Accelerator programs are proliferating with an estimated 300 to 2,000 programs worldwide. Programs that support social- and civic-minded ventures are no exception. The value and success of accelerators is hotly debated, as discussed in the recent Wall Street Journal article "Tech Startups Benefit From Accelerator Boom." After two years of running an accelerator program that supports for-profit businesses with an integrated societal or environmental mission, the board of Impact Engine reflected on some of the highs and lows of building a supportive ecosystem for impact entrepreneurs. Here are some tips, both for those looking to start an accelerator or those considering accepting a slot in an accelerator program.
1. You Have to Crack the Chicken and Egg Conundrum
Impact entrepreneurs and impact investors are interconnected and mutually dependent: Early-stage companies need investment to fund their development and growth, and impact investors need good deals to fund. As an accelerator, you cannot develop one group without the other. This is a tricky proposition. Investors will tell you they are interested in investing in impact startups but don't see a pipeline of investable deals. Meanwhile, impact entrepreneurs are confident they have an investable idea but are adamant that limited investment dollars are available to them because they are focused on achieving impact. As an accelerator, you must develop both groups of stakeholders and then bridge the chasm between them. Impact Engine became the conduit by leveraging language and structures that were familiar to traditional investors and showcasing examples of investable impact companies, all while getting the impact businesses investment-ready through high-touch coaching and mentoring.
2. You'd Better Like Coffee
Broad community buy-in is important and will require a lot of conversations, especially in regions where the concept of for-profit impact companies and impact investing are new. Be prepared to have countless coffee chats and lunch meetings to share your vision. Language choice during these meetings is critical to success, so know who is across the table and whether you need to appeal to a financial investor or philanthropic funder. In some meetings, you'll spend your time explaining how companies can be attractive investments while creating positive social impact. In other meetings, you'll talk until you're blue in the face about how impact investing is a new approach to creating sustainable societal or environmental impact in a capital efficient way. Most of the people you speak to will find the concept interesting, but they won't engage. There will be a few, however, who will find your work interesting enough to become evangelists for your organization. When you find these evangelists, be prepared to use them to spread your message and propagate your vision throughout their network. Tell them about the change you are trying to create and give them concrete steps they can take to help you achieve it. It is important to be able to distinguish between those wanting to talk and those who are willing to take action, especially among potential investors. Impact Engine offered small, tangible steps early on -- hosting intimate dinners with investors to share the vision for Impact Engine. This offered a means for identifying those who were serious about being involved. You will find countless people that will support and applaud your work (and they play an important role), but the people you need to identify in the early days are those willing to take action.
3. It Takes a Village
Leverage network effects. In order for the accelerator to be successful, you need to assemble a portfolio of companies that have the potential to be successful; however, finding those companies can be challenging, as many of them may not self-identify as impact entrepreneurs. Community events are a great way to build awareness around your mission and draw the attention of potential portfolio companies. Just remember that many, and maybe most, of your attendees won't be potential applicants. Embrace this, after all, every person who chose to attend has a network of friends and acquaintances. Those networks are likely littered with what could be your next all-star portfolio company. Never let a community event end without telling the audience what they can do to support your efforts. Impact Engine hosts monthly community events, which have grown from 30 attendees to as many as 300 attendees; these events have proven important in evangelizing the message and raising awareness. Help new entrants into the village take their first step. Remember, the first step is loudest of all.
4. Success Doesn't Always a Good Mentor Make
Having had previous entrepreneurial success does not guarantee that an individual will make a good mentor. Good mentors are strong coaches who are willing to dedicate time and attention to helping the entrepreneurs work through difficult challenges they face as they grow. They don't simply recount war stories or tell entrepreneurs what they "should do," instead they ask the right questions at the right time and help entrepreneurs discover the best path. As an accelerator, training mentors on how to coach can help set expectations up front, allowing both the entrepreneurs and the mentors to have a better and more productive experience. Additionally, it is important to understand whether a mentor prefers to work closely and extensively with a limited set of companies or prefers to offer high-level guidance for multiple businesses at one time. Impact Engine has found that those who are willing to roll their sleeves up and work intimately with a few entrepreneurs add tremendous value. A good mentor listens more than they talk but a great mentor will also be there to lift spirits in the dark times that ALL entrepreneurs face.
