Social Impact, the New Venture Capital? Harvard Business Review

My work at Mason has allowed me to engage daily with amazing people and organizations in the fields of social innovation, entrepreneurship and the growing sector of social impact investing. Some thoughts on impact investing from Cohen and Sahlam in HBR:

We believe we are on the threshold of a major change not unlike the early days of the modern venture capital industry. In the mid-1960s and early 1970s, a new type of investment vehicle was created: the professionally managed venture capital partnership. This organizational innovation drew investment capital from institutional players like pension funds and endowments and allowed for appropriate time horizons. Soon venture capital became a core part of many economies and those bold moves changed everything. Entrepreneurship has never been the same.

Just as the formation of the venture capital industry ushered a new approach and mindset toward funding innovation within the private sector, impact investment has started to bring opportunities to harness entrepreneurship and capital markets to drive social improvement. This in time will bring much needed change to the social sector.

We’re already beginning to see innovation. People are developing new securities that link social performance to financial returns. There are new experiments — models that use the tools of finance to try things in different ways — sometimes creating income streams from novel concepts, like funding cancer research. There are also hybrid organizations like the Acumen Fund, Bridges Ventures and Root Capital that channel patient capital to high social return investments around the world. There are even organizations like Endeavor and Social Finance that help entrepreneurs gain access to global capital markets to fuel growth in employment and social impact.

via Social Impact Investing Will Be the New Venture Capital – Sir Ronald Cohen and William A. Sahlman – Harvard Business Review.

Forget Angels, Try Your Parents or Piggy Bank – The Accelerators – WSJ

Nice piece by Vivek Wadwha the echoes Scott Shane’s Illusions of Entrepreneurship.

My team at Duke University worked with Raj Aggarwal of University of Akron and Krisztina Holly at the University of Southern California to research the backgrounds of 549 entrepreneurs whose companies had made it past the begging-for-seed-money stage and were generating real revenue. We found that only 9% had raised any angel capital, and 11% had raised venture capital after they had grown. There was some overlap between these two groups.

In other words, nine out of ten successful startups did it all on their own.

Where did the funding come from for those companies that failed to attract an outside investment? For the vast majority—70%—of successful entrepreneurs starting their first companies, it was from personal savings. A much smaller number raised money from business partners, bank loans, friends and family, and other sources.

via Forget Angels, Try Your Parents or Piggy Bank – The Accelerators – WSJ.

Winning over the crowd | The Economist | Crowdfunding

Efficient piece from the Economist with visuals of Kickstarter’s crowdfunding projects during 2012. Good insight into crowdfunding. BTW, Virginia has a petition calling for tax credits for crowdfunding investors.  From the Economist:

LAST year more than 18,000 projects were successfully funded on Kickstarter, the largest crowdfunding website. A total of $320m was pledged by 2.2m people, making possible creative projects including a documentary on fracking, a home aquaponics kit and a community centre for circus arts. Games, a category which includes video, board and card games, received the most support, with $83m pledged to more than 900 projects. Given their high development costs and passionate fans, video games are a good match for crowdfunding, particularly as established publishers churn out ever more sequels, leaving a long tail of unmet demand (see article). In all, 44% of the projects launched last year managed to raise the money they requested, but the success rate ranged from a threadbare 26% in fashion to a sprightly 74% in dance. Seventeen projects raised more than $1m apiece in 2012. Technology projects received the highest average pledge by category, at $107 per backer. The biggest Kickstarter project to date is Pebble, a watch that connects to a smartphone via Bluetooth, which received almost $150 per backer to raise $10.3m in May.

 

via Daily chart: Winning over the crowd | The Economist.

UMD Student Entrepreneur Mike & Cookies on Kickstarter #crowdfunding

Last year I was fortunate to meet and interview David Botwick-Ries, a University of MD student that launched a cookie business while on campus in College Park. David continues to grow his business, Mike and Cookies and has turned to Kickstarter to raise money for his firm. David is going to use the funds to buy a delivery truck to improve the operational efficiency of his firm. From Mike and Cookies Kickstarter update #3 page.

