” specific gaps identified at program onsets.consisting of:101 These specific gaps can include topics such as Either a “Road Show” pitch presentation funding, where the Principal Advisor provides for potential investors strategic partners not only advice but connections, or or licensees; or a more comprehensive marketing, where the Principal Advisor “Business Case” presentation. advises the company on the development of a marketing plan. However, the Principal Advisor does not go into the detailed nuances101 of writing marketing plans or business plans and do not do the work for the companies,htm 154
  • 152. Nurturing Innovation: Venture Acceleration Networksthey only advise, guide and assist. When veryspecific expertise is required the Principal Box 12: Advice to a Global BridgeAdvisors can call on industry experts from participant in RussiaLarta’s network. A biotech company spun out of a Russian research institution participated in the LartaA typical Principal Advisor coaching session Global Bridge program in 2007. At the time ofdoes not have a formal structure but is the Global Bridge program the companytypically initiated by a discussion of the key already had a good portfolio of intellectualissues faced by the company. The property at different stages of developmententrepreneur and the Principal Advisor then and managing this intellectual property haddiscuss how these should be addressed, and become a central part of the managementdevelop a plan of action. At the next meeting teams work. The company was manufacturingthe company reports the progress achieved in its products and had customers.addressing the key issues. Box 12 documentsthe experience of a Russian company with a The company’s main goal in participating in theGlobal Bridge program modeled after the program was to learn how to promote theirCAP. products in European and US markets. The company was not interested in financialDelivery of Advice support as they had received several grants from the Russian government. But they werePrincipal Advisors meet on a regular basis looking for partners who could help them sellwith the companies. CAP offers Phase II SBIR their products in global markets.companies 22 hours of coaching sessions withthe Principal Advisor, over a nine month The company was assigned a mentor from theperiod. In reality, most Principal Advisors US who interacted with them throughprovide more than 22 hours of time to their videoconferences, by telephone, and in personcompanies. Several program stakeholders at the end of the program. The company foundmentioned that the program could benefit it useful to have advisor from the US to betterfrom more mentoring time. Meeting understand the nature of businessregularity is determined by the Principal relationships in that market. The companyAdvisor and the company, and is usually once considered the program to be very useful.or twice per month. Industry experts are Through the program, they: (i) understood howcalled upon for advice on specific issues. to negotiate with foreign partners; (ii) learned how to present their products; (iii) realized that the main weakness of their company was theAs already mentioned, coaching sessions are lack of marketing, and that they did not knowtypically done remotely over the phone, with how to sell their product; (iv) determined thethe exception of the face-to-face meeting value of the company.during the Commercialization TrainingWorkshop at the beginning of the program.The remote coaching approach is imposed bythe fact that CAP companies are distributedacross the country. Mentors are alsodistributed across the country. 155
  • 153. Nurturing Innovation: Venture Acceleration NetworksAdvisor Profiles generally based in the United States, although, representing the country’s eliteAs already mentioned, there are three technology base, they come from differentcategories of external advisors: national backgrounds. US-based CAPs and international Global Bridge programs rely on Principal Advisors who provide one-on- the same pool of mentors. New mentor one mentorship to the companies recruitment is a continuing activity either throughout the entire program. through the direct efforts of Larta Institute as Industry experts who provide just-in-time well as the reputation of the program, which advice. draws solicitations from potential mentors Advisory Boards who the companies meet throughout the year. with during the Feedback Sessions. Principal Advisors are motivated to join the Larta network for a variety of reasons; depending on their profile. IntellectualPrincipal Advisors have a broad range of stimulation is a common reason. The Lartabackgrounds but have a few traits in common. programs enable them to get a privilegedThey typically have experience in small view of the innovation pipeline and builds upbusinesses and expertise in a particular their expertise in their sectors. In some casessector. Most have several decades of practical Principal Advisors continues a relationshipexperience with business or with a company after a program ends. Thisentrepreneurship. They generally have strong can take the form of a paid consultancy, of ascientific and commercial educational position in the company’s board of directorsqualifications. Most have earned MBAs and or of a position as an executive in thesome have PhDs in scientific fields. Some of company.the Principal Advisors are serial entrepreneursand are managing startups while also Industry experts who provide just-in-timementoring in CAPs. In sum, Principal Advisors specialized advice also have a variety ofhave the profiles of individuals who would be backgrounds but typically work in thesuited for the Board of Advisors of a small business services industry, either as individualtechnology-based business. Most Principal consultants and lawyers, or part of a firm.Advisors have been with Larta for four years They specialize in either specific industries,or more and initiated upon their recruitment intellectual property, market research,through an immersion into Larta’s marketing, investment, law or the regulatorymethodology and approach to the CAP and framework. They also have at least 15 to 20deliverables. Over the years, as a result of years of experience in their fields.program efficiencies, this set of orientationmaterials for Principal Advisors have been Advisory Board members are representativescondensed into a short Webinar session, of large companies operating in differentwhich is provided to new Principal Advisor technology-based sectors (Figure 37). Theycandidates. Most repeat their engagements typically have positions that provide themwith Larta and have fine-tuned their with a broad view of the technologicalmentoring skills over time. There is little landscape in their sectors.turnover in Principal Advisors. They are 156
  • 154. Nurturing Innovation: Venture Acceleration NetworksFigure 37: Members of Larta’s 2010-2011 Industry Advisory Board Chemicals/Mat Electronics/IT/ Life Science Agriculture erials/ Software •Abbott •BASF Cleantech •Boeing •Allergan •Cargill •Ashland Corp. •Honda Strategic •BD Ventures •ADM •BASF Venturing •Biogen IDEC •Monsanto •Boeing •Philips Healthcare •Boehringer Ingelheim •Morrison & •Chisso Corp. •Sharp Corporation •Genentech Foerster •Dow Chemical •TechNavi, LLC •Genzyme •Nelson Gibson •Honda Strategic •Texas Instruments •Johnson & Johnson (formerly with Venturing •Schlumberger John Deere) •Life Technologies •Procter & Gamble •Motorola •Nestle •Medtronic •Sekisui Integrated •Syngenta •Merck Research •Novo Nordisk •SEMPRA Energy •Pfizer •Sharp •Philips Health care Corporation •RCT Bioventures •Texas •Siemens Ventures Instruments •Takeda •Schlumberger •3M Source: Larta document provided to the World Bank.Recruitment of Advisors 5. Organizational ModelMost of these are recruited through Larta’sextensive social and business network, which Each CAP is designed and overseen by seniorhas been developed over 17 years. In some Larta executives and implemented by a Lartacases, Principal Advisors are recruited through Program Manager. Depending on its size andformal mechanisms outside of Larta’s complexity, the management of a CAP may benetworks. In all cases, Larta selects advisors a full time job or the Larta Program Manageron the basis of personal recommendations may be managing several other Larta activitiesfrom trusted members of their network. at the same time. The roles of the Larta Program Manager are to identify and contract Principal Advisors from within and outside the existing Larta network, match them with the 157
  • 155. Nurturing Innovation: Venture Acceleration Networksappropriate companies, and supervise their companies to supervise the timeliness andmentoring activities through monthly or quality of the program. The agency CAPquarterly calls to the companies. Program Program Managers have mainlymanagers also have a role in fine-tuning the administrative functions and leave theprograms, for example by developing new content and delivery of the program to Larta.methodologies for program deliverables.Finally, Larta Program Managers coordinate Larta contracts Principal Advisors forthe delivery of the workshops and webinars, individual CAPs. At the start of each CAP,inviting various experts on topics of interest Principal Advisors are assigned to differentto the companies. companies. The number of companies mentored by each Principal Advisor varies butLarta’s senior management staff have a mix of can range from just three to more than tenbackgrounds in the public and private sectors, for the very ambitious Principal Advisors.but with significant experience in technologycommercialization. Program managers that Figure 38 illustrates the organizationaloversee the day-to-day management of CAPs structure and contractual relationships of aare typically mid-level level staff with several CAP program. Larta signs confidentialityyears of experience. They are supported by agreements with each company. Asmore junior Program Associates. highlighted in Figure 38 there are no contractual relationships or NDAs betweenOn the sponsoring agency side (e.g. NIH, NSF, the companies and the various groups ofUSDA), each SBIR program department advisors that interact with them directly. CAPsappoints a CAP Program Manager. The provide companies with training and coachingagency’s CAP Program Manager is responsible on information disclosure issues. Thefor tendering and managing the CAP contract, companies’ information disclosure strategy isand managing day-to-day interactions with part of the business approach they developthe Larta Program Manager and participating throughout the program. 158