5. Bet on the Jockey Not the Horse
This age-old adage holds true in impact entrepreneurship. Selecting the right entrepreneurs who are working on the right idea is critical. Entrepreneurs accepted into accelerators need to be scrappy, action-biased, and able to take in and respond effectively to feedback. In addition to these characteristics, Impact Engine looks for impact entrepreneurs who are either deeply rooted in the problem or have unique skills to solve the issue. For example, a former teacher who is creating an education technology startup or a chemical engineer that developed a proprietary filter technology for water purification. These unique talents and perspectives create a competitive advantage for the company. Be on the look out for those applicants who like the idea of being an impact entrepreneur versus actually being an impact entrepreneur. A consequence of the increased attention and excitement around the sector is that social entrepreneurship is now seen as a trendy career option and many aspiring impact entrepreneurs are not prepared for the hard work that will be required to build and grow a business.
6. Build It In, Don't Build It On
Impact companies typically create positive change through place, product or process. Place is where and at whom the business is targeting their impact, product is just that -- the product or service delivered by the business -- and process is how the product or service is delivered, such as employing those with barriers to employment. When the impact is part of the place or process, it is easy for investors to push the entrepreneurs in new directions, such as targeting a more lucrative geography or customer segment, or hiring a more cost-efficient labor force, thereby stripping the impact from the company. However, when the impact is intrinsic in the product or service delivered, it is easier to ensure the financial and impact objectives remain aligned and intact as the business scales. Impact Engine looks for startups where the social or environmental impact is inextricably linked to revenue generation, reducing the natural tension between financial and impact outcomes.
7. Don't Put All Your Eggs in One Basket
Be deliberate in constructing your investor base; it will be important to have a diverse group of value-add investors as your portfolio companies seek their first rounds of capital. Building impact companies is hard work, so finding experienced, smart and engaged investors is optimal. You need value-add investors who are willing to roll up their sleeves and mentor the impact entrepreneurs and are willing to reach out to their peer networks for additional expertise and capital. Impact Engine intentionally took smaller investments from many investors into our fund to provide a base of investors with interests and networks as equally broad as our companies -- a significant help to identifying potential seed investors for the portfolio companies. Some investors will simply want to put their money into your company, but many want to be seen as more then just a checkbook; they want to contribute.
8. Matching Money and Mission
Different businesses need different types of funders and funding structures. Positioning your portfolio companies for success includes helping them identify and attract the right type of capital for their specific needs. This may include a mix of mission-first money like PRIs (Program Related Investments), grants or impact-first angel investors or it may be more traditional capital sources that have quick access to additional capital to help the business scale more rapidly. Not all money is smart money and your role is help the entrepreneurs map their capital needs to the right type of investors. For Impact Engine, this included helping some of our portfolio companies secure both grant funding and angel investment as they worked through the launch of their pilot.
9. A Mother's Work Is Never Done
When the accelerator ends, you and your companies are just getting started. First time entrepreneurs lack experience in raising capital. Few investors have experience making angel investments in seed-stage impact deals, and even fewer can act as a lead investor and catalyze financing. It's critical that you and your team understand that Demo Day is just the beginning. The REAL work begins when Demo Day ends, both for you and for the entrepreneurs in your portfolio. Be prepared to continue working with the entrepreneurs and new investors throughout the fundraising and deal structuring process.
Since most impact investors lack experience and will be slow to pull the trigger, acting as a facilitator is an essential role the accelerator plays. To formalize this role, we extended our program to include an additional two weeks of support after Demo Day and continue to support the companies beyond the end of the program. Remember, you are an investor in their success and their success builds your reputation and your returns.
10. Impact Is in the Eye of the Beholder
Whether talking to investors, entrepreneurs or members of the community, it's important to remember that impact means something different to everyone. The lack of consensus makes for challenging conversations, especially when talking to investors. Some investors are self-declared impact investors while others are strictly financially motivated. You need both types of investors at the table, but they don't often see eye-to-eye on what outcomes need to be achieved for impact. At Impact Engine, we encourage our companies to define two to three key impact outcomes that they will track and report. But we also educate them on knowing their audience and when to lead a conversation with the impact opportunity or the financial opportunity.
About Impact Engine: Impact Engine is a 16-week accelerator program that supports for-profit businesses addressing today's societal or environmental challenges. It empowers entrepreneurs, mentors, and investors to make a collective impact on society by applying smart business principles to the world's greatest problems. Since 2012, the accelerator has graduated 16 mission-focused businesses, and collectively, they have raised more than $9.4 million in seed and Series A funding. But more importantly, they are having a positive impact on the world, from reaching 20,000 school students to collecting 230,000 pounds of food waste to creating 4,200 employment opportunities for female artisans in the developing world.