For us at Mike & Cookies, we want to be the cookie to remind the world to stop – slow down – and enjoy themselves. We want to be the cookie to enable the rediscovery of your childlike joy and the ability to share that amazing joy with others. We want to be the cookie to put a smile on your face, and more importantly, share that smile with everyone: friends, family, strangers alike.

We want to be the cookie to celebrate the everyday. And by this focus on today and only today, we see a world where people are filled with joy, love, compassion, and friendliness.

That is our mission. Join us.

Delivery Van for Mike & Cookies! by David Botwick-Ries — Kickstarter.

2012 Wharton Venture Award Winners | Entrepreneurship Programs

Thomas Baldwin at the Wharton Journal has brief interviews with the 5 recipients of the Wharton Venture Award.

After a highly competitive selection process, five student-led ventures were selected to receive the 2012 Wharton Venture Award (WVA). The WVA Program provides selected student entrepreneurs with $10,000 in funding to pursue the development of their ventures during the summer between their first and second years. WVA is one of several high-impact programs sponsored by Wharton Entrepreneurial Programs (WEP) as part of its ongoing mission to foster entrepreneurship and innovation throughout the Wharton community.

1Docway (Samir Malik WG ‘13)

What: 1DocWay is an online doctor’s office. We connect hospitals with underserved patient populations, through our lightweight technology and implementation service. With 1DocWay, rural, elderly, disabled, and busy patients can schedule appointments online and see their doctor through our secure video chat platform. In doing so, we help hospitals expand their reach of services into underserved areas, building hospitals’ referral base; we work with underserved care facilities to increase access to specialist physicians and improve community health/wellness; and we help physicians improve scheduling flexibility and revenue by expanding their patient pool.

Inspiration: I had always been a start-up kind of guy. I had experience with a few prior startups and when I saw an opportunity to innovate in healthcare, from my perch as a healthcare consultant, I dove right in. Healthcare is a huge space in need of disruption.

Wharton: The HCM program has been a fantastic resource in that I have been able to connect to numerous brilliant colleagues who bring a wide range of perspectives on the healthcare space. My business has got many holes shot through it because of peers in HCM and that has made it stronger and more robust.

A Boom Time for Education Start-Ups | Chronicle of Higher Education | #Edtech #hackedu

Nick DeSantis of the Chronicle of Higher Education writes about the incredible surge in investing in education technology start-ups. While people in the article claim ‘this time is different, I am not so sure. (I was at the University of Chicago when a bunch distinguished professors created UNext.com during the late 1990s — BIG BUST just like the startup I joined in 1999). From DeSantis:

Investments in education-technology companies nationwide tripled in the last decade, shooting up to $429-million in 2011 from $146-million in 2002, according to the Na­tional Venture Capital Association. The boom really took off in 2009, when venture capitalists pushed $150-million more into education-technology firms than they did in the previous year, even as the economy sank into recession.

“The investing community believes that the Internet is hitting edu­cation, that education is having its Internet moment,” said Jose Ferreira, founder of the interactive-learning company Knewton. Last year Mr. Ferreira’s company scored a $33-million investment of its own in one of the biggest deals of the year.

The scramble to make bets on a tech-infused college revolution has led to so many new companies that even Mr. Ferreira can’t keep track.

Udacity, Udemy, and University­Now all have plans to revolutionize online learning. There’s the Coursebook, a young online-learning start-up. And Coursekit, a nascent challenger to Blackboard in the market for learning-management software. And Courseload, the Indiana-based digital-textbook enterprise. And CourseRank, the class-sorting outfit acquired by the textbook vendor Chegg two years ago.

This isn’t the first ed-tech boom to crowd the market with companies whose names sound alike. A similar wave hit in the late 90s, during the larger dot-com frenzy. But today’s investors believe this round of growth is different. Michael Moe, co-founder of the investment-advisory firm GSV Asset Management, said the first ed-tech wave had been based mostly on euphoria that anything digital would work.

