A Brief History of 'Investability DNA' in Incubation and Acceleration
You're reading Entrepreneur India, an international franchise of Entrepreneur Media.The concept of Investability DNA that can be found at the core of the best incubators and accelerators in the world––not necessarily a model that can be easily replicated across ecosystems. In this article, we are going to get to the root of why this concept is so important.
In incubation and acceleration, we define Investability DNA as the ability to analyze and build their program from an entrepreneurial as well as investment lens in order to better support their startups. This dual-lensed perspective of “thinking like an investor” and “thinking like an entrepreneur” generates a certain quality of entrepreneurial support that simply cannot be replicated merely through the structure. For us to unpack what that is, let’s take a little trip back in time in order to understand how to go to where we are today in the world of incubation and acceleration, and to learn how to build our own path forward towards success.
The World’s First Incubator?... It’s NOT Y Combinator
I always enjoy asking people if they know what the world’s first incubator was, just to see what they come up with. I’ve gotten answers scattered across the globe with timelines going back all the way to the Mughal Empire and into the US in the mid-2000s. Depending on the audience, this simple question sometimes translates into an existential, philosophical debate about the true definition of an incubator (if you buy me a coffee, we can have that conversation). Nearly every time, the audience tends to veer towards this answer: Y Combinator in Silicon Valley.
The first incubator started in a small town in upstate New York in 1957 after a massive agricultural machinery company that employed a significant portion of the community decided to shut shop and move out of the town. Faced with an unprecedented spike in unemployment in the town, Joe Mancuso, a businessman in the town, quickly realized that promoting entrepreneurship and self-employment was critical to reducing the impact this business’s departure had on the community. He bought out the old industrial complex that this agriculture company used to be based out of, and he transformed the space into readily accessible, short-term lease office spaces for small businesses in the area. In reality, The Batavia Industrial Center was little more than a large, rudimentary coworking space by today’s standards, but this business mogul recognized a significant gap and built a viable solution to meet the needs of entrepreneurs in the community.
For the next twenty years, not much changed––there were only 12 incubators, like the one in Batavia, throughout the entire United States. It wasn’t until the 1980s with the rise of computers and the 1980s tech boom that more people started building “startups”, and to meet this demand of short-term leases, the number of incubators in the country skyrocketed by 100x to approximately 1,200 incubators by the 2000s. Not much really changed in the way they operated––still very similar to a large coworking space as we know it today. Into the 1990s and 2000s computers and internet connections replaced fax machines and phone calls, and perhaps some ad hoc administrative support and coffee were supplied here and there.
The Great Incubator Disruption of 2005
It wasn’t until a group of veteran entrepreneurs based out of Cambridge, Massachusetts had the crazy idea of getting into angel investing in 2005; the only problem was that during this time, the typical ticket size of an angel round in Silicon Valley was around $200,000, and this was way out of the range that these entrepreneurs were willing to invest. With access to some of the best technical talent in the world between MIT and Harvard, this team of veteran entrepreneurs decided to take in talented techies early on––much earlier than an angel in the Bay Area would–– and help them sharpen up their entrepreneurial skills, which were pretty lacking. And thus, Y Combinator was born as a way to invest and support very early-stage startups in batches as they took their earliest steps into building real, viable businesses.
Y Combinator didn’t necessarily set out to transform incubation, they set out to transform early-stage investing––but they changed both. With their sights set on transforming early-stage investing, they created a radically new form of early-stage entrepreneurial support. Realizing that they had tapped into a huge opportunity in investing small amounts of both financial and human capital into batches of very early-stage startups, they quickly moved to the Bay Area to become the “Y Combinator of Silicon Valley” before anyone else could.
Y Combinator dramatically shifted the expectations of what incubators do for early-stage entrepreneurs––they essentially disrupted incubation. Entrepreneurs simply began to expect and demand more from their incubators. Suddenly, seeing the successes coming out of the program, incubators and accelerators (back then, this term didn’t exist) quickly tried to replicate similar successes by adopting YC’s mentor-driven, cohort-based program. While some other programs, like TechStars and 500 Startups, were able to adapt this concept and create their own form of acceleration, many other programs failed to identify that magic that worked so well for Y Combinator and their entrepreneurs.
If you ever listen closely to Jessica Livingston talk about Y Combinator, you might hear her refer to Y Combinator as a “startup” when she talks about her journey in co-founding YC. That’s because a Y Combinator’s core, they are a startup. As the name suggests, they are a startup that builds startups––just like the fixed-point combinator mathematics/programming equation that must have inspired the founders to name their startup “Y Combinator” in the first place. This is Investability DNA: veteran entrepreneurs thinking like investors in order to build a startup that builds more investable startups.
Incubators and accelerators are spreading like wildfire throughout the global entrepreneurial ecosystem, especially in emerging markets. The next article in this series explores how we can better adapt and improve upon this concept of incubation and acceleration to meet entrepreneurs’ needs across the globe, rather than resorting to mere program replication. In Part III of this series, we’re bringing Investability DNA back to the future.