  • 156. Nurturing Innovation: Venture Acceleration NetworksFigure 38: Organizational structure of a CAP program Larta Senior Larta Sponsoring Management government Contract agency Larta CAP Coordination Agency CAP Program Program Manager Manager NDAs Larta Advisory Board SBIR companies Larta Principal Coordination Larta industry Advisors experts6. Innovation Ecosystem An important difference between participating companies in the US CAP and inMost companies participating in Larta’s the Global Bridge programs has been theprograms are SBIR awardees based in the US. need to increase coaching on processes andThey are located all over the country but language related to technologyroughly half of all SBIR firms are concentrated commercialization for certain companies inin just five US states with dynamic technology emerging economies. In the case of the Russiaclusters.102 This undoubtedly increases those Global Bridge, participating firms were judgedfirms’ chance of success and their ability to by Principal Advisors to be as technologicallyleverage Larta’s extended network, much of competitive as SBIR firms in the US CAPs.which tends to concentrate in technology-dense regions.102 159
  • 157. Nurturing Innovation: Venture Acceleration Networks InnovateVMS Quick Facts Indicator ValueNumber of advisors 140 (of which 115 are active)Number of beneficiaries 114 (of which 58 are active)Number of staff 2 FT and a couple of PT/volunteerFinancial arrangement with beneficiaries No financial arrangementTypical program duration Not definedProgram annual budget Not disclosedProgram start year 2007 160
  • 158. Nurturing Innovation: Venture Acceleration NetworksSpecial Features of the Program The program is located in a tightly-knit local business community where “everyone knows everyone else”. This helps new businesses to find investment. The Innovate St Louis President has an extensive local network which provides help to InnovateVMS mentored ventures. The program provides mentored ventures with a group of senior business advisers with whom they can exchange ideas and discuss problems. The program helps mentored ventures to find customer contracts and investors - including among InnovateVMS mentors themselves.Lessons Learned It can be difficult to get volunteer mentors to provide consistent help. Mentors are often too “arms-length” and do not become sufficiently involved to prepare new ventures for investment. The mentored firms need to drive and motivate the mentors. Program growth can be difficult without closer relationships with universities. It is best to handle potential conflict of interest issues, such as when a mentor becomes an investor, clearly and openly. 161
  • 159. Nurturing Innovation: Venture Acceleration Networks1. Business ModelBackground on InnovateVMS postings, and connections to local service providers such as lawyers, accountants, andInnovateVMS is a mentoring service for consultants through its website. Throughentrepreneurs in St. Louis, Missouri, United InnovateVMS it also gives access to freeStates. It operates under the umbrella of mentoring services, focused on ITInnovate St. Louis, founded in 2007 as part of entrepreneurs. The second service is St Louisan initiative from the St. Louis Regional SourceLink, started in 2008, which provides aChamber and Growth Association aimed at platform to connect local not-for-profitdeveloping the startup and entrepreneurial organizations. It provides help with advocacy,culture in St. Louis. Innovate St. Louis’ mission tax services, training and technical to “…educate innovators, entrepreneursand the public about how great ideas become Program Overviewviable business endeavors and to bettercollaborate and help build the entrepreneurial InnovateVMS provides its free mentoringeco-system necessary to make the greater St service through the voluntary participation ofLouis region an international hub of experienced entrepreneurs in St. Louis. Itinnovation and entrepreneurship.” replicates the benchmark MIT VMS model and aims to “…promote entrepreneurshipThe aim of InnovateVMS is to provide free education and leadership through team-basedentrepreneurship education and guidance for mentoring of innovative new ventures at nonew ventures in the St. Louis area through cost. by experienced serial entrepreneurs andteam-based mentoring. It also helps not-for- business persons within the metropolitan Stprofit organizations develop and become Louis area.” The first mentoring meeting tookmore technologically savvy. MIT VMS and the place in June 2007, with 5 ventures enrollingKaufman Foundation helped to create under the assistance of 18 mentors. By 2010,InnovateVMS as a part of their rollout of MIT the number of the ventures assisted hadVMS’ model in different parts of the US. grown to 114, of which 58 were active, andPhiladelphia and Kansas were also part of the the mentor pool had expanded to 140, ofrollout, but the St. Louis chapter is the only which 115 were that remains. The program nurturesinnovative entrepreneurship through a “one The first step in the mentoring process is for astop shop” service. mentor to be partnered with a new venture during an initial mentor meeting. Two toIn addition to InnovateVMS, Innovate St. Louis three weeks later there is a two-hour follow-provides local entrepreneurs with two up session between the entrepreneur and theservices. The first is the St Louis IT mentor. This follow-up session is the first in aEntrepreneur Network (ITEN), which was series of mentoring sessions, each of which isstarted in 2008 in collaboration with the meant to produce an action plan. TheseInformation Technology Coalition, another action plans involve “homework” for thelocal entrepreneurs’ association. ITEN entrepreneur, such as studying thepublishes local IT industry news updates, job competition, registering the venture and 162
  • 160. Nurturing Innovation: Venture Acceleration Networkssetting-up an accounting system. These are 3. Beneficiariesmeant to be small, tactical, steps. Once theventure has completed 70% of the tasks, Participating Company Profilethere is another mentoring session. The program has assisted 114 ventures through the help of 140 mentors over the2. Financial Model past three-and-a-half years. Eighty-five ventures and 115 mentors are currentlyProgram Implementation Costs active. Roughly one-third of the ventures come from the six partner universities.Donations are critical to the program. Another third are brought in by mentors,InnovateVMS originally received USD 100K while the remaining one third find out aboutfrom AT&T, a telecommunications company, the program through newspapers,USD 100K from Amrod, a local utility presentations and associations. In most casescompany, and USD 50K from its parent the ventures come to InnovateVMS at a veryorganization, Innovate St Louis. Its two full- early stage in their development. A “venture”time staff are InnovateVMS’ main operational can sometimes just be an entrepreneurexpense. There are also ad-hoc costs without a team, and often without a businessassociated with hosting mentor meetings. All plan. Through the mentoring process thethese costs are met by donations. Both entrepreneurs make gradual steps towardindividual and corporate donors, including incorporation of their companies andlocal investors and foundations, provide commercialization of their The sectors helped by InnovateVMS can varyInnovateVMS also partners with 6 universities considerably. Hi-tech is not always dominant,around St. Louis, both to raise donations and while manufacturing often counts for a smallto source venture ideas and teams. One of the handful of ventures. Two such manufacturinguniversities gives a significant contribution firms assisted by the InnovateVMS programwhile the others give less than USD 2,000. were Titanova, a machine shop that uses lasers instead of tools to cut metal parts; andRegional Finance Sources Yurbuds, which makes earphones that are designed not to fall out when used byThere are 14 venture capital funds in St. Louis athletes. Yurbuds now has its products inwith over USD 1 billion under management. over 700 stores.They operate in the plant and medicalsciences, advanced manufacturing, Even if a venture is not in the hi-tech sector itinformation technology, transportation and is still likely to be innovative. For example,distribution, and financial services sectors. one venture uses UV light in children’s booksAbout half of this venture capital is dedicated to provide clues to the text. Ventures mayto biotech. There are also two regional angel also have a strong potential for growth –funds providing early-stage capital of around possibly in, say, the lifestyle sector – evenUSD 2 million. though they may not be based on advanced 163
  • 161. Nurturing Innovation: Venture Acceleration NetworksFigure 39: sector composition of mentored ventures Green / Clean Manufacturing, Energy, 4% 3% Technology, 8% Consumer Product / retail, 32% Social Services (not-for-profit), 11% Healthcare, 20% E-Commerce / Software, 22%Table 18: results of the ventures mentored (USD millions) 2007 2008 2009 2010 TotalVentures at 36% 60% 47% -commercialstageDebt raised USD 0.1 USD 0.6 USD 1.1 USD 2.2 USD 4.0Equity raised USD 0 USD 1.6 USD 3.3 USD 5.1 USD 10.0Grants USD 0 USD 0.2 USD 1.8 USD 1.1 USD 3.1Donations (not- USD 0 USD 0.6 USD 0.4 USD 1.1 USD 2.1for-profit)All funds raised USD 0.1 USD 2.9 USD 6.5 USD 9.5 USD 19.0Sales USD 0.1 USD 1.1 USD 4.6 USD 7.4 USD 13.2Employees 50 86 314 440 -Annual payroll - USD 3.4 USD 5.7 USD 5.6 USD 14.7technology. Figure 39 shows the breakdown investment and created 440 jobs. It has alsoof mentored ventures by sector. produced many companies that now operate in the St. Louis area.Program ImpactIt is difficult to assess the impact ofInnovateVMS as it has not been going for verylong. However, by 2010 the ventures that ithad helped had raised USD 19 million in 164
