ACKNOWLEDGEMENTS

This report was commissioned by the UK Government's Department for International Development and written by Nesta as part of a strategic partnership between Nesta and DfID India.

About Nesta

Nesta is an innovation foundation with a mission to help people and organisations bring great ideas to life.

We are dedicated to supporting ideas that can help improve all our lives, with activities ranging from early-stage investment to in-depth research and practical programmes.

Nesta is a registered charity in England and Wales with company number 7706036 and charity number 1144091. Registered as a charity in Scotland number SCO42833. Registered office: 1 Plough Place, London, EC4A 1DE.

www.nesta.org.uk

© Nesta 2016

SUMMARY

Social enterprise, inclusive business, impact entrepreneurship... whichever buzzword you choose, it's on the rise. In India, entrepreneurs in markets from dairy produce to heart surgery are building sustainable businesses that provide products, services and livelihood opportunities for low-income communities.

In a country that is home to a third of the world's poor, promoting social enterprise has many potential benefits. Social enterprises can make essential goods and services like healthcare and energy more affordable. In turn, this can improve wellbeing and contribute to economic development, particularly in rural areas. They can also create jobs or micro-entrepreneurship opportunities for people in low-income communities. So through the products and services they sell and the inclusive ways in which they operate, social enterprises have the potential to reduce poverty and inequality. And while in the past social enterprise mainly referred to micro-entrepreneurship, it is now increasingly associated with high growth opportunities that create both financial and social value, sometimes differentiated as 'social ventures'.

These possibilities have captured the interest of funders and investors looking to tackle poverty. Over the last decade, an increasing number of 'impact investment' funds has emerged, backed by donor agencies, philanthropic funders, corporates, private investors and governments. These funds typically look to invest in high-growth ventures that can generate financial returns - sometimes at full market rate - alongside social impact. Yet it is widely recognised that there is now more investment on offer than social enterprises ready to take it on. Most social enterprises are too early stage, and high-risk, to be attractive to investors.

As a result, those looking to promote social enterprise have started to consider what can be done to bring forward more investible social ventures. One option is to fund incubators to support early-stage social enterprises to improve their chances of survival and growth.

The number and range of incubators in India has grown rapidly over the last five years. There are government-funded university incubators focused on commercialising research like SID at IISc Bangalore, or developing a culture of student entrepreneurship like SINE Bombay. There are commercial co-working spaces like BHive in Bangalore, corporate incubation programmes like Reliance Gen Next and a growing pool of investor-led accelerators like Morpheus or Axilor, helping develop and exploit the rapidly growing startup communities in entrepreneurial hubs. While startup sectors like e-commerce are thriving, this has prompted some to question whether there are opportunities to further harness some of this entrepreneurialism towards more explicitly social goals.

While few incubators currently have a primary focus on social impact, there are some notable examples, like Villgro and UnLtd India. They form part of a growing range of initiatives supporting social enterprise, including networks (like the National Association of Social Enterprises), funders and impact investors (like Aavishkaar) and conferences (such as the Global Sankalp Summit). India's national social enterprise landscape is becoming more diverse and vibrant, particularly compared with that of most other developing countries.

Yet one of the challenges for social enterprise in this huge country is to spread activity to where it is needed most. India's poorest people are concentrated in eight predominantly rural 'low-income' states, but most social enterprises, and support organisations, are based in India's big, bustling metropolises - cities like Mumbai, Chennai and New Delhi.

This has prompted the UK's Department for International Development (DfID) to launch Innovative Ventures and Technologies for Development (INVENT). In partnership with Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) and the Government of India, this programme invests in incubators in India's low-income states and an online incubation platform, Startup Wave. Our report aims to support DfID in implementing INVENT by exploring how to do social incubation effectively in India's low-income states. It draws on empirical evidence from around the world, over 30 interviews with incubator managers and experts in India, and UK best practice.

What does effective social incubation look like?

Nesta's 2014 report Good Incubation showed that social incubators are appearing across the globe. As a relatively new phenomenon, there is little evidence so far to say 'what works' in social incubation. But research on mainstream business incubation, which has been around for over 60 years, shows that:

• Incubators usually provide some combination of office space, business services, coaching and mentoring, funding and access to networks.
• Incubators have diverse goals, business models, host institutions and target enterprises, and they use a wide range of methods to support enterprises.
• There's no single recipe for effective incubation: incubators with the same aims can achieve these through different methods and combinations of support.

Those looking to support effective incubation are often in search of the most effective models, templates that can be replicated and scaled. Good practices can be shared and emulated, but no single ideal model exists. Rather than prescribing a particular support model, therefore, we suggest a four-stage process for designing good incubation programmes:

It's worth noting that while social enterprises share many characteristics with other small and growing businesses, they also have distinct challenges. In India, working with low-income communities in unconventional markets can make access to finance more problematic, increase operating costs and make it difficult to attract and retain staff. All social enterprises face the challenge of balancing profit and impact. So social incubators need the skill and insight, for example, to:

• Select ventures that can deliver a clear social impact while being commercially viable.
• Support social enterprises to connect with customers in isolated, rural areas and to understand, measure and improve their social impact.
• Find relevant mentors, investors and experts who understand social enterprise.

But successful social incubation does not just rely on good programme design. The role of the incubator manager is pivotal, and it is important that within the incubation team, there are people with an entrepreneurial background. Incubators' governance models need to enable risk taking, and ideally their incentives should align with those of their incubatees - so that when incubatees do well, the incubator thrives. Incubators often achieve this by investing in their incubatees.

We illustrate these lessons with five case studies of Indian incubators. Between them, these organisations represent a range of organisational models, missions, locations and approaches. Some are social enterprise specialists, while others work with impact enterprises as part of a wider portfolio. They were chosen for their potential to provide useful lessons for other incubators working with social enterprises:

• UnLtd India, based in Mumbai, Maharashtra.
• Centre for Innovation Incubation and Entrepreneurship (CIIE) at the Indian Institute of Management in Ahmedabad (IIM-A), Gujarat.
• Villgro, based in Chennai, Tamil Nadu.
• Startup Village, in Kochi, Kerala.
• SIDBI Innovation Incubation Centre (SIIC) at the Indian Institute of Technology in Kanpur (IIT-K), in Uttar Pradesh.

