Organizational sponsorship for the acceleration of social Start-Ups. Exploring the mechanisms

Table of Contents

List of Tables

List of Figures

Abstract

1. Introduction

2. Theoretical Background
2.1 Social Start-Ups
2.2 Incubators and Accelerators
2.3 Organizational Sponsorship
2.4 Compiling an Exemplary Services Portfolio

3. Research Design
3.1 Case Study Method
3.2 Research Setting
3.3 Case Selection
3.4 Data Collection
3.5 Data Analysis

4. Results
4.1 Social Mission and Founding Motivations
4.2 Resource Needs
4.3 Organizational Sponsorship Mechanisms
4.4 Motives for Entrepreneurial Self-Reliance

5. Discussion
5.1 Theoretical Contributions
5.2 Practical Implications
5.3 Limitations and Future Research

6. Conclusion

7. References

Appendix A: Literature Review for the Exemplary Services Portfolio

Appendix B: Interview Guide

List of Tables

1. Table 1: The Extended Organizational Sponsorship Framework

2. Table 2: The Exemplary Services Portfolio

3. Table 3: The Impact Factory - Incubator or Accelerator?

4. Table 4: Benchmarking the Impact Factory

5. Table 5: The Three Programs of the Impact Factory

6. Table 6: Case Descriptions

7. Table 7: Social-Mission Focus

8. Table 8: Founding Motivations

9. Table 9: Resource Needs

10. Table 10: Experience with Additional Support Programs

11. Table 11: Ranking of Sponsorship Services

12. Table 12: Buffering 1 - Education and Training

13. Table 13: Buffering 2 - Internal Mentoring

14. Table 14: Buffering 3 - Coworking Space

15. Table 15: Buffering 4.1 - Experiences with Seed Funding

16. Table 16: Buffering 4.2 - Perspectives on Seed Funding

17. Table 17: Bridging 1 - Access to External Networks

18. Table 18: Bridging 2 - Validation and Visibility

19. Table 19: Bridging 3.1 - Experiences with External Funding

20. Table 20: Bridging 3.2 - Perspectives on External Funding

21. Table 21: Boosting 1 - Milestones and Progress Tracking

22. Table 22: Boosting 2 - Peer Networking

23. Table 23: Comparing the Support Needs of Social and Conventional Start-Ups

24. Table 24: Impact Acceleration 1 - Demonstrating Social Impact

25. Table 25: Impact Acceleration 2 - Delivering the Social Mission

26. Table 26: Motives for Entrepreneurial Self-Reliance

List of Figures

1. Figure 1: Analytical Model for the Acceleration of Social Start-Ups

Abstract

A significant number of incubators and accelerators have emerged to support start-ups aiming to solve societal or environmental problems. However, there is still limited understanding of how these ventures perceive the value proposition of incubators and accelerators - and whether their support needs differ from those of conventional start-ups. This study utilizes the framework of organizational sponsorship to explore the acceleration of social start-ups. It is based on in-depth interviews with the founders of 10 start-ups from an impact-oriented incubator in Duisburg, Germany. Through an inductive study of multiple cases, this research generates three main insights. First, the social-mission focus of these ventures leads to significant differences as compared to commercial ventures in how they perceive incubator benefits. Second, social start-ups profit more from intangible resources such as social capital and knowledge than from tangible resources such as seed funding. Third, incubators and accelerators need to adapt their service offerings to address the needs of social start-ups. This study contributes to the understanding of entrepreneurial support by presenting a systematic assessment of incubator and accelerator services from the perspective of social start-ups. Its main theoretical contribution is to extend the organizational sponsorship framework by proposing a novel support mechanism: impact acceleration. It provides practical recommendations for not only funders and managers of incubators and accelerators but also social start-ups seeking entrepreneurial support.