  • 162. Nurturing Innovation: Venture Acceleration Networks4. Human NetworkAdvisor Profiles 6. Innovation EcosystemThe mentors are often serial entrepreneurs St Louis has a population of just over 300,000.who want to give something back to St. Louis. Greater St. Louis has a population of 2.8They are mostly male and have expertise in million, meaning it is the largest urban area infields such as finance, marketing and Missouri, the 15th-largest in the Unitedmanagement. Half of them are still in business States. The region has suffered fromand half are retired. They collect at the significant economic problems in recentmonthly mentor meetings hosted by decades, hence the motivation for moreInnovateVMS. These meetings include time entrepreneurialism in different sectors.set aside for informal networking, butconcentrate on venture updates, There are three research universities in thedissemination of information on ventures region. The largest is Washington University,seeking mentoring, and 45-minute sessions St Louis, a private research universitywhere ventures must present their ideas and considered to be one of the top 10 privateanswer questions about what they intend to research universities in the US. In 2010 thedo. There are also presentations from university received USD 700 million in federalspeakers who might be from different research funds with some 76% from theindustries, the development agencies or the Federal Government (about average for USregional chambers of commerce. research universities). Income from licensing runs at some USD 11 million annually. TheInnovateVMS is not as strict about conflicts of university produces an insignificant amount ofinterest as its model, MIT VMS. Mentors are spin-offs.allowed to join the company they havementored after the end of their mentoring. The local economy is considered to be riskFor example, some mentors become averse, without a tradition of high risk start-investors, join the board of a venture, or ups and no serial entrepreneurs. Health andbecome the CEO. MIT VMS emphasizes bio-energy, taking advantage of Washingtoneducation while Innovate St Louis, as its University in St Louis’s Federal Governmentmission states, concentrates on contributing research support, are the most likely areas ofto the local entrepreneurial ecosystem. new business formation. However, St Louis is not among the top ten bioscience clusters in the US.5. Organizational Model The Information Technology Coalition alsoInnovateVMS operates under its parent regularly holds the Emerging Technologyorganization, Innovate St. Louis, which Forum. It presents the latest. technologicalmanages the finances and other such key advances in the region and encouragesmanagement tasks. InnovateVMS has two greater networking between entrepreneurs.full-time employees, one of whom only workswith non-profits, and one volunteer whoworks for two days a week. 165
  • 163. Nurturing Innovation: Venture Acceleration Networks Innovation Network Corporation Japan Quick Facts Indicator ValueNumber of advisors 3 moderators + participants peer reviewingNumber of beneficiaries 200+Number of staff 10 partly dedicated to the programFinancial arrangement with beneficiaries No financial arrangementTypical program duration Not definedProgram annual budget Not disclosedProgram start year 2010 166
  • 164. Nurturing Innovation: Venture Acceleration NetworksSpecial Features of the Program Relatively low cost structure; free service for beneficiaries, only part time staff cost. Intention to fill the pipeline for internal investment arm, though not realized yet. Parallel multiple program design dependent on designated moderators’ strengths and networks. Promotes peer learning among the participants, rather than distinguishing mentor/mentee. Focus on “intrapreneurship” e.g. leveraging financial, technological and human assets within established enterprises to promote innovative business creation through spin-offs or within existing organizational structures through partnerships that may evolve into joint ventures.Lessons Learned A unit responsible for external networks, attached to an VC/PE investment fund, naturally faces internal tensions from the “mainstream” investment side which tends to pursue quick transactions, due to uncertain contribution to the pipeline, less established methodologies, longer timeframe to materialize results. Senior management’s sponsorship and endorsement is critical to sustain such efforts. Opportunities and bottlenecks within the location’s innovation and entrepreneurship contexts should guide the appropriate target of the operational model of publicly funded programs. The organization has responded to Japanese “highly innovative but minimally entrepreneurial” environment by attempting to identify and connect underutilized corporate resources (middle aged talent, ideas, technologies) rather than stimulating young talent at universities. Public programs’ appeal to potential participants, without direct financial support to beneficiaries, or indirect but perceivable benefits (e.g. subsidized consulting), might depend on government’s credibility. In Japan, the existing relatively cooperative relationships between the government and businesses have set this foundation. 167
  • 165. Nurturing Innovation: Venture Acceleration Networks1. Business Model KK (Co-creation, Co-learning) ForumProgram Overview - Target audience: large companies andINCJ describes the objective and approach of research universities.its Open Innovation Platform as follows: - Format: monthly meetings. - Non disclosure agreement: required. “To promote open innovation *…+, it is critically important to identify new - Participation format: present emerging combinations of technologies and technologies and discuss potential know-how, currently fragmented and partnerships and large scale distributed across the boundaries of demonstration projects. incumbent organizations, and to turn Rome Market: them into new products or services in - Target audience: anyone interested growing markets. INCJ is set out to create an environment in which such - Format: monthly meetings. innovation processes can take place - Non disclosure agreement: not autonomously, by bringing together required. experts from different industries and organizations who will collaborate - Match start-ups, angel investors, VCs and generate new value-add. More and consultants through the monthly specifically, INCJ plans to engage meetings. moderators who connects and Background on Innovation Network cultivates a variety of talents, and will Corporation Japan start new business development activities with the members that the Innovation Network Corporation Japan (INCJ) coordinators will organize.” 103 is a publicly-owned venture capital fund104 in Japan. INCJ was founded in 2009, with aboutOpen Innovation Platform consists of three USD 1 billion of managed fund (80 percent of“forums” intended to serve different kinds of which from the government) and USD 8 billionthe target participants. government guarantee. To avoid “mission Innovation Design Lab creep” while maintaining the focus on long term investment, the legislation sets INCJ’s - Target audience: managers from small duration at 15 years. and large companies. - Format: monthly meetings. In response to Japan’s current level of development of VC/PE, INCJ has identified the - Non disclosure agreement: required. three areas in which publicly-funded - Participation format: exchange ideas, stimulate discussions on 104 INCJ in principle is a venture fund that invest directly commercialization opportunities. in businesses than a fund of funds; the only exception of the entities invested by INCJ that is not a business entity is LSIP fund; INCJ intends to invest up to USD 1 billion in103 Available only in Japanese: LSIP, in which private pharmaceutical companies are also invited to make matching investment 168
  • 166. Nurturing Innovation: Venture Acceleration Networksinvestment can stimulate private sector entrepreneurship should be a keygrowth: focus in the long term. Intellectual-property-driven early stage Technology driven spin-off/carve-out106 inception from large enterprises and management restructuring - In INCJ’s view, domestic VC firms have developed reasonably well in Japan, - While there are visible demands for but public support can still be justified capital and expertise in private equity through “patent pools” where investing, the private sector funds in discoveries in corporate or university Japan are still emerging and oftentimes laboratories often do not capture their not established enough for mega full commercialization potential, due transactions. to the intertwined nature of IP in some - INCJ is becoming a visible investor in sectors (e.g. “blocking patents” in technology-driven firms. materials/clean-tech, “stacking patent” in life science). Rather than formalizing a mentorship - INCJ recently announced the program, INCJ contracts external establishment of LSIP Fund (Life- “moderators” and allows them design their Science Intellectual Property Platform own formats and contents of the meetings Fund), Japan’s first IP fund, to invest in between the moderators and participants, in intellectual properties from companies which participants interact and hopefully and research institutions, bundle them develop new venture ideas. to increase their commercial value, then license out to stimulate creation of “blockbuster” products. 2. Financial model - INCJ also attempts to cooperate with Program Implementation Costs Japan branch of Intellectual 105 Ventures , while the exact terms are All the expenses related to the activities of not determined yet. Open Innovation Platform are covered by INCJ’s budget. The participants and Start-up formation and SME growth supporters are on a voluntary basis. INCJ does - Regarding entrepreneurship, INCJ sees not disclose its budget or cost structure. the Japanese situation as almost similar to Russia’s in terms of the maturity level of technology 3. Beneficiaries entrepreneurship. Participating Company Profile - INCJ’s management believes that Beneficiaries for the three forums participate fostering external networks and with very different profiles and motivations: deepening ecosystem conducive to105 106 A specialized investment firm managing patent A type of transaction in which a parent company sellsportfolio, which Bill Gates is heavily involved in: a minority share of a subsidiary business but still controls majority shareholding 169