How can incubators work effectively in areas where enterprise support is less well-developed?

Worldwide, many of the best-known incubators are in areas where there is a strong enterprise ecosystem - a thriving startup scene, an entrepreneurial culture and easy access to talent, mentors and investors. India's main metropolitan cities share these characteristics, but smaller cities and rural areas do not have all of these advantages. This means that incubating social enterprises outside of the main cities is likely to be more challenging.

To complement the five case studies mentioned above, we researched a further seven models of incubation and support for social enterprises operating outside of the biggest cities, including some based in low-income states. These were selected for their distinctive approaches to finding and supporting entrepreneurs in areas where the wider enterprise ecosystem is less well developed. Again, some of these organisations work exclusively with social enterprises, while others have a broader focus. They include:

• Coimbatore Innovation and Business Incubator, Tamil Nadu.
• Jagriti Yatra, a train journey for young entrepreneurs recruited from smaller towns and cities across India, also setting up an incubator in Deoria, Uttar Pradesh.
• Nativelead Foundation, Madurai, Tamil Nadu.
• Startup Oasis, Jaipur, Rajasthan.
• UnLtd Tamil Nadu, Auroville, Tamil Nadu.
• Venture Lab Thapar, Dera Bassi, Punjab.
• Villgro Unconvention|Local, a series of events and competitions that ran in 15 cities in 2014-15 (nine of which were in low-income states).

We found that Indian incubators operating beyond the main metropolitan cities are using creative strategies to compensate for gaps in their enterprise ecosystems. For example:

• Since there is not a ready supply of enterprises to incubate in Jaipur, Startup Oasis is working with local colleges to deliver enterprise bootcamps, aiming to build an entrepreneurial culture among students and bring forward more ideas to incubate.
• In order to help entrepreneurs access finance in an area where there are few investors, Nativelead Foundation in Madurai has built its own angel investor network appealing to local business leaders' sense of pride in their area to encourage them to invest in local entrepreneurs.
• Because it has difficulties attracting permanent staff to its rural location, UnLtd Tamil Nadu in Auroville has developed a resourcing strategy that differs from its 'parent' incubator in Mumbai. It supplements its small staff team with volunteers, who commit to spending at least half a day per week for six months providing hands-on support for entrepreneurs.

In fact, incubators in India's smaller cities often see themselves as 'ecosystem builders' and spend a significant proportion of their time on activities designed to create better conditions for enterprise in their areas. Based on their experiences, we have identified five competencies that incubators in these areas need:

• Networking and stakeholder management.
• Facilitating, collaborating and connecting.
• Problem solving and creativity.
• Influencing policy.
• Regional languages and cultural sensitivity.

Incubation and beyond: what can be done to improve conditions for social enterprise in India's low-income states?

If incubation is generally more difficult outside big metro cities, incubating social enterprises, with their additional challenges, in India's low-income states, is likely to be harder still.

While incubation is often promoted as a strategy to get ventures ready for investment, generating a large number of investible social enterprises in areas where there is not already a strong social enterprise ecosystem will be difficult. As such, we suggest that DfID, and other organisations looking to achieve similar things, could consider:

• Promoting further peer learning between incubators to help them develop better support offers and to encourage collaboration so that entrepreneurs are better served.
• Working with incubators to establish a more sophisticated set of success measures for incubation in low-income states, going beyond standard metrics like venture survival and revenue growth; commissioning evaluation to explore more complex or less tangible issues (like impact of incubation on entrepreneurs' self-efficacy); and commissioning support to help social enterprises track their own impact and improve their evidence, which might include hands-on help as well as standards or tools that enterprises could take and apply in their own organisations.
• Looking beyond incubation to strengthen other parts of the ecosystem, for example by exploring ways to bridge the gap between incubation and impact investment, and by working with government to create a more supportive environment for social enterprise.

We hope that this report will help illuminate strategies for good incubation in challenging environments, offering practical advice to policymakers, funders and ultimately, the incubator managers at the coalface of social enterprise.

PART ONE SETTING THE SCENE

1. Introduction

India has produced many of the world's most celebrated examples of for-profit businesses that are solving social problems at scale, from Husk Power, which provides power to thousands of rural Indians using agricultural waste, to Narayana Health, which uses innovative techniques from different industries to provide cardiac healthcare at a fraction of the cost.

Whether known as social enterprises, impact enterprises, inclusive businesses or social ventures, the potential of these models has led to the rapid, worldwide growth of funds targeting investments with both financial and social returns.

Globally the impact investing sector is attracting around £6.8 billion per annum.¹ In India it's estimated that over 500 deals, worth £962 million, were made between 2000 and early 2014.² Yet impact investors share a common challenge all over the world - accessing a pipeline of investable enterprises. Stimulated by this mismatch between available capital and investment prospects, and by the desire to stimulate the creation of more impact-focused businesses, a new breed of 'social incubators' providing business support for early-stage social entrepreneurs has emerged.

In 2014, Nesta's report Good Incubation mapped 235 social incubators around the world, and this community continues to grow. Mirroring its increasingly vibrant social enterprise sector, India has a growing number of initiatives designed to support impact businesses, from funds like Aavishkaar and conferences like the Sankalp Summit to social incubators like UnLtd India and Villgro.

Yet it's easy to spot, in India and elsewhere, that social enterprise activity tends to be concentrated in entrepreneurial hubs - big cities where there are dense ecosystems of support, advice, finance, customers and services. Any incubator is likely to achieve more successful outcomes given a large pool of high quality companies to draw from and a rich entrepreneurial ecosystem. A major challenge for funders who want to direct business support to the poorest, neediest regions is to work out how to design interventions that succeed in these more challenging contexts, and indeed what success in these areas should look like.