“There were just a bunch of things that were, candidly, thrown against the wall,” he said of the 90s start-ups. Some companies pitched ideas that had no sustainable business model. Others, Mr. Moe added, were years ahead of their time. (Courseload, the digital-textbook start-up revived in 2009, was born in 2000, but its leaders say tools weren’t available to support it until more recently.) When the dot-com bubble burst, investors fled the market.

The piece highlights that students are perfectly positioned to play a role in the revolution in higher education (campus as market). A number of students and recent grads I work with through Startup Mason on working in the higher education space:

Mr. Staton said his fellow entrepreneurs had also flocked to education because they know its chal­lenges better than any other industry.

“When you ask a 19-year-old what problem in the world they want to solve, it’s highly likely that the problems that they’re most familiar with are problems from their own education,” Mr. Staton said. By the time they graduate, he added, many of those students are “looking two opportunities in the face: a substandard job market, or creating their own company and trying to be Mark Zuckerberg.”

And entrepreneurs like to solve problems that they care about, Mr. Staton said: “There are a lot of people that are passionate about this, that know it, that want to do something about it.”

While the piece discusses the amazing activity that has occurred in recent years (startups and funding) it says little about value created for students, professors, and universities and nothing about the profitability of any of the firms that are mentioned. This is a clear sign of a bubble in education technology.

via A Boom Time for Education Start-Ups – Technology – The Chronicle of Higher Education.

Y Combinator | “It Really is the Entrepreneur” | Amplifier Venture Partners

My friend, Jonathan Aberman, investor and Startup Virginia leader, has an interesting piece in response to Y Combinator’s current experiment with accepting teams that do not have beta products or services or even an idea. Clearly Y Combinator is bowing to the reality of new venture iterations or pivots. From Aberman:

By taking away from the equation the coupling of a business model from acceptance to accelerator program, Y Combinator is taking away one of the pillars that seed stage investors use to evaluate an entrepreneurial team. If an acceleration program is financed by investors capital (and not government or not for profit capital) then it is properly described as a seed stage investment model. The risk of failure must be compensated for appropriately for investors to want to fund the program.

Y Combinator’s proposed change turns the business model of acceleration further away from an investment model, and much more into what I would call an “R&D model.” Research and development is an essential function in ideation – there are few things as powerful as allowing bright people the luxury of “thinking things up.” However, financing smart people to think things up is not really consistent with the mechanics of investment – investment requires a matching of opportunity with risk, which allows investors to rationally evaluate it against all other investments. This change turns acceleration into much more of a black box and much less clear as a seed investment.

As my friends who are starting accelerators know, in order for the model to work you need investors to provide the capital for the acceleration program. It is a model that requires the existence of a fund, both to provide financial fees to the accelerator promoters as well as to provide capital to the startups. Turning an accelerator program in to a broad R&D effort may make it harder for acceleration programs other than Y Combinator to raise capital. Or, for these programs to maintain an open source approach that doesn’t require harsh investment terms and stratify entrepreneurs under differing criteria.

Jonathan points out the change in model and the uniqueness of Y Combinator’s new approach — based on size, reach and location.

Read more about Jonathan, Startup VA, and the DC metro as an entrepreneurial goldmine.

via Y Combinator Says: “It Really is the Entrepreneur”.

PitchIt! Conference & Challenge | WeMedia.com | Deadline 13 Mar 2012

$50,000 to help innovators, both commercial and social. Submit your idea to the We Media PitchIt Challenge by 9 pm 13 March 2012 and get a chance to win one of two $25,000 awards to build out your vision. Time is short, but if you can mobilize your supporter today you can get to the next round by community votes. (Submit your idea — rules/faqs)

Check out some of the ideas that have been submitted (they are broken out into commercial and non profit — #socent #socinn):

Review+: Review+ helps local businesses generate qualified prospects by leveraging their satisfied customers to build trust and awareness for them. Customer reviews are posted real-time, both on the customer’s Facebook wall, and on the vendor’s own website. What makes this possible is our proprietary remote content delivery system that offers a scalable mechanism to publish fresh and optimized content to the vendor website in real-time, with no manual intervention from the vendor.