The Mission Comes First: Exploring the Mechanisms of Organizational Sponsorship for the Acceleration of Social Start-Ups

The history of social entrepreneurship dates back to the 1980s - as do initiatives to support it. The Ashoka Fellowship, called “the pioneer of the accelerator model” (Pandey, Lall, Pandey, & Ahlawat, 2017, p. 3), started to support social entrepreneurs in India in 1981. The world's first impact accelerator Echoing Green opened in London in 1987 (Casasnovas & Bruno, 2013, p. 185). In recent years, the popularity of social start-ups - early-stage ventures performing a commercial activity in pursuit of social goals (Doherty, Haugh, & Lyon, 2014, p. 420) - has increased significantly. Several new programs, academies, and coworking spaces have been created to support the incubation of early-stage social ventures (Miller & Stacey, 2014).

The shift towards social impact has been particularly noticeable in the German start-up ecosystem. The German Social Entrepreneurship Network spun off from the German Start-up Association in 2017 (www.send-ev.de). Germany's primary start-up conference Bits & Pretzels chose “impact” as its motto in 2019, with social entrepreneurs on stage during its opening ceremony (Bruckschlögl, 2019, September 29). New accelerator programs such as Respond (www.respond- accelerator.com), F-Lane (www.f-lane.com), and the Impact Factory (www.impact-factory.de) have launched to support social start-ups.¹ Even the Catholic Church has opened a “social hub” in Frankfurt (www.villa-gruendergeist.de).

These developments are indicative of a broader trend. In 2019, half the incubators and accelerators in Germany (46%) supported organizations with significant social or environmental impact; across Europe, the share of incubators partially or only supporting social start-ups was 57% (Social Innovation Monitor, 2020). The growing popularity of social venture incubation has had a transformative effect on the entrepreneurial support landscape.

Despite this flurry of activity, there is still comparatively limited research on incubators and accelerators targeting social start-ups (Crisan, Salantä, Beleiu, Bordean, & Bunduchi, 2019; Hausberg & Korreck, 2017). The existing studies on the acceleration of social start-ups primarily offer descriptions and typologies, often by practitioners or consultancies. By contrast, the social incubation process remains unexplored: Aside from a study by Pandey et al. (2017), little is known about how social start-ups assess the value of incubators and accelerators.

This uncertainty has practical implications. Public and private funders are currently investing considerable resources in supporting social start-ups. However, whether these organizations require a different support model than traditional start-ups remains unclear (Hausberg & Korreck, 2017, p. 13). This uncertainty can affect the outcomes of these support programs, as the design of accelerators influences the performance of their ventures (C. S. R. Chan, Patel, & Phan, 2020; Cohen, Bingham, & Hallen, 2019).

Studying this novel phenomenon can also contribute to the theoretical understanding of incubators and accelerators in the following two ways: The first regards the process of acceleration. For decades, researchers have treated incubators as a black box (Hackett & Dilts, 2008). Multiple authors have called for less focus on their form (organizational features) and more focus on their mechanisms and activities (Colombo, Rossi-Lamastra, & Wright, 2018; Crisan et al., 2019; Shankar & Clausen, 2020). The second regards their specialization. As incubators and accelerators are becoming more popular, there is growing interest in the organizational contexts or sectors in which they operate (Hausberg & Korreck, 2020; Lall, Chen, & Roberts, 2020). The context of an impact-oriented accelerator is a rich opportunity to “examine accelerators more in depth across different groups of participants, contexts, and periods of time” (Crisan et al., 2019, p. 23).

The purpose of this thesis is to explore how incubators and accelerators can support the acceleration of start-ups aiming to solve societal or environmental challenges. Therefore, this thesis examines how these nascent ventures perceive the activities and services of incubators and accelerators. To gain a holistic understanding of the acceleration process, this thesis explores how the characteristics of social start-ups affect their support needs - and why they join a support program in the first place.