The UK Government's Department for International Development (DfID) has established a new programme, Innovative Ventures and Technologies for Development (INVENT) to support technological and business innovations for the benefit of the poor in India's low-income states and other developing countries. As part of this programme, DfID intends to strengthen support for social enterprise by building the capacity of existing incubators in poorer states, as well as by investing (alongside GIZ, the German agency for international cooperation) in an online incubation platform, StartupWave. Over six years, the programme aims to create a pipeline of viable, for-profit social enterprises ready for impact investment in low-income states.

About this report

The aim of this report is twofold. First, it seeks to support the successful implementation of the INVENT programme and DfID India's future interventions to support social entrepreneurship. Second, given the immediate challenges of designing and operating social incubators, it aims to provide relevant and practical insights for incubator managers who wish to operate in low-income states and other areas where enterprise ecosystems are weaker.

The report is divided into three parts. The rest of Part One sets the scene by profiling the social enterprise and incubation landscape in India.

Part Two draws together insights from global peers, from empirical evidence and also, importantly, from within the diverse community of incubators working with social enterprises in India:

• Section 3 summarises lessons from the wider evidence on incubation, and shows how social incubation has developed in the UK.
• Section 4 explores what makes social incubation distinctive and suggests a framework for effective social incubation in India.
• Section 5 explores how incubation methods can be adapted in low-income states and others areas where the landscape for social enterprise is less well developed.
• Section 6 sets out conclusions and recommendations for DfID and organisations with similar aims.

Part Three presents resources for incubator managers and their teams:

• Section 7 includes 12 case studies of incubation approaches in India, divided into two categories: established incubators, profiled so that others can learn from their programmes; and newer, innovative incubators operating outside main metropolitan cities, profiled to show the range of approaches being developed to address the challenges of incubation in less well-developed ecosystems.
• Section 8 is a guide to tools and resources for incubator managers.

While the Indian context is distinctive, we hope that the lessons in the report will be relevant to incubators, funders and policymakers facing similar challenges in other countries and regions.

2. The landscape of social entrepreneurship and incubation in India

It's a well-worn cliché that there are many Indias. The fast-paced, talent-rich tech hub of Bangalore in Karnataka, concentrating 28 per cent of the country's startups, is 1,200 miles, but also a world away from impoverished rural Bihar, where entrepreneurship is more often about livelihood than building the next tech giant.³

The landscape of social enterprise and social incubation also varies widely within and between states. In this section we clarify what it means to be a social enterprise in India and map the landscape of existing support.

Life in the low-income states

In 2007, India became a 'middle-income country', achieving a gross national income per capita over $1,000. Its GDP growth between 2005 and 2014 averaged 7-8 per cent, outstripping that of many other developing economies.

However, regions and populations have benefited unequally from the country's rapid economic growth. Over 630 million people - and more than 65 per cent of India's poor⁴ - live in eight 'low-income' states in the north of the country: Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Odisha, Rajasthan, Uttar Pradesh and West Bengal.⁵

The low-income states span the width of India and take in its enormous cultural and geographic diversity, from desert state Rajasthan in the west to Odisha, with its 450 mile coastline, in the east. Despite being home to over half of India's population, they account for only around 33 per cent of GDP⁶ and have attracted just a tiny proportion of foreign direct investment.⁷ Nearly 39 per cent of people in these predominantly rural states live below the poverty line: a per capita income of less than £972 (a bit less than £10) per month.⁸ It is important to note that these estimates correspond to the latest Government of India's methodology to calculate the poverty line, the Rangarajan methodology, which has set the poverty line higher than others have, such as the Tendulkar methodology.

Yet while the challenges in these states are considerable, they also offer economic opportunities, from rich natural resources - Jharkhand, for example, is the most mineral-rich state in India - to a huge and largely untapped potential customer base. This has led many to believe that business can play a key role in improving lives in the low-income states, if the entrepreneurial energy bubbling up in India's big cities can be directed to serve the needs of people living at the so-called 'base of the pyramid'.

Social enterprise in India

The Indian social enterprise movement has rapidly gathered momentum over the last ten years. A recent report estimated that the country has 7,500 social enterprises,⁹ with most being micro, small and medium-sized enterprises (MSMEs).

So what is social enterprise? There are many definitions in use worldwide, with different features emphasised in different contexts. In this report, we use the term to refer to for-profit, 'inclusive' enterprises that aim to create a positive social impact for poor communities. These businesses are often described as having a 'double bottom line': creating both financial and social value.

Indian social enterprises can be characterised by inclusive business models that give poorer people a chance to participate economically. Many aim to make products and services affordable to base-of-the-pyramid communities, delivering essentials such as affordable healthcare, housing, energy, water and sanitation.¹⁰ Husk Power Systems, for example, has developed technology to generate renewable energy from rice husks, one of India's most common agricultural waste products. It has so far set up 84 mini-power plants to provide remote villages in Bihar with electricity. Husk has created some 300 jobs directly, while access to electricity promotes livelihoods, helps to improve villagers' health and makes it possible for businesses to stay open after dark and children to study at night.¹¹

Business models can also be inclusive in the sense that they offer the opportunity of a livelihood to poorer people (as employees or micro-entrepreneurs), involve them as part of the supply chain, or give them a chance to become business owners.¹² Under the Mango Tree (UTMT) gives small Indian honey producers a route to market, buying organic, single-origin honey at fair trade prices, and packaging and marketing it for consumers. The organisation, which has been incubated by both UnLtd India and Villgro, uses a hybrid model: buying and selling honey through its for-profit business, while training farmers and carrying out research and advocacy through the non-profit UTMT Society.