Enable U: People with disabilities graduate college 10% less often and find employment 32% less often than people without disabilities. There are many businesses that want to hire more students with disabilities and would be happy to sponsor a non-profit program that helps diversify their workforce. Enable U will increase graduation rates and job placement rates by pairing disabled college students with peer mentors in their first & last semesters.

Radmatter: RadMatter innovates campus recruiting with best practices from leading online, social games – from World of Warcraft to Farmville. Our wildly captivating candidate experience provides intrinsic and extrinsic rewards related to winning career opportunities. RadMatter is important for society and the economy. We foster a happier, more engaged workforce in the the right jobs with the right companies.

 

 

 

PitchIt! Conference & Challenge | WeMedia.com.

On 4 Years of Seedcamp | Entrepreneurship Education | Fred Destin

If you are not paying attention to off campus entrepreneurship education and seed initiatives, then you should start. Read this great piece (h/t @MichaelGaiss) by Fred Destin sharing his experiences and thoughts on Seedcamp and related issues.

There seems to be a kind of marketing war going on between all of the incubation/acceleration programs, what with YCombinator getting 600 applications a minute or Techstars providing some awesome TV. At some level you could argue all these are fighting for a limited crop of A+ entrepreneurs, but I tend to take a slightly more prosaic view on this. Each of these initiatives serves a defined community and tries to rise above transience by building sustainable processes of value creation for startups. Each has a unique place and role to play in improving the early stage ecosystem, as was well argued by Jonathan Wegener.

Beyond any marketing spin, the only thing that really matters is whether startups go through these programs and come out at the other end stronger, funded, ready to go win in the marketplace. For my money, well-supported, locally backed, collaborative initiatives are the only real way to go. There is no shortcut to generating real engagement between startups and mentors and spending quality time together on problems that truly matter to entrepreneurs and limit their chance of success.

I have been lucky enough to be involved in both Seedcamp and Techstars Boston, and to see how these two initiatives deliver value in different ways. Techstars as a 3 month residential creates a real furnace of entrepreneurial emulation. Seedcamp, designed for a more distributed European ecosystem, is very efficient at creating connectivity and access. Both usually get very strong reviews from entrepreneurs. I also wrote recently about 500Startups, another impressive initiative.

Maintaining quality is a sustainability challenge for all accelerator programs, which is why I think they are fundamentally hard to scale. Quality primarily relies on getting high quality mentors and designing formats that deliver real value to entrepreneurs. It’s tough to scale good mentors, and god knows I have witnessed some pretty awful mentoring. But I have also and mostly seen companies get real breakthroughs in strategy and execution thanks for the variety of views and quality of probing that they are subjected to.

The piece offers many insights into the building of successful entrepreneurs, firms, and ecosystems. We are hoping to build some of this at Mason with StartUp Mason, Center for Social Entrepreneurship and Center for Entrepreneurship and Public Policy.

via On four years of Seedcamp — and why you should get involved – Fred Destin.

VatorNews – The Latest Graduates of 500 Startups

Just reading through some Vator.com news and came across this new venture, out of the 500 startups movement. One School appears to be a student created venture out of Penn State;

One School: Students are on their mobile phones most of the day, but very few of them have an application personalized to their college needs. One School has created a mobile application that helps pull together all the course schedule, homework lists, class notes, college campus maps and nearby events on one application. Rolling out with partnerships of major college cap uses, One School has seen tremendous adoption rates.

Only on campus for two weeks, 20% of Stanford’s student body has downloaded the application. The purchasing power of students is $500 million per year and helping them stay connected to their campus and the things they need could be an invaluable resource across the country. One School has already partnered with a handful of big college campuses and has raised $750,000 so far.

via VatorNews – Meet the latest graduates of 500 Startups – Part 2.