(2020). Early-Stage Venture Incubation and Mentoring Promote Learning, Scaling, and Profitability among Disadvantaged Entrepreneurs. Organization Science, forthcoming.
Do founders learn during early-stage venture incubation? If so, what role does learning play in subsequent performance? To answer these questions, I use data from 2,153 applicants to an incubator in Johannesburg, South Africa, and study the relationship between changes in founders’ learning during incubation and their ventures’ post-incubation revenues and profits.
Further, I examine how founders’ random assignment to coaches in the incubator affected learning and compare changes in revenues, costs, employment, and rates of business registration within incubated and non-incubated ventures using a differences-in-differences design. I find that learning during incubation among founders was associated with profitability and revenue growth post-incubation. Every one standard-deviation increase in learning, as measured by changes in entrepreneurs’ mid-point and final exam scores, was associated with a 109% increase in monthly profits and a 136% increase in monthly revenues during the 11 months after venture incubation.
Further, coach centrality moderated the observed benefits of incubation, with a one unit increase in a coach’s centrality being associated with up to 25% increase in founders’ learning during incubation. These findings suggest that early-stage venture incubation promotes learning and that learning contributes to greater scaling and profitability among incubated ventures.