As in the West, there is a spectrum of social enterprises in India, ranging from organisations that generate income primarily to support their social aims, to those that are more commercial in their ethos and create social impact as a spin-off.¹³ As a result, the boundaries between social enterprise and traditional business are blurred, and not all businesses that could be described as social enterprises identify with the term. Milk Mantra, based in Odisha, sees itself as a fully commercial enterprise that has impact inherent in its business model. It produces a range of dairy products under its 'Milky Moo' brand, while generating impact through its Ethical Milk Sourcing programme. Milk Mantra provides an opportunity for small-scale farmers to sell their milk for a fair and transparent price, while supporting farmers to improve quality and productivity, through training in best practices, access to capital, investment in infrastructure and improved cattle feed.

We don't classify ourselves as as social enterprise... Our philosophy is about 'conscious capitalism'... Impact is built into the way we structured the business."

Srikumar Misra, Founder, CEO and MD, Milk Mantra

Given the aspiration for social enterprise to address the problems of India's poorest people, research with social enterprises in India shows a notable trend. While nearly 60 per cent operate in at least one low-income state, few are based there. A 2012 report revealed that among 95 social enterprises surveyed across India, 75 per cent were based in higher-income states (Maharashtra, Karnataka, Andhra Pradesh, Tamil Nadu and the National Capital Region).¹⁴ Of these, 70 per cent had headquarters in major metropolitan areas such as Mumbai, Bangalore, Hyderabad, Chennai and New Delhi. This pattern reflects the distribution of startups more generally, so while not necessarily surprising, it suggests that there is a far greater potential to tap into the talents of entrepreneurs from low-income states, and for social enterprises to get closer to the communities they support.

India's incubation landscape

What can be done to spread social enterprise activity beyond the main metropolises and richer states? A potential solution is to invest in incubators: organisations that support early-stage enterprises to improve their chances of survival and growth, and to de-risk them for later-stage investors.

Since their emergence in the 1950s, business incubators have proliferated around the world, often supported by governments as a means of spurring economic development. In India, the Government's Department for Science and Technology (DST) first invested in Science and Technology Entrepreneurs Parks (STEPs) in the 1980s, and then from the early 2000s, in Technology Business Incubators (TBIs).¹⁵ DST has so far funded over 60 TBIs.¹⁶ Most are based within academic institutions, but some are public-private partnerships with other types of 'host' organisations, such as the Indian Angel Network. India also has a growing number of private incubators, set up by entrepreneurs, investor networks and corporations.

More recently, a subset of incubators focusing on social enterprise has started to develop; examples include Villgro and UnLtd India. But there are many Indian incubators that have a broader remit while also supporting impact enterprises. In practice, the distinction between social incubators in India and others is blurred - partly because social enterprise is also a vague concept.¹⁷ For example, in 2013, just seven per cent of DST-funded STEPs and TBIs focused specifically on supporting social enterprises: Rural Technology and Business Incubator (RTBI) is a key example. Nevertheless, several had related interests - for example, a further six per cent focused on agribusiness, 13 per cent on cleantech and energy and 11 per cent on health.¹⁸ CIIE, based at IIM-Ahmedabad, falls into this category.

As in other parts of the world, social incubation in India takes a variety of forms. The table below lists some of the main models. These aren't mutually exclusive - in fact, they are sometimes used in combination by the same organisations.

Adapted from Miller and Stacey (2014)

There is, then, considerable diversity in the types of incubators working with social enterprises in India - from Government-funded Technology Business Incubators to privately funded social innovation specialists - and in the models they use to support entrepreneurs. Like social enterprises, however, Indian incubators are clustered around hotspots in higher income states.

Figure 2: Indian government-funded incubation landscape

*National Science and Technology Entrepreneurship Development Board (2014) 'Fuelling Entrepreneurship: The story of technology business incubation in India'. New Delhi: NSTEDB.

Taking incubation beyond the main metros

DfID's INVENT programme aims specifically to spread social incubation into low-income states and to make it possible for Indian social entrepreneurs to get incubation support, wherever they are located. DfID is providing funding and direct support to existing physical incubators in low-income states, and co-funding 'virtual incubation' through the StartupWave platform.

INVENT forms part of a growing range of activities that aim to build a supportive environment for social entrepreneurship in India - a process often referred to as 'strengthening the ecosystem'. Some of these echo DfID's focus on incubation. GIZ and CIIE, for example, have set up a capacity building programme for incubators operating in smaller cities across India. Unitus Seed Fund, a US-based impact investor, has developed 'Speed2Seed', a training programme for incubators working with impact enterprises. Both programmes aim to share good practice and transfer knowledge between Indian incubators.

India has also seen several initiatives aimed at creating better connections between people and organisations within the social enterprise ecosystem. Intellecap, a company working to build and scale impact enterprises, has created the Intellecap Impact Investor Network (I3N), a global network of angel investors worldwide that invest in impact enterprises in India and East Africa. Intellecap is also behind the Sankalp Forum, a series of events bringing together people working in and around social enterprise. Its flagship event, the Global Sankalp Summit, takes place in India each year, drawing delegates from across the world for talks, workshops and networking, and recognising achievements of Indian social enterprises through the Sankalp Awards.

Other examples include the National Association for Social Enterprises (NASE), founded in 2012 as an industry body for social enterprises in India, and Villgro's Unconvention|Local events (profiled in the case studies section of this report). Some of these initiatives have an international flavour. The global Aspen Network for Development Entrepreneurs (ANDE) has some 70 member organisations working in India (several of which are also headquartered in the country) and actively works to create a more supportive environment for small and growing businesses, with a focus on 'impact' sectors such as health and education.

These initiatives reflect a growing belief among donor agencies, philanthropic funders and others that in order to grow and scale social enterprises, it is necessary to invest at a system level, not just in individual ventures. The challenge of spreading social enterprise beyond India's main metropolises can be cast in these terms: the need to strengthen 'ecosystems' in places where there is currently less social enterprise activity.

3. What we know about how incubation works

Six things we've learned about successful incubation

What does it mean to incubate a new company or organisation?

