Nurturing Innovation: Venture Acceleration Networks Table of Contents Acknowledgements _____________________________ 3 Overview _____________________________________ 4 Objective and Approach of the Study _______________ 9 Part 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 ________________________ 52 Part 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 ______________________________________________ 234 Appendix ___________________________________ 247 2 Nurturing Innovation: Venture Acceleration Networks Acknowledgements This report was prepared for the Russian Venture Company by a World Bank team led by Jean-Louis Racine in collaboration with Alistair Brett, Doina Cebotari, 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 provided important guidance and shared his invaluable knowledge. The team is also grateful to Sophie Sirtaine (World Bank Sector Manager), Pedro Alba (World Bank Country Director), Alfred Watkins (World Bank) and Bob Hodgson (Zernike UK) for comments received on the draft. The team would like to thank Yevgeny Kuznetsov (World Bank) for comments on the case studies. Finally, the team is grateful to Zenaida Kalinger (World Bank) for her support in putting the report together and Rodrigo de Castro (World Bank) for the cover design. The team would also like to thank all of the staff members, mentors, consultants, clients and beneficiary entrepreneurs of the venture acceleration networks who generously gave offered their time for interviews. In particular, the team would like to thank Sidney Burback (IC2), Pete Peters (Innovate VMS), Dave Raval (Carbon Trust), Sayaka Iwase (INC Japan), Howard Califano (SMART Innovation Center), Don Duval (MaRS), Ravindranath. P (TiE Bangalore), Dave Geary (Endeavor), Carlos Gutierrez and Rohit Shukla (Larta Institute), Jerome Smith (MIT VMS), Eva Diedrichs and Sabine Brunswicker (IMP3rove), Wes Hufstetter (University of Michigan Catalyst Resource Network), Jenny Boyd and Nicole Glaros (TechStars), and Richard Caro (Acceleration Coop). 3 Nurturing Innovation: Venture Acceleration Networks management and technical talent from the Overview labor force with the appropriate businesses. They match service providers with potential new clients. And finally, they help create a culture of entrepreneurship by exposing Roles entrepreneurs to role models and by fostering the social capital that accelerates the exchange Venture acceleration networks consist of of knowledge, ideas and deals in the experienced, skilled and well-connected community. individuals who provide hands-on support to entrepreneurs. They help propel viable Common Threads business ideas to the market place by accelerating the regeneration of ideas and Venture acceleration network programs have connecting entrepreneurs to the market. They several basic features in common. In their achieve 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. Approach The impact of venture acceleration network programs extends beyond the entrepreneurs Around this set of common features, venture they serve directly to the wider community of acceleration networks experiment with a wide entrepreneurs, 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 main They reduce public and private resources approaches emerge from this variety, invested in nonviable business ideas by although most of the programs do not fall accelerating their path to failure through neatly into any single category. A first market validation. They help match approach aims to commercialize technology 4 Nurturing Innovation: Venture Acceleration Networks projects for short-term payoffs (e.g. creating financials, and relatively open in structure and spin-offs). A second approach aims to build a timeline. local self-sustainable innovation ecosystem with broad medium to long-term payoffs (e.g. Programs aiming to build innovation-related creating linkages in the entrepreneurship consultancy markets do not aspire to pick community). A third approach aims to foster a winners but to help businesses grow by market for innovation-related services by connecting them to qualified and vetted building capacity, transparency and efficiency commercial sources of support. They follow a in the service provider market, and raising “hands-off” approach to supporting awareness among SMEs. entrepreneurs, creating analytical tools, and training qualification tools to support Programs aiming to foster short-term R&D innovation-related consultancy, and by commercialization select technology projects marketing the network. Hence, they generally on the basis of their (assumed) technical and operate with small teams. Their light-touch market potential. They often include funding approach means that their models are easily for feasibility testing. Some rely on full-time scalable, although they are also less rich in professional mentors and brokers to provide content. bare-bones project teams with rapid and dedicated support. Because they target Success Factors technologies that are not yet fully out of the lab, they also focus on team-building, bringing Experiments with venture acceleration in 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 are minimize costs these programs are structured able to attract mentors, business services around clear milestones and timelines. providers, experts and ventures by virtue of their position in the business Programs aiming to build innovation community. They are well-known ecosystems select projects on the basis of their overachiever entrepreneurs and business venture 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 limited made to opt out of the programs. The numbers of high-quality entrepreneurial programs focus on building the skills of the teams and mentors. High-quality networks venture team, recognizing this as a long-term can be self-perpetuating. investment for society. The programs also The programs select mentors who value focus on nurturing and leveraging external their participation in the