  • 167. Nurturing Innovation: Venture Acceleration NetworksInnovation Design Lab consultants show up for monthly meetings- Participants consist of about 20 middle managers from companies who have - In the meetings three start-up seed technologies or initial ideas but companies present their business face difficulties in business building plans, triggering “business plan clinic” efforts within their organizations. sessions107. Motivations for participants are more like loose-end- They are highly motivated to share the networking and deal seeking. ideas and seek new insights through interacting with experts and also Direct interview arrangement to the others who face similar situation in beneficiaries could not be made, since INCJ their respective organizations does not disclose the names of the- Even though this activity is titled “open participating companies or individuals due to innovation,” participants are expected the non-disclosure arrangements. to share ideas proprietary to their organizations, therefore they are Program Impact required to obtain from their superiors’ approval, sign non- All of the three forums are in an experimental disclosure agreement, and understand stage, and their results are yet to be seen. No and agree on the INCJ’s code of resulting partnerships or contracts have been conduct. announced. The contents of the on-goingKK (Co-creation, Co-learning) Forum exchanges are subject to confidentiality agreement and cannot be shared by INCJ.- About 20 companies. As opposed to INCJ’s management reports that the Innovation Design Lab where participating individuals are extremely participants are motivated individuals, “energized” since they tend to be restricted in participants of KK Forum tend to fully exploring their venture ideas in their own formally represent their organizations while the participation in the companies/organizations, and are forums “frees them up.” oftentimes not individuals but teams, including members on IP office and due diligence 4. External Advisor Network- The way meetings are organized is intended to be conducive to forming Advisor Profiles partnerships and joint projects among the participating companies There is no clear distinction, in terms of howRome Market INCJ incentivize the participants, between the beneficiaries and advisors. INCJ directly- Participation is open (e.g. no engage the three moderators, through part- requirement for NDA) and now 200 time contract, who respectively recruit members have registered, out of which 107 70-80, including start-ups, angel The format is similar to MIT Enterprise Forum: investors, VCs, mentors and ull_report.pdf 170
  • 168. Nurturing Innovation: Venture Acceleration Networksparticipants through their own network, plan Scope, and Delivery of Adviceand conduct the three forums. By design, scope and delivery of advice is notINCJ appointed a “moderator” for each of the pre-defined. In each of the three forums, thethree forums: moderators designate presenters (either appointing from participants or inviting Innovation Design Lab: A technology external speakers) for the meetings, and commercialization expert; CEO of Future facilitate the discussions among the Laboratory, a consulting firm specialized participants. The moderators create linkages in public-private joint R&D projects, in and out of these meetings to perform their engineering talent management, project mandate to promote collaborations among management participants. According to the interviewed manager, when the moderators were hired, KK (Co-creation, Co-learning) Forum: A there were no pre-defined procedures or technology marketing expert; CEO of eTEC formats through which advice were to be Marketing, a think tank specialized in R&D delivered. Recognizing the experimental project management and intellectual nature of the program, the management property strategy for low-carbon shared the vision of open innovation with the technologies moderators, and gave them full degree of Rome Market: A former manager of freedom in how to run the forums. Japan’s Small Business Financing Agency; CEO of Nihon S&T, a consulting firm specialized in early stage venture creation 5. Organizational ModelRecruitment of Advisors INCJ’s organizational structure, including theThe selection of the moderators took place investment arm and the unit responsible forthrough direct appointment by the INCJ the external network, is shown in Figure, not through open competitiveprocesses but based on the track record of The Open Innovation Platform is run bythe candidates in establishing networks and Technology Planning Group, with 10 staffstimulating collaborations. Typically, members, out of which five are professionalscandidates to government positions are with investment or technology experiencesnominated based on the seniority of current and the rest are dedicated to reaching outtitle or the positions already held. In INCJ’s and, the three individuals did not hold wellrecognized positions, but the managementwas convinced of these particular individuals’track record in open innovation. 171
  • 169. Nurturing Innovation: Venture Acceleration NetworksFigure 40: INCJs Organization Shareholders committee Board and Government committee Auditor CEO COO Investment Group Technology Planning Administrative Group (25 staff members) (10 staff members) (15 staff members)Staff in the investment arm of INCJ, the patents filed for the same technology at the“mainstream” of INCJ, do not necessarily have European Patent Office, the United Statesstrong buy-in of the Open Innovation Patent and Trademark Office and the JapanPlatform’s activities due to perceived weak Patent Office – is, at 29%, the second highestlinkage to actual projects to invest in. The in the world and more than the whole of thePlatform activities, nonetheless, is strongly European Union put together.108 It has nearlysupported by INCJ’s CEO who believes that 125 triadic patents per million people, morebuilding network capital is a long shot, than any other nation.109 This level ofrequires public support, and requires innovation is based on Japan’s expenditure ofelements of “playfulness”; the process of 3.5% of its GDP on research and development,INCJ’s establishment at METI (Ministry of which is higher than nearly any other country.Economy, Trade and Industry) was inspired byan academic theory on physical and biological Until recently, Japan’s approach to innovationphenomena of “fluctuation,” meaning was business- rather than network-oriented.deviation from the normality as the key Many of its technological advances have beenstimulus to innovation. through companies such as Toyota. This company-specific model relied on in-company sharing of expertise rather than the exchange6. Innovation Ecosystem 108 2005 figures, see OECD, “Compendium of PatentJapan is one of the most innovative countries Statistics: 2008,” OECD, 2008 ( the world. According to the OECD its share 109 2005 figures, see OECD, “Compendium of Patentof the world’s “triadic patent families” – Statistics: 2008,” OECD, 2008 ( 172
  • 170. Nurturing Innovation: Venture Acceleration Networksof specialized knowledge between experts For the past ten years the Japaneseand specialized institutes.110 Furthermore, government has been trying to change themuch of Japan’s innovation focus has innovation ecosystem. It created the Counciltraditionally been on manufactures rather for Science and Technology in 2001, which isthan software and other products. This focus tasked with co-coordinating efforts to meetand the traditional structure behind it have the objective of making Japan an advancedbeen unable to compete strongly in the science- and technology-orientated nation, aslucrative markets for software and internet specified by the 1995 Basic Law on Scienceservices.111 and Technology. Since 2001 it has produced three Basic Plans for Science and Technology,There are several reasons why Japan’s each of which has had broad targets forinnovation ecosystem has been unable to making Japan more innovative andproduce competitors in these fields. entrepreneurial. The latest, which runs fromImportantly, links between firms or research 2006 to 2010, aims to develop more of ainstitutes and universities are weak. knowledge-based economy through skillFurthermore, Japan’ universities are not development, greater mobility forproducing as many doctoral students in researchers, bigger roles for universities andrelevant fields as their OECD peers. Japan also stronger competition in research funding.113suffers from having few foreign companiesand a low number of foreign workers in itsworkforce. Finally, the environment forattracting early-stage capital is weak.112110 OECD, OECD Economic Surveys: Japan, OECD, July2006, p 128111 Dujarric R and Hagiu A, “Capitalizing on Innovation:The Case of Japan,” Harvard Business School, working 113paper, 2009 OECD, OECD Economic Surveys: Japan, OECD, July112 OECD, OECD Economic Surveys: Japan, OECD, July 2006; Government of Japan, Science and Technology2006 Basic Plan, Government of Japan, 2006 173
  • 171. Nurturing Innovation: Venture Acceleration Networks IMP3rove Quick Facts Indicator ValueNumber of advisors 501 consultantsNumber of beneficiaries 2826Number of staff 10 Full-timeFinancial arrangement with beneficiaries Free initial assessments and initial consulting sessions.Typical program duration No set durationProgram annual budget 1 million eurosProgram start year 2006Note: Data as of February 2011. 174
  • 172. Nurturing Innovation: Venture Acceleration NetworksSpecial Features of the Program Large-scale effort to develop the innovation management consultancy market across multiple countries. A standardized European innovation management assessment methodology for small and medium enterprises. The methodology covers both internal processes and external performance. An innovation management analysis tool to benchmark enterprises across sizes, sectors and countries. Training and certification for innovation management consultants. 175
  • 173. Nurturing Innovation: Venture Acceleration NetworksLessons Learned Demand for innovation management consulting from SMEs is weak and rolling out a program to develop this market requires substantial efforts in implementation and marketing. The most effective marketing channels are existing personal relationships. Demand for innovation management consultant certification is weak among SMEs, so is demand for more than basic training. The quality of innovation management SME consultants in Europe is generally low. An innovation management assessment, consulting, training and networking program is not likely to attract high-quality consultants unless there is a measure of selectivity. Consultant quality has a high impact on program success. An important enabler of the SME innovation consulting market could be a more pro-active match-making process between enterprises and consultants. For most SMEs a self-assessment innovation management tool is of limited effectiveness. Consultant guidance during this stage is required and increase chances for follow-up consulting sessions. Moreover, some SMEs are reluctant to provide company information online for confidentiality reasons. Creating a financially-sustainable innovation management training, certification, assessment and consulting program is a long-term endeavor. A standardized innovation assessment methodology can facilitate marketing of innovation management services and serve as an effective tool to assess SME strengths and weaknesses. Although rigorous evidence is still lacking, the standardized approach to innovation management assessments shows it has the potential to increase SME economic performance. 176
