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Can we bake the cake and eat it too?

Updated: Jun 30, 2022

An interview with Maggie Flanagan on growth and sustainability of social enterprise incubators.

Recently, while drawing a strategic plan for engaging with our network of incubators, I was prompted to look at alternate and admittedly much more ‘diluted versions/definitions’ of sustainability. This pushed me to address the proverbial elephant in the room: Is impact incubation self-sustainable? Will it ever be? While I had multiple opinions about this, I thought I’d rope in an expert to speak on this subject.

I decided to interview Maggie Flanagan of The Lemelson Foundation - a long time partner, supporter, and champion of Villgro’s work. Maggie has been an entrepreneur in the past and is now on the funding side of the ecosystem as a Program Officer at The Lemelson Foundation. Here is an excerpt from the interview.

Q. There has been a significant increase in the number of incubators over the last decade, but very few success stories of them becoming financially sustainable. Do you think a pathway towards sustainability is possible?

Outside of the high-profile accelerators for high-profile ventures, primarily based in developed economies, I have not seen financially sustainable models for entrepreneur support organizations (ESOs) that did not require some level of grant support. According to a study, 3 out of 4 accelerators relied on philanthropic grants. Further, a DGGF-supported research stated that those who used the cash-for-equity model found that it took a long time to generate revenue and even then were able to cover less than 5% of their operating budget.

While philanthropic grants are likely even more critical to social enterprise incubators, the good news is that they are also probably better aligned to an incubator that has a clear thesis about what social or environmental issues they are trying to address through supporting enterprises. This alignment also dictates the most-suited type of grant maker--a domestic public-funded foundation vs. an international cause-focused one. Overall, recognition of the critical role social enterprise incubators play in commercializing impactful innovation by the grantor is ideal. In addition to grants, incubators have also begun charging for their services. The recent SCALE report by Argidius foundation even reports an increase in enterprise performance when incubators charged for services. On the other hand, recent Social Business Support Landscape Studies by Yunus Social Business (in India, Brazil, Columbia and Kenya) indicated that about half of the enterprises were willing to pay low-bono or market rates for these services.

Incubators have used consulting income and corporate partnerships as other components of their sustainability plan. They usually have small teams and this approach runs the risk of stretching that team and/or mission drift away from impact and tailored support to enterprises. However, if an incubator can balance the partnership agenda well to align this practice with needs of their enterprise portfolio, that synergy becomes a win-win. For example, Innosphere had an agreement with a major beverage company that involved searching for external innovations that can address their global supply chain and distribution issues. For a fee (which offset its operating costs), the incubator served as a technology scout and hosted tech discovery pitch sessions semi-annually. If a promising technology was identified, there was a predefined set of potential collaborations with the corporate partner that were also aligned with the commercialization journey for the startup client.

Obviously, there is no “one right way” to attain financial sustainability. The best strategy is based on where mission meets context and some combination of the above.