NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

If I asked you to describe a “tech entrepreneur,” you’d probably tell me about a hoodie-wearing, Silicon Valley-based millennial—almost always a white man—with the next brilliant “Uber for X” idea. At the rate these startups raise investment, it seems most early stage investors would too. Always in pursuit of the next “unicorn” and a big exit in three years, this tunnel vision raises a troubling question: When did investors decide incremental short-termism was the only way to make money? Why is the “killer app” the only option?

If we want to fuel impact, we need to rethink how we invest — by reclaiming entrepreneurship from the grips of the young techie in San Francisco whose app incrementally makes our lives more efficient. Does it really matter if we can find a dog walker (with 4.8 stars!) within 30 minutes or have our lawn mowed with the tap of a button when transformational innovation could address real issues and make real money in the long term?

Building a Bigger Table for Social Impact Entrepreneurs

Thankfully, tech entrepreneurs are more varied than the ones wearing hoodies. Leaders like You Wu from WatchTower Robotics, who’s inventing a revolutionary robot that detects water leakage in pipes, and Roya Mahboob, who’s teaching women in Afghanistan how to code, are two examples. Though they are from different ages, genders and ethnicities, they represent common traits of humanity: creativity, curiosity and an ambition to solve big problems in order to make all lives better.

The issue today is that we have elevated one type of Silicon Valley entrepreneur above others. We talk about finding entrepreneurs that are “venture-backable,” so early stage investing disproportionally goes to those that fit that mold. We argue that early stage enterprises are only worth backing if they promise hockey stick growth and customer acquisition—even when the revenue model in terms of monetizing these customers is more than elusive. Most venture investing fails, so it’s indeed risky. But perhaps that means we need to rethink what is investment-worthy.  

If we broaden the definition of entrepreneurship, we can fuel open innovation, have transformational impact to solve world problems, and make great returns. So what should be the new definition of “venture-backable?”

1. An entrepreneur should be mission-driven.

It takes grit to successfully scale an enterprise. When the founder and team care deeply about the company’s mission, they are more likely to pursue it doggedly, compared to those who only care mostly, or solely, about profit and exit.

2. The entrepreneur’s company should be transformational instead of incremental.

We need to invest in the entrepreneurs attacking big problems millions of people face today. That could include educating the millions who haven’t learned the skills needed for the jobs of tomorrow, or providing affordable healthcare to the millions who’ve never seen a doctor. These are big problems with big addressable markets. As investors, we should realize the best entrepreneurs must be social entrepreneurs because they are transformational—not incremental.

3. Investment capital must be patient and varied.

If you can build an app over the weekend on your couch, it’s almost certainly incremental, not transformational. If you’re going to find a solution that brings affordable, reliable and renewable energy to the nearly 3 billion people who today live without it, it’s going to take a lot more work and time. The capital that a transformational entrepreneur needs might be a grant or it might be market rate – but for certain, it will have to be patient. Since when should everything generate an exit in three to five years?

There are myriad entrepreneurs who care deeply about the social impact of their business, but shy away from approaching impact investors because they fear they will look less profitable if they are deemed social entrepreneurs. Investors should embrace additional sources of funding for their investees—and appreciate that other entities might be willing to de-risk their investments. In several industries (like biotech, which has taken off in MIT’s backyard in Cambridge), many early-stage enterprises secure millions in government or foundation grants for R&D—but no biotech investor thinks they are less venture-backable as a result. On the contrary, this is a great sign for investors.

4. An investor’s portfolio should be diverse to truly be diversified.

If we keep investing in the same types of people and companies, like the next “Uber for X,” we bias our portfolio, so it’s less diversified. And we miss out on the real talent and new ideas.  

Investing in Innovation

So, how do we find these mission-driven, transformational and diverse entrepreneurs you can put patient capital behind? Investors should start by demanding more. At MIT Solve, we are doing our part by creating a marketplace for social impact innovation where investors and corporations can find and support diverse, mission-driven, transformational entrepreneurs. We believe there is ingenuity everywhere, and that we can solve many more of the world’s complex challenges if we more effectively harness the vast talent around us. As Megan Smith (a Solve advisor and the third U.S. Chief Technology Officer) has said: “If we include everyone, we can solve nearly everything.”

New technologies like artificial intelligence will play a significant role in the solutions we need for some of the world’s big, complex multi-dimensional challenges, such as climate change and access to health care. But no technology or actor is sufficient alone, and real value is created when you solve real problems. It is critical that the private, public and nonprofit sectors lift up entrepreneurs who come from all over. Only then will we begin to create transformational change—and significant returns.

Alex Amouyel is the Executive Director of MIT Solve.

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