Incubators are entities that aim to help new companies start up, survive and grow. They tend to provide at least four of the following five things: office space, business services (e.g. legal/accountancy), coaching and mentoring, funding, and access to networks.

Given business incubators have been around for over 60 years now, it's not surprising that designs and methods have proliferated. Traditionally, business incubation was real-estate based: shared office space alongside advice and assistance. Now, however, the term is used much more broadly, to cover models ranging from short-term, highly-structured, intensive 'accelerator' programmes, to longer-term, flexible support, as well as competitions, courses and co-working spaces. Recent approaches emphasise not only helping a firm to 'survive its formative years', but also ensuring it has a 'positive impact on the economy and society'.

How many different models of incubation are there?

Incubation can be differentiated in a number of ways, for example:

• Business model (e.g. commercial/not-for-profit).
• Host institution (e.g. university/municipal/corporate/investor).
• Target enterprises (e.g. highly selective/open to all/sector specific/pre-company formation).
• Methods used (e.g. shared office space/online platform/structured, time-limited accelerator programme/employed staff or volunteer mentors).

One of the most useful differentiators is what the incubator is aiming to achieve. Goals can include local economic development and job creation, high growth venture acceleration, entrepreneurial education, commercialisation of science, accessing or nurturing new markets, building investment pipelines, improving the lives of the poor and creating micro-businesses and rural livelihoods.

Is there any hard evidence that incubation is beneficial to enterprises?

Given that the term covers such a diverse range of activities, it is difficult to prove the effectiveness of incubation overall, although many academic studies have attempted this analysis. Empirical (field) studies often show increased firm survival rates, faster entrepreneurial learning and increased job creation. For example, in 2015 a large longitudinal study found that social entrepreneurs in developing countries who took part in incubation programmes, grew revenues and employees at three times the rate of ventures that had applied unsuccessfully to the same programmes.

However, studies also show neutral or even negative impacts, and rarely consider cost-effectiveness. Academic findings are often based on small studies with narrow definitions of success, so should always be interpreted cautiously. There is no doubt there are wide economic and social benefits of supporting fledgling companies. Yet there is little hard data on the most effective approaches in different contexts, particularly given that highly selective incubators, located in entrepreneurial hubs tend to produce the best results.

What do we know about the wider impacts of incubation efforts?

The impacts of many incubators may go far beyond the target firms, although these impacts are often poorly measured. For example, the focus on measuring the impact on the firm often overlooks the importance of incubators in developing the skills and experience of individual entrepreneurs. Even failed attempts to launch a firm can provide valuable experience for subsequent entrepreneurial activities.

Meanwhile, there has been rapid growth in seed accelerator programmes. These are differentiated from traditional incubation models by their support for time-limited cohorts of companies rather than individual firms, among other features, and has led to a lot more research on the ecosystem and network building effects of incubators and accelerators. For example, one study found that accelerators positively affected the availability of seed and early-stage venture capital funding for startups in their areas, not just for incubatees. Another found that 40 per cent of early-stage investors had sourced a deal through introductions made by incubator programmes.

Do we know how to select the right approach for a particular context?

There is no single recipe for successful incubation: incubators with the same objectives can achieve them using different combinations of services. Both evidence and experience show that there are common success factors (e.g. the expertise and entrepreneurial experience of the manager, the importance of peers, access to expert networks). However, there is strong and growing evidence, as incubation models proliferate, that rather than starting with a predetermined model or offer, successful incubators start by identifying the needs of individual firms (or a select target group), and matching services and adapting them as those needs change. A model that works for a capital intensive green-tech company will be inappropriate for a digital healthcare app developer.

How should we measure the success of incubators?

Success metrics for incubators most often relate to the survival and growth of incubated ventures, such as new venture survival rates, job creation rates and ventures' successes in securing follow-on investment. Nevertheless, these measures can be problematic - the focus on job creation, for example, may not be helpful for young enterprises that need to keep their fixed costs low in order to attract investment. An increasingly common indicator of success is the incubator's financial sustainability. However, this often overlooks the fact that, despite the growing number of corporate and investor accelerators, anywhere between 75 per cent and 95 per cent of incubators are dependent on public support for survival. The need for public support is likely to be far higher in less well-developed ecosystems.

As such, there is wide agreement that the indicators currently used to measure success are partial at best, and unhelpful or even damaging at worst. We have learned that:

• Indicators of 'success' should be strongly linked to the goal of the incubator. For example, incubators shouldn't focus on measuring investment raised by companies if they really care about entrepreneurial learning in a weak ecosystem; or focus only on measuring firm survival and growth if they care more about effects on the wider ecosystem.
• Indicators and benchmarks need to be appropriate to context. A rural incubator in an impoverished area should have different expectations of 'success' than one in a high-tech hub.
• Funders should be cautious not to create overly burdensome post hoc evaluation processes. Support to monitor progress and adapt offer, as well as judging long-term effects on individual entrepreneurs, is likely to have greater impact.

Your time is limited, so don't waste it living someone else's life. Don't be trapped by dogma–which is living with the results of other people's thinking. Don't let the noise of others' opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If you haven't found it yet, keep looking. Don't settle! Steve Jobs.

Startup Village

Social Incubation in the UK: a timeline

The context for social incubation in the UK has developed rapidly over the last decade, with key milestones in legislation, investment and new institutions. It is still an emerging ecosystem today, with lessons to share, but lots to learn from other diverse ecosystems such as India.

Rise of Social Investment

Government has played an important role in developing the ecosystem for social enterprise in the UK, providing funding, creating tax incentives and supporting innovations like Social Impact Bonds. Alongside these more 'top-down' initiatives, there have been sector-led activities, like the establishment of Social Enterprise UK to bring together networks of social enterprises across the country. The ecosystem has taken time to develop, but there is now a wide array of intermediaries working in the sector. While social enterprises can be found across the country, the UK has experienced a concentration of support and investment in London - a situation that is now slowly changing.

