Incubator programs are great for getting startups on the right track. 500 Startups, one of the up and coming incubators, has just landed a $50 million funding round to aid its bevy of entrepreneurs, proving that despite economic dismay there’s still hope in the future.
The hunger for progress coupled with man’s limitless imagination has fueled a boom for IT startups. They have a strong desire to present innovative tools, products and services to address the various demands of today’s technologically advanced world. But not all startups have the funds to support their operations as they compete in the mainstream market. Many of them in fact scout for investors and capitalists to aid them financially, with larger companies like Etsy anxious to uncover hidden talent through specialized funding programs. SiliconANGLE has reported countless funding rounds for startups over the last years. Multi-million grants have become the norm in the technology community. However in many instances, money is just a portion of what a startup really needs–training, mentorship and partnerships can also bring value. This is where business incubator programs enter the picture.
Premature-born babies are usually placed in incubators until they can survive without help from machines. The same inspiration is true for incubator programs for entrepreneurs. This article will walk you through the challenges of finding the right incubator program for your startup, along with tips for overcoming those obstacles. We’ll also take a look at the top incubators of today.
What Are Incubator Programs?
Incubator programs are greatly associated with the dot-com era and are designed to help the development of entrepreneurial and early-stage companies by providing an array of business support through funding, services and resources. But the incubator is not limited to the seeding firm alone; it also involves a network of contacts. The startup breeding ground catalyzes the course of launching and growing companies by giving them access to these networks, along with comprehensive business training, relatively cheap office space, management advice, equipment, microloans and other tools they need to make their ventures successful.
By supporting small businesses, incubator programs help create local jobs and eventually create a positive push in the economy. According to the National Business Incubators Association (NBIA), start-up companies that emerged from incubation programs have generated more than 100,000 employment opportunities with annual revenue of $17 billion. There are nearly 7,000 incubators worldwide, and 1,700 of these thrive in the Northern American region as of 2006. Around 94% of these are non-profit organizations and the remaining 6% are for-profit entities. It is estimated that 29% are technology-focused.
Leaving – one way or another
Graduation is also part of the incubation life span. The reasons for exiting or graduating could be good or bad–one could simply outgrow the on-hand space, or they may have used up the maximum allowable time in the program. There’s also the accomplishment of mutually arranged milestones, or the failure to meet certain benchmarks and criteria of the program.
Incubators vary, from research and technology parks that tend to be involved in large-scale undertakings and do not offer assistance by means of services—which are the hallmarks of incubator programs. While there are several incubators nowadays, getting into one is not easy breezy. Notable obstacles include the large number of startups applying for a single program and economic constraints, among others.
Overcoming the Obstacles
Service programs, not buildings
Penetrating incubator programs is like joining a job fair where you compete with a large pool of talented rivals. We see startups launching almost every day, and there are limited slots to snatch a spot in these incubators. Since incubation programs involve money and a great deal of planning, the selection methods are tedious and will only accept the cream of the crop. Some entrepreneurs fail to position themselves as something worthy of the incubator, which has its own set of delineated standards that should be religiously followed.
Dinah Adkins, President and CEO of the National Business Incubation Association (NBIA), refers to the creed in which incubators work, with benchmarking as its nucleus.
“Business incubators are service programs, not buildings,” Adkins says. ”No building can grow companies, provide mentoring and handholding, and assist an emerging company in meeting the benchmarks necessary for growth.”
Seed funding firms are also looking for fresh ideas that are relevant to present-day technology trends. These could include innovations and inventions for social media, mobility, cloud and application development. So, if yours is something generic and does not summon a second look, you are bound to lose a chance in landing an incubation program.
Clear vision of the future
Most incubators also look for startups that have a crystal-clear direction for their industry. This tells you that while you are young and free-spirited, full of Eureka moments, you have to have a solid blueprint of your business. Know that incubators screen and evaluate their members on a regular basis to check for milestones, determining if further assistance needed to ensure quality is maintained. Otherwise, your startup could face the chopping block. Incubators may take away their assistance as a result of systematic performance, so it’s best to reach those pre-defined benchmarks in order to fully benefit from the program.
