Who You Calling a Jesse?

Why I think Higher Education should experiment with an incubator model

In Canada the rise of the incubator choices is quite noticeable. The success of the Y-Combinator (YC) model is hard to ignore, it seems to be the accepted way to grow young tech companies at the moment. However, it isn’t clear if the model works anywhere but YC and TechStars, these programs cost a lot of money to run so does the math hold up for everyone?

How many companies make it a big enough exit (assuming you need a $30 million exit per incubator) and in what time frame? In Canada there is a trend that shows some crazy growth in exits but how many are in that ‘big enough’ range or more that haven’t been around for 5-10 years or more? I think one maybe two. It isn’t just Canada though, how many exists are there in a year for any tech startup anywhere? Likely not enough to sustain the current number of incubators globally.

The talent pool is half empty

The limits on size, depth, and overall health of the talent pool is a problem for incubators if you assume that they simply tap the current talent base and help them be successful faster. If the number of exits isn’t currently there then you have to look at ratio of incubators to exits and figure out how many companies it takes to fill the gap (what is the current market and what do you have to create? Yup, it is basically a product you are creating). At a guess, the current level of incubators needs to create a lot of brand new entrepreneurs from those that would normally go work for someone.

There is talent out there but they aren’t being developed in any sort of formal educational process. A VC backed/run incubator might not be the best place for young guys and gals to receive this education for the first time. Not saying it couldn’t work, I think Y-Combinator was initially successful not because of the money or location but because an educator runs the program. In 2008, Mashable was claiming that “Y Combinator is the premier university of Internet startups.” I agree. What motivates YC though? Paul Graham’s comment on my post in StartupNorth offers a bit of insight as well (also with a bit more on why in his Why YC post).

When we started YC, the returns seemed completely unpredictable. (They still do actually.) What allowed us to do it was that we didn’t care if we made money.

An incubator that is about educated the ‘student’ is a lot like higher education and should not be about profit. That might be a values based statement but it is something I believe. If you are measured by the success of the student and not by the profit margin, the student has a better chance at success.

Herein lies the opportunity for Higher Education. Not unlike engineers or scientists, there is a demand for entrepreneurs (or if you are Richard Branson you want intrapreneurs). It isn’t good enough that students have the technical chops, they need to be creative and look at solutions to problems in a way that is willing to take more risks. This is soft skill development we are talking about — you can’t engineer an entrepreneurial process. Being entrepreneurial pretty much requires you laugh at the limitations or restrictions and find a way to succeed. You can engineer an education process that offers some perspective on that but that requires some entrepreneurial thinking to design and implement.

Higher Education needs to look outside of courses and modules, entrepreneurs shouldn’t be measured

Traditionally to address a skills gap in a student a course would be created and the student would receive a credit. This just increases the cost of education for students and if you have been paying attention, there is a bit of higher education bubble according to Peter Thiel. What I have seen from students is that they absolutely are against another course that is outside their specific discipline for various reasons. Enter the incubator model in higher education (or in VeloCity’s case the dormcubator).

Create an environment where innovation, networking, competition, and experience is shared as well as celebrated. Create it  outside of the traditional academic course model. Support it institutionally so the quality and knowledge is passed on (doesn’t disappear when students graduate). Then try to connect it back into the classroom. Leverage institutional Alumni networks for mentors and other forms of support. Don’t be afraid to fail a few times.

There is no set way to execute on this model but you need to try, iterate, and keep going. My belief that in order for higher education to remain relevant it needs to experiment with these different ways of learning. Students will not only appreciate it, I bet they will have a better experience and years later the institution will benefit by having them re-engaged.

Footnote: the incubator model

For those unfamiliar with an incubator or accelerator model, the easiest way to explain it: an incubator is where a group or individual provides resources (money, mentorship, space to work, expert services, a network of people) to an early stage company in exchange for equity or another arrangement. Generally it is always equity but in Canada we have publicly backed models (the Accelerator Centre for example) that charge rent for services or in the case of VeloCity you pay what you pay anyway to live in residence and it is a service offered to students.

The entire explanation of the VeloCity model is another post.

More on incubator in Higher Ed: To Be or Not To Be: University Incubators

Incubator Math thought

Last week I had a guest post over on Startupnorth about trying to understand incubator math. It generated a bit of interest but most notably was on Hacker News where Paul Graham shared a comment:

As in startup investing generally, the expected value comes mainly from a small chance of a big hit, multiplied by lots of investments. You’re hoping that if you invest in 100 startups, one will be a Dropbox or Airbnb.

For this to work, you have to (a) invest in a lot of startups and (b) they have to be drawn from a pool that could include big winners.

The latter could actually be a problem, if you’re not founders’ first choice. If you lose the big winners, your returns might be orders of magnitude smaller, even if you get everyone else.

Yes, you do have to invest for years before you end up in the black, even if things go well. That’s also true for startup investing generally.

When we started YC, the returns seemed completely unpredictable. (They still do actually.) What allowed us to do it was that we didn’t care if we made money.

What I have been thinking all along is that beyond the obvious “good for the community” argument (which I think has more to do with highlighting activity then building real companies) an incubator is a numbers game. The most important thing might that although they should be about making money no one should start one thinking they will. Do it to have fun and see where it goes.

More thoughts to come…