4. How to design good social incubators

Globally, we are still a long way from a 'state of the art' for social incubation. As we have shown in Section 3, even in the mainstream business incubation field, which has a much longer history, there remains limited evidence about what works.

But although there is no definitive recipe for successful social incubation, we can suggest ways to approach it based on insights from those working in the field, the small but growing literature on social incubation, and the transferable knowledge accumulated in the mainstream business incubation sector. In this section, we first look at what distinguishes social from mainstream incubation. We then propose a simple framework for social incubation, and examine the organisational factors that seem to contribute to success.

Five well-established Indian incubators

This section draws on the experiences of five Indian incubators that have been established long enough to show impact. These incubators represent a range of different 'host' organisations, locations and organisational missions, and their approaches to incubation vary. Villgro and UnLtd India are social enterprise specialists, while CIIE has a strong focus on high-impact sectors such as cleantech. Startup Village and SIIC support some social enterprises as part of a larger portfolio. Interviews taught us a lot about their models. By sharing learning, we hope to show the range of approaches that other social incubators, depending on their own aims and circumstances, could consider adapting or adopting. All our case studies are mapped and profiled in more depth in the 'case studies' section at the end of this report.

Villgro

Figure 3: Characteristics of our case studies

What's different about 'social' incubation?

Before launching into a framework for social incubation it's worth considering the extent to which it differs, if at all, from 'regular' incubation. Social enterprises certainly share many characteristics with other small and growing businesses. Nevertheless, there are some challenges specific to, or more common amongst, social enterprises. In India, these include:

• Access to finance: social enterprises often target unconventional markets (e.g. low-income consumers). Because of this, they often have trouble securing finance from mainstream banks and investors, who perceive their business models to be too risky, or unlikely to offer 'market level' returns.
• High operating costs: especially when serving low-income consumers or working in low-income states where there is often a lack of basic infrastructure, a need for consumer education and trust building with communities, harsher climatic conditions, and less hospitable terrain (desert, mountains, etc.).
• Working across legal forms: not-for-profit structures in India operate in a less regulated space than for-profit ones. For-profit social enterprises in particular face many regulatory issues. For example, all formal education institutions in India have to operate as non-profit institutions, restricting equity investment and entry for private investors. This sector has, however, recently started opening up to more private sector participation, and social enterprises willing to work in the education sector can adopt hybrid models, combining for-profit and not-for-profit structures.
• Attracting and retaining talent: particularly at mid-management level, because of lack of brand recognition, inability to pay competitive salaries and difficulty of attracting people to work in rural areas. Access to local skilled labour is often difficult for social enterprises in rural areas, where the quality of education is poorer and where the level of formal skills is lower than in urban areas.
• Language barriers: many Indians, particularly in rural areas, do not speak English or even Hindi, instead speaking one of India's 22 State languages. Language barriers can make it difficult for social enterprises to reach and interact with customers and for entrepreneurs who speak regional languages to access finance and support.
• Trying to promote changes in entrenched behaviours, practices and service models: Husk Power Systems, for example, had to build a whole service ecosystem around its small-scale electricity generation plants in Bihar in order to make them viable - from rigging up wiring to connect villagers' households to the grid, to coming up with new payment mechanisms for low-income consumers with no credit history.
• Balancing profit and impact: the majority of social enterprises attempt to achieve a balance between their two bottom lines, but the challenges of working with low-income consumers can mean that they are at risk of 'mission drift' - moving into more conventional, lower impact markets.

There may be also a difference in the entrepreneurs themselves. Some social entrepreneurs are like any other opportunity entrepreneurs - they have spotted a problem they wish to solve, which simply happens to have a social impact dimension. But others are more driven by their social mission and may have less entrepreneurial skill and experience. And their backgrounds may vary widely: from experienced business people who have lived abroad and now want to come home and make a difference, to grassroots entrepreneurs who speak regional languages.

How to design a social incubator

So while many of the models, tools and techniques of incubation are the same for social and mainstream enterprises, social incubators need, in addition, the skill and insight to:

• Select ventures to incubate based on their potential to deliver a clear social impact, and/ or the commitment of the entrepreneurial team to solve a social challenge.
• Support social enterprises to develop a clear proposition that generates both social and economic value, and to manage risks around mission drift.
• Support social enterprises with customer validation in isolated, rural areas.
• Support social enterprises to understand, measure and improve their social impact.
• Connect social enterprises to relevant investors, funders, mentors, experts and peers, who understand the challenges they face and that support the venture's aims.
• Translate tools and templates for entrepreneurs who may have little experience of business terminology and concepts.

And of course, incubation needs vary by sector. Supporting digital technology startups, which can bring their innovations to market quickly and on limited resources, is a different prospect from supporting capital intensive businesses in sectors like agriculture and healthcare that may need access to labs, prototyping facilities, and a longer lead-in time. Our interviewees pointed out that incubators in India need to cater for social enterprises with a range of needs.

Unless incubators can help entrepreneurs cut down on time and make it easier to bring solutions to market, there will be more people doing food delivery apps, not solving food production problems.”

Kunal Upadhyay, Chief Executive, CIIE

Startup Village

Figure 4: Process for designing a social incubation programme

1. Define an incubation community

The first step in our framework is to define an incubation community - the target group of social entrepreneurs that the programme will support, and the other stakeholders who will be involved in providing support.

