The Rise of Participatory ESOs

Entrepreneur support organizations are driving inclusive innovation through collaborative decision-making

February 2024
  |  
Jessica Newfield and Kevin McClendon

This is part of a series by Proximate and FutureProof Studio exploring the rise of participatory incubators and accelerators

In partnership with:
Futureproof Studio

When Charli Cooksey launched an investment arm for her community-based accelerator WEPOWER in St. Louis, she incorporated a unique element into the decision-making process: peer-selected investment.

Every week, the startup founders in the cohort – largely composed of Black and Latinx business owners in St. Louis generating at least $50,000 in revenue and working in industries that create living-wage jobs – would provide each other with peer feedback, ranking the others’ businesses on factors like value proposition and product-market fit. Cooksey and her team used that peer-generated data to determine which companies would receive seed funding from WEPOWER’s Elevate/Elevar fund.

This peer-to-peer model is a compelling example of a trend that shouldn’t be overlooked in the conversation about inclusive innovation. All around the country and around the world, entrepreneur support organizations, or ESOs – the accelerators, incubators, co-working spaces and other support organizations that have popped up in the past two decades to back growing companies – are embracing bottom-up, participatory decision-making models that shift power to entrepreneurs and the broader communities these organizations serve.

Evolution of the ESO Industry

Entrepreneur support organizations are having a moment. Twenty years ago, the concept of bringing a cohort of entrepreneurs together to learn business skills was something only done informally; today, there are thousands of startup accelerators, incubators, co-working facilities, innovation spaces, hackerspaces, and maker spaces — as well as industry and networking organizations — around the world. This industry only continues to grow: the startup accelerator market alone is expected to grow annually by 6.8%.

ESOs have a mixed reputation among startup founders and impact investors. They provide critical support to startups, in the form of social, reputational and financial capital, and can make all the difference in helping a business launch or scale. However, they can also serve as gatekeepers that exclude startups who don’t fit the traditional model – and like venture capital firms, they can suffer from implicit bias and other blind spots.

In part because of this criticism, the ESO sector has evolved accordingly. Inspired by early leaders in the impact investing space like Village Capital and the Boston Ujima Fund, as well as centuries of community funding models like Rotating Savings and Credit Associations from African and Caribbean communities, ESOs are flipping power dynamics by democratizing decisions around who should join a cohort, who should receive funding, and more.

This presents an exciting opportunity for the global startup funding ecosystem to become more inclusive and reverse stubborn statistics that startup funding consistently fails to go to founders of color, female founders, or founders from under-resourced communities globally. Participatory ESOs have the potential to support funders in identifying institutional challenges to equitable investing and then co-designing solutions that address these barriers.

Participatory ESOs are uniquely positioned to create a new type of ecosystem around models that promote democratized decision-making, and centering historically excluded entrepreneurs. Through these bottom-up, peer selection approaches, entrepreneurs are building solutions with their own goals and communities at the forefront, driving towards a more inclusive future economy.

Profiles in Participation

We are launching a series to explore, highlight and share learnings from participatory ESOs. We’ll profile organizations that are leading the way in democratizing decisions about a number of things such as:

Who gets access to a cohort?

Getting into an accelerator can be harder in some cases than getting into Harvard. According to the Global Accelerator Network, the average acceptance rate for startup accelerators worldwide is 3.8%. This means that many startups never have a chance to access the social, human and financial capital benefits of an accelerator cohort.

Participatory ESOs are working to democratize the application process. For example, Metabronx, in New York, implemented a "peer-review" process, where a peer group of founders selected the participants for their accelerator program. This approach not only fostered transparency but also highlights the humility and integrity of the founders who recognize the deserving entrepreneurs among them. Food System 6, based in Redwood City, California, has taken inclusivity a step further by establishing an Equity Advisory Council comprising alumni cohort members. This council actively participates in selecting the annual cohort.

Similarly, Unleash Plus is a global incubator program that supports early-stage entrepreneurs and puts a high importance on peer-to-peer evaluation for determining which teams access different cohort benefits. When the startups are evaluated, peer evaluation accounts for 40% of the final scoring to select the top 25 finalist teams who get to go to the bootcamp. By leveraging the expertise and experiences of the different teams from around the world, more diverse perspectives are reflected in the final decision-making about who gets access to the bootcamp and associated additional mentorship and programming. 