  • 174. Nurturing Innovation: Venture Acceleration Networks The IMP3rove process consists of three steps1. Business Model shown in Figure 41. To support this process,Program Overview the role of the IMP3rove program has been to: Develop and administer online tools forIMP3rove is an innovation management innovation management assessments andconsulting program initiated and funded by consulting.the European Union which has been deployed Develop and administer training andacross the EU and in several other countries. certification programs for consultants.At the core of the IMP3rove lies an innovationmanagement assessment methodology which Develop an international network ofprovides an indication of a company’s independent innovation managementcompetitiveness and sustainable growth, and consultants who are trained in thethe extent to which .the company’s IMP3rove methodology.innovation management capabilitiescontribute to these objectives. The program The Operational Model of IMP3rovewas developed and is managed by aconsortium consisting of AT Kearney and The IMP3rove Assessment and Online PlatformFraunhofer IAO. At the heart of IMP3rove is the onlineThe objective of IMP3rove is to increase the assessment tool – the first step of theadoption of innovation management program - which requires the company totechniques in European enterprises, and respond to questions about its performanceparticularly small and medium enterprises along two themes:(SMEs). The program aims to achieve this by: Outputs of innovation management (e.g. Enhancing the quality of innovation growth, time-to-market). management consultants. Internal processes that foster innovation, Enhancing transparency in the innovation a root/cause analysis, which provides management consulting market. factors behind the strengths and weaknesses of the company.Figure 41: Steps of the IMP3rove process Online or assisted IMP3rove assessments and root/cause Consultant workshop Follow-up consulting analysis -> innovation management ->detailed actions roadmap ->long-term impact review (after 9 -> benchmarking report (several hours) months) (several hours) 177
  • 175. Nurturing Innovation: Venture Acceleration NetworksThe assessments can be performed by the Box 13: A European Standard for Innovationcompany on its own as a self-assessment or Management?with the guidance of a consultant selected by In 2008, Europe’s regional standardizationthe company from IMP3rove‘s online network. body, CEN, created the Technical CommitteeIMP3rove has found that consultant-assisted on Innovation Management (CEN/TC 389) inassessments significantly improve the quality which 15 countries are represented. The objective of the Technical Committee is theof the responses and provides the “standardization of tools, methods,opportunity for the consultant to discuss the approaches, processes, that allows companiesquestions with the company. Responding to and organizations to establish and developthe questionnaires typically lasts three to six their innovation management, including allhours. Assessments are generally completed kinds of innovation and all the related aspects, as well as the relations with R&D activities andby the company’s CEO, or by teams of staff 115 with other innovation drivers.” Its focus is onwho together have enough knowledge of the SMEs. The Technical Committee includes sixcompany functions to address the different working groups: Collaboration and Creativityquestions. In some cases, consultants hold Management, Innovation Managementassessment workshops in which several System, Innovation Management Assessment, Design Thinking, Intellectual Propertycompanies complete the questionnaires Management and Strategic Intelligencesimultaneously.114 The IMP3rove assessment Management. Stakeholders in the Technicalmethodology and the consulting IMP3rove Committee include consultants, SMEs,approach are based on the holistic view of technology centers, innovation centers andinnovation management reflected in AT universities. The Technical Committee used the 3 IMP rove methodology as one of their startingKearney’s “House of Innovation” (Figure 42). points. It is also studying 20 other existingIt covers innovation strategy, organization and European systems and standards in the area ofculture, innovation life cycle processes and research and innovation, but none of theseenabling factors. IMP3rove has taken steps to have a comprehensive treatment of innovation 3integrate its systematic approach into a management (see the IMP rove Case Study Appendix for a list).European standard in the past couple ofyears. The development of such as standard While the European Commission initiallyhas faced a number of challenges (Box 13). promoted a mandate to develop a standard on innovation management, this initiative faced opposition by SME associations. SMEs opposed a potential standard on the basis that it could give rise to mandatory certification requirements. Some European governments also opposed the standard on the basis that they already had national standards for research and innovation. As a result, the Technical Committee will not develop standards but recommendations for good practices, and there will be no associated certification scheme. The first technical specifications will be published between 2013 and 2015.114 European Commission (2008) Insights on Innovation 115Management in Europe – Tangible Results from CEN/TC 389 No 31 Business Plan, 2009-12-1, Version 3MP rove, Europe INNOVA paper No 10. 2. 178
  • 176. Nurturing Innovation: Venture Acceleration NetworksFigure 42: The AT Kearney House of InnovationSource: accessed on March 3, 2011.The Benchmarking Report step in the consulting process. The output of this workshop is a roadmap to addressThe online assessment tool generates innovation management performance on thebenchmarking reports immediately after theonline questionnaires have been completed. basis of the benchmarking report and aThe report benchmarks the company’s discussion of strengths and weaknesses, andperformance along the five dimensions of recommendations for improvements.innovation management and performance. Consultant workshops typically last severalBenchmarking can be performed across firms hours. The roadmap can be prepared at a veryin different sectors, sizes and countries.Companies are benchmarked against the high level or include more detailed objectivesaverage in their selected class and against and concrete deliverables. Again, the“growth champions”, who represent the top consultant is selected entirely by the SME10 percent performers in that class with the from the list of associated consultants whichhighest valuable growth. Figure 43 shows an includes basic information on each consultantexample of the benchmarking at the mostaggregate level, along the five dimensions. as well as their IMP3rove credentials. At theThe remainder of the approximately 100-page end of the workshop, the consultant uploadsassessment report delves into more details meeting minutes in the IMP3rove platform.into the performance along these five The IMP3rove platform triggers a secondaggregate dimensions. IMP3rove process 12 months after theConsultant Workshops consultant workshop to assess long-term impact.Following the initial assessment, a companycan opt for a consultant workshop, the first 179
  • 177. Nurturing Innovation: Venture Acceleration NetworksFigure 43: Example of a company’s overall innovation performance profileSource: accessed on March 3, 2011.Impact Evaluations IMP3rove periodically conducts case studies to gain further insight on the program’s impact.IMP3rove measures its impact through In 2010 an analysis of 50 case studies wasperiodic email questionnaires sent to SMEs prepared by IMP3rove.116 Each case study isand consultants, which are triggered by structured according to a standardized modeldifferent program milestones. Immediately in order to more easily retrieve and compareafter the consultant workshop SMEs and findings:consultants are automatically requested Company regarding the online platform andthe value of IMP3rove. SMEs also provide Company’s on the consultant services. After A qualitative assessments of the IMP3rovenine months, the SME and consultants are benchmarking results.emailed another feedback questionnaire on The qualitative impact of IMP3rove on thethe business impact of IMP3rove. These questionnaires are centered aroundboth intermediary and final impacts: The Development of IMP3rove Impact on internal practices and measures taken. IMP3rove was developed and tested over a two year period, but has been in constant Impact on economic performance. development until then. The program was Impact on consultant skills, business development and client relationship. 116 Source: Engel, K., Diedrichs, E. and Brunswicker, S. 3 (2010) IMP rove: A European Project with Impact: 50 Success Stories on Innovation Management, Europe INNOVA Paper No 14. 180
  • 178. Nurturing Innovation: Venture Acceleration Networkslaunched in 2006 with an assessment of SMEinnovation management consulting needs and Box 14: Why the EU’s innovationassessment tools in the EU (Box 14). The study management consulting market iswas used to understand the market and guide underdevelopedIMP3rove’s design. It found weak demand for 3 In 2006, the IMP rove program conducted ainnovation management consulting among study of the innovation management marketSMEs and an uneven quality of services. It also for SMEs. The assessment points to somefound that existing innovation management clues to the underdeveloped of the innovationself-assessment tools were largely specialized management consultancy market amongto a narrow area of innovation. IMP3rove‘s European SMEs. It finds that SMEs in the EUaim was to cover a greater depth and scope do not know what to expect from innovationthan existing innovation management management consultancies and that they doassessments. not see benefits from the support they receive from consultancies. This translates toDesigning and testing IMP3rove and collecting limited demand for innovation management consulting.sufficient benchmarking data for meaningfulinnovation performance assessments was a The most successful consultancies proactivelylengthy process (Figure 44). Pilot runs were invite SMEs to workshops in which theyfirst performed in 85 SMEs to fine-tune the demonstrate their expertise. The study findsmethodology, followed by a field test of 1500 that most consultancies offer a narrow scopeSMEs that went through the IMP3rove process of innovation management services, not all of(online assessment->report->consultant which are relevant to all SMEs. Moreover,workshop) in 25 EU countries before the most consultancies do not have a formalizedprogram was more widely disseminated. A structured approach to innovationrange of stakeholders were involved in the management or monitoring of results and therefore have difficulty learning from theirdevelopment of the program, including experience and improving their processes.consultancies, business associations and The study finds highly varied quality amongenterprise development agencies. The final innovation consultancies. Most of theirstage in 2009 involved the dissemination of deliverables are recommendations and high-the program through marketing and level action plans with limited follow-up orcommunication activities. The latest impact monitoring. These are not very usefuldevelopment in the program involved a to SMEs, who expect hands-on and ready-to-certification scheme for consultants use action plans.introduced in early 2010. Source: Diedrichs, E., Engel, K. and Wagner, K. (2006) European Innovation Management Landscape: Assessment of current practices in Innovation Management Consulting Approaches and Self-Assessment Tools in Europe to define the requirements for future “best practices”, Europe INNOVA paper No. 2. 181