In practice, the incubators we interviewed selected target groups of entrepreneurs based on a mix of internal drivers - such as the incubator's mission and values, competencies and networks - and external drivers, such as perceived need and opportunity. Target groups are commonly defined by one or several of the following factors:

• Entrepreneurial stage of development: From pre-startup (aspiration, intention, ideation and business model-discovery) to startup (prototyping and initial customer validation, company setup), early-stage venture development (acquiring customers) and growth (once an organisation has traction in the market). UnLtd India's 'Level 1' offer, for example, focuses on the startup phase, helping social entrepreneurs pilot a new initiative.
• Sector: This allows incubators to build more relevant, targeted networks and to develop domain expertise. CIIE has set up several separately-branded incubation initiatives, each focusing on a sector where CIIE perceives a gap in support and an opportunity to make a difference. It is currently running accelerators focusing on energy, water and agri-business, each based in different Indian cities.
• Growth potential: Villgro, for example, focuses on supporting ventures that are potentially scalable. Meanwhile, Startup Village, whose mission is more about changing entrepreneurial culture, does not discriminate by growth potential, as it believes it's impossible to tell what the next 'big' idea will be.

Community goes beyond the target group of entrepreneurs, though. As a recent report put it, 'incubation is a group sport', involving a range of players from investors and mentors to entrepreneurs' families and the wider community. So when establishing a new incubation programme, it's important to understand who the other organisations, networks and individuals are that can contribute to supporting social entrepreneurs, what they can offer, and how the incubation programme will add value to what already exists. CIIE recommends doing an 'ecosystem report', both as a mapping exercise, and as a tool for starting conversations with potential partners and collaborators.

2. Gather insights

Gathering insights from the target group of entrepreneurs before launching a formal programme can help in understanding scale of demand - which influences how selective the eventual programme can be - and what they need, which will inform the support offer.

Gathering insights - UnLtd India

Before launching a formal support offer, UnLtd India found three potential investees (incubatees) and asked to shadow them for three months. In return, UnLtd India offered coaching and a promise of funding, if and when the formal programme launched. This gave UnLtd India several insights that fed into future programme development. It was clear that the three entrepreneurs - all female, and none with a background in the sectors they were working in - faced difficulties in accessing others like them, building credibility and working out how to achieve their visions, so they needed experienced people who could act as sounding board and offer advice as well as encouragement and emotional support. The process also showed the personal pressure each of the entrepreneurs was under - all were using their own savings to fund their work. They also faced some practical difficulties, such as access to lawyers, and working out how to register a business.

3. Design and test an offer

The next step is to design an incubation offer, thinking about how the programme will be structured and the combination of services that will be provided. Key decisions include:

• Outreach: How will the programme find entrepreneurs to take part?
• Selection: How selective can/should the programme be? How will participants be selected? Will there be a single application deadline or will selection take place on a rolling basis?
• Non-financial support: What types of support will be offered? How much, and who from? Will entrepreneurs be supported as a cohort/group, individually, or a mix of both?
• Finance: Will finance be offered to all or some participants? If so, what type and how much?
• Workspace: Will workspace be offered? If so, what type and on what terms? Will entrepreneurs need to relocate to the incubator?
• Duration: Will the programme have a specific end point? If so, will support end after a certain time (e.g. a three-month accelerator), or when a certain milestone or outcome is reached (e.g. investment received)? Will there be any sort of culmination events, such as a demo day or graduation?

The research literature and interviews for this report both strongly suggest that there is no single 'ideal' mix of services. Programmes with the same objectives can successfully use different combinations of support to achieve them, but each approach entails its own set of considerations - for example, if programmes aren't residential, how can interaction be encouraged between incubatees? The key is therefore to prototype a programme based on the needs identified (taking into account the resources available), and then to iterate and develop it in response to feedback.

Figure 5: Methods of incubation support

4. Learn and improve

An incubation programme will never be perfect straight away. By testing the offer, incubators can learn and improve. This includes both being responsive to needs during the programme - research shows that entrepreneurs value programmes more if they feel they're flexible to changing needs - and iterating them over time to make them more effective. Methods for finding out how well an incubation programme is working include:

• Capturing data to see how processes work and their effectiveness: for example, recording numbers of applications and where/who these come from.
• Tracking milestones in incubatees' development: Startup Village, for example, is developing an online 'timeline' on which incubatees can record their key milestones, based on a predetermined set of key events in the life of a startup. Villgro agrees an incubation plan with each incubatee and tracks progress against this regularly, with formal monthly reviews.
• Measuring outcomes for incubatees that reflect the incubator's aims: entrepreneurial learning and business survival and growth, for example. A recent report recommended that incubators should continue to measure some key metrics for three to five years after ventures have graduated, to capture longer-term outcomes.
• Collecting feedback from incubatees and partners: informally or through more formal processes like online surveys or phone interviews.

A related issue, of specific importance for social incubators, is impact measurement. Measuring social impact has climbed the agenda in recent years, driven largely by funders and impact investors, so incubatees seeking impact investment will often need to be able to convincingly demonstrate their social impact. From an incubator's perspective, there are several dimensions worth considering:

• Supporting social enterprises with evaluation: particularly to find out if, how and for whom their services or products create impact, and to measure how much impact is created. This can help in demonstrating value (e.g. to potential investors), accountability (e.g. to communities), and to drive learning and improvement. There is a growing amount of literature on approaches to impact measurement, some of which is referenced in the 'tools' section of this report.
• Measuring social impact of incubatees at a portfolio level: some incubators (like some investors and funders) attempt to collect standard data from their incubatees to give a picture of the overall impact of the portfolio. Finding common impact measures that are relevant to the range of social enterprises incubated tends to be difficult, so most often, measures of activity (such as 'people reached') are used. Incubators with a stronger sector focus can sometimes identify a wider range of common measures.
• Building impact measurement into the way the incubator takes decisions: it is common for social incubators to consider potential social impact when deciding which ventures to incubate. Incubators can consider impact when deciding whether and how to continue supporting ventures over time. Villgro, for example, is aware of the possibility that incubatees might drift from their missions to work with base-of-the-pyramid communities and start serving less challenging markets, so takes this into account when deciding whether to continue incubation relationships. Related research in the impact-investing world has shown a need for investors to get better at using impact measures to inform the way they structure investments and work with investees over time, for example offering different rates based on the potential scale of impact, or using impact milestones (not just financial ones) as a basis for releasing further funds.