Robert J. Calcaterra, former CEO and president of the Nidus Center for Scientific Enterprise in St. Louis, Missouri, who required that his clients attend mandatory one-on-one meetings at least once a month, shares his experience, saying,
“It’s absolutely imperative that you be brutally honest with your clients about the skills they don’t have. But 90 percent of the time we [met] almost weekly. And if there [were] critical issues, [it was] daily.”
The right program for you
Finding the right fit is another obstacle when looking for an incubation facility. When you already have your portfolio and are confident that it can stand competition, you have to make sure that you are targeting the correct incubator. Just like in any business partnership, aligned objectives are very essential. Training from incubators is targeted and highly exclusive for definite markets. Having business support through continuous learning sessions is crucial in setting up your company for success.
A pioneer in incubation, a Y Combinator executive notes the importance of immersion with ongoing training, and the importance of gaining advice from pundits, incubator managers and graduates of the program, saying,
“Most of the practical advice is redundant, but there’s value in it even as such—if you hear the same things over and over again from different angles, especially from prominent people, it tends to sink in more. The stories tend to be galvanizing though, especially hearing about the screw ups. That’s the actual beauty in the off-the-record-ness: you hear just how screwed up most of these successful startups were on the way up.”
Arguably, the current economic recession is the biggest roadblock for any entrepreneur looking to break into incubation programs. Seed money is tough to find when the economy slips into the pits. But, this doesn’t mean you can’t find incubators willing to give financial and resource backing. There are still plenty, but expect that the competition will only get stiffer.
Tips for Success
Research, plan and execute
Know your stuff. And be aware of the application procedures first and foremost, like this sample shows. Depending on what you little company does, its foreseeable future according its vision and its relevance to today’s market, a neophyte should be able to position itself to standout from the crowd. When presenting the company to potential incubators, you must keep in mind that you should have ironed out and clearly specified your short-term and long-term goals. This gives the impression that you are capable of leading the pack with the support you may get from the incubator.
There is a slim chance that incubators will let you in even if have no real business idea. These firms will most likely favor companies with cast-iron business plan, or at least some convincing analysis that suggests the business will ultimately grow into a healthy and standalone enterprise. In a nutshell, you have to be completely aware of where exactly you want to go and how you want to reach that destination.
Mary Crane of Forbes gives a few titbits of advice:
“Be sure to ask how long you can remain a tenant and if there are any exit clauses in the lease in case your business fails. On the flip side, confirm that there is enough space to allow your company to grow.”
A match made in heaven can also be achieved during the course of finding incubation programs. NBIA’s online directory may be able to help you unearth a provider that fits with your business ideals, narrowing your field. Upon spotting a potential incubator and doing thorough research, you may want to talk to incubator alumni and current clients. Getting input from people who already plunge will help you decipher whether you are going to gel with the system or if you may need to find another option. If you are targeting biggies like YC, there are loads of resources available on the web.
A Forbes article discusses how an incubation program is better than enrolling in business schools, as DailyMuse’s Minshew noted how he loved talking to people who went through the same process and graduated successfully:
“I haven’t even started (at Y Combinator) and I’ve already spent hours on the phone with alumni, talking about hiring, closing financing, or moving to California. The fact that all of these people who have never met me are willing to give their time so generously is amazing.”
Plan for failure
While the selection process seems to be tedious, once you get in, allow yourself breathing space for failures. There is likelihood that the road to graduation may not be smooth sailing. There are gestation periods, often stretching to a maximum of three years. Several members have exited programs unsuccessfully because of over-thinking and a fear of taking chances.
5 Top Incubators
Dubbed the father of incubators, Y Combinator is a premier organization in the incubation arena. This startup boot camp started rolling the dice in 2005 with Harvard alum and influential coder, Paul Graham. He rose to popularity in 1998 when he closed a deal to sell his software company Viaweb to Yahoo! for $48 million. Despite earnings and the company’s growth, Graham is still coding, haven written codes for Y Combinator-related tools and a news site.