  • 179. Nurturing Innovation: Venture Acceleration NetworksFigure 44: The IMP3rove program development timeline 2006 2007-2008 2009 2010 Program Development - Program testing Program dissemination Certification scheme launched - Benchmarking database2. Financial Model 2006 were of EUR 2,132.117 Assuming that the 2006-2009 period represents fixed costs ofTotal Program Implementation Costs building up the model and database to a critical mass, the marginal costs of theIMP3rove is mainly funded by European Union program in 2010 were approximately of EURsubsidies. The first four years of the program 417 per SME.118(2006-2009) were entirely funded by theEuropean Commission at a total cost of EUR 5 Participant Financingmillion. This covered the program’sdevelopment, administration and During its four-year launch phase IMP3rovedissemination costs by the AT Kearney offered a number of financial incentives forconsortium as well as subsidies to consulting consultants to participate in the program.service providers for providing assessment Most of these incentives have been phasedservices and consulting workshops. out as IMP3rove strives to transition to financially sustainable business model.During the field test, National Coordinators Financial arrangements between the program,were hired for recruiting and supporting consultants and participating SMEs in theSMEs. During the 2010 to 2011 period, the various activities of the program areEuropean Commission will provide EUR 2 described below:million to cover 65% of the costs of theprogram, with the remainder mainly covered Consultant registration, training,by ten organizations which are interested in certification: Consultant registration inadding entries into the database, as well as by the IMP3rove network is free of chargeAT Kearney and Fraunhofer IAO. but initial training is required in order to register. During the first phase of theIMP3rove has been a relatively low cost program up to 2009, all consultantprogram, even when factoring in its trainings were free of charge. Currently,development costs. Assuming that program 117 EUR 6 million / 2,813 SMEs as of January 2011.running costs were of EUR 1 million in 2010, 3 Source: IMP rove Scoreboard January 2011. 118the average costs per SME served were since 5 months/12 months x EUR 1 million / 1000 SMEs. Based on August-December 2010 data. Source: 3 3 IMP rove Scoreboard July 2010, IMP rove Scoreboard January 2011. 182
  • 180. Nurturing Innovation: Venture Acceleration Networks the first level IMP3rove course (IMP3rove generally reluctant to pay for Guide) has a fee of EUR 1,250. Fees for management consultant. the three subsequent levels range from Follow up consulting: The costs EUR 1,500 to EUR 6,800. Total training associated with follow-up consulting fees for all levels add up to EUR 13,150. taking place after the workshop are the The quality of the consultants has full responsibility of the consultant and improved since training fees have been the SME client. IMP3rove does not play an introduced. IMP3rove has recently active role during this stage of the launched a temporary program to offer program. free training to consultants who complete a predetermined number of assisted SME assessments.119 At the end of each training module an optional exam can be 3. Beneficiaries taken to obtain IMP3rove certification, at Recruitment and Selection of Participants a cost varying from EUR 50 to 500. Initial assessments: The use of the online There are minimum requirements for SMEs to innovation management assessment tool participate in the IMP3rove assessment. The and the benchmarking reports are free of program is generally open to all companies charge to all enterprises. During the first with the exception of very early stage firms. phase of the program IMP3rove provided Any company with 5 to 999 employees and a consultants with financial incentives of minimum of two years in business are approximately EUR 2,000 per company to qualified to register. The minimum number of encourage them to conduct initial five people is linked to methodology’s assessments with the first 1,500 SMEs in requirements to separate innovation tasks the database. In some cases, regional within a company. The minimum of two years innovation agencies are providing in business is required for benchmarking the consultants with financial incentives. In company’s growth, which is a core Poland and Serbia, government component of the IMP3rove assessment. innovation support program financed the implementation of IMP3rove in SMEs. In Recruitment of SMEs has been achieved Serbia the aim was 150 companies. through extensive marketing activities and Consulting Workshops: The consulting has been most effective through personal workshop is not subsidized by IMP3rove. relationships. In view of low general demand Consultant fees are negotiated between for innovation management consulting the consultants and the SMEs. Many services among SMEs, marketing is a consultants provide this workshop at no centerpiece of the IMP3rove program. As cost to the SME for business development discussed in Section 1, only a small number of purposes. This can be an effective SMEs see any value in strengthening their approach since SMEs in Europe are innovation management practices and the potential benefits of hiring consultants are unclear to them. To help market the program119 during its first phase of operation (2006-2009)/journal_content/56/10136/361599 183
  • 181. Nurturing Innovation: Venture Acceleration NetworksIMP3rove hired 13 National Coordinators in Figure 45: Evolution of the number ofdifferent European countries. The team assessments and expertsreached out to a broad set of stakeholdergroups likely to have access to SMEs in 3000Europe. These included chambers of 2500commerce, Innovation Relay Centers (IRCs), 2000business associations, universities, publicagencies and incubators. National 1500Coordinators also reached out to their own 1000client base. The IMP3rove team developed 500information packaged and deliveredpresentations, workshops, speeches, articles 0 Oct-08 Jun-08 Jun-09 Oct-09 Jun-10 Oct-10 Feb-08 Feb-09 Feb-10 Feb-11across Europe, and identified partners whocould link to IMP3rove’s website. In somecountries, professional marketing agencieswere used. Through this process, IMP3rove Number of SME Assessmentsobserved that to be most effective, outreachto consultants and SMES needs to be Number of registered expertsconducted by individuals who reallyunderstand and are able to carry out the Source: European Commission (2008) Insights on Innovation Management in Europe – Tangible ResultsIMP3rove, not just “sales people”. In general, 3 from MP rove; Engel, K., Diedrichs, E. and Brunswicker, 3the most effective channel to recruit SMEs S. (2010) IMP rove: A European Project with Impact: 50 Success Stories on Innovation Management, Europeconsisted of the existing personal INNOVA Paper No 14, Europe INNOVA paper No 10;relationships of consultants and business 3 3 IMP rove Scoreboard July 2010; IMP rove Scoreboardassociations.120 Significant marketing efforts February 2011. INNOVA Paper No 14, Europe INNOVA paper No 10;remain to be made as IMP3rove is not yet well 3 3 IMP rove Scoreboard July 2010; IMP rove Scoreboardknown by SMEs and consultants in the EU. February 2011. 3 3 IMP rove Scoreboard July 2010; IMP rove Scoreboard February 2011.There has been a steady growth in the INNOVA Paper No 14, Europe INNOVA paper No 10; 3 3 IMP rove Scoreboard July 2010; IMP rove Scoreboardnumber of SME assessments, even after February sessions subsidies were phasedout. Figure 45 shows that after the extensivemarketing campaign ended in 2009 the Participating Company Profilenumber of assessment continued to increase IMP3rove states that the program is best usedby almost 1000. by companies that are already innovative. This covers new products as well as processes and organizational models. The characteristics of IMP3rove SMEs vary widely but they tend to be small enterprises.120 Half of the SMEs in the program had fewer European Commission (2008) Insights on InnovationManagement in Europe – Tangible Results from than 20 staff. They are concentrated in 3MP rove, Europe INNOVA paper No 10. 184