Above all, good incubation programmes take time to develop. Research shows that the most successful incubators tend to be those that are longer established - those that have had time to build their communities, test programmes, and iterate and improve them.

Organisational success factors

While good programme design is important, it's not the only factor in success. Our research also highlighted four key organisational factors:

• Incubator manager and team: research consistently points to the importance of having an experienced incubator manager, who is able, for example, to make good judgements about who will benefit from support. [^48] Those we interviewed for this report consistently emphasised that incubator managers, or at least people in their teams, should have an entrepreneurial background. This was argued to be important both to be credible with incubatees, and to be able to offer good advice.
• Governance and decision making: incubators need to be able to take risks, make timely decisions and tolerate failure. This is particularly important when host institutions have different or broader aims. The culture and decision-making processes of academic institutions, for example, tend to be quite different from those in the startup world, so university-based incubators need to find the right balance of accountability and independence. CIIE feels that its relationship with IIM-A works well: faculty members sit on CIIE's board, and CIIE involves students in activities from startup selection to mentoring. At the same time, CIIE is independent and has the flexibility to make investments, form partnerships, and start or stop programmes.
• Incentives: several incubators try to align their own incentives with incubatees' success. A common way to do this is through equity investment, but there are other approaches, such as revenue sharing. Startup Village, for example, is developing an approach in which incubatees will be asked to pay if they benefit from the incubator's services - for example, if they generate revenue as a result of introductions that Startup Village has made, they would pay a small proportion to Startup Village.[^49]
• Funding models: few incubators are completely financially sustainable without grant or philanthropic income, but many have developed income generation strategies that allow them greater independence from funders and more financial security. As well as generating income through investment or revenue share agreements, strategies include charging for office/desk space and charging membership fees from incubatees or other 'community' members, such as angel investors. Corporate Social Responsibility (CSR) provides another opportunity; the Government of India recently legislated to require that companies over a certain size spend 2 per cent of their net profits on CSR.

5. Making incubation work in challenging environments

In 2012, UnLtd India set up its first 'affiliate', a spin-off in Auroville, Tamil Nadu. Armed with the incubation methodology UnLtd India had honed in Mumbai. The new incubator had a head start in developing its programme, but it couldn't simply replicate its parent's operating model. “We run almost entirely with volunteers,” explains manager Gijs Spoor, “and we don't have the corporate relationships they have in Bombay - these people wouldn't come to Auroville”. UnLtd Tamil Nadu has needed to adapt to its environment - from coming up with a new staffing strategy to translating its materials for Tamil-speaking incubatees.

As well as good programmes and good teams, incubators' success is often strongly influenced by their location. Y Combinator and St John's Innovation Centre, often held as shining examples globally, are based in Silicon Valley and Cambridge respectively - places that have such well-developed startup ecosystems they have been described as 'regional incubators'. [^50] In Mumbai, Chennai and New Delhi, incubators benefit from a thriving startup scene, a ready supply of entrepreneurial talent, easy access to mentors and investors and a cosmopolitan culture. Incubation outside the main metropolises - particularly in the low-income states, where DfID's work focuses - is likely to be more challenging.

So how can incubators operating in less well-developed ecosystems adapt and thrive? This section draws on interviews with incubators in smaller cities and rural areas, looking at the incubation challenges they face and the strategies they use to address them.

UnLtd Tamil Nadu

We found that these incubators believed they were not only responding to their context, but also helping to shape it. Many of them saw 'ecosystem building' as a core part of their mission, which they interpreted mainly as building a more entrepreneurial culture and increasing the range and connectedness of support for (social) entrepreneurs. Incubators most often defined their ecosystems in relation to 'city regions' - i.e. a hub city and its surrounding area - rather than whole states.

Before discussing the challenges these incubators faced and the strategies they developed in response, it's worth noting that regional social enterprise ecosystems in India are diverse, even between low-income states. For example, Jaipur (in Rajasthan) has a history of social entrepreneurial activity, while Bhopal (Madhya Pradesh) has very little entrepreneurship at all.[^51] Some cities in low-income states have relatively well-developed enterprise ecosystems, such as Noida and Kanpur (Uttar Pradesh) with their easy access to Delhi. In fact, a World Bank study on the ease of doing business in Indian cities found that Jaipur, Bhubaneswar (Odisha) and Ranchi (Jharkhand) ranked higher than Mumbai and Chennai on a range of indicators.[^52]

To illustrate the variations in the context for social enterprise in different places, we used data from a 2014 report by Okapi and Villgro to roughly sketch four different 'ecosystem profiles': 'nascent', 'emerging', 'vibrant' and 'established'.

Figure 6: Sketches of regional social enterprise ecosystems in India

Our analysis offers a basis for a slightly more nuanced understanding of what incubation outside major metropolises might involve. We can assume that in 'nascent' and 'emerging' ecosystems, incubators are likely to need to intervene earlier in the startup journey and place a greater focus on 'ecosystem building' activities, while in 'vibrant' and 'established' ecosystems, it may be possible to find more advanced early-stage ventures to incubate, and incubators may need to focus more on finding a niche that differentiates them from other support providers.

Incubation beyond the main metros

There are currently few incubators operating in low-income states that focus specifically on supporting social enterprise, so we looked to learn from incubators whose experiences might offer transferable learning. Through stakeholder interviews, we identified five incubators that were seen to be developing interesting methods for delivering support for entrepreneurs in smaller cities and rural areas. We also explored two examples that combine outreach with enterprise support in an unusual way, and were specifically designed to reach smaller towns and rural areas - Villgro's Unconvention|Local competition and Jagriti Yatra's train journey. Each of these organisations is mapped and profiled in more depth in the 'case studies' section at the end of this report.

Figure 7: Case studies of incubation beyond the main metros

Strategies for good incubation in difficult places

The challenges that incubators described were grouped around four key questions. These - and the strategies incubators had developed in response - are set out in the table below.