Two fundamental research decisions helped this study to address these questions. The first was the use of social start-ups as the units of analysis. Following Colombo et al., who call it “one of the most promising research avenues in the field of accelerators” (2018, p. 195), this study adopted the perspective of the beneficiaries of support activities. Thereby, it explored how incubators and accelerators create value for start-ups. The second research decision was to employ the emerging theory of organizational sponsorship. Originally developed by Flynn (1993a, 1993b) and popularized by Amezcua, Grimes, Bradley, and Wiklund (2013), organizational sponsorship describes how sponsors can support the establishment and growth of young organizations. By illustrating the mechanisms incubators and accelerators use to provide resources and mediate between start-ups and their environment, it can serve as a theoretical lens to assess how social start­ups perceive entrepreneurial support activities. Therefore, the framework seems well suited to study the acceleration of social start-ups (for a recent review, see Breivik-Meyer, 2020).

Furthermore, this study employed an inductive case study design based on Eisenhardt (1989). The primary data sources were in-depth interviews with 10 founders of social start-ups from the Impact Factory, an impact-oriented incubator in Duisburg, Germany. The structured interviews included a combination of open-ended questions and a questionnaire about the most relevant incubator and accelerator services. These activities were identified by reviewing 26 studies of incubators and accelerators for conventional and social start-ups. The qualitative interview data were coded on a within-case and cross-case basis to identify novel findings and emerging concepts.

With the aid of this research approach, this study suggests four major findings. First, it systematically describes the services provided to social start-ups by incubators and accelerators. Second, it explores how social start-ups at two stages of development perceive the value of these interventions in addressing their resource needs. It demonstrates that social start-ups highly value intangible resources such as social capital and knowledge, whereas the provision of tangible resources, such as seed capital, has a lower priority than for conventional start-ups. Third, it proposes a novel support mechanism called impact acceleration, which specifically addresses their support needs. Finally, this thesis explores how social start-ups determine the balance between the benefits of sponsorship and entrepreneurial self-reliance.

This study contributes to three streams of literature: 1) Regarding social entrepreneurship, it illustrates how the social-mission focus of these start-ups is manifested through hybridity, prioritization of the purpose, and a focus on measurable impact. 2) Regarding incubators and accelerators, it suggests that the services provided by these institutions are not sufficient for social start-ups. As a result, this study argues that the acceleration of social start-ups requires organizational sponsors to tailor their services to the unique characteristics of these ventures. 3) Regarding organizational sponsorship, it observes how the predominant focus on survival fails to capture the reality of resilient ventures such as social start-ups.

The study is structured in four parts. The following section introduces the theoretical background and its key concepts by drawing on three literature streams. The subsequent section illustrates the research design and the approach for collecting and analyzing data, leading up to the analytical model for the acceleration of social start-ups (Figure 1 in Section 3.5). The results are then presented along four thematic dimensions. The final section discusses how these findings contribute to the existing literature - as well as limitations and opportunities for future research.

Finally, this study covers the period from June 2019 to October 2020. How the social start­ups experienced the Impact Factory was therefore affected by the outbreak of the Covid-19 pandemic in March 2020, although the interviewees mentioned its effects surprisingly rarely. This aspect is further discussed in the limitations section at the end of the study.

2. Theoretical Background

This section draws on three emerging streams of literature to establish the theoretical framework for this study: First, it defines social start-ups in contrast to conventional start-ups. Second, it reviews the existing research on incubators and accelerators - including both conventional ones and those that support social start-ups. Third, it introduces the mechanisms of organizational sponsorship as a theoretical lens to study the acceleration of social start-ups. Finally, it compiles an exemplary services portfolio to help structure the data collection and data analysis.

2.1 Social Start-Ups

Social start-ups are the primary units of analysis of this study. Before exploring the role incubators and accelerators play in accelerating their growth, this section addresses two questions: What distinguishes social start-ups from conventional start-ups, and what obstacles do social start­ups face when scaling their impact and business models?