In many reviews, Y Combinator is regarded as the top incubator program of information technology in today’s world. Its famed graduates include DropBox, a file hosting company that is now valued at $4 billion and is set to compete with Google for cloud storage services. YC graduates that have made millions include Reddit, Omnisio and 280 North. One of their newest babies is AnyVivo, a startup that sells jellyfish online. Strange but true. Another YC-backed newbie has just launched EveryArt, a platform where people can commission artists to create art pieces and provide a brochure of various works.
Jeff Tanenbaum of BlueRun Ventures, an attendee of this year’s demo day, briefly explains why Y Combinator as a Disneyland for investors, saying, ”YC produces some of the best-in-breed technology teams in the Valley. We covet the opportunity to invest in these entrepreneurs in their early stages of growth.”
YC runs two three-month cycles annually: January to June and June to August. During the cycle, startups are asked to move to the Bay Area to intensively work with incubator managers and get their business in best shape possible. The culmination of their efforts goes down at Demo Day, where the startups present to an audience of investors, prominent speakers and ex-graduates of incubation programs. YC makes small investments, rarely more than $20,000. In return, they only seek 2-10% stakes in the companies they aid.
A mentorship-driven seed stage investment fund for web and software companies, TechStars was founded by David Cohen, Brad Feld, David Brown, and Jared Polis in 2006. They hold operations in four big states: Colorado, Massachusetts, Washington and New York. Those who are lucky to get in will be given access to a wide range of mentors, venture capital firms and angel investors while they look for financial supporters. They ask around 6% in stake from companies in exchange for seed funding and 3-month mentorship programs.
Recently, Microsoft partnered with TechStars to form the Microsoft’s Kinect Accelerator program, to be housed in Seattle. Selected startups are expected to receive $20,000, free office space for three months, and other perks.
A new kind of seed fund and startup accelerator, 500 Startups focuses on boosting neophytes in the field of social media and mobility. They are able to specialize in search, social, and mobile tools for platforms like Google, Facebook, Twitter, Apple, and Android. Early-stage companies are provided with up to $100K in funding and access to over 160 mentors globally. They offer courses that school members on how to design techniques to acquire customers, build resources with measureable results, and offer office workspace in Silicon Valley. This business accelerator was founded by Dave McClure in 2010. McClure is widely recognized as one of the super angel investors of the industry.
A recent report mentioned that 500 Startups is trying to raise over $50 million funding for 500 companies under its wing, which include FoodSpotting, Backtype (acquired by Twitter), Tailored, KISSmetrics, Hipster, Twilio, WePay, Rapportive (acquired by LinkedIn), TaskRabbit, Forrst (acquired by Colourlovers) and Medialets.
One of the top incubators in Chicago, Excelerate Labs employs a 13-week summer program that consists of mentor immersion, business acceleration, a finance crash course and Demo Day prep. There are only 10 seats available for occupancy, so expect rigorous competition. The incubator was founded by Sam Yagan (OKCupid, Sparknotes) and Troy Henikoff (SurePayroll) 18 months ago.
Their portfolio already has 20 companies producing over a hundred new jobs. Startups like Joystickers, We Gather, Tape Me!, Scholar Pro, Noblivity, MathZee and Give Forward were mentored under Excelerate Labs. Last March, one of their graduates, FeeFighters was acquired by Groupon, the daily deals pioneer with a super social spin.
It was just last month that Excelerate Labs selected Synergy Law Groups as one of its official legal sponsors. Bart Loethen, a founding partner of Synergy Law Group immediately saw the potential in this incubator, saying “Excelerate is a fabulous platform for start-ups and a true asset to Chicago. We are thrilled to be chosen as Excelerate’s law partner and look forward to helping the incoming class of technology innovators and business leaders.”
A fan of digital media and mobility innovators, LaunchBox Digital beefs up entrepreneurs’ chance to introduce their products and services into the market. It was ranked fourth in the Top 15 U.S. Startup Accelerators last year. Based in Durham, North Carolina, the incubator’s active investments include AppTap, Bandsintown, Koofers.com and Legal River. LaunchBox Digital also was responsible for the success of companies like TapMetrics, which was acquired by Millennial Media in 2010. TapMetrics is a mobile analytics firm that concentrated on application usage and behavior.