Tuesday, October 30, 2012

Kiva Innovations: Accelerator programs for social entrepreneurs

Lately, it seems like everyone has caught the startup bug. With constant news of billion dollar companies being founded by college students, the latest iteration of the American Dream has yielded a fresh crop of entrepreneurs.

Scribd, Reddit, Airbnb, Dropbox – what do all of these innovative startups have in common? They all got off the ground with help from programs called "seed accelerators," in this case one in particular: Y Combinator.

Over the past 6 years, accelerator programs have emerged across the country to incubate cutting-edge technologies and fledgling companies. As noted in a recent study by NESTA, Y Combinator launched its first accelerator program in 2005, and now there are dozens of programs like it that support hundreds of startups a year.

Accelerator programs typically run in cycles that begin with an open, competitive application process to admit a "class" or "cohort" of startups. To qualify, these startups must be in the very early stages of inception, with small teams between 2 and 4 people.

If selected, a startup will usually receive pre-seed investment funds from the program (usually in exchange for equity). Accelerators also enroll their cohorts into intensive programs that typically last between 3 and 6 weeks. During this time, the new entrepreneurs hone their business models through workshops, events and near constant mentoring from industry experts.

At the end of a program, participants are typically asked to pitch their ideas to a room full of real investors so they can raise enough funding to take their companies to the next level.

In the end, accelerator programs benefit both entrepreneurs and investors. For the startups, accelerator programs offer funding, time to develop business models, the ability to get feedback from people in the know, and general validation. For investors, these programs provide a filtered pool to concentrate their time and resources. Essentially, they get a front row seat to some of the biggest, best new ideas.

Bringing the accelerator model to social good

Accelerator programs have quickly been adapted for other sectors. For example, the NESTA report cited above gives a shout-out to health care-related technology accelerators RockHealth and Healthbox, and education-related technology accelerators like Imagine K12 and Startl.

At Kiva, we couldn't be more excited about the emergence of accelerators for social entrepreneurs. So far, the ones we've seen have been very successful at pushing early-stage startups to clearly demonstrate their social impact and financial viability, setting them up for success in future funding rounds.  

Notable social accelerators include Hub Ventures, the Unreasonable Institute, Global Social Benefit Incubator (GSBI) and GoodCompany. They function similarly to tech accelerator programs, except they require their startups to root their business models in social impact.

Each year, the Unreasonable Institute selects about 25 entrepreneurs from around the world to stay in one house together for 6 weeks and connect with mentors, institutional funders and investors. It also provides access to seed capital, skills training, international exposure and a global support network.

While the organization has gone through its own struggles (which it's refreshingly transparent about), 61 of the 70 ventures that have gone through its rigorous program are now working in 36 countries around the world. Together, these startups have raised over US$23 million and employed over 400 people.

As a more established program, GSBI has mentored over 150 enterprises in the past 10 years. It has an impressive track record – nearly 95% of GSBI alumni are still working at their social ventures, and more than 50% are breaking even and scaling.

Each year, it selects about 20 entrepreneurs to participate in its proven curriculum and individualized mentoring program. This includes a two-week in-residence “boot camp" that ends with formal business plan pitches to Silicon Valley entrepreneurs and venture capitalists.

As noted in a past blog post, given the challenges that social enterprises face in the early stages of financing, Kiva is very interested in working with social impact accelerators to identify potential Field Partners. The way we see it, impact accelerators give a stamp of approval to a selective pool of very early-stage startups that have the potential for strong social impact.

These startups tend to be riskier than our typical partners, which is why we launched our own Experimental Partnership Program. Experimental partners get an initial credit limit of US$20,000 to pilot lending programs with the Kiva model. This trial period helps both Kiva and the partner determine whether it’s appropriate to move forward and scale financing.

We’re thrilled about this systematic approach to developing financially viable, socially impactful organizations! We'd also love to hear from you if you have ideas or suggestions for how we can better engage with social accelerator programs. Send us your questions and comments at blog@kiva.org.

Rebekah Chang is an intern for Kiva’s Strategic Initiatives team, looking for new partners and loan products to extend opportunities and access to more people around the world. Rebekah has an M.A. in Development Economics and Conflict Management from Johns Hopkins University School of Advanced International Studies. Send her your feedback on this blog series at blog@kiva.org.

This is part of a larger series on Kiva’s strategic initiatives and innovative loan products, which are designed to expand opportunities for more borrowers across the globe.

Images courtesy of iStockPhoto, Forbes.