2.1.1 Defining Social Start-Ups

Social entrepreneurship has become a prominent phenomenon in response to growing societal and environmental challenges. The EU Commission has estimated that Germany is home to between a few hundred and more than 100,000 social enterprises (Wilkinson, 2015, p. 29). Another study has estimated their number in Germany to be between 1,700 and 70,000 (evers & jung, 2016, p. 5). This broad range reflects conceptual ambiguity: Although the recent academic interest in social entrepreneurship has been considerable, its definition remains disputed (Dacin, Dacin, & Matear, 2010; Gupta, Chauhan, Paul, & Jaiswal, 2020; Mair & Marti, 2006; Zahra, Gedajlovic, Neubaum, & Shulman, 2009). Counting no less than 37 definitions, a literature review recommended focusing on mission- or outcome-based definitions - rather than on the individual characteristics of social entrepreneurs or their operating sectors, processes, or resources - to avoid a “debate that has no resolution” (Dacin et al., 2010, p. 42).

Consequently, the boundaries of social start-ups in this study are defined by two constituent elements: a “prime strategic focus on social impact” and an innovative and entrepreneurial approach to achieving their mission (Nicholls, 2006, p. 13). Another useful way to conceptualize the hybrid nature of social enterprises is the double bottom line: Social enterprises aim at mission accomplishment, or “social value creation,” and financial sustainability, or “economic value creation” (Alter, 2003, p. 8). This duality of objectives - and the performing tension (W. K. Smith & Lewis, 2011, p. 388) inherent in pursuing a social mission and exploiting commercial opportunities - is a central theme in analyzing the support needs of social start-ups.

A related - and contested - question is the distinction between social entrepreneurship and conventional, or commercial, entrepreneurship. While there are strong indications for a “continuum ranging from purely social to purely economic” (Austin, Stevenson, & Wei-Skillern, 2012, p. 372), the literature is divided on this issue (see Gupta et al., 2020, for a review). Clearly, there are parallels, such as opportunity recognition, risk tolerance, innovation, network-building capabilities, and continuous learning (Dees, 1998; Perrini & Vurro, 2006). Simultaneously, most researchers regard the social mission as the key difference between conventional entrepreneurs, who seek to generate economic profits and shareholder wealth, and social entrepreneurs, who apply business principles to achieve a social mission (Dacin et al., 2010, p. 44).

It may appear tautological to refer to the social mission of social entrepreneurs to distinguish them from their commercial counterparts. However, Santos (2012) has argued that all entrepreneurs face a trade-off between “value creation” at the societal level and economic “value capture” at the unit level because organizations can only maximize one of the two dimensions in the same organizational unit (see also Mair & Marti, 2006). This characteristic of social enterprises is reflected by the start-ups in this study, which all share a “clear social purpose [as] the driving force for the inception of the enterprise,” resulting in a “social mission that is integral, not tangential to, the enterprise” (Wilson & Post, 2013, p. 723).

The centrality of this self-defined “social mission coupled with a market-based method,” creates “a context of intention pervading all other design decisions” of the nascent enterprise (Wilson & Post, 2013, p. 726) - with a direct impact on its resource needs and the design of appropriate support programs. Consequently, this thesis employs a broad definition of social start­ups as early-stage ventures that pursue social value creation through innovative and market- oriented solutions (adapted from Casasnovas & Bruno, 2013, p. 177).

The first part of the definition, “early-stage,” refers to the development stage of ventures, rather than to their age. As explained in the methods section, this study focused on start-ups beyond the ideation stage, which have already validated that their product or service fulfills a real societal need (so-called proof of concept) but have not yet significantly increased their headcount or revenue. As to the other parts of the definition (“social value,” “innovative,” and “market- oriented”), it is beyond the scope of this study to define them. Rather, these concepts are illustrated empirically through a case study of 10 nascent ventures that all target a societal or environmental challenge with a novel product or service.

Regarding terminology, in the literature and public discourse, “social” and “impact” are often used interchangeably to describe organizations of this kind. Given that “impact” is an even broader term than “social,” this study refers to such organizations as “social start-ups.”