  • 182. Nurturing Innovation: Venture Acceleration Networkssectors with moderate to high levels of surveyed SMEs reported that they wouldknowledge-intensity (such as knowledge- choose an IMP3rove consultant for anotherintensive services and ICT) but also include a assignment.123small number of firms in low-tech sectorssuch as food and textiles (Figure 46). Program impact on the economic performance of SMEsProgram Impact On average, SMEs find that the program hadFeedback from SMEs and consultants suggests some impact on factors related to economicthat IMP3rove may (i) help stimulate the performance. One year after the completionmarket for innovation management of the IMP3rove assessment SMEs report theconsulting and (ii) enhance the economic most prevalent impact to be improved staffperformance of some SMEs. To date, motivation and cultural readiness forIMP3rove’s impact assessments are mainly innovation, although it is difficult to tie thisbased on the opinions of the SMEs and directly to economic performance. Onconsultants. Given the lack of rigorous long financial and time-related aspects, SMEsterm evaluations of IMP3rove’s impact at this reported on average a moderate impact ofearly stage in the program these can only be the program (Figure 48).treated as tentative conclusions. Program impact on the market for 4. Human Network innovation management consulting Scope of AdviceConsultants report that IMP3rove has The scope of advice provided by IMP3roveenhanced their business development efforts. varies from targeted to holistic, as a functionThe program may stimulate business of their clients’ challenges. The scope of thedevelopment by enhancing the effectiveness IMP3rove assessment tool is holistic andof consultants. Almost 80 percent of surveyed includes innovation strategy, innovationconsultants believe that the program allows organization and culture, innovation life cyclethem to quickly identify the strengths and management and innovation enablers.weaknesses of SMEs.121 More than half see IMP3rove groups firms into four categoriesIMP3rove as expanding both business according to the challenges they expect todevelopment and their competencies.122 tackle with the program:124Consultants also mostly report that IMP3rovehelps them create stronger relationships with Skill Developers focus on developing theirwith SMEs (Figure 47). And more than half of managerial skills or educating their staff in121 Consultants that selected a value of 4 or higher on a 123Likert-scale (1=”not at all” through 7 = “fully”). Source: Source: Engel, K., Diedrichs, E. and Brunswicker, S. 3Engel, K., Diedrichs, E. and Brunswicker, S. (2010) (2010) IMP rove: A European Project with Impact: 50 3IMP rove: A European Project with Impact: 50 Success Success Stories on Innovation Management, EuropeStories on Innovation Management, Europe INNOVA INNOVA Paper No 14. 124Paper No 14. Source: Engel, K., Diedrichs, E. and Brunswicker, S.122 3 European Commission (2008) Insights on Innovation (2010) IMP rove: A European Project with Impact: 50Management in Europe – Tangible Results from Success Stories on Innovation Management, Europe 3IMP rove, Europe INNOVA paper No 10. INNOVA Paper No 14. 185
  • 183. Nurturing Innovation: Venture Acceleration NetworksFigure 46: Distribution of SMEs in the IMP3rove program. Industry sector Size (No. of employees) Firm age BioTech/ Pharma/ Food/ Bev Chemical Textile 101- >250 250 >25 years ICT/ Electrical/ 21- 11-25 Knowledg Optical e- 100 years <5 intensive years services Mach/ 6-10 <20 Equip. years (plant constr) Space/Aeronautics/Autom asation 3Source: IMP rove Scoreboard, February 2011.Figure 47: Impact of IMP3rove on long-term client relationship“Did the IMP3rove approach support you in strengthening your client relationship?” 1 (not at all) 2 3 7 (fully) 4 6 5 3Source: Engel, K., Diedrichs, E. and Brunswicker, S. (2010) IMP rove: A European Project with Impact: 50 Success Stories onInnovation Management, Europe INNOVA Paper No 14. 3Note: Percentage of answers of IMP rove consultants in 9 month post-consultation feedback on a Likert Scale of 1 to 7. 186
  • 184. Nurturing Innovation: Venture Acceleration Networks innovation management. Their challenges Delivery of Advice are often not directly related to innovation management or economic The IMP3rove methodology allows for the performance. delivery of consultant advice to be customized to the client’s needs. Consultant guidance Assessors face challenges related to their during the initial assessments, consulting innovation competences and seek to workshops and follow-up sessions are understand their strengths and delivered by the consultant at a time and weaknesses in innovation management. place of mutual agreement with the SME. Growers seek to address challenges that Delivery modes have included in-person impact their companies’ growth, guidance, telephone calls and group regardless of their link to innovation. sessions.127 Innovators seek to grow by responding to competitive pressures to innovate. Advisor ProfilesIn about 62 percent of cases concrete follow- IMP3rove’s 501 associated consultants areup measures were defined during the based in a wide variety of countries, but 75consulting workshop.125 IMP3rove divides the percent are concentrated in Western Europetypes of practical measures that can be (Figure 50). In Eastern Europe, Poland has theimplemented by enterprises into market- largest number, with 40 consultants. Inoriented and internal measures:126 Russia, there is one registered consultant who is mostly active in the Middle East. The Market-oriented measures include topics distribution of IMP3rove’s consultant is a such as innovation strategies, new factor of both the program’s marketing products and services, core competencies, effectiveness, highly driven by personal entry in new market segments, and access relationships, and the existing market for to global markets. innovation management consulting. Measures with internal focus include topics such as organizational change, the Most consultancies associated with IMP3rove establishments of new functions to drive are small privately-owned companies with innovation management or marketing, low or moderate level of experience in process improvements, and strengthening innovation management. Eighty-one percent of enabling factors for innovation. of associated IMP3rove experts work for private consulting companies. The remainderFigure 49 provides a snapshot of areas work for a variety of public agencies, tradeaddressed during consulting workshops. associations, research institutes, universities 127 Engel, K., Diedrichs, E. and Brunswicker, S. (2010)125 3 Source: Engel, K., Diedrichs, E. and Brunswicker, S. IMP rove: A European Project with Impact: 50 Success 3(2010) IMP rove: A European Project with Impact: 50 Stories on Innovation Management, Europe INNOVA 3Success Stories on Innovation Management, Europe Paper No 14, Europe INNOVA paper No 10; IMP rove 3INNOVA Paper No 14. Scoreboard July 2010; IMP prove Scoreboard February126 Sic. 2011. 187
  • 185. Nurturing Innovation: Venture Acceleration NetworksFigure 48: Reported impact of IMP3rove consulting services on SME performance Overall Impact of Imp3rove on the SMEs business 4,52 Qualitative Impact Improved staff motivation and cultural … 4,17 Aspects Series1 Increased customer satisfaction 3,70 Financial Impact Increased ROI 3,21 Aspects Series1 Increased revenue 3,13 Reduced costs 3,01 Qualitative Impact Aspects Reduced -time-to-market 3,22 Series1 Reduced time-to-profit 3,02 3Source: Engel, K., Diedrichs, E. and Brunswicker, S. (2010) IMP rove: A European Project with Impact: 50 Success Stories onInnovation Management, Europe INNOVA Paper No 14.Note: ROI=Return on Invest, SME=Small and Medium-Sized Enterprise; Means of Likert scales (1="no impact at all" through7="high impact"); based on 94 long term feedbacks of SMEsFigure 49: Areas addressed during the consulting workshop Business Planning Innovation Innovation Life Cycle Organisation and Management Culture Organisational and Cultural Issues Business Networks and Collaboration Management Project Management Innovation Strategy Innovation Financing and Risk Management (Innovation Other Management) Knowledge Controlling Management 3Source: European Commission (2008) Insights on Innovation Management in Europe – Tangible Results from IMP rove,Europe INNOVA paper No 10. 188
  • 186. Nurturing Innovation: Venture Acceleration NetworksFigure 50: Location of associated IMP3rove consultants by country Australia Other countries Czech Rep. Estonia United Kingdom Canada Bulgaria Switzerland Hungary Sweden Latvia Lithuania Poland Spain Romania Serbia Slovak Rep. Slovenia Turkey Norway Austria BeNeLux Italy Denmark Finland Ireland Greece France Germany 3Source: IMP rove Scoreboard, February 2011.Figure 51: Self-reported experience level of IMP3rove consultants Medium Low High 3Source: Engel, K., Diedrichs, E. and Brunswicker, S. (2010) IMP rove: A European Project with Impact: 50 Success Stories onInnovation Management, Europe INNOVA Paper No 14. 189
  • 187. Nurturing Innovation: Venture Acceleration Networksand chambers of commerce.128 About half of is no university degree requirement.the consultancies have fewer than 20 Consultants can register in the network onceemployees. Fewer than 10 percent had more they have taken the basic “IMP3rove Guide”than 100 employees. Only a minority of training and there is no subscription fee. Thisconsultants have a high level of experience in open selection policy has affected the qualityinnovation management experience (Figure of the consultant network. Imposing a training51) and more than half of the consultancies fee has increased the quality of theare of less than 10 years of age.129 Some consultants. In the future, there may aIMP3rove stakeholders have noted that the transition to consultant certificationaverage quality of IMP3rove consultants is requirements to participate in the IMP3rovelow, which hampers the effectiveness and program.credibility of the program. A filter forconsultant quality or more training Advisor Training and Certificationrequirements would help address this issue. Consultants can participate in various levels of 3Consultants join IMP rove to develop their training provided by IMP3rove. The first levelbusiness and skills. Consultants with limited “IMP3rove Guide” is the basic requirement forexperience or starting a new consulting career registering in the IMP3rove network. The keyseek to develop a new service line or gain a features of the IMP3rove curriculum aredifferentiating factor. IMP3rove also provides summarized in Table 19. Trainings arean opportunity to join a network of generally delivered during the course ofconsultants and access a multitude of new several days. Each month, different trainingsclients. About a quarter of consultants are are offered across various European cities.primarily interested in gaining a better Trainings take place in a classroom andunderstanding of innovation management include theoretical, interactive, case studyconsulting.130 Of the more than 500 and role playing aspects. For all trainings,associated consultants, roughly 150 use participants must sign a confidentialityIMP3rove continuously. agreement.Recruitment and Selection of Advisors Since April 2010, each training level can be followed by an optional certification. AllIMP3rove accepts any consultant with minimal require participation in the training course. Inqualifications but there are plans to transition addition, it requires consultants to have theto a more selective approach. Consultants are minimum requirements to attend a universityrecruited through the extensive marketing in their home country. All but the first levelactivities described in Section 3 above. require a written examination. KeyConsultants are required to have at least two certification requirements can be found inyears of experience working with SMEs. There Table 19. The certification is granted by the IMP3rove European Innovation Management128 Academy and is valid for two years. Sic.129 3 IMP rove Scoreboard, February 2011.130 European Commission (2008) Insights on Innovation There is limited demand for anything beyondManagement in Europe – Tangible Results from 3MP rove, Europe INNOVA paper No 10. basic training or for IMP3rove certification. 190