Who should receive funding?

In 2009, the nonprofit accelerator Village Capital introduced a new “peer-selected investment” model that asked the question: What would it look like to flip the power dynamics of VC investing and entrust due diligence and investment decisions to groups of social entrepreneurs? 

Village Capital gathers groups of founders working on a similar problem in a similar geography, and asks them to collectively decide two of their peers to receive VC funding. In the 15 years since, Village Capital has run this process more than 150 times around the world and built a portfolio of more than one hundred seed-stage startups. An Emory University study found that the collaborative vetting process was slightly better at picking successful startups than traditional investors – and female founders dramatically overperformed.

Since then, ESOs like WEPOWER have replicated elements of the model, and others have developed their own participatory models that ask entrepreneurs to make investment decisions about their peers.

How do we increase collaboration and support?

Participatory ESOs such as MIT D-Lab Scale Up Accelerator, Entrepreneur First (EF), and NUMA implement peer-based curriculum design, coaching, and evaluation throughout their programming.

During the MIT D-Lab Scale Up Accelerator’s 2021 cohort, the female entrepreneurs saw the program adapted to fit the needs and most pressing challenges they surfaced early on in the program. In addition, they were encouraged to work with each other to identify shared obstacles and experiences in their respective contexts in India. This approach allows for collaborative learning and support among participants.

EF is a global accelerator with operations in several cities across the world, including London, Berlin, Paris, Singapore, Bangalore, and Toronto.  EF's primary distinction is its emphasis on co-founder matchmaking. Founders assess potential teammates through a series of tasks and challenges, using peer feedback to evaluate fit and collaboration potential. As newly formed teams solidify their startup ideas, they're encouraged to pitch to their peers for feedback. This iterative process, powered by peer insights, helps in refining their business models, value propositions, and market strategies. EF has always emphasized the value of the cohort as a collaborative unit. Founders regularly interact with each other, share challenges, provide feedback, and leverage each other’s expertise to overcome hurdles.

NUMA is an international accelerator, network, and innovation consultancy. They operate in multiple cities globally, including Paris, Barcelona, Berlin, Casablanca, Mexico City, Moscow, and more. NUMA facilitates building strong ties between cohort startups, mentors, alumni, and the broader local ecosystem. This interconnectedness ensures constant peer feedback and support. NUMA organizes frequent collaborative sessions, where startups can present their challenges, brainstorm solutions, and gain insights from their peers. In addition, with its presence in multiple cities, NUMA allows startups to gain feedback from an international community. Startups often interact with peers from different parts of the world, broadening their perspective and understanding of global markets. While NUMA has an extensive network of mentors, they encourage startups to provide insights to each other. This peer mentorship ensures that startups can gain practical advice from peers who might have faced similar challenges.

These ESOs aim to create an environment where startups don't just passively receive mentorship but actively engage with and learn from their peers. This participatory approach aims to enhance the depth of learning and the breadth of insights the startups can gain during the acceleration period.

A Moment of Opportunity

These case studies showcase the transformative potential of participatory ESOs for advancing the inclusive innovation space. However, for this movement to gain momentum and realize its full impact, we need a collective effort from stakeholders across the entrepreneurial ecosystem to foster a more inclusive and vibrant entrepreneurial landscape. By investing in participatory approaches, they will not only empower historically excluded entrepreneurs but also foster a more vibrant and diverse startup ecosystem.

Collaboration is key. It is time for ESOs, researchers, industry partners, and policymakers to come together to champion participatory decision-making models. We need to disseminate best practices, provide training and resources, and create platforms for knowledge sharing. Only through collective action can we build a future where entrepreneurship is truly inclusive, leaving no entrepreneur behind.

By embracing these models, we can create a new paradigm of innovation—one that celebrates diversity, nurtures collaboration, and paves the way for an inclusive future economy. Together, we can drive inclusive innovation and unlock the untapped potential of entrepreneurs around the world.

Stay tuned for more content to come in this blog series highlighting the work of participatory ESOs in the US and internationally.

Proximate
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