2.1.2 Scaling Social Start-Ups

All start-ups face challenging conditions in the first years of their existence, causing them to fail at a higher rate than incumbents (Triebel, Schikora, Graske, & Sopper, 2018). The vulnerability of new organizations has been attributed to the liability of newness (Stinchcombe, 1965) and the liability of smallness (Aldrich & Auster, 1986). These challenges are especially evident for social start-ups, which have been called “a very peculiar and fragile breed of start-ups” (Hausberg & Korreck, 2017, p. 2).

The resource needs of social start-ups (evaluated in Section 4.2) become apparent when social entrepreneurs attempt to scale. Although it can be argued that “maximum impact may best be achieved by staying small and local” (Nicholls, 2006, p. 21), most social enterprises seek to achieve impact on a wider scale. A poll of social entrepreneurs in Germany indicated that 87% intended to scale, 9% were undecided, and only 3% wished to stay small (DSEM, 2020, p. 43). However, only few social start-ups manage to expand their operations, build their teams, and raise the funds necessary to scale - a phenomenon called the “pioneer gap” (Lall, Bowles, & Baird, 2013, p. 15) or the “valley of death” (Branscomb & Auerswald, 2002, p. 36). Studies have identified multiple barriers to the growth of social start-ups: The issues they seek to solve are often systemic and wicked (Dorado & Ventresca, 2013, p. 69); they work in resource-constrained environments and focus on vulnerable target groups, reducing their customer base (Pandey et al., 2017, p. 8). Social start-ups often lack access to markets and capital because of their reduced earning potential (Gianoncelli, Gaggiotti, Miguel, & Charro, 2020, p. 27).

In the face of these challenges, social start-ups benefit from stakeholders - multilateral agencies, governments, or foundations - that are resource-rich with the “potential to sponsor and support social entrepreneurship” (Pandey et al., 2017, p. 2). Consequently, new programs and institutions have emerged to support social entrepreneurs in growing their ventures, addressing the pioneer gap, and driving social change worldwide (Casasnovas & Bruno, 2013; Lall et al., 2013; Miller & Stacey, 2014; Yang, Kher, & Newbert, 2020).

2.2 Incubators and Accelerators

Among the entities supporting social start-ups in Germany, Austria, and Switzerland, incubators and accelerators are the most prominent, according to a recent review of the support landscape for social entrepreneurship (Leirich, 2020, p. 48). To review the multifaceted research that has accompanied the emergence of incubators and accelerators, this section focuses on three questions: What are incubators and accelerators? Is distinguishing between them critical? What do researchers know about those explicitly supporting social start-ups?

2.2.1 The Emergence of Incubators and Accelerators

The establishment of the first incubator for technology start-ups, the Stanford Research Park, took place in 1959 in the United States (Galbraith, McAdam, & Cross, 2019), and its first review was a 1985 study by Allen and Rahman. The number of incubators has increased to around 7,000 worldwide (Van Weele, van Rijnsoever, & Nauta, 2017). Business incubators “have become an integral part of the modern entrepreneurial ecosystem” (Hausberg & Korreck, 2020, p. 152). Their popularity has sparked a rich research stream, reviewed by Hackett and Dilts (2004) and more recently by Mian, Lamine, and Fayolle (2016) and Hausberg and Korreck (2020). A bibliometric analysis was conducted by Albort-Morant and Ribeiro-Soriano (2016).

Incubators have evolved significantly since the 1950s. Mian et al. have described three waves of incubation models (2016): Before 1980, science parks or technology gardens aimed at economic restructuring and job creation. The second wave in the 1980s and 1990s also offered value-adding services such as mentoring or networking. The third wave, since 2000, has seen the emergence of specialized incubators, innovation centers, and accelerators. Owing to this history, which aligns with the three generations of incubators described by Bruneel, Ratinho, Clarysse, and Groen (2012), older definitions often emphasize their physical collocation. Hackett and Dilts called them “enterprises that facilitate the early-stage development of firms by providing office space, shared services and business assistance” (2004, p. 55). More recent definitions tend to reference their goals or behaviors, rather than their resources. Hausberg and Korreck have reconciled these views by defining them as “organizations that support the establishment and growth of new businesses with tangible and intangible resources during a flexible period” (2020, p. 163).

