An innovation model dubbed 'enlightened capitalism' is designed to build new bridges between entrepreneurs and commercial operations.
Five years ago, a graduate student at MIT reportedly walked into the offices of the university's Media Lab Entrepreneurship Program and refused to leave until the professors agreed to add a class on fintech startups to the curriculum. The first day the "MIT Future Commerce" class was held, students overflowed into the corridor, straining to hear the lecture.
The popularity of the class caught course creator David Shrier by surprise, leaving him to think: "We're gonna need a bigger classroom."
In a relatively short time, the fintech sector has moved from disruptive threat to enabling partner, with fintech investment rising in many financial services sectors. The appetite at MIT for training graduate students to be fintech trailblazers has not diminished, either. Shrier, an entrepreneur, futurist, and MIT Media Lab lecturer who still teaches the class, now helps run the fintech-focused MIT Translational Innovation Alliance (TIA) with Alex Pentland, MIT's Toshiba Professor and director of the Media Lab Entrepreneurship Program.
"TIA is a new type of non-dilutive fintech incubator program," says Pentland, who spoke at a recent Demo Day that showcased TIA startups to Deloitte clients. (Deloitte Risk and Financial Advisory, the program's lead corporate sponsor, and Mahindra Finance do not take equity in any of the startups.) "We are essentially testing a new business model for research in which large commercial organizations benefit from our students' focus on societal challenges without any monetary flows between them," he says.
"TIA is an example of how fintech collaboration is evolving," says Ed Hardy, a Deloitte Risk and Financial Advisory managing partner with Deloitte & Touche LLP and leader of Deloitte's Ventures Fund. "Many financial institutions are now seeking to team with emerging technology companies to gain access to new markets and products, greater efficiencies, or just the 'secret sauce' that leads to innovation."
At the same time, "many fintech organizations are looking to collaborate with large financial institutions to expand into new markets, gain industry and regulatory knowledge, and improve their access to capital," adds Hardy, who delivered opening remarks at the event.
Demo Day was the culmination of a nine-month journey between Deloitte and the eight TIA companies, which include Quipu, an alternative currency platform for community-based markets, and two blockchain-based apps: Swappl, a barter platform designed to empower marginalized communities, and Sendfriend, which increases the efficiency and lowers the relatively high cost of certain international money transfers.
Shrier calls the TIA business model "enlightened capitalism," explaining that it's an opportunity for established businesses to build relationships with entrepreneurs and make investments only after having extensive run time with them.
The First Customer and Pivots
The alliance is a mutually beneficial investment, according to Nancy Albinson, a managing director and global innovation leader at Deloitte Risk and Financial Advisory with Deloitte & Touche LLP and co-sponsor of the TIA relationship for Deloitte. "Deloitte gets to peek behind the curtain to see what innovative and potentially disruptive technologies and business models are on the horizon, which informs our perspectives on technologies and trends," she says. MIT entrepreneurs, meanwhile, benefit from the experience of a wide range of seasoned subject matter specialists, as well as from first customer introductions and feedback, according to Albinson.
'The business environment is dynamic, and often a solution to a problem in one industry can be applied to another industry. That dynamism often is a result of interacting with a broad range of businesspeople from different backgrounds and with varied skill sets.'
-Dilip Krishna, chief technology officer and managing director, Deloitte Risk and Financial Advisory, Deloitte & Touche LLP
The first customer is critical for startup success, says Shrier, who has launched and operated several companies. Startups usually want to demonstrate milestone achievements to investors to secure a higher business valuation, and one major marker of value is a customer. "This can be a paying customer, even a pilot customer, that an angel investor or venture capitalist can call about the product or service and ask, 'Does it work? Does it solve the problem?'" Shrier says.
From an entrepreneur's perspective, there are also benefits to flexibility. Shrier points to research issued by the Startup Genome project that found when new companies adjust their business strategy or "pivot" once or twice to hone their market fit, they tend to be more successful at raising capital and sustaining growth than if they never pivot, or pivot more than twice.
"The business environment is dynamic, and often a solution to a problem in one industry can be applied to another industry," says Dilip Krishna, chief technology officer and managing director at Deloitte Risk and Financial Advisory with Deloitte & Touche LLP, who co-sponsored the TIA effort for Deloitte. "That dynamism often is a result of interacting with a broad range of businesspeople from different backgrounds and with varied skill sets."
Rune, a TIA startup, made a noticeable pivot. The team was looking to enhance customer service experiences by applying concepts from Deepmoji, a Media Lab project aimed at using AI to identify emotion in sentences. As they honed their business model, company founders identified a potentially bigger opportunity in the online gaming market: using their technology to identify toxic behaviors such as cyberbullying across different multiplayer gaming platforms. AI is now being used to match up like-minded players, while an e-commerce component helps sell gaming assets such as voices, clothing, and other trappings for game characters.
The TIA companies launched this year also include Review Analytics, an app that puts granular commercial real-estate data in the hands of investors in minutes; Ikigai, a one-click technology to deploy AI across all types of data sets, including those in spreadsheets; and Waffle, insurance coverage for individuals that combines several lines into one policy.
Krishna was one of 40 Deloitte leaders who worked with the teams to address process, risk, and other challenges. "The students selected to join the TIA have impressive ideas, energy, and enthusiasm, and they came to us with a full understanding of what differentiates their product from others in the market," he says. "But as we led them through the commercialization process, we found that, in general, the teams did not have a comprehensive understanding of business risks or the risk implications to potential customers or investors."
For example, there were regulatory issues to sort out and integration processes to build to help implement new technologies into large enterprises. "Sometimes, a startup can innovate a technology without fully appreciating what pain points or opportunities a client or customer may want to address. Helping the TIA teams make those connections was important for their companies and potential clients," Albinson says.
Further, by working through some of these challenges, the teams identified opportunities to expand their markets, Krishna says. For example, after addressing some early obstacles, Traive, a digital platform for the Brazilian agriculture sector, is considering how it might bring a similar platform to U.S. farmers.
The TIA provides a transition point for research to migrate into commercial applications, according to Shrier, who says innovative organizations frequently move outside of a mainstream company to nurture ideas in a protective setting similar to a greenhouse. But, he says, "eventually, entrepreneurs need a bridge to a commercial operation, because it is not innovation until it is adopted into practice―it's just an invention."