  • 188. Nurturing Innovation: Venture Acceleration NetworksCurrently, consultants have only registered in with limited qualifications may be“Guide” level trainings and none has obtained discouraged from taking examinations. Finally,certification. This could be due to the fact that the certification scheme is still relatively newcertification is not required to join the and may not yet serve as an effectiveIMP3rove network and that consultants do not branding mechanism for consultants.value deeper knowledge in innovationmanagement, or that they value a differenttype of knowledge. Moreover, consultantsTable 19: IMP3rove training and certification schemes IMP3rove Main pre-requisites Training Certification Level Days Fee (€) Requirements Fee (€)Guide - 2 years of experience rendering 1.5 1,250 - Completion of the 50 3 services to SMEs IMP rove - Currently involved in an innovation assessment in one project SME - Registration of an SME interested in 3 the IMP rove assessmentExpert I - 2 years of experience rendering 2 1,500 - Written test 200 innovation management services to - Application of SMEs 3 IMP rove consulting - Guide level approach to 3 SMEs - Case studiesExpert II - 2 years of experience rendering 3 2,600 - Written test 200 innovation management services to - Application of SMEs 3 IMP rove consulting - Expert I level approach to 3 SMEs - Case studiesAuditor - 5 years of experience rendering 7 6,800 - Written test 500 innovation management consulting - Application of 3 services to SMEs certification 3 - Application of IMP rove consulting workshops approach to 6 SMEs - Case study - Expert II levelSource: as of March 2, 2011.5. Organizational Model Germany. This “Global Coordination Team” consists of approximately ten full-time staff (In spite of the scale and reach of its network Figure 52). The staff have backgrounds inIMP3rove is administered by a relatively small innovation management consulting in ATteam at AT Kearney (a global consulting firm) Kearney and backgrounds in appliedand Fraunhofer IAO (a branch of an innovation management research andautonomous public research institution) in consulting in Fraunhofer IAO. A European Commission Project Officer has oversight of 191
  • 189. Nurturing Innovation: Venture Acceleration Networksthe program but it is entirely outsourced to Develop and maintain the onlinethe AT Kearney-Fraunhofer IAO consortium, assessment tool and consultant database.initially through a four-year contract, and Monitor the impact of the program andsubsequently through a two-year contract. adjust the model.The European Commission finances the Promote the program and recruit partnerprogram, owns the IMP3rove trademark and organizations (consultants, universities,owns the intellectual property of the etc.).benchmarking database. The main tasks of Conduct innovation management studiesthe Global Coordination Team are to: on the basis of benchmarking results. Train and certify consultants.Figure 52: Organizational structure of IMP3rove European Commission, DG Enterprise and Industry Contract IMP3rove Global Coordination Team AT Kearney & Fraunhofer IAO Contract Training, certification, listing during the field test Benchmarking on website (and initially data, technical consulting subsidies) National support and Training fees & training Coordinators training confidentiality agreement Promotion Promotion Consultants Promotion Promotion Business organizations, Contract governments, (typically only after Client SMEs financial institutions, the initial consultant universities. Promotion workshop) 192
  • 190. Nurturing Innovation: Venture Acceleration Networks activity. IMP3rove has created a workingDuring the field test stage of the program group, mostly made up of consultants, to help(1500 SMEs) 13 “National Coordinators” were design the Academy and explore financialcontracted to promote and disseminate the sustainability options.program in their countries among consultants,enterprise development agencies, businessorganizations, governments and financial 6. Innovation Ecosysteminstitutions. These National Coordinatorsconsisted of consulting firms, enterprise SMEs from a wide variety of countries in anddevelopment agencies and universities. around Europe have conducted IMP3roveIMP3rove “partners”131 must be trained to assessments and there is no indication ofdeliver the IMP3rove methodology at the first greater uptaking in either Western or Easternlevel (“Guide”). But the program does not Europe. Although large Western Europeanhave any contracts with these consultants economies such as Germany, France and thebesides the confidentiality agreements signed United Kingdom exhibit the largest numbersprior to the training sessions. There are also of assessments, several Eastern Europeanother organizations associated with IMP3rove countries such as Serbia and Poland are noton a non-contractual basis. These far behind (Figure 53). In fact, IMP3rove’sorganizations are government entities, market patterns appear similar in Westernfinancial institutions and intermediaries who and Eastern Europe. IMP3rove consultantsmake use of services such as technical support have offered similar orders of magnitudes ofand training, as well as access to the assessments in Western and Eastern Europebenchmarking database. (Figure 54). Moreover, the program’s market penetration seems to be roughly equal inSME clients of the program interact with the Western and Eastern Europe (Figure 55).IMP3rove online platform and the Thus, the larger number of IMP3roveindependent consultants directly. They have assessments taking place in Western Europeno need to interface with either the Global can be attributed to market size. In Russia,Coordination Team. In some cases the although one consulting firm has become anNational Coordinators are consultants IMP3rove partner and another is a candidate,themselves, so they interact with SMEs. no enterprise has undergone a guided assessment, likely due to the program’s lackBy 2012, when the current EU contract comes of local marketing activities. Consultants into an end, IMP3rove’s objective is to transfer both Russia and the EU generally agree thatthe program to a new independent body, the SMEs generally do not see a value forEuropean Innovation Management Academy, innovation management consulting services.a cooperative of consultants. This new body Without outreach and marketing demandwould run IMP3rove as a sustainable business remains weak.131 There are two types of partnerships. An elite group ofusers called “Club Members” who commit to usingIMP3rove with a minimal number of SME, and a groupof “Partners” who comprise trained consultants as wellas other types of organizations associated with theprogram. 193
  • 191. Nurturing Innovation: Venture Acceleration NetworksFigure 53: Distribution of assessments by country Australia Other countries Czech Rep. Canada Bulgaria Estonia United Kingdom Hungary Latvia Switzerland Sweden Poland Lithuania Romania Spain Serbia Norway Slovak Rep. Slovenia Turkey Italy Austria Ireland BeNeLux Greece Denmark Finland Germany France 3Source: IMP rove Scoreboard, February 2011.Figure 54: Average number of assessments per consultant by country 30 Average number of assessments per 25 20 15 10 consultant 5 0 France Switzerland Canada Hungary Lithuania Australia Latvia Greece Spain Other countries Czech Rep. Bulgaria Romania Finland Denmark Poland Estonia Italy BeNeLux Ireland Sweden Austria Turkey Slovenia Norway United Kingdom Germany Other Central and Eastern Europe Western Europe countries 3Source: Computed based on data from IMP rove Scoreboard, February 2011. 194
  • 192. Nurturing Innovation: Venture Acceleration NetworksFigure 55: Number of IMP3rove assessments per 100,000 registered businesses, by country 200 assessments per 100,000 registered 150 100 50 businesses 0 Slovenia Italy Romania Poland Lithuania Ireland Hungary Finland France BeNeLux Slovak Rep. Turkey Austria Norway Serbia Germany Spain Bulgaria Switzerland United Kingdom Czech Rep. Denmark Sweden Central and Eastern Europe Western Europe 3Source: Computed based on data from IMP rove Scoreboard, February 2011 and World Development Indicators 2005,2006 and 2007. 195
  • 193. Nurturing Innovation: Venture Acceleration NetworksAppendix to the IMP3rove Case StudyRelevant research and innovation standards published in European countries:132 (ES) UNE 166000:2006 – Research, Development and Innovation (R&D&i) Management: Terminology and definitions. (ES) UNE 166001:2006 – Research, Development and Innovation (R&D&i) Management: R&D&i project requirements. (ES) UNE 166002:2006 – Research, Development and Innovation (R&D&i) Management: R&D&i Management System Requirements. (ES) UNE 166006 EX:2006 – Research, Development and Innovation (R&D&i) Management: Technology Watch System. (Under revision, new version to be published in March 2011) (FR) FD X50-551:2003 – Research-sector quality - Recommendations for organising and conducting a research activity in project mode, particularly with the framework of a network. (FR) FD X50-901:1991 – Project management and innovation. Memorandum for the use of the actors of an innovation project. (FR) FD X50-550:2001 – Research quality approach - General principles and recommendations. (FR) GA X50-552:2004 – Quality management systems - Implementation guide for ISO 9001 within research units - Specificities of the research activity and implementation examples from ISO 9001. (FR) XP X 50-053:1998 – Watch services - Watch services and watch system introduction services. (PT) NP 4456:2007 – Management of Research, Development and Innovation (RDI). Terminology and definitions of RDI activities. (PT) NP 4458:2007 – Management of Research, Development and Innovation (RDI). Requirements for a RDI project. (PT) NP 4457:2007 – Management of Research, Development and Innovation (RDI). Management system requirements of RDI. (UK) BS 7802:1995 – Glossary of terms used in operational research. (UK) BS 7000-1:2008 – Design management systems. Part 1: Guide to managing innovation.132 CEN/TC 389 No 31 Business Plan, 2009-12-1, Version 2. 196
  • 194. Nurturing Innovation: Venture Acceleration Networks The IC2 Global Commercialization Group DST-Lockheed Martin India Innovation Growth Program Quick Facts Indicator ValueNumber of advisors Flexible global networkNumber of beneficiaries 60/year receive all services and 14/year receive advanced business development support*Number of staff 2 at GCG and 5