A newer but no less popular incubation model emerged as part of the third wave to support the rapid growth of start-ups: the accelerator. Y Combinator, widely considered the first accelerator for technology start-ups, launched in 2005 (www.ycombinator.com). Between 2009 and 2018, the number of accelerators grew fivefold from 560 to 2,616, according to research by Roland Berger (Bioulac, Ditsche, & Dujacquier, 2019, p. 3). Hochberg has provided a comparable estimate of over 3,000 accelerator programs worldwide (2016, p. 26).

The rise of accelerators has prompted a wealth of research, reviewed by Colombo et al. (2018) and Crisan et al. (2019). The majority of these studies fall into two categories: conceptual descriptions or empirical studies on the impact on venture performance (Hochberg, 2016). Although recent studies have indicated positive effects of accelerators on ventures (C. S. R. Chan et al., 2020; Hallen, Cohen, & Bingham, 2020), there is still no consensus definition of accelerators, despite pioneering work by Cohen (2013) and Cohen and Hochberg (2014). Consequently, it is necessary to ask whether incubators and accelerators are conceptually different entities.

2.2.2 Incubators and Accelerators — Same or Distinct?

Following the first definition of accelerators, or seed accelerators (Adkins, 2011; Miller & Bound, 2011), scholars have argued that they constitute a distinct organizational form from incubators (Pauwels, Clarysse, Wright, & Van Hove, 2016). The most common definition of an accelerator, that by Cohen and Hochberg, lists five features in which it differs from an incubator and other models of entrepreneurial assistance, such as angel investors and coworking environments. An accelerator is defined as a “fixed-term, cohort-based program, including mentorship and educational components, that culminates in a public pitch event” (2014, p. 4).

Although most scholars now regard accelerators as a “distinct form of innovation intermediary” (Crisan et al., 2019, p. 10), this study follows Mian et al. (2016) and Sansone, Andreotti, Colombelli, and Landoni (2020) in treating them as a form of incubator. This approach is justified on the following four grounds:

First, both entities essentially pursue the same goal, namely to “support rapid growth and rapid scaling up of entrepreneurial ventures” (Pandey et al., 2017, p. 18). Second, the definition by Cohen and Hochberg is modeled narrowly on U.S. technology accelerators such as Y Combinator and TechStars. By contrast, accelerators working in the social enterprise space “tend to work across a fairly wide spectrum of enterprise development stages, perhaps reflecting the relatively limited pipeline of firms” (Lall et al., 2013, p. 115). Third, the distinction does not hold empirically. There is “significant heterogeneity even among groups that meet the formal definition” (Hochberg, 2016, p. 35), with entities that could be defined as incubators referring to themselves as accelerators, and vice versa. This observation is exemplified by the research setting of this study, the Impact Factory, which does not fit into either of the two categories, as Table 3 in Section 3.2 shows. The final and most compelling argument is that the predominant focus on the organizational form is a “constraint on advancements in [the] field,” that would “benefit by moving the focus of study to the level of the mechanism (i.e., acceleration)” (Shankar & Clausen, 2020, p. 102174). Likewise, Crisan et al. have focused on mechanisms to “open the accelerator's black box” and explain how accelerators “pursue different interventions in different contexts” (2019, p. 20).

[...]

¹ Disclosure notice: The author of this thesis has been involved in launching the Impact Factory, the research setting of this study, in his role at the Beisheim Foundation, which is the main funder of the program together with the KfW Foundation and Franz Haniel & Cie. GmbH. This thesis has been authored in a personal capacity and all views expressed are the author's own.